Ready for part two of the shortest, simplest three part explanation of conservative bad economics based on misinterpretations of neoclassical welfare economics you’ll likely ever find? Last week was some funny business relating to “utility.” This week it’s “fake distributional indifference.”
Fake distributional indifference is a rhetorical trick used in bad economics to create the impression neoclassical welfare economics is capable of generating a general recommendation to move toward real economically efficient, “optimal” market structures or, if already at one, stay there. It’s what lies behind arguments like moving away from economically efficient outcomes “distorts” an ostensibly “optimal” state of affairs and the implication from casual folk economics that neoclassical welfare economics recommends something called the “Free Market.” It’s what lies behind risible arguments often made by purveyors of bad economics that others simply can’t understand the simple ethics establishing the mutual benefit of voluntary trade of, let’s say, a starving slave’s day of labor for a crust of bread, never comprehending or acknowledging everyone understands that trivial part of the issue, and the part everyone else is thinking about, the much more significant part, concerns the thorny ethical issues leading up to that transaction and the conditions under which that transaction takes place. It’s largely what generates the offensive, bullying, bad neighbor quality associated with purveyors of bad economics, often economists, as they ridicule the ethics of the people and lambaste democracy for interfering with their own incompetent ethical stylings and judgments.
The rhetorical trick of fake distributional indifference can be used with both types of “utility” I discussed last time, with individual preference rank “utility” and internal perceptions of satisfaction from preference fulfillment “utility,” with both Neoclassical Welfare Economics One and Two. However, one must be invoking distributional indifference to use fake distributional indifference. If one is operating with internal perceptions of satisfaction from preference fulfillment “utility,” Neoclassical Welfare Economics Two, and one is endorsing a particular “social welfare function,” then fake distributional indifference is less of an issue. In that case, it only works with any normative conclusions made on the basis of distributional indifference up to the point of the introduction of the “social welfare function,” so typically with respect to conclusions relating to certain market structures, etc. On the other hand, fake distribution indifference works normally if one simply acknowledges the idea of social welfare functions but casts them as exogenous, inconsistent with the relevant definition of “utility,” unjustified, arbitrary, inappropriate when speaking as an economist, etc.
Fake distributional indifference is most clearly and obviously perceived in the context of individual preference rank “utility,” the world of Neoclassical Welfare Economics One under the somewhat facetious classification I used last week, so I’ll discuss it in that context here. As I’m so fond of pointing out, the interesting thing about defining “utility” in terms of the preference rankings of individuals is that it becomes undefined in interpersonal contexts. It no longer makes sense to ask who gets more “utility” from good X, person A or B. It’s what generates the often reported but rarely appreciated point that interpersonal utility comparisons are not simply “impossible” using preference rank “utility,” they’re undefined, the very expression of the issue represents a misuse of language. The only reason that point is not more readily appreciated is there are so many different definitions of “utility” out there, and hence so many opportunities to equivocate on terms, something many purveyors of bad economics are only too eager to do and to encourage others to do. It’s why I always encourage sincere, conscientious economists working with individual preference rank “utility” to just stop talking about “utility,” per se, and instead talk consistently about individual preference rankings. The time and ink savings are simply not worth the risk of confusion.
The interesting thing about “utility” being undefined in interpersonal contexts is that it removes it from the ethical issue of resolving interpersonal conflicts of preferences, needs, desires, the sorts of issues that make up the lion’s share of ethical philosophy in the real world. Neoclassical welfare economics using individual preference rank “utility” could never identify an ethically optimal allocation of scarce resources because it could never solve the ethical issue of how to resolve interpersonal conflicts of preferences relating to those resources. That’s why I so often remark that the use of individual preference rank “utility” should lead straightaway to the recognition of neoclassical welfare economics as an ethical half-theory, a theory in which some potentially relevant consideration are taken up, but not others.
However, and this gets to the heart of the matter here, if one artificially holds some ethical issues in abeyance, as one does in the Fairy Land of Economic Theory, one can make certain conclusions relevant for the Fairy Land based on neoclassical welfare economics alone. What happens in bad economics is that one presents oneself as restricting oneself to the theory of neoclassical welfare economics, with distributional indifference, but then inappropriately draws conclusions about the real world. That shift, that having of one’s cake and eating it too, that missing discussion of real ethical issues, that suggestion one can generate controversial conclusions from less controversial inputs, is what is covered up by the rhetorical technique of “fake distribution indifference" in bad economics.
Fake distributional indifference can take various forms, but it always involves implicitly taking sides in controversial distributional ethics exogenous to neoclassical welfare economics by arguing for economically efficient, “optimal,” “perfectly competitive” markets. The problem, of course, is that any such recommendation in the real world inevitably leads to a particular instance of such a market with a particular resolution of interpersonal conflicts corresponding to particular distributional ethics and not others. Anything beyond indifference between pursuing that particular market structure or outcome and any other result implying a different resolution of interpersonal conflict, including non-economically efficient, non-“optimal,” non-perfectly competitive market structures and outcomes, is fake distributional indifference, bad economics.
Another typical expression of fake distribution indifference relies on the notion of finding a way to move between different economically efficient, “optimal” market outcomes without departing from economically efficient, “optimal” market structures. Here again, it’s fine in the Fairy Land of Economic Theory. Tap, tap on one’s keyboard, change the initial endowments, transfer this there, done and done. But that’s not how things work in the real world, is it? To get a different result in the real world, one must actually do something. That tricksy quest for the fabulous but mythical chimera, an insubstantial shadow from the Fairy Land, is what converts straightforward policy choices designed to implement ethical views involving the distribution of economic power into fake scientific conundrums. It’s what lies behind purveyors of bad economics saying things like, of course they’d like to address perceived ethical issues relating to the distribution of economic power, they just can't work out how to do it. As though it were some great mystery of the natural world. Everyone understands the issue is fake, right? It’s bad economics, not neoclassical welfare economics. Distributional indifference holds in neoclassical welfare economics whether the policy option on the table is first best, last best, or anything in-between. The theory doesn’t throw up random road blocks, demand the difficult, the unlikely, the logically impossible.
So that’s fake distributional indifference in a nutshell: people arguing indirectly for certain resolutions of interpersonal conflicts ostensibly using a theory that cannot support such conclusions and throwing up random, often impossible conditions for others to meet to implement their ethics. There’s nothing preventing purveyors of bad economics from saying they can recommend policies leading to any real instance of an economically efficient, “optimal” market because they ignore many relevant ethical issues, but democratic government will want to consider those, nothing but the will to deceive, to play games, to mislead, to manipulate, to express their own prior underlying ethical beliefs that typically just happen to coincide with the ethics expressed in the recommended real instance of an economically efficient market. Allow me to just end my post for this week with a special plea to my fellow economists. The intellectual sloppiness and insincerity of past economists created bad economics. Let it be the intellectual rigor and sincerity of present economists that ends it. It’s our mess, let’s clean it up.
Next time I'll complete the set with part three of my express review of what I see as the main elements of ubiquitous bad economics in the conservative mode with a discussion of the ethical issue of the extent of the market and the role of false factual premises.
