Milton Friedman often argued that corporations should concentrate on maximizing profits, and not spend resources on other social objectives. He was once asked if this meant that corporations should do evil things if it led to higher profits. Friedman quite sensibly responded that firms should maximize profits under the constraint that they adhere to legal and ethical norms.
This reminds me of the recent discussion about whether Sam Bankman-Fried (SBF) was implementing utilitarianism in his attempt to get rich and donate lots of money to charity. Some even claim that the recent failure of FTX somehow shows a flaw in utilitarianism. There are a number of problems with this claim.
1. To begin with the obvious, what evidence is there that SBF was a utilitarian? It’s true that he occasionally claimed to have altruistic motives, but at other times he made statements that seemed to contradict this view. Recently, he basically admitted that much of what he said was merely PR, not reflecting his actual beliefs. More importantly, can we rely on the word of a person that claims to seek wealth for altruistic reasons? I’ve met many people that claimed to be generous, but in fact were quite selfish. Oddly, people that try to link SBF with utilitarianism also seem to believe he was a fraud, a sort of con man. There’s a term for people that trust con men who profess to have altruistic motives. They are called “marks”.
As an aside, I have no specific knowledge that SBF committed fraud. I do know that he’s been tried and convicted by the media, and I have no reason to suspect that that view is incorrect. Where there’s smoke, there’s usually fire. But I’m old school—innocent until proven guilty. Woody Allen was also tried and convicted by the media, and yet there’s not much actual evidence for his guilt. Nonetheless, I’m going to assume SBF’s guilty for the sake of argument. Let’s say he did commit fraud—what does that say about utilitarianism?
2. Let’s suppose that SBF is a sincere utilitarian. Does that prove that there is some sort of flaw in utilitarianism? Not at all, for multiple reasons. To begin with, people often make mistakes. Suppose a farmer rejected utilitarianism and had the “natural rights” view of the world. He believed that property rights were sacred. Now assume that the farmer shot at some kids that trespassed onto his land. That’s obviously an overreaction. Should we then blame people that advocate the natural rights view of the world? Clearly not, as in this case there were other rights at stake, including the right to life. The farmer misjudged the implications of his ethical system. To take another example, the terrorists of 9/11 might have believed they were according to the beliefs of Islam, but that doesn’t make it true. Similarly, SBF might have believed he was implementing utilitarian ideas (although I doubt it), but that doesn’t make it true. There are delusional people within any ideology.
3. People that link SBF’s behavior to utilitarianism often seem to employ the Robin Hood defense. He stole from the rich to help the poor. But Robin Hood is a children’s story, not a serious guide to ethical behavior. All societies need consistent rules to guide behavior, and they need these rules for good utilitarian reasons. Just imagine if there were no 1st Amendment to the US Constitution. Assume that every single news article had to be pre-approved by the US government. I believe that this system would have disastrous consequences, and I suspect that you agree with me. And yet it probably is the case that there are a few articles that society would be better off not having seen published. Because we don’t trust the government to isolate those articles, and to let the rest go through, we’ve decided that it makes more sense to have a blanket provision allowing freedom of the press.
One could imagine a law that said, “Fraud is illegal, except in cases where the beneficiary of fraud achieves more benefit that the victim loses.” At first glance, that might seem like a utilitarian approach to law. Instead, all fraud is viewed as illegal, and for two very good reasons. First, if the law were made conditional on the distributional consequences of the crime, then it would be difficult for people to know ahead of time if they were breaking the law. More importantly, this ignores all of the negative side effects of crime. Average people view the cost of theft in terms of the loss to the victim. But to an economist, that’s just a transfer. Economists emphasize that the big deadweight cost of crime comes from the effort expended to avoid becoming a victim. Society devotes a massive amount of resources to crime prevention, of which things like door locks are merely the tip of the iceberg. People rearrange their lives in all sorts of ways to avoid being victimized. In addition, bad guys devote enormous resources to perpetrating crimes. The deadweight losses in this “arms race” really add up, making a high crime society a much worse place to live.
I suspect that SBF’s fraud, if it occurred, made the world worse off. So by the most basic test of utilitarianism it failed to achieve its objective. The counterargument is that one could imagine a hypothetical crime that made society better off. But that’s not what I see SBF’s critics saying in this case. I have yet to read a single article claiming, “SBF made the world a happier place, but what he did was wrong.” Most people seem to believe he made things worse.
Nonetheless, let us suppose that a future SBF does somehow engineer a successful fraud that boosts global utility, even accounting for the fact that fraud reduces economic efficiency due to the deterioration of trust in our financial system, a cost that is above and beyond the direct loss to victims. Let’s imagine a successful “Robin Hood” escapade. What should utilitarians think of that act?
I’m a rules utilitarian, as rules often make aggregate utility higher. I believe we should be a nation of laws, not a country where every action is judged according to someone’s (whose?) idea of its impact on aggregate utility. Thus I believe a criminal should be prosecuted even in the odd case where the crime has a net positive benefit to society.
Consider a case where a man rushes his pregnant wife to the hospital, as she’s about to give birth. He parks the car outside in an illegal spot. He has obviously decided that in this case the benefit of the “crime” (misdemeanor in this case) exceeds the cost of a parking ticket. That’s a rational utilitarian decision. But notice that in that case he should be willing to pay the parking ticket. Our system of parking tickets probably works better if we have a blanket prohibition on parking in illegal spots, rather than evaluating each person’s “excuse” individually. Similarly, our laws on fraud work best if it’s always illegal, not illegal only when the funds are not redistributed to the poor. A society with clear and transparent rules works best—even in utilitarian terms.
To summarize:
1. Rules should be clear and uniform, and not make case-by-case distinctions based on hard to measure utilitarian considerations. People need to know, ex ante, if their actions are legal.
2. Occasionally, it will be the case that breaking rules has a positive net effect, especially for minor crimes like parking violations. But even in those cases, rules should be enforced and parking fines paid. That’s how we assure that the violator had a sincere justification for his action.
3. Inevitably, some utilitarians will wrongly assume that certain actions improve aggregate utility, ignoring the corrosive effects of crime on a society’s well being and thinking only in terms of redistribution. Serious crime has a major negative sum effect on total welfare, at least in the overwhelming majority of cases.
PS. Many people will argue that my “rules” approach is not “true utilitarianism”, just as they might see Milton’s Friedman’s suggestion that corporations behave ethically as not being “true profit maximization”. But those are just word games. I’m advocating the philosophical approach that I believe maximizes aggregate utility. It makes no difference to me what label people wish to place on that approach. Is my approach consistent with the traditional definition of utilitarianism? Perhaps someone can investigate whether people like John Stuart Mill advocated fraud. I rather doubt it.
READER COMMENTS
Jon Murphy
Nov 30 2022 at 11:58am
Your points 2 & 3 (misjuding one’s ethical ideology and misapplying Robin Hood) remind me of this web comic. Any ideology misunderstood and misapplied can lead to contradictory results.
Kevin Corcoran
Nov 30 2022 at 12:21pm
Very true. I’ve seen more than a few critics of Friedman take his statement that the obligation of corporations is to increase their profits and interpret it rather uncharitably to mean “anything which increases profits is obligatory.” But this seems like an obviously motivated misreading. If I said someone’s responsibility as a parent is to provide for the well being of their child, it would be straining credulity to read that as a claim that “anything you can do to provide for your child is therefore obligatory” – it’s not okay to steal money from your neighbor’s safe to invest it in a trust fund for your child.
I don’t know offhanded if Mill ever advocated fraud (and I, too, doubt that he did), but Mill is generally considered to be an act utilitarian, not a rule utilitarian, so it’s possible that he would have. Or maybe not? One thing I’ve noticed that makes me wary of utilitarian reasoning was well described by Scott Alexander when he began to doubt utilitarianism:
I suspect Mill, as an act utilitarian but also something of an old school moralist, would likely have “hacked” act utilitarianism in a way to come to conclusion that always forbade fraud. Bentham doesn’t appear to have been above such things – he argued on utilitarian grounds that the husband should always have the final word in a marriage over his wife, which definitely reads like hacking utilitarianism backwards to reach the conclusion one already found favorable.
Though in fairness, utilitarians could make a similar charge against deontologists. Just as more reasonable versions of rule utilitarianism seem to produce rules which seem pretty deontological in their implementation, many deontologists spend a lot of time arguing that following a deontological worldview would actually produce great consequences. To me, 90% of the time when deontologists and consequentialists are yelling at each other, it looks to me like they’re saying the same things but using different vocabularies to do so.
Anyway, those are just some random thoughts inspired by your (very good) post.
nobody.really
Dec 1 2022 at 12:02am
Thoughtful; thanks to Corcoran–and to Sumner, who writes–
Can we think of any way to measure such a claim? In The Righteous Mind, Jonathan Haidt argues for the utility of religion as a mechanism for promoting trust. He cites examples of co-religionists transcending various collective action problems. For instance, he suggests that Hassidic Jews dominate the diamond trade in New York because of the high degree of trust they have with each other; others trying to break into the business without the benefit of that trust would have to incur high verification costs, and would be unable to compete.
But on the other hand, let me go out on a limb here and suggest a contrary idea: Edicts imposed by centralized governmental decision-makers may not produce better outcomes than decisions made by individual private actors relying on their superior knowledge of individual circumstances. I admit, this sounds crazy at first, but give the idea time to sink in.
For what it’s worth, our statutes do not take a deontological form, akin to the Ten Commandments. Statutes don’t say, “Don’t murder; murdering is bad and forbidden.” Rather, statutes are phrased in a consequentialist manner: “Anyone found guilty of [elements of the crime] shall be liable to be subject to [sanction].” Arguably the magnitude of the sanctions (formal and informal) and the likelihood of getting caught merely become factors that each private individual can weigh in deciding whether to conform or violate a statute. If society thinks that too much crime continues to occur, society can adjust these variables.
But here I begin to share Corcoran’s suspicion that consequentialism and deontology start to collapse into each other: Arguably society can increase the INFORMAL sanctions for breaking the law through promoting the message that breaking the law is wrong, and we should judge harshly those to do so. This is a deontological message being promoted for utilitarian reasons.
Can we identify reasonable grounds to adopt an unreasonable position? Consider George Bernard Shaw: “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.” Or Cardinal John Henry Newman: “Many a man will live and die upon a dogma: no man will be a martyr for a conclusion.” Or even The Righteous Mind: Haidt presents his Moral Foundations framework to help people better understand those with different values, perhaps transcending the need to judge others. In defending religion, he cites examples demonstrating that religiously-oriented communities tend to outlast secular ones. That is, he argues that apparently irrational beliefs have a utility that any rational person can appreciate. Yet in asking us to transcend our need to judge others, Haidt asks us to suspend application of our own values–our own religions, as it were. He encourages us to adopt a dispassionate, detached, analytical perspective–yet the society upon which we all depend was built and perhaps maintained by people with irrational bonds of social cohesion. In short, Haidt invites us to be free-riders on the backs of people holding society together through irrationality.
Thus, contra Sumner, I wonder if the optimal posture is to create utility-optimizing general rules (including utility-optimizing sanctions for violating those rules), and then violate those rules when you find it optimal to do so.
Recall The Invention of Lying: It depicts a supremely trusting environment wherein everyone speaks candidly–a society that is supremely vulnerable to the first person who invents lying. If the whole world were filled with Hassidic Jews, perhaps we could live with the kinds of trust observed in the New York diamond markets. But if we value the freedom to live lives that differ from those of Hassidic Jews, we need to be prepared to bear the cost of NOT trusting people as much. Therefore I doubt that violating rules at the margin imposes the kinds of social costs that Sumner anticipates–because any society that enjoys the benefits of freedom with also already incorporate the cost of anticipating rule-breaking.
ssumner
Dec 1 2022 at 1:10am
“Therefore I doubt that violating rules at the margin imposes the kinds of social costs that Sumner anticipates–because any society that enjoys the benefits of freedom with also already incorporate the cost of anticipating rule-breaking.”
Sorry, but you lost me here. Even if some cheating is inevitable, an increase in cheating (at the margin) will result in greater deadweight losses.
nobody.really
Dec 1 2022 at 3:16am
What do they say about economists–they know the cost of everything and the value of nothing? (Or maybe that’s accountants.)
I agree that you have identified a cost related to marginal increases in cheating.
I’m suggesting that the cost is likely to be small because the amount of defenses people will invest in to guard against that marginal amount of cheating will likely be small. If there are 10 burglars in your neighborhood, how much more do you invest in locks if an additional burglar moves nearby?
Meanwhile, the benefit that comes from “cheating”–that is, people using their knowledge of the unique circumstances they face to make their own decisions about whether to conform to the law–may be large. This just reflects the normal advantages of individual decision-making vs. centralized decision-making. Maybe under the circumstances it’s worth risking the speeding ticket or parking ticket to get your spouse to the emergency room faster; maybe it isn’t. If society has set the sanctions appropriately, presumably people will be able to make the decision most appropriate to their specific circumstances and risk tolerances.
(Arguably, society sets sanctions not with the goal of eliminating crime, but with the goal of keeping it at manageable levels–or, perhaps, keeping it at the level where the costs of harsher sanctions/greater enforcement would outweigh the benefits. I’d argue that the US repealed Prohibition not because people concluded that alcohol consumption was harmless, but because they concluded that the various costs of the policy exceeded its benefits.)
Scott Sumner
Dec 1 2022 at 1:33pm
I strongly disagree with the view that the efficiency cost of an additional crime is small relative to the benefit to the criminal. That’s not how the world works. The deadweight loss from crime is far higher in areas with high crime rates than in areas with low crime rates.
ssumner
Dec 1 2022 at 1:06am
Good comment, but I’d like to comment on this:
“To me, 90% of the time when deontologists and consequentialists are yelling at each other, it looks to me like they’re saying the same things but using different vocabularies to do so.”
To me, the most interesting cases are the other 10%. Issues such as: Should people be allowed to sell kidneys?
robc
Dec 1 2022 at 10:18am
I think that falls into the 90%.
We are in agreement on selling kidneys, you from a utilitarian approach, me from a deontological approach.
Scott Sumner
Dec 1 2022 at 1:34pm
Yes, but the people that are opposed tend to use deontological arguments.
robc
Dec 1 2022 at 1:38pm
I think the people opposed mostly use “it feels icky” arguments. Which I refuse to categorize as deontological.
What is the real deontological argument against kidney sales? First, they would have to deny the principle of self-ownership (which admittedly isn’t popular). But is seems most of the non-squeamish arguments are of the “it would take advantage of poor people” or something, which seems like a (bad) utilitarian argument to me.
Scott Sumner
Dec 3 2022 at 9:30pm
Their “principle” is that the human body should not be treated like a commodity.
Kevin Corcoran
Dec 1 2022 at 12:00pm
I agree that the 10% of cases are the most interesting, for sure, but I’m not sure kidney sales is a reliable example of that 10%. As you note in your post, it’s not just the moral theory being used – it’s how the theory is applied as well. There are people who support and oppose kidney sales for both deontological and consequentialist reasons.
For deontologists, it depends on the foundational rules they use. Libertarian deontologists, particularly those who aggressively hold to the idea of self-ownership, would support kidney sales. But deontologists who take different premises end up opposing kidney sales for deontological reasons, arguing that such acts are just wrong in and of themselves, consequences be damned. Benjamin Barber was one such person, I believe.
And some consequentialists oppose kidney sales because they believe the consequences of allowing those transactions will be negative overall – here I would point to Debra Satz, who argued in her book Why Some Thing Should Not Be For Sale against organ markets (among other things) because she believed they would lead to bad consequences for various reasons. She did allow that if these “repugnant transactions” led to good consequences, as they do in certain thought experiments, she’d favor them, but doesn’t think things would work that way in the real world.
Mark Z
Nov 30 2022 at 9:02pm
I think the weak point in rules utilitarianism is that, while it makes sense for someone designing a society to instill it with rules, it doesn’t make sense for an agent within the society to follow said rules. A rules utilitarian can simultaneously believe “my society is better off with blanket rules against murder” and “in this particular case, if I murder this person, I am making the world better off” without contradiction. And since rules depend on a measure cooperation from those they’re imposed on, a society full of rational rules consequentialists can still lead to a society full of people behaving like act consequentialists, since even if everyone believes everyone would be better off with rules, each individual has no reason to defer to the rules over utility maximization when committing any particular act. For rules consequentialism to work people need to internalize them as taboos, which makes natural rights-based moral reasoning useful.
ssumner
Dec 1 2022 at 1:03am
“For rules consequentialism to work people need to internalize them as taboos”
The term “taboo” has a negative connotation, implying an irrational prohibition on something. But taboos in Polynesia are often nothing more than what we would call “regulations”, and frequently are quite rational regulations. It’s rational for a person to adhere to taboos on fraud, murder, etc. People should and usually do understand that there’s a good reason why certain acts are forbidden.
nobody.really
Dec 1 2022 at 4:56am
Various people have tried implementing a Robin Hood policy for wealth redistribution. Pretty-Boy Floyd was a Depression-era bank robber known throughout Oklahoma as the “Robin Hood of the Cookson Hills” because he allegedly destroyed mortgage documents in the banks he robbed, thereby impeding foreclosures. According to a Woody Guthrie song, Floyd also distributed some of his purloined riches to the poor.
However, a Robin Hood policy for wealth redistribution does face the administrative challenge of determining when the source of the funds is no longer rich, or the recipient is no longer poor–a challenge explored in Monty Python’s study of Dennis Moore.
I agree with Sumner that crime leads to socially wasteful investing in defensive mechanisms, relative to a ceteris paribus world with less crime. (But I question whether you could in fact achieve such a world ceteris paribus; I suspect that promoting conformity has its own costs.) The noted economist Butch Cassidy remarked on the waste to Prof. Sundance Kid, saying, “If [railroad magnate E.H. Harriman would] just pay me what he’s spending to make me stop robbing him, I’d stop robbing him.”
That said, wary investors already have the incentive to guard against Bernie Madoff–a guy who ran a con solely for his own benefit. So if a con man wants to run a con to help the poor, it is unclear to me how much marginal social cost results. Indeed, raising funds via swindle may prove to be a more efficient (less distorting) method of public finance than raising funds via taxation.
In any event, I share Sumner’s view that it’s hard to identify a plausible scenario under which a thief should be excused from sanction merely due to a public-spirited motive. People who commit civil disobedience break the law for a civic purpose–but then willingly surrender to authorities to bear the prescribed punishment. I can’t see why Robin Hood should be entitled to more lenient treatment.
Jim Glass
Dec 1 2022 at 8:05pm
I share Sumner’s view that it’s hard to identify a plausible scenario under which a thief should be excused from sanction merely due to a public-spirited motive.
I’d be skeptical about ever ascribing an altruistic motive to any criminal thief. Criminals routinely make donations that are popular with the local population to make it easier for themselves to operate more easily and profitably. Al Capone comes to mind. It’s PR. Pretty much the same with fraudster* Sam. That’s how he described his own donations to the ESG groups, even though he considered the ESGers fraudsters themselves doing the same thing. (BTW, Sam’s gotta get a lawyer capable of getting him to *stop talking*.)
* “Guilty until proven innocent” as to criminal fraud. For civil fraud it’s “res ipsa loquitur”.
Jim Glass
Dec 1 2022 at 7:54pm
Warning, be prepared to clarify.
I recently made pretty much exactly this argument…
…describing the high cost to society of street crime and financial crime in communities and investment markets. And was met with…
What do you mean by “for society overall” and ”benefit to society”?
I was stumped!
Jim Glass
Dec 1 2022 at 7:58pm
Consider a case where a man rushes his pregnant wife to the hospital, as she’s about to give birth. He parks the car outside in an illegal spot. He has obviously decided that in this case the benefit of the “crime” (misdemeanor in this case) exceeds the cost of a parking ticket. That’s a rational utilitarian decision. But notice that in that case he should be willing to pay the parking ticket.
Ah, memories. When I brought my firstborn son home from the hospital I double-parked my car in front of my apartment in Manhattan for about 90 seconds. Literally — just time enough to carry the infant from the car to the front door of the building, hand him off, then walk back. A tool of the state who must have been laying in wait to oppress me was already there writing a ticket. I said “Really? For delivering a newborn?” He got very apologetic but said “After I start writing it I can’t revoke it.” Which was a lie, as I knew from my own job. But I didn’t press it, and paid the dang ticket. After all, bottom line, ‘it was a fair cop’, even if he was a dang unfair lyin’ cop.
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