I read someone blathering on about efficiency and equity recently, and it made me wonder if I should do another extended storm on the whole issue of “utility” and “economic efficiency” and so on. Sure, why not? Too soon? Who cares? Alrighty then. Let’s do it.
Equity relates to a class of ethical issues to which “utility” as defined in neoclassical welfare economics cannot be applied. In that theory, one never gives up “utility” to get equity. If one may discuss a tradeoff involving the two ethical considerations, it’s not about that. Indeed, as a corrective, one may note it makes just as much sense to propose an increase in “utility” as a decrease when revising market arrangements in pursuit of equity. (Both are nonsense if talking about preference rank utility, both sensible if perception utility.) Just to briefly review that whole issue, if “utility” is defined as preference ranks of any given individual, it obviously doesn’t make sense to talk about how overall or total “utility” changes when some move up their individual preference ranks and others down theirs. However, if one thinks of “utility” as, say, inaccessible internal perceptions of satisfaction from preference fulfillment that one may only empirically infer via preference ranks as revealed by choices, then it may make sense. However, in that case, it’s inherently unknowable. Those two interpretations of “utility,” preference rank utility and what I call perception utility, are really the only sorts that work with neoclassical welfare economics and preserve the prohibition against “utility” being used in interpersonal contexts. One or the other. Outside neoclassical welfare economics there’s a whole universe of ethical philosophy in which one may define “utility” any way one finds appealing and sensible. Just beware potential equivocation on the term “utility” when discussing neoclassical welfare economics.
Given its significance for economics, one may wonder why academic economists can’t simply decide and talk consistently about either preference rank utility or perception utility accessible only through individual preference ranks. The ethical arguments in the two cases differ. Carrying along two possibilities complicates discussion and evaluation of the ethical reasoning involved and the demonstration of ethical half-theory status. Why the indecision? One supposes it just doesn’t matter for their own ethical program or indeed advances it. It’s yet another indication economists aren’t real or sincere ethical utilitarians. Frankly, my dear, they don’t give a damn what utility is, as long as it’s eliminated from interpersonal ethics and economics is thus rendered an ethical half-theory. Why? Why indeed. I suppose they may do that to create confusion by then fostering the error of supposing neoclassical welfare economics a full ethical theory, thus allowing the sly introduction of exogenous interpersonal ethics as in anti-democracy bad economics in the conservative style. Academic economists may be unrigorous or incompetent ethical philosophers and at the same time clever, sly rhetoricians. It just depends on one’s goals, how one conceives of one’s intellectual responsibilities, one’s attitude toward sincerity of intent and presentation.
To return to our main issue, we have two distinct ethical issues: 1) Is some result equitable (ethical, fair, just, etc.)? 2) Is some result economically efficient defined with respect to “utility” (can someone move up his or her preference rank without someone else moving down)? The exogenous nature of the first issue is why, in careful explanations of neoclassical welfare economics, one will always find equity broken out as a legitimate reason within that theory to revise any real iteration of a market, in addition to and separate from market failure. Note here the distinction between equity issues being exogenous to the ethical half-theory of neoclassical welfare economics and the proposition that theory contains an argument against equity as suggesting it’s baseless or one must give up “utility” to get it. A great deal of confusion often occurs at this junction involving failing to appreciate neoclassical welfare economics as an ethical half-theory. Economists, qua economists, to the extent they base their recommendations on neoclassical welfare economics, are meant to be indifferent, have no opinion, on market interventions based on equity concerns, not to oppose them because the basis is undeveloped in economic theory. Neoclassical welfare economics is a normative theory that sets aside a certain class of ethical considerations relevant in the real world. It’s not a full ethical theory recommending amorality in interpersonal contexts. That would be philosophically, ethically absurd.
Deciding the merits of an equity argument is exogenous to neoclassical welfare economics, and in that broader philosophical context, external to economic theory, one may propose a sort of tradeoff between different ethical considerations, including economic efficiency. However, in that context of general ethical reasoning, the issue of equity, that is, fairness, justness, ethics applicable to resolving interpersonal conflicts is clearly vastly more significant than the issue of economic efficiency. Not much of a tradeoff, if we’re being honest. I suppose few would seriously propose it more ethically significant to know if individual X might have attained a somewhat higher preference rank under some random ethics relating to resolving interpersonal conflicts of preferences than to assess, evaluate those ethics. It’s like saying one finds the issue of whether an impoverished slave can indulge his slight preference for corn pone over grits a much more significant ethical issue than slavery, the ethical basis of economic power, if he can indulge a much greater preference for other foods. I’ve argued before attending to “economic efficiency” in general seems ethically unobjectionable, but if one is setting aside on that account the lion’s share of ethics, which relates to interpersonal conflict, that seems very much a case of the tail wagging the dog. It’s not the job of economists, even those acting in their role as economists and not simply providing their own normative or ethical views under cover of their economic credentials, to recommend or give policy advise on the basis of such an absurd ethical proposition as that.
I propose an economist per se fretting about equity efficiency tradeoffs suggests bad economics in the conservative style, calculated to promote amorality (that equity shouldn’t matter) or the equity arrangements associated with an instance of an economically efficient outcome.
