Tyler Cowen on Interpersonal Utility Comparisons
One of the things we are most sure of in economics is that you can’t compare utility, marginal or otherwise, across individuals. Utility is ordinal, not cardinal.
Which is why I don’t understand Tyler Cowen’s post this morning. He leads off fine, writing:
1. You cannot build and sustain a polity on the idea of redistributing wealth to take advantage of differences in the marginal utility of money across varying wealth classes.
He’s right. You can’t. But the reason you can’t is that you can’t measure differences in the marginal utility of money across people. Why? Go back to my second introductory sentence: Utility is ordinal, not cardinal. So there’s no such thing as a “difference” to measure.
But that’s not Tyler’s reasoning. He writes:
2. The ideas you can sustain a polity around often contradict the notion of socially arbitraging MU differences to try to boost total utility.
This makes sense only if you can measure differences, which makes sense only if there are differences to measure. There aren’t. If you doubt that, ask yourself this: what’s the difference between 1st and 4th?