This book is concerned with the methods of making public decisions or policies. It starts with a critique of the use and effects of certain economic techniques which are now widely recommended, and often used as aids for public decisions. It is the claim of their practitioners that, whatever their limitations, these techniques at least help to make public decisions more rational; that they are a contribution towards, or even the model for, the ideal of ‘rational decision-making’. I shall consider this claim critically, and suggest that in many cases the use of these techniques is productive not of greater rationality, but of irrationality and confusion.
The foundations of modern economic techniques reside in theories of welfare economics, and some examination of these foundations is necessary for the rest of the book. The discussion here is in no way technical, my main purpose being to demonstrate and consider the logical and political assumptions which are implicitly, and sometimes explicitly, present in these economic theories.
Much of modern cost—benefit analysis can be seen as an attempt to deal with the problem of ‘externalities’. Public decisions, it is said, have indirect social consequences which are not adequately incorporated in the decision premises or assumptions. The role of logical analysis is to expose these consequences, and that of economists is to measure them where possible.
Numeracy is increasingly esteemed in modern societies, and (some cynics might add) literacy is increasingly devalued. The first of these developments can, in principle, only be welcomed. Social, economic and scientific statistics play a vital part in the processes of decision-making, and the work of modern government would be impossible without the collection and use of vast amounts of quantitative data. Problems about the use and misuse of statistics need to be widely studied and understood.
This chapter switches attention to political factors which are relevant to the use of economic techniques, while the next one examines the social philosophy behind these techniques. Suppose that politics is viewed as a kind of market in which the voter as a consumer of public policy outputs is trying to express his preferences between them. On this basis the inferiority of political to economic markets needs little demonstration.
Economists normally hold that the only relevant costs and benefits are those that accrue to individuals, and which are a function of the preferences of individuals, which leads to the problem of reckoning these preferences. Preferences are logical constructs and must conform with certain logical rules (including transitivity and a number of others) if they are to be consistently stated.1 They imply a reasoning mind, but what if an individual is capricious or unreasoning and lacks consistent preferences? The short answer of course is that one can only give a man his preferences to the extent that he has any, and the analyst must do his best with the data available.
A rational decision implies, at a minimum, a model or form of analysis for structuring the problem. It is plainly insufficient just to open an accounts book and enter ‘costs’ on one side and ‘benefits’ on the other, save perhaps for simple financial transactions. Policy problems can be and are structured in a great variety of ways which I do not intend to discuss fully. It will prove helpful, however, to start this chapter by setting out two very general models of decision-making. These are no more than loose logical frameworks, but they help to illustrate some basic problems about the choice of different methodologies for reaching decisions.*
This chapter takes a look at some of the implications of economic techniques for modern governments and societies. The first part deals with a now familiar theme; how far can the new budgetary techniques which seem to promise so much actually change or ‘reform’ the processes of bargaining over resource allocation? The next section offers some speculations — they are no more — about the influence of economic ideas and techniques upon the organisation of government. The final section reverts once more to the theme of rational decision-making, relates this to certain ideals of welfare economics, and asks where these ideals are pointing and why they are influential in the modern world. Again the tone is speculative, and the verdict though critical is not intended to be dogmatic.
