A Nice Example Of Bad Economics In The Conservative Style

I saw a nice expression of bad economics in the conservative style the other day, “Economists shouldn’t pick winners and losers, they should just give policy advice based on efficiency.” You see it, right? No? Even now? Fine, let’s talk through it.

First, we have the typical ambiguity about “efficiency.” Are we talking about “economic efficiency” defined with respect to “utility” specifically? Or general technical efficiency defined with respect to some unspecified socially agreed goal X? To the extent we’re talking about efficiency with respect to attaining socially agreed upon goal X, that seems a technical matter that wouldn’t involve economists addressing ethical issues relating to X, such as resolving interpersonal conflicts of preferences, economic power, etc. Granted, there may be ethical issues, tradeoffs, considerations involved in choosing, pursuing goal X, but in this case the goal is not being generated by economists themselves, so they’re not choosing the winners and losers associated with goal X. The situation is completely different, of course, if we’re talking about so-called “economic efficiency” defined specifically with respect to “utility,” which is a goal economists themselves provide, based on explicitly normative neoclassical welfare economics. 

To the extent we’re talking about “economic efficiency” defined with respect to “utility,” a famous feature of the sort of “utility” defined in neoclassical welfare economics is that it does not support interpersonal comparisons of “utility.” Therefore, comparing two situations that differ in the sense of requiring the resolution of some interpersonal tradeoff is not something one can do within the framework of neoclassical welfare economics, even if one situation is “economically efficient” and one not. Suggesting economists break distributional indifference by arguing for any instance of an “economically efficient” outcome in that case, ignoring interpersonal tradeoffs, is not proper neoclassical welfare economics, it’s bad economics in the conservative style. Basically, one would be implicitly taking sides on the ethics of resolving the interpersonal conflict, thus rendering the original advice oxymoronic. One cannot, in realistic contexts, pursue only “economic efficiency” without at the same time choosing winners and losers. It’s something that really only makes sense in the arbitrarily, restricted world of theoretical economics, what I call The Fairy Land Of Economic Theory, in which any “economically efficient” outcome is literally equivalent to any other because some relevant ethics are exogenous. If one were in the attenuated, artificial Fairy Land of Economic Theory in which certain ethical issues are set aside, or maybe a hypothetical world in which everyone agrees those ethics, restricting oneself to “economic efficiency” would be uncontroversial, but not in reality.

What are the options for following real neoclassical welfare economics in realistic contexts? 1) Express indifference, pass the ethical issues to others. 2) Explain the theory expresses indifference but adduce explicit ethical arguments of one’s own to give policy advice. And, of course, 3) explain what “economic efficiency” really means, why it’s an attractive goal, if there are no other ethical issues to consider relating to resolving interpersonal conflicts of preferences, and really even individual preference rankings (ignorance, etc.). One can express any ethical ideas relating to the resolution of interpersonal conflicts of preferences one likes without pretending one is talking about neoclassical welfare economics, without resorting to bad economics in the conservative style. Just be honest about it. The problem with bad economics in the conservative style is not that it promotes conservative ideas relating to the ethics of the definition, distribution, use of economic power, but that it does so in an underhanded way. It’s bad economics and creates confusion and conflict.

The Tale Of The Three Sailors And The Efficient Allocation

I was talking about “efficiency” the other day and it reminded me of a funny tale I heard in an old seafarer’s tavern one day about three sailors marooned on a desert island inhabited by the spirit of a powerful economist. Want to hear it? Fine. I’ll tell it.

Seems three old tars washed ashore one day on a desert isle. While waiting for their ship to come in they split up to look for food. All they could find was three caches of coconuts. One had one hundred coconuts in it and the other two had one each. They were about to consolidate and dole out their coconut booty when one of them, Sharky the Pirate, a cold and egoistic fellow, who had found the cache with one hundred coconuts, objected and declared he should keep his cache and the other two theirs. Sharky, who had attended a few economic lectures as a callow youth, informed them. “Our current allocation is efficient, and in times like these, we should concentrate on what’s efficient, not stray from that path.” “Efficient for what?” the other two asked incredulously. 

“Efficient for total health and wellbeing? Because under our current allocation we two will likely starve before the ship comes in.” “No, not efficient for that,” said Sharky. 

“Efficient for the total production of coconuts? Because if we two get more, we’ll have the strength to search again and likely find more than you could ever find on your own.” “No, not efficient for that,” said Sharky.

“Efficient for general human welfare or satisfaction? Because we two will surely value our second coconut more than you value whatever is left after the ship arrives.” “No, not efficient for that,” said Sharky.

“Efficient for the production and promotion of an ethical society, peace, goodwill between us? Because we have ethical beliefs we think should really be considered.” “No, not efficient for that,” said Sharky.

“Efficient for what, then?” they exclaimed. Eager now to show his erudition, Sharky explained, “It’s just Economics 101, my lads. Efficient for maximizing ‘utility’ as defined by economists. Economic efficiency.” “Say what?” his companions asked, slack-jawed.

Sharky couldn’t say exactly, but he had heard tales the spirit of a powerful economist haunted the isle, so he summoned the spirit with arcane chanting, strange runes, and offerings of coin. Suddenly, in a thick haze of black smoke, The Economist appeared! “Yes, my children,” the spirit proclaimed. “Sharky is correct. The distribution of coconuts is economically efficient. That’s because economic efficiency is defined with respect to a very special sort of ‘utility’ only we economists use. Economic efficiency defined with respect to ‘utility’ means simply I cannot move anyone up his or her preference rankings, or increase his or her ‘utility’ as we say, without moving someone else down his or her preference rankings, decreasing his or her ‘utility.’”

“So ethics are not relevant at all?” the other two asked, still mystified.

“Whose ethics?” the spirit replied slyly. “My ethics? As an economist, even in spirit form, my own ethical reasoning is confined to the ‘utility’ on which neoclassical welfare economics is based. Sharky’s ethics? Well, if Sharky had preferences based in ethics consistent with your own, consideration of ‘utility’ may have worked out to your favor. However, I can assure you he does not, so interpersonal conflict is inevitable.”

The two were about to despair when one remembered something he once read on an old message board about economics being an ethical half-theory. “And what about us? Our ethics? Are you saying we should accept what’s economically efficient, no other ethical considerations matter?” 

The spirit glowered. “You have spoken the magic words! No, economic efficiency is not ethically dispositive. Indeed, it addresses only the most insignificant of ethical issues, here blocking the preferences of Sharky with no benefit to you. Pursuing economic efficiency is rarely a controversial ethical goal unless one sees ethical issues with another’s preferences, but it’s quite rare to find a situation where that’s the only issue, where resolving an interpersonal conflict of preferences is not also involved. No, the resolution of the significant, controversial ethical issues associated with how interpersonal conflicts of preferences over scarce resources are resolved, such as your current dispute over the disposition of the life-giving fruit, is up to you to decide.” With that, the spirit vanished, leaving only the acrid smell of sulfur in the air. 

One of the coconut challenged old tars said, “Seems we’ll need to find a way to address our ethical differences on our own. I suggest parley, followed by democratic vote.”

Sharky fumed. “I suggest you two mind your own damn business, and if ever you get any of my coconuts, it will be from my cold, dead fingers. I see your sham ethics, all about greed, self interest, survival, but I have an ethical right to dispose of my coconuts as I will. If you two had a hundred coconuts each, and I one, you would surely tyrannically seize my one to split between you, and I would starve. Your ethics are false, what’s real is a perpetual war of all against all for resources or anyway ethics based in rights not granted by you.”

A violent melee then ensued in which Sharky tried every underhanded fighting trick in the book to prevail over his companions, but driven by ethical indignation, the will to thrive, and finally abject hatred, two succeeded where one failed. After due deliberation and reasoned debate, they voted and adopted the distribution of coconuts the majority found ethical, they all shared the coconuts and lived to sail another day, friends thereafter, but it was a near run thing. Or that’s the version I heard, anyway.

Liberalism And Libertarianism

I saw a nice quote from some “libertarian” outfit describing their core belief that I think points to the essential difference between pro-democracy liberalism and one version of anti-democracy “libertarianism.” Let’s discuss that this week. 

Recall the traditional American liberal ethos is that everyone should be able to do as they please unless what they want to do harms another or conflicts with what another wants to do. In these interpersonal conflict of preference situations, we need laws to resolve conflict. The liberal ethos proposes the best way to make such laws is democratic government because the ethics involved are ultimately subjective and everyone’s views in a given society are important to consider and, of course, the views of the people may change over time, evolve. The tricky bit from the perspective of liberalism is determining when the interpersonal conflict of preferences rises to the level at which law becomes necessary and when it’s more simply a matter of someone’s possibly overly delicate sensibilities being offended or what have you.

The “libertarian” version, cited in the aforementioned passage, was that everyone should be able to express their “rights,” unless they conflict with the “rights” of others. The proposed resolution of any conflicts of “rights” was conspicuously absent. Also conspicuously absent was any mention of whether the relevant “rights” were meant to be legal artifacts and, if so, what manner of government determined or defined them, or simply ethical “rights” each person decided in his or her own mind based on ethics, religion, etc. In rhetorically slick but philosophically sloppy “libertarianism,” the two meanings of “rights” seem often run together resulting in the idea the only legitimate government is an authoritarian government reflecting one’s own personal view of ethics in every particular. I say that’s one version of “libertarianism” because it suggests a resolution of at least some interpersonal conflicts on the basis of “rights.” There’s another version that follows bad economics in the conservative style to simply ignore or dismiss interpersonal conflict. That other version of “libertarianism” uses selective perceptive to support existing power relationships, particularly economic power relationships, and to suggest certain resolutions of interpersonal conflicts are more consistent with “liberty” or “freedom” than others. But let’s return to the more explicitly “rights” based version today and the contention the only legitimate government is an authoritarian government reflecting one’s own personal view of ethics in every particular.

To be clear, a right wing, non-democratic, authoritarian government that reflects conservative ethical views in every particular, particularly relating to the definition, distribution, use of economic power, defends those views against democracy, is basically fascism. However, by adding one’s own content in a sympathetic way, one can make “libertarianism” say whatever one likes. The devil is in the details. What “rights” are we talking about? Where are they coming from? Who specifies them? Who enforces them? How are conflicts resolved? One can construct a version consistent with liberalism, in which the “rights” are legal rights meant to resolve certain interpersonal conflicts and defined by democratic government according to the ethical views of the voters, with conflicts between rights resolved similarly. Similarly, one can construct a version consistent with anarchism, in which the “rights” involved are ethical “rights” determined by each individual, everyone can make up their own list, no one need follow any law, and violent conflict is used to resolve any conflict.

“Libertarianism” is not a serious, coherent political philosophy. It’s a studiously confusing, misleading bit of right wing political rhetoric. However, in practice, most “libertarians” tend to see themselves as above the laws of democracy. “Libertarianism” is typically an appeal to the ego. The typically incredulous indictment of democracy from a “libertarian” is, “Are you willing to allow other people, democracy, ‘mob rule,’ make a law that conflicts what you believe is your right, as a matter of ethics?” The answer, of course, is usually yes, but not always. Living in a society requires such compromise. But one may hold some subjective ethical principles too important to justify remaining part of a society, one may feel the need to become an outlaw, a criminal, a revolutionary. In the old USA, some living in slave states did that over the issue of slavery, and I applaud them. I suppose if slavery were reinstated today through democratic vote and “orginalist” constitutional interpretation, I might become an outlaw, a criminal, to follow my own ethics. But if one is embedded in any society it’s fair for that society to expect one to follow the law, and if one doesn’t, one should be prepared to accept the consequences. Outlaws, criminals, are a dime a dozen, and for so many reasons. It’s not unusual. If that’s all “libertarians” are saying, that if democracy delivers an unwelcome verdict, let’s say, on the definition, distribution, use of economic power, they reserve the right to become criminals, outlaws, in pursuit of their own ethics relating to those issues, that’s fine. They can join the ranks of criminals, outlaws, if they’re willing to pay the consequences, of course. But, no, I don’t think I can really support a fascist government with them at the helm to ensure they’ll never have to face that awkward decision, while others do.

If you feel people should be able to do as they please unless their preferences harm others or conflict with others’ preferences to some level of significance, in which case democracy should create laws to resolve those conflicts, you support liberalism, not “libertarianism.” Just thought you’d like to know.