Bad Economics, Fascism, And Right Wing Ideology

I thought I might just briefly take a step back this week and make another pitch for why I think addressing bad economics is so important. The recent attacks on the US Capitol and on American democracy itself in the form of one hundred and forty-seven Republicans in the US Congress attempting to throw out certified, verified, legally vetted votes in order to steal the recent presidential election for Mr. Trump, after several decades of arguing that “activist” democratic government is a great evil that must be minimized or “drowned in a bathtub” according to the shockingly violent imagery famously espoused by one of their guiding lights, has raised the very real danger of fascist ideology becoming firmly established here in the USA. In that context, it occurs to me one of the most comical yet destructive manifestations of the suppression within bad economics of the role of economic power in resolving interpersonal conflicts on the basis of economic power in markets, as well as the significance of the distribution of economic power and other relevant ethical issues in creating, maintaining, and evaluating market systems and outcomes, and hence the role of democratic government in creating an ethically acceptable market economy, is the risible notion that both fascism and communism are “leftist” political movements and hence what we’re seeing today on the part of right wing American conservatives and Republicans cannot possibly represent or be described as fascism. So maybe I should take a day off from unraveling how bad economics works its dark magic to talking about this one particular unfortunate consequence of bad economics.

Under the influence of bad economics, one is led to view non-democratic, authoritarian market based or market friendly states not in common terms as right wing fascist states oriented toward preserving and enhancing the power of an economic elite and the markets in which they exercise their economic power, but as something else that really I suppose has no proper name, that apparently has never existed before, but perhaps might be interpreted by its supporters as a non-democratic, authoritarian “libertarian” state or perhaps some sort of non-democratic, authoritarian market based fake “anarchy” state. By the same token, the determination to see an anti-democracy ethos as unique to “leftism,” to see fascism and communism as both “leftist” movements because of their shared anti-democracy ethos, that is to say, the studious ignorance or avoidance of the all important economic dimension, the issue that historically led and still now leads some people to the one ideology and some to the other, blinds one to clearly democratic forms of “leftism” including traditional American leftist liberalism, progressivism, democratic socialism, social democracy, etc.

One might have reasonably expected the resulting inability to explain the animosity between adherents of fascism and communism, mortal enemies from opposite ends of the ideological spectrum, and the bloody carnage it famously created in the not so distant past, would be enough to suggest to those making the “fascism is leftist” argument suspect they may be missing some important distinction between the two. However, it seems the rhetorical impulse to smear “leftism” as inherently anti-democracy and indeed having a monopoly on anti-democratic political thought trumps all for many people in this area, at least for many people in the very large conservative and right wing contingent of the US population. 

Of course, it seems common enough to propose that although fascism was clearly dominated by right wing ideological concerns relating to defending the power of economic elites and the market system in which they wield that power, it also incorporated certain elements of what is generally considered left wing ideology in the sense of at least a feigned interest in overall social welfare. That sort of thing seems quite common when one starts talking about any sort of government system. Indeed, even today only the most strident and confident “free market” conservative is willing to suggest he or she literally doesn’t care if society, in general, is better off or worse off under the proposed economic arrangements. Much more common is some nod to the fundamentally socialist idea that society matters, in this context arguments that the proposed market system is best for society at large and not just certain people at the top, that is, that the proposed economic arrangements maximize total social welfare or even more socialistically “everyone’s” welfare in some way, rather than more accurately as ostensibly representing how well or how poorly everyone should fare according to one’s ethical beliefs. In some ways, the non-democratic, authoritarian libertarian state or non-democratic, authoritarian market based fake anarchy conservatives are so concerned to establish fails to correspond fully to other historical fascist states may be considered the distilled essence of fascism, non-democratic, authoritarian government shorn of even the pretense of concern for society at large and, in particular, for the economically weak or powerless. Of course, one understands it’s the nature of non-democratic, authoritarian governments once free of democratic and legal constraint to grow uncontrollably once established, and what one has at the start of the day may not correspond to what one has at the end of the day.

The main point to keep in mind is that the danger posed by what most people have in mind by traditional right wing, market based or market friendly, non-democratic, authoritarian, right wing fascism remains even if those who support it at any given time happen to prefer a different name or think of it in different terms for one reason or another. It’s just as dangerous, just as toxic, just as violent, just as anti-democratic under any other name as is it when called by its conventional and traditional name. A market economy enforced by even a “small” non-democratic, authoritarian government doesn’t eliminate the role of power in society, it accentuates the power of rich folk at the expense of their less well off fellows, who in a democratic system have a modicum of countervailing political power. The associated ethical questions of whether any given economic / legal system properly or adequately distributes economic power to those who should have it, and the proper social status of who do not have it, powerless or not so much, get to the heart of the democratic ethos. At the heart of the democratic ethos as well are the controversial ethical issues associated with the extent of the market, when to use economic power in markets to resolve interpersonal conflicts, and the ethical issues associated with markets under realistic conditions. Interestingly, those are issues obscured by bad economics.

If we’re to defend the democratic ethos and secure the future of political democracy here in the USA and elsewhere, then we need above all else to fix bad economics, which creates confusion and conflict everywhere. If one is an academic economist and understands the relevant normative and theoretical issues, one shouldn’t just idly sit by and bemoan the state of economic pedagogy. One should do something. Clear up the misunderstandings. Improve the texts. When one sees real neoclassical welfare economics dumbed down, misrepresented, mangled beyond all recognition by people clearly intent on misusing it for rhetorical effect, one shouldn’t just chuckle about it and walk away. One should call it out. Explain loudly and clearly why it’s incorrect. We should all fight the baleful influence of bad economics.

Social Welfare Functions And Fake Distributional Indifference

Seems it’s been a while since I did a post devoted to what I called “fake distributional indifference,” a rhetorical ploy or technique interesting to me because it takes so many different forms and serves as one of the main points of connection between neoclassical welfare economics proper and bad folk economics of the “government should not interfere with the free market” variety. I’ve noticed discussions in this area often seem to get just that bit more confused when so-called “social welfare functions” enter the room, so maybe I’ll address fake distributional indifference in that context today.

As you may recall, “social welfare functions” are the intellectual Frankenstein’s monster of neoclassical welfare economics whereby certain ethical or normative values exogenous to neoclassical welfare economics and its definition of “utility” can be imported and expressed as “weights” attached to that “utility.” Much like time travel in the third installment of Austin Powers, it’s probably best if one doesn’t think about it too much. What exactly are we meant to be weighting, anyway? “Utility” as most commonly defined in neoclassical economics doesn’t even exist, per se, but is really just a funny way to talk about the preference rankings of individuals. But never mind. As seems frequently the case with overly formalized neoclassical economics, the question of whether the concepts are sensible and consistent with one another is less important than whether some particular mathematical manipulation or other gets one where one wants to go.

Given enough information on the personal characteristics and behaviors potentially relevant to distributional ethics, social welfare functions theoretically allow one to express any form of distributional ethics based on people, including concerns imported from traditional ethical utilitarianism relating to human welfare but also from other potential ethical frameworks focusing more on merit and rights and fairness and so on, albeit by confusingly slapping weights on the “utility” used in economic theory that are, of course, seemingly arbitrary within the normative framework of that theory itself and, indeed, not entirely consistent with the ethical or normative values expressed in that theory itself. However, that doesn’t mean social welfare functions are necessarily capable of addressing all ethical issues associated with resolving interpersonal conflicts of needs and desires on the basis of economic power in markets. Trying to capture other potentially relevant ethical issues using social welfare functions, issues not based on the characteristics or behaviors of the people involved but something else such as, for example, issues relating to the extent of the market, that is, issues related to when we should resolve interpersonal conflicts on the basis of economic power in markets and when to use some other mechanism, seems a rather more difficult project. I’m not saying it’s impossible, but it certainly seems quite awkward. It would presumably involve some weighting scheme that not only covers personal characteristics and behaviors but characteristics of the situation or context in question. A little indicator of whether we’re talking about vaccines or automobiles and so on. Personally, I’ve never seen a social welfare function like that, but economists can be quite ingenious when they choose to be, so maybe one day. And, of course, using social welfare functions to address the ethical issues submerged by false factual premises like perfect rationality or information, even though they concern the characteristics or behaviors of people, can present certain difficulties in the context of models requiring those premises to derive their results. 

Although the theoretical availability of social welfare functions is commonly considered a significant game changer for the normative significance of neoclassical welfare economics by many economists, with some economists of both the real and armchair varieties going so far as to suggest it renders neoclassical welfare economics ethically or normatively neutral, it really doesn’t change the basic conceptual or intellectual structure of neoclassical welfare economics at all from what I’ve been calling an ethical half-theory. Some relevant ethical issues associated with resolving interpersonal conflicts on the basis of economic power in markets remain endogenous to the theory and some remain exogenous, some relevant ethical issues can be derived from within that theory and some cannot, some ethical reasoning is in, some out. In particular, the ethical or philosophical rationale for any particular social welfare function obviously remains exogenous to economic theory. The only thing social welfare functions change is that rather than applying exogenous ethical principles to the conclusions of the ethical half-theory of neoclassical welfare economics, one can import at least some of the exogenous ethical content into economic theory and express it in a funny way using social welfare function to make a muddled pseudo-economic conclusion, which still likely requires exogenous ethical principles applied after the fact to address relevant ethical issues not expressed in the social welfare function.

So what does fake distributional indifference look like in the context of social welfare functions? Same as always, with a slight change in terminology. All real markets and market outcomes come bundled with characteristics relevant to controversial ethical issues related to resolving interpersonal conflicts on the basis of economic power in markets that are explicitly set aside or implicitly ignored or avoided in neoclassical welfare economics. In the case of those ethical issues expressed in social welfare functions, one might say all real market outcomes come bundled with considerations potentially relevant to some social welfare function. As a result, one cannot express distributional indifference, or indifference with respect to other controversial ethical issues that are or should be in the same boat as distributional ethics, while supporting any real market outcome. If one supports any real market outcome, one is necessarily expressing at least an implicit opinion about the ethical considerations bundled with that outcome, including those relevant to some explicit or implicit social welfare function. Not caring or talking about those ethical issues or implicit social welfare functions doesn’t render supporting particular real market outcomes neutral. One is still expressing support for one ethical position over another, albeit possibly for hidden reasons or perhaps even for no reason at all.

Note that this remains the case even if one is thinking about classes of market outcomes because, of course, we never encounter a class of market outcomes in real life. The class is a conceptual or intellectual construct. We encounter real, specific, defined markets and market outcomes or, if you like, particular instances of a class. Preferring any real instance of a perfectly competitive market outcome to a non-perfectly competitive market outcome that theoretically may be more highly ranked under any potential social welfare function is not being neutral with respect to distributional issues. It’s explicitly or implicitly supporting one social welfare function over another, or more broadly, one set of ethical beliefs relating to evaluating market systems and outcomes over another. It goes beyond what one can say based on neoclassical welfare economics alone.

Let’s just go over some quick takes on fake distribution indifference in general to make sure we’re all getting what’s going on here.

Can one say based on neoclassical welfare economics that any real instance of a perfectly competitive market is ethically or normatively superior to any real instance of a non-perfectly competitive market? No. That’s an artifact of fake distributional indifference.

Can one say based on neoclassical welfare economics that if one is at a real instance of a perfectly competitive market outcome one should stay there because there is no legitimate reason to change in economic theory? No. That’s an artifact of fake distributional indifference.

Can one say based on neoclassical welfare economics one should not interfere with a real instance of a perfectly competitive market? No. That’s an artifact of fake distributional indifference.

In the presence of distributional indifference, there’s nothing ethically or normatively special about any real instance of even a perfectly competitive market relative to any market outcome that differs from it along the distributional dimension, or to be consistent, along the dimension of any controversial ethical issue that should be treated similarly to the distributional dimension, and certainly nothing special about any real market that fails to qualify as a perfectly competitive market. To assess or evaluate a real market system or outcome, one must address all the relevant ethical issues associated with it, those expressed in neoclassical welfare economics and those set aside, those expressed in social welfare functions and those not so expressed. One can, of course, support any market system or outcome one likes on any ethical or normative basis one likes, but one should do so honestly and not pretend one’s ethical or normative judgments are based in neoclassical welfare economics in situations where they clearly are not and, as a matter of logic, cannot be. Addressing the relevant ethical issues involved in evaluating market systems and outcomes is a job for everyone involved operating through democratic government, not philosophically inept or underhanded economists.

Positive Critiques of Normative Economics

I was reading yet another article in the long standing but never particularly fruitful vein of establishing that neoclassical welfare economics involves unrealistic assumptions and does not accurately reflect how people really think and so on, and it occurred to me maybe I should say a few more words about that sort of thing this week. I’ve been reading such arguments for quite a few years now and they never seem to go anywhere useful, I suppose because there isn’t any real dispute neoclassical economic theory is unrealistic in the sense proposed. I would suggest the real issue is whether the unrealistic elements are acceptable or not. With respect to that issue, some people seem to feel these “false, simplifying assumptions” as they’re known, more than make up for any decrement in explanatory power or predictive accuracy by the increase in theoretical tractability they provide. Others disagree, sometimes in the strongest terms. Some years ago the argument was all about establishing the significant theoretical issues that arise when we give up the assumption people are “perfectly” rational in their behavior. Apparently, that doesn’t lead to small changes in predictions but rather significant ones. However, it seems quite difficult in this context to get beyond opinions and feelings and into the realm of scientific, empirical verification. One rarely sees an attempt to actually characterize or measure or quantify the potential gain in predictive accuracy or the potential loss in theoretical tractability from replacing false, simplifying assumptions with more realistic assumptions. One rarely see any sort of head to head competition in the form of natural experiments involving the relative predictive ability of economic theories with false, simplifying assumptions and economic theories with more accurate but complicated assumptions. And when I say rarely, I mean basically never in my case. I’m just saying rarely to cover myself in case someone somewhere has ever done such a thing. Certainly not very well publicized if they have, is it? Why does the argument typically peter out at this all important stage of relative empirical accuracy? Well, if you’re asking me, I’d say it’s probably because the idiosyncratic mix of positive and normative elements in neoclassical economics prevents normal scientific processes.

The comical element to the whole discussion to me is that so many critiques of neoclassical economics focus on the positive side, on issues of scientific method and empirical accuracy, while so many negative reactions to neoclassical economics and controversies involving neoclassical economics are obviously normative or ethical in nature and involve objections to what the normative or evaluative side of the theory designates socially optimal and so on. Now I’m thinking about it, I honestly don’t recall ever hearing anyone object to neoclassical economics because its empirical predictions are not all they might be. In contrast, I’ve heard plenty of people object to dodgy ethical propositions from normative neoclassical welfare economics, or more often bad economics based in normative neoclassical welfare economics, like we need to accept homeless people living under the old bridge or vast imbalances in economic power because it’s socially optimal or efficient or what have you.

Everyone does understand they’re two different issues, right? Positive is different from normative? Fact different from value? Philosophy different from science? Everyone understands ethical philosophy has a different way of evaluating propositions and arguments than does science? That science and philosophy in the form of ethics have different methods?

Just to illustrate the difference in the context of my previous example, the whole issue of “unrealistic assumptions” and the ostensible tradeoff between theoretical tractability and predictive accuracy is an issue in positive economics. In normative economics, the comparable issue is the presence in normative or ethical arguments of false factual premises and the resulting inapplicability of the conclusions of such arguments to realistic situations, or to put the same issue a different way, the improper evaluation of normative inputs by considering their ethical plausibility in the false light of unrealistic conditions rather than under realistic conditions.

I contend all the big, controversial issues associated with neoclassical economics are normative in nature. Consequently, the proper critique of normative neoclassical welfare economics must take place in the realm of normative economics, that is to say, in the realm of philosophical ethics. The relevant issues creating problems include hidden value inputs, improperly evaluated value inputs, contradictory value inputs, value inputs combined with false factual premises, additional value inputs tacked on from outside economic theory, and simple logical or conceptual errors typically involving conflation of terms.  Relevant methods include checking the ethical plausibility of potentially controversial value inputs in the most difficult or unfavorable realistic conditions and using counterfactual thought experiments to analyze concepts and evaluate value inputs.  It’s not rocket science. But things surely get difficult quickly if one tries to use the wrong tools for the job. One cannot address normative issues associated with economic theory by talking exclusively about positive issues associated with economic theory. One cannot do philosophy using the scientific method, no matter how many times one tries.