Efficiency, Utilitarianism, and Budget Priorities: A Response to Caplan’s Query

Bryan Caplan proclaims himself disappointed with his students’ answers to this exam question:

In the modern U.S., what is the most efficient way for the federal government to spend an extra billion dollars? What is the maximally utilitarian way for the federal government to spend this sum? (In both cases, assume that tax cuts are not an option). Use everything you’ve learned to craft a thoughtful answer, and be specific.

Judging by his summation of the responses he got, I would have been very disappointed too. Here’s how I would approach the question:

  1. Addressing the efficiency part of the question likely requires looking at the most underaddressed collective-goods problems in the U.S. today, that is, situations in which we are falling well below the Pareto frontier. Perhaps invasive species eradication?
  2. Addressing the utilitarian part of the question also requires making interpersonal comparisons of utility. I’m not too surprised many GMU students reject the possibility of such comparisons. Although I’m not a utilitarian, I don’t think interpersonal comparisons of utility are impossible. Perhaps funding an endowment, the annual interest from which will fund a very long-run basic income experiment in randomly selected locations?

How would you answer the question, Pileus readers?

4 thoughts on “Efficiency, Utilitarianism, and Budget Priorities: A Response to Caplan’s Query

  1. I submit that as usual in these matters economists are asking public goods questions before they address public values questions. Efficiency is a good question to raise after one has addressed and resolved the core value questions of who should get what when and how as a result of governmental actions. Once one knows what the right thing to do one can then afford to address questions of efficiency and effectiveness of pubic policies.

    I would point to the failure of the Simpson Bowles initiative as a good example of a failed plan that attempted to find an effective and efficient way to manage our debt without once considering the underlying values that are served by policies on taxing and spending. The use of a simple metric of economics failed in this case and it will always fail given the need for a clear focus on values.

  2. “that is, situations in which we are falling well below the Pareto frontier. Perhaps invasive species eradication?”
    My personal hobby horse is basic cryptographic technology. Immensely valuable: we wouldn’t have the internet we do without it. But, it only works if you develop it and give it away to anyone and everyone. So you can’t charge for access to it, and It doesn’t play nice with the patent system.

  3. This was my attempt at an answer.

    I don’t think I explained the “efficiency” part very well. Partly because I’m not sure I completely understood the question.

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