Report of Panel of Consultants on Secondary or Indirect Benefits of Water-Use Projects, Part IA

A. Instructions of Michael W. Straus, Commissioner, Bureau of Reclamation, to Panel of Consultants on Secondary or Indirect Benefits

The Panel of Consultants will have as its goal the preparation of a report which (1) will indicate its views on the adequacy of Bureau of Reclamation procedures for recognizing and evaluating secondary or indirect benefits and costs, and (2) will set forth a recommended basis for the evaluation of secondary or indirect benefits and costs. The Panel will study carefully the Bureau of Reclamation's principles and procedures for the identification and measurement of benefits and costs of water resource development projects, and will consider related materials such as reports to the Federal Inter-Agency River Basin Committee by its Subcommittee on Benefits and Costs and reports on the accomplishments of operating Reclamation projects. The Panel should indicate the secondary benefits and costs which it feels should be taken into monetary account and should propose methods of measuring them, particularly for irrigation, hydroelectric power, and municipal and industrial water supply. The report of the Panel should be submitted by July 1, l952.

Some of the more important questions to be resolved by the Panel are as follows:

1. Are the basic assumptions and procedures contained in the Bureau of Reclamation Manual for the determination of secondary or indirect benefits and costs sound and defensible? If not, where, to what extent, and in what way should they be modified?


2. Should it be assumed that needs met by a project would be met if the project were not constructed? By what procedure should the analysis account for stimulating expansion of the Nation’s productive capacity?


3. Can the procedures for primary benefits and the general principles of the Subcommittee’s May 1950 report be logically expanded to provide adequate evaluation of secondary benefits? If so, what procedures and assumptions should be used?


4. Should project costs, associated costs, and secondary costs, of market value, be considered an adequate measure of benefits foregone from alternative uses? If not, how should such costs be measured? Should the effects of alternative uses be compared with or deducted from the benefits of project uses?


5. Should the same basic assumptions govern the analysis of primary and secondary benefits?


6. Federal expenditures are required for water development projects, and therefore it is believed that all benefits should be evaluated from a national public viewpoint. How can measurements of benefits from a local viewpoint be converted to represent the national public viewpoint? If direct irrigation benefits (increases in net farm income) represent a national as well as a local viewpoint, should increases in net income in secondary activities represent both viewpoints?


7. Do secondary benefits vary substantially for different types of commodities and different projects? If so, how can the analysis take account of such variations?


8. Can an identical procedure be used to evaluate secondary benefits from irrigation, power, municipal and industrial water supply, and other purposes? If so, what procedure should be used? If not, what procedure should be used for each purpose? Should savings to power consumers from lower power rates be considered a primary or secondary power benefit?

Cost-benefit analysis as "unacceptable nonsense"

Little, I.M.D.. Ethics, Economics, and Politics: Some Principles of Public Policy, 2002:

Cost-benefit analysis compares states of affairs with and without the project that is being analysed. It is applied welfare economics. Indeed it comprises almost all that is of interest in applying welfare economics. (p. 22)

Doubtless influenced to some extent by Robbins, economists gave up the idea of cardinal utility, claiming that all the propositions of positive demand theory could be derived from ordinal utility. They even tried to base normative economics on ordinal utility and the incommensurability of individual utilities. Thus one state of affairs was held to be better than another if those who gained could overcompensate those who lost. This was unacceptable nonsense, as was soon pointed out. However, the idea of compensation, and its possibility or otherwise, has remained important in applied welfare economics (that is, cost-benefit analysis...). (p. 11)

Little misinterpreted Robbins's 1938 article, which Robbins characterized as "a long story about the genesis of two or three pages in an essay that was written some time ago, and which was never expected to be the subject of much discussion." Robbins wasn't advocating the abandonment of interpersonal comparisons of utility. Rather he was arguing that it was not helpful "to speak as if interpersonal comparisons of utility rest upon scientific foundations..." The justification for making such comparisons, in Robbins's view, was ethical rather than scientific. He concluded his 1938 article affirming that "it is fitting that such assumptions should be made and their implications explored with the aid of the economist's technique."

In light of what Robbins wrote, the "unacceptable nonsense" of the compensation criterion is even more unacceptable and nonsensical. It was an attempt to concoct "scientific foundations" for avoiding the necessity of making ethical judgments. It is hard to say which is more reprehensible -- the pseudo-scientific pretension or the craven ethical evasion. Fortunately, it is not necessary to decide. The compensation criterion at the heart of standard cost-benefit analysis is functionally inept. Any semblance of conclusiveness derives from the arbitrary use of the "same yardstick" as both the standard of measurement and the thing being measured.

"Unacceptable nonsense" is an understatement. The Kaldor-Hicks compensation criterion is Duck Soup. "Now I ask you one: what is it has a trunk with no key, weighs 2000 pounds and lives in a circus?"

"Gentlemen, Chicolini here may talk like an idiot and look like an idiot but don't let that fool you. He really is an idiot."

This Just In!

From Timothy Noah at Politico Morning Shift ("your daily speed read on labor and employment policy):

The machines-mean-fewer-jobs view is known as the “lump of labor” fallacy, first articulated in 1908 by an English economist named Sydney Chapman. But Chapman never lived to see the invention of the silicon chip. Is lump of labor still a fallacy?

Somebody's been "speed reading" the Sandwichman but ought to  s l o w  d o w n. No, the lump-of-labor fallacy was not "first articulated" in 1908 by Chapman.

Walker, T. "Why economists dislike a lump of labor," Review of Social Economy, 2007, vol. 65, issue 3, pages 279-291.

Abstract: The lump-of-labor fallacy has been called one of the “best known fallacies in economics.” It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded theory of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.

I Dunno? ¯\_(ツ)_/¯

Does anybody really give a shit about the "genealogy and critique of applied welfare economics"? Apparently not. Ninety-nine views and no comments. One whole comment ("Important.") on "#NUM!éraire, Shmoo-méraire."

I was going to write a couple of more installments on theory of welfare economics and practice of cost-benefit analysis but what's the use? It has all been said -- and ignored. So if I say it again and it is ignored again what difference does that make?

This is only the nuts and bolts of how total bullshit ("unacceptable nonsense") is molded into unyielding policy certainties. There are no sinister conspiracies lurking in the shadows. Just half-witted theoretical "brilliance," dull-witted bureaucratic appetite for "formulas" and feeble-witted inattentive inertia.

People really don't care that the economic models used to inform international climate negotiations are built with factory-reject tinker-toys? Apparently not.


Motivate me.

Genealogy and Critique of Applied Welfare Economics

When he was little, Ian Malcolm David Little lived in a big house. It had 20 servants and 23 bedrooms. Little's mother, Iris's grandfather, Thomas Brassey, "was perhaps the greatest 'captain of industry' the world has ever seen." According to Little's obituary in the Independent, his great grandfather was made an earl in 1911, which would have been remarkable since Thomas Brassey Sr. had died forty years earlier.

It was actually I.M.D. Little's great uncle, Thomas Brassey Jr., who was made an earl in 1911. In 1872, Brassey Jr. wrote Work and Wages, an empirical study of wages, hours and output using the extensive labour accounting records accumulated by his father. Brassey's book had quite an impact on economic thinking. The prominent American economist, Francis Amasa Walker, extolled the authoritative status of Brassey's evidence:

[B]y far the most important body of evidence on the varying efficiency of labor is contained in the treatise of Mr. Thomas Brassey, M.P., entitled Work and Wages, published in 1872. Mr. Brassey's father was perhaps the greatest "captain of industry" the world has ever seen… The chief value of Mr. Brassey, Jr.'s work is derived from his possession of the full and authentic labor-accounts of his father's transactions....

Subsequently, in what is "regarded to be the first modern economic textbook," Alfred Marshall credited Walker for "forcing constantly more and more attention to the fact that highly paid labour is generally efficient and therefore not dear labour…" Marshall judged that fact to be "more full of hope for the future of the human race than any other… [although it] will be found to exercise a very complicating influence on the theory of Distribution."
That is to say it was Brassey's evidence that lent weight to Walker's theoretical arguments that "complicated" the theory of distribution. In the early twentieth century, Marshall's star pupil, Sydney Chapman, collaborated with Brassey Jr. on a three-volume continuation of his Work and Wages, which included an analysis of the hours of labour that incorporated the more theoretically-advanced analysis of that topic first elaborated in Chapman's 1909 Economic Journal article, "Hours of Labour." In his 1872 review of Brassey's book, Frederic Harrison had written:

To this first proposition — that the rate of wages affords no indication of the cost of production — Mr. Brassey adds a second, which is quite as significant. "It is equally true," he says, " that the hours of work are no criterion of the amount of work performed." Now this is very instructive, especially at the present time. Throughout the movement to substitute the day of nine hours for that of ten, the public instructors invariably assume that this is equivalent to a loss in productive power of 10 per cent. Nothing can be more utterly belied by facts. 

Chapman's analysis of the hours of labour was reiterated 11 years later in A. C. Pigou's Economics of Welfare, which, according to Little in his Critique of Welfare Economics, "appears to have popularized the use of the word 'welfare' by calling his book The Economics of Welfare." In his footnote (p. 78) discussing the evolution of terminology, Little nominated 'satisfaction' and 'happiness' as precursors to welfare. But why not 'distribution'?

Pigou's discussion of the hours of labour firmly adhered to the empirically-grounded theoretical "complication" of the theory of distribution that was launched with Brassey's Work and Wages and was elaborated by Walker, Marshall, Chapman and finally Pigou. J. R. Hicks and Lionel Robbins shared Pigou's confidence in Chapman's analysis of the hours of labour. In his 1929 article "The economic effects of variations of hours of labour" Robbins wrote:

The days are gone when it was necessary to combat the naïve assumption that the connection between hours and output is one of direct variation, that it is necessarily true that a lengthening of the working day increases output and a curtailment diminishes it.

Of course those days weren't gone. Or if they were gone, they soon returned. The complication was undone by "a simple book-keeping artifice," which is to say by a sleight of hand.

The Otherwise Less Desirable Characteristics of a Hoax

Folks, it's a hoax! It's gotta be a hoax. Quantifying the otherwise more desirable characteristics of unhealthy foods (or the less desirable characteristics of healthy foods) takes Jeremy Bentham's expression "nonsense on stilts" to a new level. It's nonsense on stilts riding a unicycle blindfolded.

Please tell me it's a hoax! Desirability is not an attribute of the object of desire.

Don't take my word for it.

What does Lacan say about desire? "Our desires are not our own, they are the Other’s"

What does Žižek say about desire? "We don’t really want what we think we desire."

What does Rene Girard say about desire? "Desire usually is born out of the contemplation.of someone else who is desiring and who designates to you the object he's desiring as desirable." (1:57)

 

And what, pray tell, does Luis Buñuel have to show us about That Obscure Object of Desire? Well...

As Mathieu sees her, Conchita is so changeable that Buñuel has cast two lovely new actresses to play her—Carole Bouquet, who looks a little like a young Rita Hayworth, as the coolly enigmatic Conchita, and Angela Molina as the earthy, flamenco-dancing Conchita whom he follows to Seville. 

Poor old Mathieu. The night he succeeds in getting Conchita to his country house, where she has promised to be his mistress, the Conchita who goes into the bathroom to change, changes not only her clothes. Miss Bouquet goes in but Miss Molina comes out.

Costs and Benefits of Desire

"Accounting for the facts that healthy foods are otherwise less desirable and that consumers already have some information about health, the net benefit to consumers possible from consuming healthier foods is 30-40% of the value of the gross health benefit from switching to the healthiest possible diet."

What "facts"? A Reuters report on Monday told the story of the $5.27 billion in "lost pleasure" estimated in a U.S. Food and Drug Administration analysis of product labeling. According to the report, to arrive at that estimate, "the agency relied almost solely on a 2011 paper by then-graduate student Jason Abaluck."

In all fairness to Abaluck, the paper strikes this reader as an earnest and diligent graduate student exercise in mathematical modeling. Of course quantifying the "otherwise less desirable" characteristics of healthy foods is sheer nonsense. But that's not an issue for mathematical modeling. Do the conclusions follow rigorously from the assumptions? That's all that counts. Assuming that healthy foods are otherwise less desirable... But why would you?