I discussed in a previous post the logical error involved in the so-called “efficiency equity tradeoff” and how it’s really an “equity equity tradeoff,” that is, a tradeoff necessarily involving distributional ethics lying outside what one can address using utility as defined in neoclassical welfare economics. (If that doesn’t ring any bells see my blog post for July 15, The Equity Efficiency Tradeoff and Fake Distributional Indifference.)
The bit of nonsense expressed in the fake “efficiency equity tradeoff” is the quintessential example of one form of what I’ve been calling fake distributional indifference. That form involves introducing random value premises that are not really part of neoclassical welfare economics or based on anything in that theory, such as the granting of “economic efficiency” independent normative status so it ends up being something we can use to rank outcomes we cannot rank on the basis of “utility.” Other forms of fake distributional indifference I’ve discussed before include selective perception, playing with words, and simple mischaracterization of theory.
All real instances of economic systems and outcomes will necessarily and inevitably be consistent with one set of distributional ethics and not others. One cannot adjudicate between them or rank them or compare them without going beyond “utility” as defined in economic theory. Real economic systems or outcomes associated with the status quo or with any particular instance of perfectly competitive markets or what have you are the same in that respect to any other economic system or outcome. They will be consistent with one set of distributional ethics and not others. They don’t represent the absence of a distributional system or the absence of controversial distributional ethics, even if economists choose to ignore them at least explicitly. They don’t represent a neutral ground one can support on the basis of “utility” alone. They don’t represent the avoidance of the controversy associated with distributional issues and ethics. If one finds oneself arguing for or against policies designed to implement or reflect someone’s views on distributional ethics or opinions relating to so-called “equity,” for example, economic fairness or justice, real utilitarianism, religious ethics, or what have you, and one is ostensibly doing so on the basis of neoclassical welfare economics, then one is not being entirely honest. The only real questions are what are the additional value inputs one is using to do that, and will one have the intellectual honesty to identify and discuss them and differentiate them from the normative argument presented in neoclassical welfare economics on the basis of “utility” as defined in economic theory, which would imply indifference to such matters? Alternatively, if one is sure no such additional value premises are involved, then the question becomes will one have the intellectual integrity to review one’s own logic to discover the source of the fake indifference, possibly in selective perception, possibly in some bit of confused word play, possibly in some plain old fashioned errors in interpreting economic theory?
Let’s have some examples of fake distributional indifference in action to make it concrete. I’ve talked about it a number of times already, but if something is worth saying once, I suppose it’s worth saying a hundred times. So, let’s say someone proposes we diverge from some real instance of let’s say a perfectly competitive market in a way that makes at least one person better off and one person worse off in order to address that person’s distributional ethics. What does neoclassical welfare economics say about it? Nothing. Evaluating that proposition would obviously involve going beyond what one can say on the basis of “utility” as defined in economic theory.
What does bad economics say? Well, unlike what neoclassical welfare economics says, which is necessarily one thing, bad economics in the form of misinterpretations of that theory might say any number of things. The sky’s the limit, as they say. One thing it might say is we should oppose such a policy because there is no valid reason based on “utility” in neoclassical welfare economics to pursue it. That’s an example of bad economics because, of course, there is also no valid reason on that basis to not pursue it either. It’s an example of fake distributional indifference taking the form of selection perception: pretending an argument that works both ways works only the one way.
Another thing bad economics might say is we should oppose such a change because, although neoclassical welfare economics is indifferent to distributional issues, it establishes we shouldn’t address them in a way that involves diverging from perfectly competitive markets, but only in some other specified way, such as direct transfers. That’s bad economics because, as I’ve pointed out before, it suggests continuously changing returns and hence incentives in (let’s say) perfectly competitive labor and capital markets, even using direct transfers, is consistent with what we normally mean by a perfectly competitive market system, which it plainly is not. Basically, that argument portrays neoclassical welfare economics as expressing indifference to people addressing their distributional concerns with the caveat they must address them in a way that is logically impossible. That’s an example of fake distributional indifference taking the form of playing with words. According to neoclassical welfare economics one should be indifferent between any given perfectly competitive market and certain non-perfectly competitive markets that differ from it in certain ways (basically those cases in which one cannot get to that particular instance of a perfectly competitive market from those particular instances of non-perfectly competitive markets via Pareto improvements).
Even if we go ahead and interpret perfectly competitive markets in a funny way to make continuous transfers affecting incentives in capital and labor markets logically consistent with what we mean by perfectly competitive markets, there is no theoretical argument based on “utility” as defined in economic theory that restricts the policy choices for addressing distributional ethics to particular policies or approaches, which may after all prove practically difficult, infeasible, or unacceptable. Distributional indifference applies even if people choose lesser policy choices, second best solutions or worse, for one reason or another. Neoclassical economic theory doesn’t involve the value premise that when it comes to policy changes addressing distributional issues only the best will do and it’s all or nothing. Throwing up random roadblocks to prevent people expressing their distributional ethics by limiting their policy choices is an example of fake distributional indifference taking the form of misinterpretation of neoclassical welfare economics or possibly the introduction of random value premises.
They’re all examples of the rhetorical technique of fake distributional indifference in bad economics: pretending one is restricting one’s attention to what one can say on the basis of “utility” in economic theory, giving oneself a hearty slap on the back for avoiding controversial distributional issues and ethics by ostensibly restricting one’s attention to “utility” as defined in economic theory, then merrily going beyond it and involving oneself in those distributional issues in obscure ways that are inevitably consistent with some distributional ethics and not others. Bad economics creates confusion and conflict by submerging the normative or ethical issues involved in resolving interpersonal conflicts of need, wants, desires on the basis of relative economic power in markets. We should fix bad economics.
