Are you one of those people who thinks the issues associated with identifying optimal market structures and policies in neoclassical welfare economics can be neatly separated from distributional issues because logically or mathematically there should be some perfectly competitive market outcome corresponding to any given perspective on distributional ethics that should dominate all other market structures given only very general and unobjectionable value assumptions, so all we need to do is push always for a perfectly competitive market structure and then adjust for distributional concerns as necessary? Let me ask you a question. Are you talking about economic theory or economic reality? Because in economic theory, where all owners of the factor of production we call labor (i.e., workers) and all owners of the factor of production we call capital (i.e., investors) are identical ciphers, and we can move resources about with costless transfers at the stroke of pen, then maybe that’s plausible enough. But what about economic reality? In the real world, owners of labor and capital, or let’s just start calling them people at this point, have various characteristics, circumstances, and behaviors, that some people may associate with distributional ethics and that interact with whatever laws and regulations and institutions we’ve set up to govern capital and labor markets to produce a particular distributional result. In other words, in the real world market structures and distributional results often go hand in hand. So you do have in mind some legal and economic mechanism or mechanisms you’re prepared to clearly identify as consistent with perfectly competitive labor and capital markets that can move resources around as necessary to address perceived distributional issues, right? And you do know whatever mechanism you have in mind must be a continuous system because capital and labor markets are continuous systems, right? Can’t really be a one time deal. If you don’t have anything like that in mind, I’m afraid your argument about indifference to distributional issues may be coming apart just there. Might want to just step in the back room and adjust something. No sense really talking about the theoretical perfectly competitive market result that goes with what considers an acceptable distributional result if one doesn’t have in mind any mechanism to make that result forthcoming or sustainable. I wonder if that’s why so many people get so confused, with the active support and encouragement of many an academic economist of course, and suppose modern economic theory grants some special ethical status to the distribution of economic power resulting from perfectly competitive labor and capital markets? That’s why I always say the best thing we can do to improve the public discussion of the important ethical issues associated with real economic issues is to confront bad economics and the confusion and conflict it seems always to create.
Addendum
If you’re interested in this sort of thing, I have a great deal more to say on this issue in later posts, for example, see my series of posts on Fake Distributional Indifference and Nonexistant Mechanisms from May and June of 2020.
