The Purpose of Life

On philosophy and science

To my mind, all serious inquiry into the world is divided into philosophy and economics. (One might also call economics “science” here). Philosophy is studying what we should maximize. Economics studies how we can maximize it. The two are necessary, but only the latter is interesting. We have the answers for the former already.

We start from a position of knowing nothing about the world. We have sensory perceptions, but we know nothing of their nature or meaning with certainty. We can be sure, however, of one thing – we exist. For, how could we be thinking this if we did not exist? Our reality may be entirely fantastical – we may be a figment of another being’s imagination – we may be one of a myriad incomprehensible possibilities whose facets defy the imagination – but we can be sure that something exists.

We can observe that our perceptions appear to respond to what we perceive to be our actions in ways which are regular and predictable. In addition, by acting we have discovered something about ourselves – we have preferences. In fact, preferences are a necessary fact of the world, for both action and inaction are equally expressions of preferences. We prefer some things to other things, and reveal them through actions. Therefore, we maximize our preferences.

Further, we can find that the utility we get from certain things is cardinal. For, for every possible thing, there must exist an infinite number of possible things which are better, and so on for each good. Therefore, there must exist a mass of goods in between other goods which provide utility; like an integral, these sum to having actual mass.

It is here that philosophy ends, and economics begins. No additional information about the world is required from philosophy – having done its job, it can now retire, for economics is the science of how to bring about the best possible world conditional upon knowing what that world is. Nothing more is needed than self-interest.

It is not possible to say that things are good or bad, without appealing to self-interest, unless you make an axiomatic claim. Suppose you say that “murder is bad”. You are then asked “but why?”. Perhaps you give some supporting reason, but you can again be asked “but why?”. Inevitably, you will have nothing left but to say either that “murder is bad because murder is bad”, or “murder is bad because it will make me worse off”.

If people can simply make up axioms, then there can be no discussion of anything. I will just claim that, axiomatically, I am right. Anyone else’s counterclaims will founder upon the self-evident truth that I am right, and they are wrong. This sort of nonsense is against my preferences, and I will not cooperate with epistemic violence by axiom.

It is important to note that, just because we are self-interested, does not mean that we are “selfish”. We can easily see that utility maximization for one person, if no one could ever react, would look like a vulgar conception of self-interest. However, people react. Without taking a position on whether they are real, they are part of the perceptions which react in predictable ways. We may presume from their observed behavior that they have wants and desires too, and will be in competition with us over resources. Therefore, we have to choose some system which maximizes our well-being, conditional upon other being agreeable to it.

And we know what the best world is, given what we have! In the world without distortions, without violence, without taking, without asymmetries of information, without transaction costs, with atomless consumers, we will reach a Pareto optimum, where no one can be made better off except at the expense of another. That world would get unanimous support from everyone, and so is the best world.

When we think about the best world, though, we must remember that utility is cardinal. If utility is ordinal, and consists only of a finite ordering of preferences without mass, there are many best worlds. The second welfare theorem states that any Pareto optimum can be reached by changing people’s endowments. This implies that Pareto optimums need only be local optimums, and there is no guarantee that we have reached the best world in the aggregate. (For more on general equilibrium, see this superb essay by Kevin Bryan on Ken Arrow).

This is the central contribution of John Rawls in introducing the original position and the veil of ignorance. He asks us to imagine we are behind a veil of ignorance as to our future natures and preferences. What system would we choose then? He is centering caring about cardinality, and in that is very good.

Rawls blunders, though, in how he solves his own puzzle. He believes that we would all choose the maximin, where we maximize the welfare of the least well-off in the new world. This is simply an ugly, stupid return to the local maximums of the ordinal utility world which we should have left behind, together with our endowments.

Instead, what we would choose is obvious – we would have to maximize our expected utility. Appeals to risk aversion is saying we would choose otherwise are fundamentally wrongheaded – risk aversion is about mapping a proxy for utility, like income, onto utility, but cannot be about utility itself. If you ever think that someone does not value units of utility equally, then you have not measured utility; instead, you have yet again measured a proxy.

This is why I think economics, even though it is founded on self-interest, must be utilitarian. We produce things which can be seen by everyone, and then used to guide decision making. If we are seen as likely to be deceptive in support of our own self-interest, then no communication is possible. We would be in a babbling equilibrium. Instead, we have to commit to an ethos of truthfulness and cooperative behavior in the long run, even when we could gain by sniping at short term gains.

Economics, and science generally, has done much fruitful work in improving the world, and reaching progressively higher and higher levels of utility. Since we have left ordinal utility behind, we are able to contemplate a wide range of possible policies to improve welfare. My blog is a celebration of this. I have questions about the world, because I have a deep need to understand what the best way to do things is. I can find the answer to them in papers, or I can even answer them myself using the tools given to me by my predecessors. It’s so wonderful I have to tell the world everything about it – so I do. I rather like this life.

I certainly find it much more interesting than philosophy, because philosophy is settled. It now consists of nothing more than bullying attempts to impose one’s preferences as shaped by current endowments onto everyone else. The only arguments worth having are about what maximizes preferences – not whether we should.