Max Utility

efficiency1Probably about time to explain what the title of this blog means. Max utility is short for “maximum utility”, a fundamental principle in both economic theory and certain philosophical schools. I’m neither an economist nor a philosopher. But in this principle lies an interesting intersection between these two seemingly very different modes of thought as well as with a third key concept (and perhaps the secret subject of this blog), efficiency.

First to explain a few terms. In economic theory, utility “is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services.”1 In short, a measurement of the benefit, happiness, satisfaction, etc. that someone gets from objects or activities. It’s commonly assumed that people will seek to maximize their own utility, meaning they try to make their life as pleasurable as possible, at least by their own definition of pleasure. Much of economic thinking is built on the idea that the purpose of commerce (economic activity) is to increase the utility of the people who engage in it. Ideally, our system is designed to “maximize” utility meaning that all people are getting as much satisfaction as is possible. This state can be described as “Pareto efficient”. A situation is said to be Pareto efficient if there is no way to rearrange things to make at least one person better off without making anyone worse off.2 While not everyone would agree that this is the best goal to pursue, almost all would agree that it is best to avoid situations that are not Pareto efficient. If you can increase someone’s satisfaction without decreasing anyone else’s, it’s hard to argue against making the change.

Of course, a key weakness of much of economic theory is that it attempts to define everything in economic terms; reducing notions of happiness or satisfaction to dollars and products. While I wouldn’t look to economics to guide us necessarily to a better world (I doubt many would argue they’ve been doing a good job of that lately), it does have tools and concepts that can aid in that pursuit. Economics does not do a great job of explaining what our goals should be. However, it can do an excellent job of figuring out how to prioritize issues, allocate resources, and build systems that will effectively and efficiently achieve our goals.

On the subject of goals, utility is most often associated with the philosophical school of thought known as utilitarianism. Utilitarianism is based on the idea that the “moral worth of an action is determined solely by its contribution to overall utility: that is, its contribution to happiness or pleasure as summed among all people.”3 So not only is the most economically efficient course the one that maximizes satisfaction, it is also the most moral course of action. While mostly referenced to the work of John Stuart Mill, this concept may be most widely known as expressed by Spock in his declaration that “the needs of the many outweigh the needs of the few, or the one.”4 While logic would seem to demand this course of action, in its simple form, utilitarianism does lead to some counter intuitive moral demands. If two people are dying of kidney failure, am I morally required to sacrifice my life and donate both kidneys based on the idea that two lives are worth more (and create more utility) than one? There are attempts, such as rule utilitarianism, to modify simple utilitarianism to account for these logical extremes.5 I’m no expert or visionary. I don’t think simple utility maximization can always tell us the most efficient or moral course of action. Arguments on morality have, and likely will continue on indefinitely. So I’m content to say that all other things being equal, pursuing the course that maximizes the happiness and satisfaction of all people seems like a good place to start.

So where do these concepts get us? They both build a worldview on the notion of efficiency. A system (moral or economic) that has inherent waste cannot fully maximize the satisfaction of its members. And this may be the most important lesson for us in the near future. The 20th century will be remembered for many things, but one feature that underlies many of them is the massive abundance of resources. Industrialization built a world unlike any seen before, and truly did pull vast numbers of people out of difficult, dangerous, low-utility lives. But many of these advances were built on the assumption of inexhaustible resources. When you assume that supplies of oil or water are infinite, the commodity is priced solely at the cost of extraction, not its “true” value, and you encourage a system that wastes more than it uses. When you assume that pollution has zero cost, the economic system will ignore it when trying to maximize utility and we’re beginning to see how far off we may have gone with that single miscalculation. Some blame capitalism itself for the problems we are now waking up to. It’s not difficult to see their point, though they often fail to show evidence of a better system. But like all logic based systems, it will only give you a valid answer if you set up valid assumptions. Otherwise, it’s ‘garbage in – garbage out’.

I believe we can use the power of capitalism, the free market, and notions of utility to pursue a better way. Input the true costs, limits, needs, and benefits into your calculations and I think we do have a chance to construct a system that actually does increase the average happiness of ALL people and not just those who have gamed or learned to manipulate the system to their benefit.

In the future I hope to explore ways that I think we can do that. Hopefully I’ll inspire some ideas or generate discussion that will lead to other good directions.

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1) http://en.wikipedia.org/wiki/Utility
2) http://wilcoxen.maxwell.insightworks.com/pages/225.html
3) http://en.wikipedia.org/wiki/Utilitarianism
4) http://www.imdb.com/title/tt0084726/quotes (paraphrased)
5) http://en.wikipedia.org/wiki/Rule_utilitarianism

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