I’ve discussed the important and ubiquitous rhetorical technique from the world of bad economics I call “fake distributional indifference” a few times now, so it may seem unnecessary to go over it yet again. However, I’m always thinking of new ways to express the idea, and to be frank I still see quite a lot of it about, so maybe I can say a few more words about that this week.
Fake distributional indifference is when a purveyor of bad economics, often but not necessarily an economist, supports some policy to generate or maintain a real instance of an economically efficient, Pareto optimal, perfectly competitive market, or an approximation thereof, or even a movement in that general direction, based ostensibly on neoclassical welfare economics alone. I call it “fake distributional indifference” because all such policies lead to real instances of market systems and outcomes that come always and necessarily bundled with distributional characteristics that make them consistent with some distributional ethics and not others. Hence, supporting any such policy necessarily breaks the principle of distributional indifference and goes beyond what one can say based on neoclassical welfare economics alone.
The telltale sign of fake distributional indifference is that a purveyor of bad economics will claim to be indifferent to distributional issues while taking a position that is obviously, albeit usually implicitly, consistent with only one side in a policy debate involving distributional issues. That is to say, fake distributional indifference leads to that stock character from bad economic comedy who smugly purports to rely only on simple, uncontroversial value inputs, math, and logic, but who nonetheless contrives to be always in the middle of distributional or other ethical controversies. According to this well known if not exactly beloved character, anyone who disagrees with him or her on the controversial ethical issues involved must simply be soft in the head.
What generates this result is that a real instance of a market system or outcome is never just the concrete expression of a theoretical type. It’s always more than that. It comes bundled with additional content, not just factual content about the subjects involved, circumstances, contexts, but the ethical or normative content that is self-consciously set aside in the theory of neoclassical welfare economics. One can choose to ignore that additional content or not, address it or not, but it’s there, and if one treats that market system or outcome preferentially in any way relative to alternatives that differ from it along the distributional dimension, or really even other ethically relevant dimensions, such as the extent of the market or the treatment of the situations commonly eliminated through false factual premises like perfect rationality, one is not being indifferent to distributional ethics or the other relevant ethical issues exogenous to neoclassical welfare economics. One may think of one’s policy suggestions as leading toward “any” economic efficient, Pareto optimal, perfectly competitive, market system or outcome, but they don’t. Not really. They lead to particular instances, which is the problem. The partially unspecified and ethically attenuated, interchangeable, “any” doesn’t really exist. It’s an artifact from the Fairy Land of Economic Theory and cannot exist outside that mysterious realm of the imagination. In other words, one cannot do ethical philosophy using the scientific method. One cannot simply apply to reality ethical propositions developed in the the Fairy Land and meant to apply to the Fairy Land. They aren’t close enough approximations to ethical propositions that would be generally accepted, or indeed accepted by anyone, in the real world. That’s not how real ethical philosophy works.
Put differently, the theory of neoclassical welfare economics does not involve the absurdly controversial ethical proposition distributional and other relevant ethics, such as the extent of the market or the treatment of the situations commonly eliminated through false factual premises like perfect rationality, are unimportant or don’t really matter for evaluating real world economic systems or outcomes. That’s a proposition that applies to the Fairy Land of Economic Theory, not reality. That’s a proposition from the world of bad economics, which fails to distinguish the two, not the world of actual neoclassical welfare economics. Neoclassical welfare economics says distributional and other relevant ethics are very important and do matter, but they’re controversial, and for that reason they’re purposefully excluded from the ethical half-theory of neoclassical welfare economics. The implication of the ethical half-theory structure of neoclassical welfare economics is that one can never base real world policy on that theory alone. The missing controversial ethical issues must always be addressed and will always be addressed, either explicitly or implicitly.
The mark of good economics is humility when making real world policy recommendations, a careful accounting of the exogenous ethical inputs involved, a refusal to accept the role of ethical arbiter, and a welcoming of the relevant normative or ethical inputs from democratic government and the people. The mark of bad economics is the notion sensible policy recommendations can be based on neoclassical welfare economics alone; unrigorous sloppiness in the handling of normative inputs including hiding, misstating, and incorrectly evaluating them; a lusting after the post of ethical arbiter for society; and the attempt to exclude others and, in particular, democratic government from the process of evaluating economics systems and outcomes with demands government not “interfere” with markets, and so on.
Sometimes the world seems full of bad economics, which leads always to confusion, conflict, frustration, anger, social instability, suffering, and anti-democracy sentiment. Everyone should fight bad economics, but especially academic economists, who have a social responsibility to do so, given their remarkable laxity to date. Don’t get me wrong. Everyone should feel to argue for any normative or ethical position they like, any social, political, legal, economic system they like, but they should do so honestly and openly, not rely on rhetorical subterfuge and deceit to win the day. There’s nothing wrong with economists being in the business of supporting the interests of the economically powerful because they feel some distribution of economic power is ethically correct, they don’t like forms of social decision making other than economic power in markets, democratic government for example, and they don’t care about the potentially controversial ethical issues that result from allowing others to follow their preferences under awkward conditions like a lack of perfect information or rationality, as long as they’re honest about it. What makes bad economics bad is not the motivating ethics, the underlying ideology, but the dishonestly, the subterfuge, the fakery. Academic economists have a responsibility to respect and represent the truth.
