Last time out I suggested needless obfuscation often in the form of arcane theorems often takes the place of serious discussion of normative issues in dodgy academic economics promoting bad economics in the conservative style. How about as an example the Coase Theorem?
The Coase Theorem belongs to a line of inquiry relevant to the Fairy Land of Economic Theory concerning the conditions necessary for stylized, unreal market models to qualify as “perfectly competitive markets” and thus be associated with “economic efficiency.” The theorem basically looks at a category of “market failure” in the unreal models of the Fairy Land, in particular so-called “externalities” in which the costs or benefits of whatever it is accrue to people other than those exchanging a good in a market. It salvages the prospect of attaining “economic efficiency” in the presence of such externalities by demonstrating that under well-defined property rights and low transaction costs, the ciphers in such models can bargain their way to the “economically efficient” perfectly competitive outcome.
What’s the significance? Not much in reality, I would say, because “economic efficiency,” defined to be the only normative game in town in the Fairy Land, pales in significance in realistic contexts relative to other normative issues including interpersonal ethics. In the context of bad economics in the conservative style, the theorem is used in typical cart-before-the-horse fashion to stress economic efficiency doesn’t depend on how property rights are determined and to imply a normative argument the extent of the market should always be expanded. The first is not new by any means. A logical implication of recognizing but declaring exogenous interpersonal ethics of the sort that underlie property rights, for example, is that whatever contingent normative conclusions that remain will be independent of those ethics. The second is just false. Determining parties may bargain to “economic efficiency” if well-defined property rights established under low transaction costs does not mean resolving interpersonal conflicts of preferences as over resources is normatively superior in markets relative to alternatives.
How about a humorous example? Consider Mr. Burns’s sun blocking gizmo in The Simpsons TV show. It creates new property rights, a market, a new opportunity for economic efficiency. So, does the Coase Theorem establish we should have one, if possible? The theorem might be used rhetorically in an attempt to establish no one should object to Mr. Burns owning sunlight because it doesn’t matter who owns it for “economic efficiency,” but someone should own it, in order to generate “economic efficiency” in a market. This, of course, is just a repackaging of the central conceit of bad economics in the conservative style, which is to take the limited, restricted conclusions of the ethical half-theory (at most) of neoclassical welfare economics and pass it off as a full ethical theory relevant to reality.
As I’ve discussed many times, the preference ranks of individuals (called misleadingly as “utility”) that serve as the basis of the normative conclusions of neoclassical welfare economics as “economic efficiency” cannot address interpersonal ethics, resolve interpersonal conflicts of preferences. And again, once the artificial restrictions on preferences that apply to ciphers in the Fairy Land of economic theory are lifted and real people are acknowledged to have preferences also about broader normative, moral, ethical issues, “economic efficiency” can also not resolve issues in that area. And no, establishing property rights, then markets, where there were none before, cannot be shown using neoclassical welfare economics to be normatively, morally, ethically superior to not doing so because there are exogenous normative issues involved. Again, neoclassical welfare economic does not establish that in reality anyone will find desirable or optimal any given “economically efficient” outcome, let alone accepting it as normatively uncontroversial, given other normative issues. The theory does not purport to be a full ethical-theory.
It’s basically just the same old thing, with an extra layer of theory, one supposes meant to impress the unwary. A good, honest economist will acknowledge neoclassical welfare economics recognizes broader ethical concerns and, if those are at issue, the conclusions become moot. A bad, dishonest, conservative economist will try to do a bait and switch by demonstrating restricted, limited neoclassical welfare economics is generally normatively non-controversial under conditions in the Fairy Land, then promptly forget the restrictions, limitations, and context in reality. Why do that? To promote one’s own normative, moral, ethical views on some issue in the real world using false, insincere, underhanded rhetorical chicanery as playing with words and adducing theorems meant to provide a veneer of intellectual rigor but that are actually beside the point. The argument belongs to the economically, morally, clueless crowd in contexts like law and bad economics. Just plain old bad economics in the conservative style gussied up for those looking for some extra rhetorical flourish to use on behalf of money, economic power, establishment elites.
When confronting bad economics in the conservative style, keep your attention on the fundamental normative issues. Don’t be led down weird rabbit holes by twee theorems and elaborate mathematical demonstrations of trivial matters. They do that sort of thing for rhetorical purposes. Ignore it.
