The maximizing human being

Paul Schweinzer, a micro-economist at the Department of Economics, is unable to say how happy the human species is and whether progress makes people happier. By focusing on the things that are most essential, however, he can calculate how to maximise the welfare of a society.

In every situation human beings will find something (else) that they want to maximize, be it money, happiness, freedom or health; economists refer to this as utility. If an economist wants to measure how well people are doing, they will add together the utilities. The sum of all utilities is labelled welfare. Economic science uses this to refer to the degree of need satisfaction that the actors in the economic system generate from their actions. According to the subjective theory of value, the value that people ascribe to goods, services, experiences, and conditions is highly individual.

If science now endeavours to calculate how well people are doing, it faces methodological challenges: The individual utility function can help to perform general calculations, regardless of the indicators (such as money, health, education, …) that are used. But the calculations become trickier when we try to add together these indicators. While one person may satisfy his needs by protecting the environment and cycling to work, the other increases her utility thanks to the sheer joy she feels when she steps on the accelerator pedal in her sports utility vehicle. In quantitative terms, it is just as impossible to add these things as it is to add up apples and pears.

This system of aggregation, designed to tell us how happy people are today, is therefore fundamentally problematic. In addition, democratic systems aspire to grant people freedom. Take the following example: Let us imagine that you are ill and therefore your ability to perform is limited. I believe that it is unfair that sick people have less money and so I give them money using the system of state transfer payments. Now, they can consume and are therefore productive players in the economy. I am also productive, but let us assume, for argument’s sake, that I enjoy drinking large quantities of vodka. Basically, I choose to ruin myself. Will you allow me the utility level that allows me to happily drink the nights away, or not? Some will answer: “No, I want you to remain a functioning member of society, and as such I want you to pay taxes and thus make transfer payments possible. In other words, I want you to stop drinking to excess.” In this example those people calling for sobriety are eager to maintain or increase their utility – at the expense of my utility. They think they know what the “better” utility is.

“What if I want things that you believe are not good for me?” (Paul Schweinzer)

My scientific hobby is “mechanism design”. In this discipline, one often strives for efficiency or, more precisely, for “efficient allocation”. This refers to the distribution of resources and goods that maximises welfare in a society. The question I ask myself is this: “What control systems and other mechanisms can we build in order to optimize welfare?” At the same time, I am also concerned with the question from our previous example: “What if I want things that you believe are not good for me?” So far, the only solutions we can provide to the problems described above are based on assumptions; there is still much for basic research to do here.

So, if you want me to tell you whether people are happier today, my answer must be: Unfortunately, I don’t have the necessary measuring instrument to answer your question. This is compounded by the fact that I also have an aggregation problem going into the future. The overlapping generation models attempt to describe long-term developments in an economy. How might a measure taken today affect the utility of future generations? When addressing this problem, I have to define which weight I will attach to the next generation in the calculation. Based on the experience of the past seventy years, one could say that little weight was presumably given to the future generation when the choice was made in favour of nuclear power, coal-fired power stations, SUVs, cheap flights, and so on. I tend to take a pessimistic view: My children will have to live more modestly, if we hope to reduce global warming. But an optimistic view is also conceivable: We could believe in or even simply rely on the fact that we will develop technologies in the future that will enable us to live a life with increasing levels of utility accompanied by ecological safety. After all, it is possible to earn money with solar panels and, if necessary, with artificial cloud formation or other climate engineering measures designed to protect us from climate collapse. However, one thing must remain: If it is not our intention to fundamentally change our economic system, then our capitalist market system needs consumption. Renouncing consumption, even for those who enjoy asceticism, will ultimately not increase our utility as a society, but rather will lead our economy into the next crisis.

for ad astra: Romy Müller
translation: Karen Meehan