Unsound on Equality
In a recent speech I gave on inequality, I described the relevance of economics in a series of quotes thusly:
“Political economy you think is an enquiry into the nature and causes of wealth – I think it should rather be called an enquiry into the laws which determine the division of the produce of industry amongst the classes who concur in its formation” ~ Ricardo to Malthus correspondence, quoted in Sraffa, 1951
“The real scientific study of the distribution of wealth has, we must confess, scarcely yet begun. The conventional academic study of the so-called theory of distribution into rent, interest, wages, and profit is only remotely related to the subject. This subject, the causes and cures for the actual distribution of capital and income among real persons, is one of the many now in need of our best efforts as scientific students of society” ~ Irving Fisher, 1919
“Does Inequality in the distribution of income increase or decrease in the course of a country’s economic growth? What factors determine the secular level and trends of income inequalities? … These are broad questions in a field of study that has been plagued by looseness in definitions, unusual scarcity of data, and pressures of strongly held opinions.” ~ Kuznets, 1955
“I am wandering away from my usual concerns briefly to discuss an even more nagging and pervasive tradeoff, that between inequality and efficiency. It is in my view, our biggest socioeconomic tradeoff, and it plagues us in dozens of dimensions of social policy.” ~ Okun, 1975
“Of the tendencies that are harmful to sound economics, the most seductive, and my opinion the most poisonous, is to focus on questions of distribution … The potential for improving the lives of poor people by finding different ways of distributing current production is nothing [italics in original] compared to the apparent limitless potential of increasing production.” ~ Lucas, 2004
“Equality lacks relevance if the poor are growing richer.” McCloskey, 2014
The journey from being actively concerned, through a somewhat guilty admission of a lack of progress, to a stab at a general idea, thence to the notion of inequality as a cost of seeking growth, only to arrive, finally, at a patronizing dismissal of the entire topic is an arc of embarrassing failure.
It is an arc of abandonment of reality.
When we arrive in the world as seen through the eyes of Lucas and his students we realize that dogma has swept realism from the field. Concern for people has been tossed lightly overboard. Concern for the consequences of inequality are dismissed haughtily as concerns of those not interested in doing sound economics. Notice that word: “sound”. This is neat trick Lucas and his gang constantly play. The implication is brazen and absurd in equal measure. Only they actually do sound economics. Others do unsound economics and thus deserve no credit or attention. Lucas does not wear his arrogance well. Nor does he hide his contempt for society. All that matters is purity. Ideological and theoretic purity. Damn the consequences. And damn reality if it fails to conform.
A wonderful aspect of this commitment is that it allows its high priests to ignore the effects policies based on its tenets may have beyond the extraordinary narrow base upon which it all depends. Market magic is all that matters. And the supposed laws Lucas and his ilk have divined within market magic are applicable under all circumstances and are universally correct.
McCloskey bravely tries to cobble humanity onto the tail end of the Lucasian monster. Her solution to the question of growth is that answer lies outside of market magic and in the ethics of greed. This is just a backdoor way of reintroducing the same magic under a different moniker. The economics she describes undergirding the change in ethics is still Lucasian. It is supply side driven. It is still magic. At least it is dignified magic.
The Lucasian project simply tells us that since people are better off than in the past they ought to be happy. There is no need to right the wrongs of the past, all we need to do is replicate them at a higher level of prosperity. This is not “let them eat cake”, it is “let them eat a bigger cake, they ought be grateful either way”.
So we have learned nothing in two hundred years. Economics cannot explain why we are better off. It just contents itself with studying the allocation of a larger pie. Growth remains a mystery to be explained as a residual or simply as a pot load of better technology that appeared from somewhere and may, or may not, be part of the subject matter economists need to study. That the development of technology was not central to theories of growth from the outset is astonishing. That its eventual inclusion is presented as an intellectual triumph is distressing. Or growth is simply an adjunct of a magical twist in ethics whereupon greed became something we could dignify, and ought accept with humility and without question.
I wonder sometimes whether economists ever talk with anyone who is actually doing production. Or is that contact with reality too much? Would it stress the black box too much?
The almost painful ways in which economists avoid the complexities of real economies and instead jump straight to absurd simplifications is difficult to observe.
It is more difficult to stomach the outcome of this avoidance.
Equality is simply not important. Harrumph. Why not? Because its silly to discuss it when we all have more stuff than our ancestors. We, poor little dears, ought to sit back contentedly and let the titans of industry churn out the goodies we want, and accept our lot gratefully. We ought not worry our little minds about grown up topics like distribution of wealth and income. After all whatever the market decides in its mysterious and magical way is perfection itself. Tinkering with it can only undermine the great machine. The market will decide what’s fair and what’s unfair. That determination is not for humans to meddle with. We ought not try to play something we don’t understand. Apparently there are humans in the Lucasian marketplace.
Or is it that we ought not play with something that only Lucas and his disciples understand? They’ve been to the mountain. They have the tablets.
Us? Not so much.
We ask naughty questions.
We are unsound.
Maybe. But absurd we are not.
