I probably mentioned before, but I’m feeling too lazy right now to go back and check, so let me discuss again or maybe for the first time the distinction between so-called “distributional issues” in neoclassical welfare economics and the ethical issues associated with what I call the “extent of the market.” I think it’s an interesting area that probably leads to a certain amount of confusion and conflict, an element of bad economics from the inner and middle layers of the onion of bad economics according to my previous model, so maybe it’s something worth spending a few moments talking about.
So-called “distributional issues” are broken out for special treatment in neoclassical welfare economics because “utility” as defined in that theory does not provide a normative basis for resolving interpersonal conflicts of needs and desires on the basis of economic power in markets. However, the idea of “distributional issues” seems a bit under-developed. It’s not really clear whether it’s meant to address all of the ethical issues associated with resolving interpersonal conflicts of needs and desires using economic power in markets or just some of them.
Off the top of my head, I’d say there are at least two rather distinct sets of ethical issues related to using economic power to resolve interpersonal conflicts in markets we must consider. One is based on people. Does one agree everyone has the economic power he or she ought to have based on his or her characteristics and behaviors? One is based more on situation or context, the type of interpersonal conflict involved. For example, should a vaccine for a raging pandemic be allocated on the basis of economic power in markets like any other good, or should we allocate it according to medical need or some such basis?
Are both sets of issues sensibly considered “distributional issues” relating to using economic power to resolve interpersonal conflict? Or is it more sensible to consider the person based issues distributional issues and to consider the other set of issues as involving something else, such as the proper extent of the market? By extent of the market I mean the potentially controversial ethical issue of when we should use economic power and the market mechanism to resolve interpersonal conflict and when we should resolve such interpersonal conflict on some other basis. Should the vaccine be allocated to rich folk first or on the basis of medical need? That sort of thing.
Yes, we could contrive to ensure we give those with higher medical need the necessary economic power to outbid rich folk and make things turn out the way we want, so there seems some undeniable point of connection between the two, but that seems as though it might be quite cumbersome and difficult in practice, doesn’t it? We have quite a lot of very rich, that is to say economically powerful, individuals indeed. I would say the nature of the issue suggests a different sort of policy response might be advisable. Something that doesn’t involve adjusting the distribution of economic power so much as simply coming up with a different legal basis for allocating whatever it might be, let’s say a vaccine.
Or to look at the issue a different way, I suppose one could certainly calculate a net “welfare loss” if rich people don’t get the vaccine first based on their relative ability (and willingness) to pay, but the real issue is whether we consider it normatively or ethically relevant in this situation. It’s not about the conditions of the market, per se, it’s about the issue of whether market mechanisms are even ethically appropriate in that context.
Unfortunately, as you may or may not have noticed, neoclassical welfare economics doesn’t really contain any explicit normative propositions relating to the extent of the market, about when using economic power in markets is ethically advisable, despite that issue seeming every bit as potentially controversial as the “distributional issues” it explicitly sets aside because of their ethically controversial nature (only to have that explicit exclusion happily ignored in practice by purveyors of bad economics using the rhetorical techniques associated with fake distributional indifference, which I’ve discussed many times before and no doubt will discuss many times in the future). Suggesting some interpersonal conflicts should be resolved on the basis of economic power in markets is a much weaker ethical statement than saying all such conflicts must be resolved on that basis alone. The latter statement is much more controversial than the former. Does neoclassical welfare economics contain the ethical proposition all interpersonal conflicts should be resolved on the basis of economic power in markets? Or is that issue meant to lie outside economic theory because of the ethical controversy, like distributional issues?
This is partially what I have in mind when I discuss bad economics, in this case involving problems built into neoclassical welfare economics itself as opposed to add-ons like fake distribution indifference. The value inputs used in normative neoclassical welfare economics are unclear, opaque, inconsistent. Economists make bad ethical philosophers. We should take the ethical content out of neoclassical welfare economics and put it back with democratic government and the people where it belongs.
