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Consumer Sovereignty Re-examined:
Applications of the Merit Goods
Argument
Goutam U. Jois1 (Undergraduate at Georgetown University, USA)
© Copyright 2003 Goutam U. Jois
Economic thinking has
traditionally distinguished between public and private goods. More recently, however, a new concept has
been introduced into economic thinking, that of merit goods. Economics has generally resisted this new
concept. Merit goods, by definition,
aim at interference with consumer preference, and this violates the basic
assumption of economics: that individual consumers’ autonomy and preferences
have normative value.2
However, a survey of the writings of various authors shows that the
concept of merit goods is unavoidable in economics. These writers are unable
to locate their arguments within the framework of traditional economics,
because their prescriptions fundamentally involve interference with consumer
preference.
In this paper, I will examine articles by a variety of economists and
non-economists. These articles range
from economic theory to a feminist critique of philosophy, but they all
involve some measure of application of the merit goods concept, implicitly or
explicitly. Through this examination,
I will show that the concept of merit good must be introduced not only because
it is theoretically necessary but also because it is practically unavoidable.
I begin with the article, “Fairness, Hope, and Justice” by economist James M.
Buchanan. In this article, Buchanan is
concerned with creating a theory of economic justice that derives from a
sense of fairness. To effect this
fairness, Buchanan says, he will focus on “the distribution of rights and
claims prior to or antecedent to the market process itself rather than on
some final distribution of the product” (Buchanan 53). Buchanan wants to keep his interference
with market mechanisms to a minimum; this is why he proposes interference prior to the market process. Even still, he is forced to concede that
the “justice” for which he is arguing “necessarily get[s] mixed up and
intermingled with pure self-interest” (55).
Thus even Buchanan’s very limited intervention in the market violates
self-interest narrowly defined to some extent.
Buchanan argues that the primary source of “unfairness” or “injustice” in our
society is birth (59). Therefore, he
proposes the “imposition of what we may call handicaps so as to [facilitate]
. . . equality in starting positions” (62).
But while he wants to create these handicaps, Buchanan does not at any
point want to interfere with the market directly, either with its process or
its outcome (e.g., 53). Therefore, he
advocates the taxation of asset transfers and public financing of compulsory
education (63-4). However, both of
these prescriptions do violate market preferences. Buchanan says as much; he admits that his
policies “necessarily interfere with the liberties of those person who are
potential accumulators of wealth and potential donors to their heirs”
(63). And the mandate of education
clearly interferes with the preferences of anyone who derives a negative
utility from required attendance at school.
Since Buchanan wants to “interfere with the liberties” of some, his
policy must be considered a merit good prescription.
Examples of merit goods are not limited to explicitly economic examples. In her article, “The Need for More Than
Justice,” Annette C. Baier describes the
shortcomings of a system of ethics based solely on justice (Baier 19). The
solution, Baier says, is the introduction of “care”
as an ethical system to supplement traditional liberal theories of
justice. She contends that women are
more likely to have feelings of care, while men generally claimed to take
only the justice perspective (e.g., 20, 22, 23). Baier argues that
the perspective of caretakers fulfills people’s
emotional needs to be attached to something.
Reciprocal equality, characteristic of contractarian
liberalism, does not guarantee this attachment (23).
Baier contends that this attachment (derived from
care) is needed for every human being, and moreover, that it cannot be freely
chosen in the traditional liberal framework.
First, liberalism assumes interaction between equals. More often, care is between unequals: parent and child, doctor and patient, student
and teacher (28). Second, the rules of
liberalism, guaranteeing basic minima, don’t protect “the relatively
powerless against neglect, or [ ] ensure an education that will form person
to be capable of conforming to an ethics of care and responsibility”
(29). Care is precisely about looking out for the powerless;
it cannot be sustained at merely minimum standards. Finally, liberalism (political and
economic) regards action as free choice.
A moral theory, however, “cannot regard concern for new and future
persons as an optional charity left for those with a taste for it. If the morality the theory endorses is to
sustain itself, it must provide for its own continuers” (29). Here we can see the merit nature of Baier’s critique of liberal ethics. While Baier’s
argument is not directly economic, she is proposing a normative framework (of
care) that necessarily interferes with individual preferences. Morality, Baier
writes, must be “for all persons, for men and for women” — regardless of
choice (31); under her system, a mother cannot “opt out” and choose to
neglect her children — the ethos is universal.
Another argument that does not facially seem to relate to economics is put
forth by Nobel Prize-winning economist Amartya Sen in “More than 100 Million Women are Missing.” In this article, Sen
describes the current situation in South Asia, West Asia, and China, where
the ratio of women to men is less than 0.94, a far cry from the 1.05 or 1.06
ratio found elsewhere in the world (Sen 61). The prevailing explanations for this
phenomena are either economic or cultural: that the regions in question are
underdeveloped economically or that the cultural context in those regions
devalues the role of women (Ibid). However, Sen
demonstrates that both explanations are inadequate — for example, some
underdeveloped regions have higher ratios, and many countries with expanded
roles for women have lower ratios (62).
Sen contends that some combination of the
two is the real explanation: that women are viewed as inferior due to their
lack of gainful employment and lack of education (64). To remedy this situation, Sen endorses state funding of public education and public
policy that can work to raise the ratio of women to men in these countries
(66). It is important to note here
that Sen does not want to leave this situation to
market mechanisms. His normative
prescriptions do not allow for some society to reject the rights of women to
be educated and employed. Instead, the
policy (particularly of education) is to be carried out even if some derive a
negative utility from the policy.
Thus, Sen’s argument — which seems at first
to have nothing to do with economics — is a merit goods argument.
The last argument for merit goods would perhaps seem strongest to classical
economists. It is put forth by another
Nobel laureate economist, Joseph E. Stiglitz, in
his article, “Whither Reform? Ten Years of the Transition.” In it, Stiglitz
shows the failure of market reforms in Russia. He argues that the transition to a market
economy lacked the institutional and legal infrastructure that it needed to
take firm root in Russian society (Stiglitz
5). This argument is important because
it delineates a clear departure from classical economics. Adam Smith believed that the economic order
was natural and would establish itself of its own accord. However, Stiglitz
contends that the very reason market reforms failed in Russia was because
Western consultants believed that the market could operate without the
requisite supporting institutions (3).
In Russia, bankruptcy laws and a judiciary to enforce them,
entrepreneurship, and capital (financial, social, and organizational) were
examples of elements presupposed in a market economy that were effectively
nonexistent (4-8). Indeed, Stiglitz is explicit on this point, saying that “a market
system cannot operate solely on the basis of narrow self-interest” (8). The interferences in self-interest that Stiglitz argues for are merit goods: the “implicit or
explicit social contract[s]” (Ibid)
to supplement market mechanisms. The
“credible and enforced laws and regulations” that are needed to provide the
institutional framework for market economics, too, are merit goods (19).
We started this paper examining Buchanan’s view on economic theory: the
fairness necessary in starting positions.
From this premise, we derived a merit goods argument for taxing asset
transfers and financing public education.
With the Stiglitz article, we see a merit
goods argument deriving from economic reality:
the harsh failures of market reforms in Russia. As Stiglitz
shows, the lack of institutional frameworks to support the free market doomed
reforms to failure. The economic
order that was to “naturally” establish itself never materialized. The neoclassical assumption — that a
fully-functioning free market would arise of its own accord — was proven
wrong, because economists failed to prescribe Pareto-suboptimal remedies,
even though they were necessary for the functioning of the free market.
The arguments of Baier and Sen
are useful to show that interference with the preference mechanism is not
limited to facially economic arguments.
Even feminist critiques (Baier) and
social-cultural studies (Sen) require interference
with consumer preferences to address the issues raised. From this diverse range of disciplines, we
can see that we must, in certain cases, place normative value upon
interference with consumer preferences.
This violation of classical liberalism necessitates — theoretically
and practically, economically and non-economically — the introduction and
acceptance of the new concept of merit good.
Notes
1. The author is a Senior at Georgetown University, enrolled in the Honors Program in Government. He wishes to thank Professor Wilfriend Ver Eecke, Georgetown University Department of Philosophy,
for his comments and feedback on this paper.
2. The introduction of the concept of merit good can be found in Public
Finance in Theory and Practice, by Richard A. Musgrave and Peggy B.
Musgrave (McGraw Hill: 1976-1984).
Additional commentary on the concept (both favorable
and unfavorable), can be found in Rationality,
Individualism, and Public Policy, Geoffrey Brennan and Cliff Walsh, eds.
(Australian National University: 1990), featuring selections by Charles E.
McClure, Jr. and John G. Head, to name a few.
Works Cited
Baier, Annette. “The Need for More than Justice.” Moral Prejudices: Essays on Ethics,
Annette Baier.
Cambridge, Mass: Harvard
University Press, 1994: 19-32.
Buchanan, James M. “Fairness, Hope, and Justice.” New Directions in
Economic Justice, ed. Roger Skurski.
South Bend, Indiana: University of
Notre Dame Press, 1983: 53-89.
Sen, Amartya. “One
Hundred Million Women Are Missing.” New
York Review of Books, 20 December 1990: 60-
66.
Stiglitz, Joseph E.
“Whither Reform? Ten Years of
the Transition.” World Bank Annual
Conference on
Development Economics. Washington, DC. 28-30 April 1999.
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CITATION:
Goutam U. Jois, “Consumer Sovereignty Re-examined: Apllications of the Merit
Goods Argument“, post-autistic economics review, issue no. 2
April 2003, article 6, http://www.paecon.net/PAEReview/issue19/Jois19.htm
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