I thought I’d say a few more syllables this week about that efficiency as equity post I did last time, including the possibly cryptic bit at the end that called out a potential level issue relating to equity in neoclassical welfare economics. Good times.
I’m a bit concerned that rather than appreciating the point about an equity proposition underlying Pareto optimality and hence (economic) “efficiency,” readers might suppose the issue was about evaluating the equity proposition in question. I’ll address that in a moment, but no, it wasn’t. The point was equity propositions that can resolve interpersonal conflicts of preferences by going beyond individual preferences ranks as “utility” are meant to be exogenous to neoclassical welfare economics. They’re qualitatively different from the endogenous normative propositions. But the equity proposition that underlies Pareto optimality and hence (economic) efficiency isn’t exogenous; it’s right there at the heart of the argument about the supposed social optimality of markets. It’s a biggie, as people once said. It’s also weird. Awkward combination for any theory.
Turning now to the issue of the evaluation of that proposition leads me to a possibly cryptic statement I made previously about equity arriving at different levels of theory. Recall for me a level issue is when the same term, concept, idea applies at different points in an argument or theory. Level issues are an important rhetorical device or stumbling block, depending on one’s perspective, because they provide a hook beyond simple terms or concepts on which one may hang equivocation, that is, switching between issues in an unconscious or more typically sly, artfully deceitful way.
One level issue here relates to context. An interesting aspect of the ethical half-theory of neoclassical welfare economics is it’s not developed in, nor evaluated in, realistic contexts, but in an artificial, artfully contrived, theoretical context I call the Fairy Land of Economic Theory. It’s a very atypical sort of ethical philosophy and can lead to problems associated with properly evaluating ethical propositions under the conditions that apply in the Fairy Land then incorrectly supposing that evaluation also holds in the very different context of reality. One useful way to think about what’s going is only part of the ethical content of neoclassical welfare economics arrives as explicit normative propositions, another part arrives as artful manipulation of the theoretical context, the introduction of false factual premises affecting evaluation. Need a non-economic example? Suppose I proposed to discuss the ethics of murder in an artfully constructed unreal world is which no one ever intends to kill anyone else. Then suppose I took propositions developed in that world, sensible in that world, and applied them to reality. Awkward, right?
Let’s consider context specifically in the context of equity. When one evaluates the equity proposition associated with Pareto Optimality / “economic efficiency” in the Fairy Land, it may seem entirely unobjectionable; however, I would suggest much of that is due to the theoretical context. There is simply not enough detail typically provided in theoretical contexts for that equity proposition to seem notable at all, indeed possibly not even enough to recognize it as an equity proposition. However, consider the same proposition in reality and the equity element becomes more obvious. Let’s say in reality A just hit B over the head with a rock and stole her wallet. B’s preference is to get it back. A’s preference is to keep it. The Pareto Optimal / “economically efficient” outcome is for A to keep it as we’re not meant to consider moving anyone down his or her preference rank. That’s clearly an equity judgment. We looked at an interpersonal conflict of preferences between A and B and resolved it in favor of A. That cannot be done solely on the basis of individual preference ranks. It’s an equity proposition like any other equity proposition. So one level issue concerns context. Equity issues in realistic contexts typically involve details some may find relevant to some theory of interpersonal ethics. However, we may also have equity issues in theoretical contexts in which such details are missing. They have the same status.
That observation leads to another potentially relevant level issue to consider, which I’ve discussed before but might as well do here again, not so much involving what constitutes an equity proposition, but moving on to what it means to be indifferent to an equity proposition or to equity issues. At one level, one is indifferent to typical real equity propositions or issues in the case of the stolen wallet because one’s judgment of optimality doesn’t hinge on how the fellow came to have the wallet, so one is indifferent to any equity arguments others find appropriate to apply to that issue. However, at another more theoretical level of equity issues, one is not indifferent to how the relevant interpersonal conflict of preferences is resolved, the issue that cannot be addressed via “utility” as individual preference ranks, one calls as optimal one resolution, not the other.
On may say, well, Pareto optimality and “economic efficiency” are only meant to be dispositive in the ethical half-theory of neoclassical welfare economics until other exogenous equity concerns, propositions are introduced. That’s fine. But they’re also equity propositions. Another way of saying it is one may find Pareto optimality and “economic efficiency” normatively significant if one agrees the underlying equity proposition relating to the ethical significance of the status quo, if one agrees preserving status quo relations, equity at both levels.
