Bad Economics and Anti-Democracy Sentiment

I was discussing why I think fixing what I’ve been calling bad economics matters with what I suppose must have been one those fabled radical leftist sorts online the other day, and I couldn’t help but notice some anti-democracy and anti-intellectual content I generally associate with the rather more common, at least here in the USA, radical rightist sort online.  It really brought home that poor little democracy is fighting a two front war of survival right now against radicals from both political extremes, which given the games people play and the state of our disinformation technology may very well be the same group of people.

In case you’ve never read my blog before, the argument against democracy I’m most familiar with, the conservative and right wing one, I believe is based largely on bad economics, by which I mean ubiquitous misinterpretations of opaque neoclassical welfare economics one suspects was purpose built to support such misinterpretations. The argument from that end of the political spectrum is that democracy represents an unnecessary and really immoral opportunity for common folk to “interfere” with markets, “the Free Market,” “the Economy,” or some such intellectual construct. According to these people, democratic government is little more than a fancy version of mob rule, poor folk banding together to pick the pockets of rich folk and demand considerations they do not deserve as a matter of ethics.

The argument against democracy I was hearing from the radical leftist fellow online the other day was that one needn’t worry too much about addressing bad ideas including bad economics because attempting to win the hearts and minds of voters or at least the thinking portion of voters through reasoned argument was fundamentally misguided. In his view, the apparent acquiescence of voters in the system he feels abuses them is unreal and voting and hence democracy itself is basically a sham. Instead, in his estimation, there are underlying power relationship that will inevitably make things turn out a certain way regardless of what voters may think or believe, and those relationships support the power and position of what he referred to as the “class of capitalists.”

I have to say I found the left wing version of anti-democracy sentiment every bit as unappealing as I’ve always found the right wing version of anti-democracy sentiment, and for some of the same reasons.

First, once one gives up the ethos of democracy one opens the door to the sort of realpolitik shenanigans one finds currently most prominently in conservatives and right wing circles in which what matters is not truth but rhetorical effectiveness, the ability to manipulate others into going along with what one wants them to do, either because one believes that is for the best for everyone or for some other reason. Assessed according to that metric, there’s nothing wrong with bad economics that requires fixing. It’s a clever bit of rhetoric that gets the job done. It pulls the wool over people’s eyes quite nicely indeed. I’m opposed to such a viewpoint because I believe it represents an unacceptable level of hubris for any true intellectual and reasonable, mature person sincerely committed to the ethos of political democracy. There’s nothing special about what any particular person thinks. Ethics have a subjective quality based on moral sentiments and those can vary between people. The only sensible, justifiable, stable position, I believe, is that any society should reflect the ethics of those who live there. If one doesn’t like those ethics, one can work to change them, explain why one doesn’t like them, but one can’t simply elevate oneself to the position of ethical arbiter and then use any means necessary to get others to go along.  

Second, when one stops thinking about ideas, and by extension individual people holding particular ideas and voting according to those ideas, one ends up with this unappealing view of people as unthinking and unimportant members of groups. In conservative and right wing circles, the groups are usually based on property ownership or economic power, so it’s virtuous rich folk against scheming poor folk. That scheme is based in my view on ignorance of how real distributional mechanisms work, what really accounts for differences in economic power or wealth, as well as questionable or at least unexamined distributional ethics. In certain left wing circles, the groups are apparently also based on ownership albeit not necessary the level of economic power, per se. So one supposedly has something called a “class of capitalists” that causes problems for I suppose must be the class of non-capitalists. The problem for me is that I’ve never been able to really figure out what the classes involved really are or relate them to the individuals I think cause actual problems because of their explicit or implicit endorsement of particular bad ideas. For example, it seems to me many workers and poor people may own stock these days, which I suppose must make them “capitalists” in some sense, and here in the USA at least many workers and poor people with or without stocks are sitting ducks for bad ideas and strongly oriented toward conservative and right wing politics. Similarly, we have some quite rich and economically powerful people who surely own stock, and must surely in any account qualify as “capitalists,” who support progressive causes liked a broad concept of social welfare, economic justice, egalitarian democracy, and other ideas generally associated with the left end of the political spectrum. It doesn’t seem entirely sensible to me to present a discussion of what’s wrong with our society and potential ways of fixing those problems that doesn’t account for the importance of ideas and the variety of individuals holding and espousing those ideas.

I suppose what I’m saying is I suspect there’s a parallel bad economics on the leftist side, based perhaps on misinterpretations of Marxian economics, that also involves opaque or questionable ethics and so on, and that may also lead to confusion and conflict.

All this is neither here nor there for me as far as this blog goes. I intend to concentrate on addressing what I recognize as bad economics based on misinterpretations of neoclassical welfare economics, which generates conflict and confusion especially in the form of conservative and right wing antipathy to political democracy. That’s what I know and can sensibly address. I’m not very familiar with other traditions of economic thought, but I do feel people who know about them should address bad economics originating in those traditions as well. Democracy needs friends right now. And when one replaces bad economics with good economics, common misinterpretations of neoclassical welfare economics with correct interpretations, when one truly understands how neoclassical welfare economics works, then one understands where and how the evaluation of economic systems and outcomes inevitably requires ethically controversial value judgments and thus, because of the subjective quality of ethics, implies the need for social decision making and, I would argue, political democracy. 

Neoclassical Welfare Economics As A Partial Theory of Social Ethics

I was just contemplating what one must presume based on anecdotal observation to be a vast ocean of confusion created over the years by the self-consciously partial or incomplete normative theory of neoclassical welfare economics, in which certain issues like distributional ethics, and by extension some other controversial ethical issues, are set aside or would have been set aside if economists were better ethical philosophers than they are. It’s a very unusual form and unique I believe to neoclassical welfare economics. I can’t really think of any other ethical half-theories at the moment. Can you?

The bit that’s likely to be confusing for many people, including many economists one supposes, is that giving normative advice in real world contexts on economic systems or outcomes from the point of view of economic theory, or from the point of view of economists qua economists, or however one wants to say it, does not have the same intellectual status as normative advice from the point of view of some ostensibly complete ethical theory such as real utilitarianism or religious ethics. Neoclassical welfare economics is not and was never meant to represent a complete, stand-alone ethical system. One doesn’t speak as an economist or on the basis of economic theory on behalf of a particular complete normative or ethical theory, but on behalf of a partial one. In real world contexts neoclassical welfare economics must always be used, and was always meant to be used, in conjunction with other normative or ethical beliefs from outside that theory.

What it means is that neoclassical welfare economics cannot and was never meant to support normative statements in the real world relating to the desirability or optimality of particular economic outcomes nor really economic systems or mechanisms, such as the outcomes of perfectly competitive market systems or those systems themselves. Doing so invariably involves one in the ethical controversies neoclassical welfare economics was designed to avoid. Neoclassical welfare economics derives conclusions relating to evaluating generalized, unspecified economic outcomes and systems for a pale half-world or reflection of this world in which certain ethical issues do not exist. When one leaves the shadow world and re-enters the real world, one must naturally reintroduce the important ethical issues left behind when one entered the shadow world. All real world markets and markets outcomes are necessarily particular expressions of their type and thus associated with all the ethical controversies one left behind when entering the shadowy half-world of neoclassical welfare economics.

It also means speaking from the point of view of an economist or from the perspective of neoclassical welfare economics is not the same as speaking from the point of view of someone living in the real world. It’s speaking from the point of view of a denizen of the shadow world. Thus, for example, neoclassical welfare economics does not express what in the real world would be the absurdly controversial ethical argument that distributional ethics and mechanisms and outcomes are unimportant or irrelevant to evaluating or assessing particular economic outcomes or indeed systems in the real world. Distributional indifference is a resolution from the shadow world. Real people in the real word invariably have distributional ethics. They care who gets what and why, who has more or less economic power and why, whether the conditions under which they live are fair, just, maximize welfare, are ethical. Everyone may like some imaginary Pareto optimal, economically efficient, perfectly competitive market outcome, and everyone make like some Pareto improvement, but not the same ones. Indeed, some may be impossible to attain either logically or practically. The notion particular instances are not controversial is a resolution from the shadow world.

If you’re new to my blog and mystified by the “some may be impossible,” I’m alluding here to my previous argument that because the incentive structures in capital and labor markets are sometimes included in the definition of perfectly competitive markets changing the resulting distribution may be thought logically incompatible. And, of course, even when logically compatible, some may be extraordinarily difficult to pull off in a practical or logistical sense depending on the distributive criteria one has in mind. The Pareto optimal, economically efficient, perfectly competitive situation consistent with one’s distributional views may be a practically unattainable, chimerical ideal. See for example my post of June 10, 2020, Appeals to Nonexistent Mechanisms for Addressing Distributional Concerns, or indeed my post of July 15, 2020, The Equity Efficiency Tradeoff and Fake Distributional Indifference. Actually, I suppose quite a few of my posts address that issues one way or the other, including this one. Never really noticed that before. Odd.

Nor should neoclassical welfare economics really be read as expressing arguments involving certain other controversial ethical propositions relating to resolving interpersonal conflicts of wants, needs, and desires on the basis of economic power in markets, which if avoiding ethical or normative controversy is the goal behind breaking out distributional issues really deserve the same treatment, so for example controversial ethical judgments relating to the status of future generations; or assessing the ethical suitability of resolving interpersonal conflicts using economic power in markets when some people are acting less than entirely rationally, have less than complete information, are acting under duress; or dealing with the sort of situational ethics involving particular transactions or types of transactions that may or may not be thought of as distributional issues, and so on. Again, such issues don’t exist in the shadow world by explicit banishment, assumption, or studious ignorance. But we live in the real world, not the shadow world. In our world distributional and other controversial ethical issues lie at the heart of most economic issues and conflicts.

The problem with bad economics is not so much problems with the normative theory of neoclassical welfare economics, per se, which is admittedly unnecessarily confusing and presumably designed to be that way but essentially empty and irrelevant almost to the point of absurdity, but the funny things that happen when people try to apply that theory in realistic situations without specifying and defending the additional normative inputs logically required to do so. The interesting bit of bad economics is the flawed and misleading economic rhetoric purveyors of bad economics try to associate with neoclassical welfare economics more than the peculiar and peculiarly irrelevant theory itself. One should argue for any normative or value or ethical belief or theory one likes, but one should do it openly, honestly, carefully, transparently, not try to slip it in through the backdoor when no one is looking. Bad economics creates confusion and conflict. We should fix bad economics.

Bad Economics Redux

Is this a good time for another quick overview of bad economics? Another short summary of what’s wrong with neoclassical welfare economics and even more so with common misinterpretations of neoclassical welfare economics? Not really? Alrighty then, just come back next week because I’m feeling a need to recapitulate. Yes, I’m always a little concerned people may get so some wrapped up in my fascinating ruminations they lose sight of the forest for the trees as the old saying has it. 

The normative argument expressed in or implied by neoclassical welfare economics is that the best way to resolve interpersonal conflicts of needs, wants, and desires and hence allocate scarce resources is through the use of economic power (money) in markets, and that with certain normative or value inputs and under certain conditions it would not be ethically controversial to suggest a perfectly competitive market structure beats other potential market structures such as monopoly. The conditions explicitly include the suspension or absence of issues relating to distributional ethics and by implication or the dictates of consistency the absence of certain other controversial ethical issues related to resolving interpersonal conflicts on the basis of relative economic power in markets, and relatedly some factual premises designed to preclude some situations in which some of those controversial ethical issues might arise.

The essential problems with the normative theory explicitly or implicitly developed in neoclassical welfare economics and with trying to apply that normative theory in realistic contexts to evaluate the desirability of economic arrangements, mechanisms, and outcomes, are that some of the requisite value inputs are unrelated to one another and in fact inconsistent with one another, some or all of the value propositions serving as inputs carry controversial ethical content of various degrees that contradicts the presumed non-controversial quality of those inputs and hence the conclusions, the specified conditions or assumptions introduced to avoid some of the ethically controversial issues are never actually met in reality, and at least partially as a result distributional and other controversial ethical issues are always involved when applying neoclassical welfare economics in realistic contexts. 

To attempt to evade or downplay these problems purveyors of bad economics including unfortunately a great many economists use various rhetorical tricks to make neoclassical welfare economics appear less controversial and more relevant in real world contexts than it really is. Some of these tricks or stratagems were developed by economists and incorporated into neoclassical welfare economics itself; others are not part of the theory but often added on later and are hence technically errors or misinterpretations of that theory. Let’s go through the main rhetorical stratagems purveyors of bad economics have used to further bad economics.

They specify a philosophically idiosyncratic definition for “utility,” fail to properly explain or discuss the enormous normative significance of the differences between it and more conventional notions of utility one finds in mainstream ethical philosophy, and assume but don’t really properly evaluate the level of ethical controversy associated with accepting “maximizing” it as an ethical objective for society.

They ignore certain ethical propositions or value inputs required to support the normative conclusions that are clearly inconsistent with or unrelated to utility as they’ve defined it by simply assuming support for property rights in the abstract as well as for accepting markets as a means of resolving interpersonal conflicts, and they then fail to evaluate the ethical controversy associated with those value inputs under certain realistic conditions. 

They conflate the methods of ethical philosophy and science to argue incorrectly that it doesn’t matter if the specified conditions or assumptions introduced in part to avoid controversial ethical situations are empirically true or false. In scientific models one can, of course, use false simplifying assumptions because the theory is meant to be evaluated as a whole based on its ability to predict empirical phenomena. In a normative or ethical theory, in contrast, the truth of any factual premises required to support the conclusion matters. If one is developing an ethical theory whose conclusions depends upon false factual premises, unreal conditions, then one is basically doing ethical philosophy for Fairy Land, not for the world we actually inhabit. 

And my perennial favorite, they engage in various rhetorical tricks designed to generate and support fake distributional indifference, an odd but ubiquitous bit of conceptual confusion that allows them to talk out of both sides of their mouths by claiming indifference to distributional issues while nonetheless contriving to be somehow always in the middle of any discussions or disputes relating to distributional issues and policies. 

Confronting and overcoming bad economics means accurately specifying the normative argument being made in neoclassical welfare economics as far as perfectly competitive market mechanisms being the best way to resolve interpersonal conflicts of needs, wants, and desires: identifying all the value inputs required to establish the conclusions; specifying how those value premises relate to one another; dispelling any potential confusion generated by superficial similarity with other normative or ethical systems based on inconsequential similarity of terminology; evaluating all the value premies or inputs carefully for controversial ethical content under realistic conditions; and overcoming fake distributional indifference by understanding the ubiquity and significance of controversial distributional and other ethical issues relating to resolving interpersonal conflicts using relative economic power in markets in real world contexts.

When the sickly and unhelpful specter of bad economics is finally banished from one’s thought through right thinking, and one truly understands the normative argument presented in neoclassical welfare economics, one can then make a conscious choice to retain it as an essentially irrelevant parlor game or treat it as a framework on which to construct a more relevant theory by introducing the additional value premises and revised factual premises that would render it, or really an enhanced and as yet unspecified or unnamed version of it, relevant in real world contexts. Purveyors of bad economics should feel free to argue openly and honestly for any normative or value or ethical position they like, but they shouldn’t feel free to use their positions and institutional power to advance their views obscurely and dishonestly by pretending those positions are based solely on neoclassical welfare economics when, in fact, they are not. That is intellectually dishonest and creates confusion and social conflict. We need to fix bad economics before it destroys our society and our democratic culture. We need to fix bad economics with or without the help of academic economists.

Addendum

I’ve lately changed my mind about the normative argument expressed in or implied by neoclassical welfare economics, which I describe here in the following terms: “the best way to resolve interpersonal conflicts of needs, wants, and desires and hence allocate scarce resources is through the use of economic power (money) in markets, and that with certain normative or value inputs and under certain conditions it would not be ethically controversial to suggest a perfectly competitive market structure beats other potential market structures such as monopoly.” In particular, I now believe it’s more sensible to present the choice to use economic power in markets to resolve interpersonal conflicts, and even the choice to support the legal conditions required to create or sustain markets, as exogenous to neoclassical welfare economics. It’s a point of interpretation, of what one believes reasonable to suppose neoclassical welfare economics is meant to say, but recently I’ve concluded it makes more sense to say neoclassical welfare economics says a good deal less than many people seem to suppose. For example, see the post Law Over Anarchy In Neoclassical Welfare Economics from June 2, 2021.

Two Normative Schemes

I was thinking a bit more about a point I made in an earlier post about the inherent logical absurdity of an (economic) efficiency versus “equity” (distributional ethics) tradeoff given how “economic efficiency” and “utility” are defined in economic theory (The Equity Efficiency Tradeoff and Fake Distributional Indifference, July 15, 2020), and it occurred to me this false tradeoff may come from conflation or confusion with a different tradeoff one sometimes hears economists and others discussing, the supposed tradeoff between total output and distributional ethics. The usual argument presented for such a tradeoff is that if one redistributes resources from how they would be distributed in a perfectly competitive labor and capital market or some particular expression of a perfectly competitive labor and capital market, then unfavorable incentive effects may reduce total output. In the vernacular, one may get a more ethical pie, but a smaller pie. The usual counterarguments in the context of the empirical issue of what happens to this metaphorical pie when we shift resources around are that some resources can be redistributed with minimal effect on incentives, and spreading resources around, especially to people who need it and would spend it as opposed to save it and invest it, will generate more robust consumer demand leading to higher economic growth and potentially a bigger as well as more ethical pie. What happens to the pie and why are interesting empirical questions, but that’s not what I want to discuss here. For my purposes, let’s just assume there is such a tradeoff, and if we were to address some particular notion of distributional ethics total output might suffer. What I’m interested in is the apparent contradiction between the normative scheme of neoclassical welfare economics based on “utility” as defined in economic theory, and the normative scheme expressed or implied by this notion we then have a separate normative judgment to make between total output and distributional ethics, as though total output were an independent ethical or normative consideration outside distributional ethics.

We know in the normative scheme expressed in standard neoclassical welfare economics, based on “utility” as defined in economic theory, there’s nothing special about any particular Pareto optimal (economic efficient) outcome relative to any other. They’re all the same in the context of that theory, although not generally, of course, as depending on one’s views on distributional ethics one will always be ethically superior to another. That’s how we end up with the Pareto frontier, the set of all possible Pareto optimal outcomes based on all possible distributions of economic power. That’s why neoclassical economic theory, properly interpreted, can be said to eschew potentially controversial distributional ethics. That’s what distributional indifference in neoclassical welfare economics is all about. In particular, under that normative scheme, it doesn’t matter if total output is the same across all Pareto optimal outcomes, and as far as I know there is no argument in economic theory that says total output will necessarily be the same across all such outcomes. Indeed, if one contemplates the more extreme potential Pareto optimal outcomes with economic power concentrated in the hands of one person or a small group of people it seems implausible to suggest total output could possibly be the same as under some other Pareto optimal outcomes.

However, in our alternative normative scheme, based on total output, there may be something special about certain Pareto optimal outcomes in realistic settings at least because of the presumed effect of the changes in incentives associated with redistribution. Indeed, even moving between Pareto optimal outcomes with equal total outputs becomes ostensibly inadvisable in a normative or ethical sense because of the at least temporary disruption in total output supposedly generated by the disruption of incentives to get there. So if one is at a Pareto optimal outcome then maintaining the status quo takes on normative significance. One is no longer truly indifferent between that outcome and other Pareto optimal outcomes. One certainly wouldn’t be indifferent to redistribution for the sole benefit of one person if total output tanked as a consequence. One would have a built-in argument to maximize total output unless someone else presented a stronger ethical argument to move to a different outcome, which of course would be impossible in the context of economic theory given the definition of utility and the explicit avoidance of distributional issues within that theory. So in the context of distributional disputes economists become players, the great champions of total output as the overriding ethical concern.

The two normative schemes make strange bedfellows. If one likes pie, one may note one normative argument says rather sensibly when it comes to pies bigger is better, but if one then suggests as a matter of empirical fact slicing the pie in certain ways shrinks it in the future, one finds oneself at odds with the principle of distributional indifference so central to the other normative argument. One is ostensibly making a bigger pie to potentially share, but logically one never could share it, because if one ever did one would no longer be making a bigger pie to potentially share.

One surmises some confusion between real ethical utilitarianism and the fake utilitarianism of neoclassical welfare economics may be involved. Total social welfare may be important under the former, but not the latter. The latter is confined to matters of individual preferences. In the former having a big total output to share buys one a lot of stuff one might suppose is related to total welfare, in the latter the whole world might tank, but if even one person thereby improves his or her situation one should be indifferent. They’re different normative arguments. 

To put it another way, there’s no such thing in economic theory as a total amout of “utility” we can distribute to different people. There is of money or economic power or total output, but not “utility” as defined in economic theory. Or to put it yet another way, if one tries to express the tradeoff in terms of utility alone as an “efficiency equity tradeoff,” it doesn’t really make sense, as a I discussed in the post I referenced at the start. One needs to shift gears from talking about “utility” to talking about total output to get the tradeoff.

Don’t get me wrong here. They’re both perfectly legitimate normative arguments one might want to consider. I’m not arguing that. Indeed, worrying about total output may very well be more sensible that confining oneself to thinking about “utility” as defined in economics. But they’re different. Neoclassical welfare economics says one, not the other. Don’t get them twisted. If one intends to speak on behalf of economic theory one should represent it correctly. If one wants to step outside economic theory and express one’s own personal values or normative judgments, no matter how commonplace one may suppose them to be, then one should make sure everyone understands that’s what one is doing and doesn’t suppose one is speaking in one’s role as an economist or about economic theory.

How many economists express normative or value judgments they at least imply are based on neoclassical welfare economics that actually contradict that theory? How many economists use both normative schemes we’ve discussed here or switch between them willy-nilly depending on the rhetorical needs of the moment? Is there any mystery where purveyors of bad economics get their ideas? Neoclassical welfare economics has been around a long, long time and learning that theory is, I believe, widely associated with what it conventionally means to be an economist. Funny there’s this type of confusion going on just below the surface. Funny even if there’s a perfectly sound explanation I simply can’t think of at the moment because, believe it or not, I’ve studied economics, and I occasionally bother to think about such matters. Well, funny if anyone is sincerely trying to address it. I suppose entirely expected otherwise.

Neoclassical economic theory is a confusing hash of science, math, and ethical philosophy that often generates or at least facilitates confusion relating to the methods and results appropriate to each. Many economists and purveyors of bad economics are bad ethical philosophers. Even assuming no active intent to deceive, they don’t seem to care too much about their own normative or ethical arguments or expressing them carefully and accurately and addressing potential inconsistencies and errors. Their ethical thinking tends to have a rather markedly casual and anything but rigorous character. The ethical or normative aspects of evaluating economic systems and outcomes should be removed from economic theory and the purview of economists and put with democratic decision making bodies and the people. We should one day make economics a real science and economists real scientists.