Saturday, 4 July 2009

Unbelievable! (updated x5)

I may have had some doubts about what goes on at BERL before now but after reading the National Business Review I really do wonder what goes on inside a BERL economists head. The NBR writes
He [Adrian Slack, lead author of the Berl report] accused Dr Crampton & Mr Burgess’s critique as being based on strong assumptions about perfect markets, perfect information, and individual rationality.
“So for example someone who murders someone, from the individual’s point of view, Eric would be, I presume, quite comfortable with that. The person who decides to murder someone else makes an evaluation of what are the benefits and costs to me of this action? Society says ‘well some people do murder other people’, but society says ‘that’s not good.’”
If the only costs of murder were the internal cost to the murderer then we may not be too concerned with murder. BUT, there are some obvious, to most people if not Adrian Slack, external costs to murder, that is, the loss of life of the victim. The victim is the victim because they have not willingly agreed to be murdered, that is what makes murder, ... well ... murder.

I have no doubt that both Eric and Matt are opposed to murder, and for the very good reason that it violates the victim's property right in themselves. Murder is not a market transaction in the sense that it is not a voluntarily agreed to trade resulting in both parties being made better-off.

One of the major points that Matt and Eric made about the BERL report is that BERL didn't seem to know the difference between internal and external costs. The Slack quote above only reinforces that point.

Seriously bizarre stuff.

Update: At Offsetting Behaviour Eric ponders Of externalities, elbows, and knowing one from the other and asks
Adrian, what colour is the sky in your world?
In the comments section to the posting, Brad Taylor tries to make sense of Slack's comment,
Giving Slack the benefit of the doubt, maybe he was saying that you're likely to count the utility of the murderer as a benefit partially offsetting the cost to the murdered, whereas the BERL authors are not because society deems that sort of utility as inadmissible.

In that case, he's saying that economists should ignore the benefits heavy drinkers get from their drinking. Even though people might enjoy getting drunk, this pleasure is too uncivilized to be accepted by society as legitimate.
Don't know I like this line of argument. There is the obvious question of, What is this "society" thing and how does it have views or preferences independent of the individuals who make up the group concerned? Or is it just that only some peoples preferences count, the "right people" are the only ones who get to have a say in what happens. It seems to say that we should only count benefits to people if BERL thinks those benefits should be counted. Well, who made BERL God? This amount to saying that benefits are benefits iff some third party arbitrarily defines them to be so, irrespective of whether or not the transacting parties think there are benefits. This would result in the government being able to get any outcome they want to pass a cost-benefit test just by determining what counts as a benefit. It makes cost-benefit analysis of government plans pointless.

Update 2: BK Drinkwater on the Hurly-BERLy: Are Burgess And Crampton Pro-Murder? BK says of the Slack's murder comment,
This is a pretty damn strong candidate for non sequitur of the year. Weak soup, indeed.
BK also notes that,
[...] BERL's decision to assign zero benefits to harmful drinkers (defined by BERL to be those who drink >40g/day) seems to rest on a sort of hyperpaternalism. That's their prerogative, I guess, but I don't want it impinging on public policy in any way.
In addition BK points us to this comment at Offsetting Behaviour by Matt Burgess which gets to the heart of the matter,
It's not a great comment by Slack, it indicates a basic misunderstanding of a number of things, it sounds desperate, and it may be aimed at smearing Eric as well, I don’t know. But the weakness of BERL’s overall response runs much deeper than this.

I haven't counted but there might be 30 or 40 specific concerns we raise about the BERL report in our critique. In the three weeks they’ve had the report now BERL has responded to perhaps 3 or 4 points, and we don’t like much of what they've said.

BERL's most repeated response is to say we assume perfect rationality/perfect information in our critique. This response achieves two things. One, it is an attempt to discredit our analysis without attacking any part of it. Two, BERL can say they didn’t make that crazy assumption – "we're the reasonable ones here".

It is of course a red herring. Let me say it again: our critique does not depend in any way on perfect rationality or information. We simply think that on the whole people drink for a reason and a better approximation to the zero benefits BERL assumes, particularly given the low threshold for harm that BERL uses, is that private benefits will roughly equal private costs. For every person who wakes up with regrets there are others who had a good time out. Show me the perfect rationality/perfect info assumption in that. Rational addiction finds strong support in the empirical literature.

In any case, BERL's argument is a non-sequitur. It does not follow from deciding consumers are sometimes irrational or imperfectly informed that all consumers drinking more than what BERL is says is harmful are irrational and that none enjoy any gross (not net) benefit whatsoever. We are still waiting for BERL’s explanation for these $2.2 billion assumptions. And still waiting for something concrete on the other $1.9 billion of problems.

The irony of Slack’s murderer comment is that he stood up at the NZAE conference and said he's not prepared to make radical value judgments.
Well said that man.

Update 3: Tom M at Defective Equilibrium considers the Amateur Philosophers at BERL.
If BERL's report was on whether or not society thought people should drink alcohol regardless of the costs, Mr. Slack (who's quote this is [the murder quote given above]) would have a point. But it wasn't a x-phi survey on folk morality, it was an economic analysis. That Mr. Slack has the two confused is perhaps revealing to the approach BERL took to the analysis. Moral philosophy has an important role to play in analysis of public policy. But:

a) It should be done explicitly, rather than hiding it in leading assumptions.
b) Economists aren't generally the best people to do it.

You would think economists out of anyone would understand the benefits of division of labour.
Update 4: Not PC asks What’s the cost of a lost reputation? And also suggests that,
[...] someone should commission research on the cost to consultants of a failed reputation. I suspect it would be much greater than $135,000.
Update 5: Kiwiblog warns us about Eric the murdering economist.


Sally said...
This comment has been removed by the author.
Matt Burgess said...

Brad may be right but I don't think that is remotely defensible position for BERL - if that is what's going on. If analysts are entitled to exclude whatever costs and benefits they decide society should not tolerate then they are assuming their answer, and the end result of their analysis does little more than dress the basic assumption that decided their report's finding.

That is a criticism we do make of BERL's report. The zero-benefits assumption drives the majority of their headline cost figures. To a large extent BERL assumed their answer.

Anonymous said...

Matt: I in no way endorse that view, but that's the only one I can think of with any degree of internal consistency.

If Slack really sees heavy drinkers' enjoyment as too base to be included in an enlightened cost study by wise and benevolent economists, that makes him even more judgmental and elitist than assuming they don't get any benefit.

Fuck you, Adrian! Some people like pushpin.