Last time out I talked about the three layers of the metaphorical onion of bad economics and I said the outer layer was composed of composed of rhetorical tricks of the economics trade that although not really part of economic theory, per se, are commonly added on to it. I mentioned these informal add ons generate a great deal of ambiguity and confusion because they create a split between what economic theory actually says and what it is commonly presented as saying or implying. Two such bits of rhetoric I mentioned specifically were fake indifference and nonexistent mechanisms to address distributional concerns. I thought I might take up the first one today and save the other for my next post. I should clarify that by fake indifference I mean fake distributional indifference specifically.
So what is real distributional indifference? Well, let’s say we have two distributional mechanisms or results, an existing one A and one of a potentially infinite number of alternatives we’ll call B. If one were truly indifferent between these distributions, if one really expressed distributional indifference, one would treat them exactly the same. One would be entirely neutral, impartial, disinterested between the two. A critic would never be able to suggest one gave one special status relative to the other. Supporters of both A and B would be equally happy and satisfied with one’s policy advice and recommendations. In the real world, in which one is constrained to either retain some particular distributional mechanism or result or move to some other distributional mechanism or result, and in which any practical policy advice one might give inevitably involves implicitly accepting or not accepting some distribution or redistribution, a theory that expresses real distributional indifference is irrelevant in a practical sense.
What then is fake distributional indifference? If one exhibits fake distributional indifference, one does not treat A and B exactly the same. One treats them differently albeit perhaps subtly differently. One grants one of the two, usually A, some sort of special status, usually implicitly through such means as giving policy advice consistent with A but not B, predicated on A but not B, accepting of A but not B, etc. The basis of granting differential status to A under fake distributional indifference could be and usually is quite general in nature and typically involves propositions like it was here when I got here, some other people like or support A, some legal or political mechanism led to A, etc.
The reason I took pains to clarify at the outset I was talking about fake distributional indifference rather than simply fake indifference in general, and the likely the reason this issue creates so many problems, is that one can, of course, be indifferent to A and B in a sort of second order way in the sense one might be prepared to support either A or B depending on which of the two happened to be here when you got here, or other people liked or supported, or was the result of some legal or political mechanism. However, that second order indifference relating to the results of some process or fact ostensibly granting special status to A is conceptually distinct from true distributional indifference between A and B. It’s not distributional indifference, per se, but something else. It constitutes an additional ethical proposition one should acknowledge and address to avoid confusion. What if someone says they think there’s nothing ethically special about what was here when economists got here, what some other people accept or support, or what was generated by some legal or political mechanism? Would that be relevant to assessing practical policy advice ostensibly based on neoclassical welfare economics, or would it be an irrelevant consideration that has nothing really to do with the matter at hand? If one grants any sort of special status to a distributional mechanism or result on any basis, that proposition represents a potentially controversial ethical proposition that should be acknowledged.
A great deal of confusion is generated in bad economics by economists pretending to express true distributional indifference in accordance with economic theory when, in fact, what they’re actually expressing is fake distributional indifference that adds ethical or normative content to economic theory. The natural result is economists seeming to talk out of both sides of their mouths, claiming to take no stand on distributional issues, but then indirectly or implicitly supporting some distributional mechanism or result by granting it special status and giving policy advice or recommendations predicated on that distributional mechanism or result and neglecting other potential distributional mechanisms or results that really should have equal billing.
Properly interpreted, neoclassical welfare economics says some interesting things, but in the same way a logical or mathematical parlor game says some interesting things. It doesn’t say things that have practical relevance to the real world unless the theory is informally combined with additional ethical propositions added on at the level of explication or practice. Economists should either interpret and use neoclassical welfare economic theory correctly and treat it as a parlor game with very limited and possibly no practical significance to real world situations, or they should explicitly acknowledge and defend the additional ethical or value propositions required to make it relevant to the real world, and designate those ethical propositions a proper part of economic theory. It’s just too confusing to make such a big deal about the implications of modern economic theory’s famously attenuated definition of “utility,” and in particular distributional indifference, and then introduce into the theory unrelated ethical or normative propositions involving property rights and the use of market mechanisms, and then add to the theory when using it random ethical or normative propositions relating to distributional issues. At some point economists will have to start getting a little more rigorous in their ethical philosophizing or just stop trying to tell people what economic arrangements are socially optimal and so on.
