Equity And Economic Power

Ready for more real economics? Not really? Lets give it a go anyway. Consider this proposition: economic power used in markets is one way but not necessarily the only way to express interpersonal ethics or “equity” concerns. Let’s discuss.

If one sees interpersonal conflicts of preferences being resolved in ways one finds unethical, say resources not going where one supposes they ought to go, one may address it by changing the definition or distribution of economic power still using markets or not using economic power. For example, if one supposes a scarce medical vaccine should go to those in medical need of it, one may have some system for identifying those people and allocating it to them outside markets or, alternatively, some way to ensure they have the money to obtain it on the market. However, those alternatives are only equivalent ways to get certain people vaccines, per se, if economic power is manipulated, regulated, in such a way those who need the vaccine use it to buy the vaccine. Otherwise it’s simply a transfer of resources more generally.

If the increment in economic power is not restricted to vaccines, recipients may use it for goods higher up their individual preference rankings so for those uninterested in health, let’s say a case of whiskey. Does neoclassical welfare economics argue that is the ethically superior approach? No. Because providing economic power, here through taxes, to people to buy cases of whiskey or whatever has an opportunity cost for others. Those resources might be used for something voters find more ethically compelling. It involves an equity issue exogenous to neoclassical welfare economics. If one considers the case in which resources not spent to move one person up his or her preference ranking may instead by allocated to moving another person up his or her preference rankings for whatever reason one finds ethically compelling, then one is in the realm of interpersonal ethics, equity. During the covid pandemic, we allocated scare vaccine first to those in medical need. It did not seem particularly ethically controversial. No one argued we should instead provide the relevant economic power in case those in medical need preferred a case of whisky. Interesting to think why. Just to spell it out, one infers many voters may have interpersonal ethics involving getting vaccines to people in medical need that do not carry over to providing crates of brandy to possibly wealthy people in medical need if they prefer that to vaccine. Go figure. Is it controversial? Wrong?

My point here is simply to indicate the theoretical equivalence in neoclassical welfare economics of ethics expressed in terms of the definition and distribution of economic power, regulating the use of economic power, and the choice to use economic power versus alternative allocative systems. It’s about resolving interpersonal conflicts of preferences, as over goods, services, scarce resources. That normative or ethical issue is exogenous to neoclassical welfare economics. If you think you're finding the answers there, you're doing bad economics in the conservative style. 

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