Economics and the Good: Part II

Let’s briefly go over what we covered last time. When economists talk about ethical issues, they usually start with economic efficiency as a normative benchmark.  Efficiency means you can’t make someone better off without making someone worse off.  For any given distribution of income, if you reallocate resources from Al to Bob, you improve Bob’s welfare only by diminishing Al’s.  In competitive markets, efficiency has the interesting property of maximizing the dollar value of society’s resources.  If society’s resources did not command as high as a price as they could, it would mean there are unexploited gains from exchange. Those exchanges, once made, would make parties to the exchanges better off, and we could have additional winners without additional losers.

 

So far, so good.  But there are many unexamined assumptions behind economic efficiency and its desirability.  What are some of these assumptions?  To start, it’s important to remember that efficiency is defined with respect to people’s preferences.  Efficient situations entail people getting what they want.  This is why many economists don’t think efficiency advocacy is controversial.  After all, what could be wrong about people getting what they want?  Actually, it turns out a great deal could be wrong with it!  Imagine Al hates Bob and is willing to pay a million dollars to take out an assassination contract on him.  Bob likes being alive but is only able to pay half a million to bribe the assassin not to kill him.  While the assassination contract clearly fails the strict efficiency definition (nobody better off without somebody worse off), it fits the less stringent one (dollar maximization of goods/services).  But I would hope that no economists would reason from this that we ought to make assassination contracts legal on efficiency grounds!

 

More generally, we should be cautious in approving the lofty place efficiency has in most economists’ public policy recommendations.  Once we realize that there are plenty of situations where individuals ought not get what they want, efficiency becomes much less appealing as a policy goal.  Furthermore, efficient situations often entail distributional changes in resource allocations that can further burden those who are already struggling.  Economists tend to overlook this as long as the economic pie is getting bigger.  But surely it is reasonable to worry not just about the size of the pie, but who gets how big a slice.  This does not mean calls for distributive justice—many made by non-economists who do not have the training to recognize the disastrous probable consequences of their demands—ought to be acceded to unquestioningly.  But it does mean that there are valid ethical concerns that economists tend to ignore, because of what their analytical window allows them to see.

 

There is an entire world of ethical discourse outside of economists’ relatively narrow brand of consequentialism.  Economists are selling themselves short when they restrict themselves to the role of efficiency technocrats, rather than adapting their discipline’s invaluable tools towards the cultivation and preservation of a humane society.