What are the implications of Nick Stern's utility function?

Now here's a provocative paper, from the ever-astute Charles Kenny. In all the talk about Nick Stern's discount rates, he points out, there has been relatively little ink spilled on the fact that Stern uses a declining marginal rate of utility. But seeing as how he does, says Kenny, there are lots of other consequences we should be thinking about if we are to start thinking that way. For one thing, if what we want to do is maximize global utility, we should immediately and fully liberalize the global labor market. And for another thing, since it's a lot cheaper to increase the utility of the poor than it is to increase the utility of the rich, we should be funneling hundreds of billions of dollars a year at the world's poorest.

In fact, the numbers involved are not impossible by any means:

Raising the incomes of the poorest ten percent of the world’s population to the second poorest ten percent’s level (from $291/year to $577) takes $172bn. Raising the two lowest deciles to the income of the third ($829) takes $474 billion.

That's right: you could effectively double the income of the poorest 10% of the world's population, taking them out of the extreme poverty of living on less than $1 per day, for less than the annual cost of the war in Iraq. Well, maybe you couldn't: there are practicalities involved which would doubtless cost hundreds of billions of dollars themselves, if they didn't make the project downright impossible. But even if you took a decent stab at it, it's a no-brainer: global utility would go through the roof, while the opportunity cost (the global utility foregone by stopping the war in Iraq) might even be negative.

The problem, of course, is that we live in a world of nation states; there is no global government, and there is no politician who is primarily concerned with maximizing global utility. But if there were, would you be willing to pay an 82% rate of income tax to see the world's poorest brought out of poverty?

Posted by Felix at 2:03 EST