Efficiency, Equality and Public Policy

This book provides a tremendous simplification in the formation of economic policies, in cost-benefit analysis in particular. It advances compelling arguments for the exclusive concern of efficiency ('a dollar is a dollar') in all specific areas of public economic policy, leaving the objective of equality to be achieved through the general tax/transfer system. Interpersonal comparisons of welfares are needed for this latter efficiency/equality trade-off. Public policies should ultimately maximize the sum of individual welfares which should be individual happiness rather than preferences. Economists overestimate the costs of public spending by emphasizing the excess burden of taxation, ignoring the offsetting effects on the spending side, the existence of environmental disruption effects and burden-free taxes on diamond goods. Relative-income effects cause a bias in favour of private consumption which is no longer conducive to social happiness.