Dives and Lazarus: An Economic Fairytale

by Henry on November 26, 2011

And so, in yet another triumph, the market mechanism has allocated a scarce resource, viz., the turkey, to its most efficient use, viz., being turned into artificial shit. What makes this the most efficient use of the scarce resource? Why, simply that it goes to the user who will pay the highest price for it.

More here from Cosma.

{ 65 comments }

1

Watson Ladd 11.26.11 at 4:35 pm

Someone has read their Grundrisse I see, only this time with gratuitous conceptual art bashing.

2

bianca steele 11.26.11 at 5:07 pm

I assume there is an allusion to Wallace’s story “The Suffering Channel.”

3

William Timberman 11.26.11 at 6:24 pm

Watson Ladd @ 1

Nicely done. As nicely done, in fact, as Cosma’s original post. All that’s lacking is a final movement from Brad DeLong (maestoso, ma non troppo) noting once again that Marx was wrong.

4

Brad DeLong 11.26.11 at 6:31 pm

Actually, here Marx was right: unless the distribution of wealth is correct ex ante, the free-market equilibrium alienates us from our species-being…

5

William Timberman 11.26.11 at 6:40 pm

Brad DeLong @ 4

I have to admit it, you’re more instructive and more fun to read these days than almost anyone else. That I also don’t have to pay to read you is truly amazing. Maybe the Internet will save us after all.

6

Cosma Shalizi 11.26.11 at 7:10 pm

Someone has read their Grundrisse I see

Actually, no. Thank you for playing.

7

cian 11.26.11 at 7:46 pm

Watson, you really do not want to pick a fight with Cosma.

8

Barry Freed 11.26.11 at 7:58 pm

Don’t listen to cian, Watson, sure ya do.

*gets popcorn, waits expectantly*

9

Meredith 11.26.11 at 11:01 pm

As someone completely in sympathy with Cosma here, let me play devil’s advocate. Over time, wouldn’t the society functioning through an economy in which every Alice sold to every Dives rather than to every Lazarus eventually starve to death? (And isn’t that what may eventually happen in our own? I’m thinking global warming, especially.)

10

Glen Tomkins 11.27.11 at 1:28 am

“As Sen said, the same market would feed the hungry if they could afford it, so the way to combat famines is to make sure they have money or paying work or both.”

Well, you could also make sure that Dives doesn’t have $5,000 kicking around to spend fatuously keeping Lazarus from getting the turkey for a dime. This policy would also make sure that Dives doesn’t use the same $5,000, or any other excess money he would have accumulated in the absence of appopriate taxation levels, inflating bubbles and creating economic weapons of mass destruction.

11

Watson Ladd 11.27.11 at 2:42 am

Cosma, this argument appears in the Grundrisse in the section discussing the alienation of the worker eventually becoming his death by starvation and the cultivation of the senses. Now, my edition of the Grundrisse is trapped in Chicago, but I will get to it and find a citation. So Marx anticipated the argument. But he goes further: more then just a society in which people can do bad things through lack of charity, capital is a society with a dynamic that affects how one relates to things. The worker instrumentalizes himself in ways that prohibit his development of any sort of culture or appreciation. He comes to feel his hovel is part of him. In a sense the robber barons have done us a big favor by preserving the bourgeois art even as they worsen the conditions under which it makes sense.

The crucial distinction is between bourgeois society and industrial society. Industrial society produces the conditions for a mass social organization devoted to ensuring that everyone can flourish. But it also makes that possibility more distant. None of this has to do with the fact that those with nothing to sell starve: its not a question of giving people things to trade but rather enabling them to satisfy their needs. Everyone can be bourgeois, no one is guarantied to succeed in that. There is an emancipatory side to capitalist social relations that just focusing on distribution ignores, namely that it’s a global society everyone is a part of.

12

dictateursanguinaire 11.27.11 at 8:57 am

8 wins thread

13

Walt 11.27.11 at 9:21 am

Watson, I think you’re misunderstanding the argument that Cosma is making. There’s an economic notion called “Pareto optimality”. In some sense, it’s a purely mathematical notion that can be applied to any social arrangement, not just capitalism. Cosma is pointing out that the definition permits absurd outcomes.

Cosma also disclaims at the very top that the point he’s making isn’t very original, and that it should be obvious who knows anything about the subject. I hope to God that he’s right on this one, and that everyone who hears the definition immediately invents an absurd social satire. (When I first heard the definition, my reaction was to make up an example of Pareto optimality where third parties had “right to kill” permits to kill individual people that are traded on markets.)

14

John Quiggin 11.27.11 at 10:47 am

A minor correction – there’s no theoretical prediction for the price in this case, except that it should be between 11 cents and $5000. The auctioneer is just as indifferent regarding Alice and Dives as regarding Dives and Lazarus.

15

Watson Ladd 11.27.11 at 3:00 pm

Walt, the turkey going to Dives also is on the Pareto frontier.

16

Cosma Shalizi 11.27.11 at 3:19 pm

14: Cheerfully accepted, and the post accordingly updated.

13: Yes, I was making a point about Pareto optimality, and also about the idea that markets allocate resources “efficiently”, which even Brad is apt to trust too much.

10: While I am very much on board with those proposals, Lazarus still starves if Dives has, and is willing to spend, so much as 11 cents.

9: That does indeed seem like a plausible outcome, but it would come to pass through “efficiently” using resources every step of the way.

11: Since the relevant concepts and theorems of welfare economics post-date Capital [alternate link], you will permit me to doubt that Marx ever made this argument anywhere. My point, once again, is not about whether capitalism and industrialism are better, on balance, than the idiocy of rural life, but about whether it is really wise to be guided by the ideas of welfare economics.

That said, I am inclined to think you are confusing the Grundrisse with the third of the Economic and Philosophic Manuscripts of 1844.

17

Watson Ladd 11.27.11 at 4:03 pm

Cosma, you are correct about my confusion of the two. Nevertheless on page 104-105 of the Tucker Marx-Engles Reader we see “If I have no money for travel, I have no need, that is no real and self-realizing need-to travel. If i have the vocation for study but no money for itI have no vocation for study-that is no effective, no true vocation.” and earlier in the Manuscripts we have Marx remarking on slavery as an example of the alienation of political economy from ethics. (page 97) So Marx did argue that economic rationality could lead to bad outcomes from a moral perspective, even if the bagmen of free trade was Bastiat and not Friedman.

18

William Timberman 11.27.11 at 5:03 pm

A fascinating thread, rich with pointers to external wonders. The Bagmen of Free Trade indeed. They’re everywhere these days, aren’t they? So a penny for the Old Guy: poor, bedraggled, carbuncular old Marx — starving his wife and children, scrabbling in unfamiliar territory for bricks suitable for the towers of the New Jerusalem — ending up dead long before he managed to find them all, his memory cursed by the homages rendered to him by a long parade of cold-blooded exterminators.

Will capitalism in the end do better than his predictions? Ten years ago the bookies wouldn’t even have bothered. Now I wonder. Lots of capitalist whistlers past lots of graveyards, but nothing which convinces even those, like yours truly, who are still mired in the idiocies of village life, that their way is any more salvageable than his proved to be.

19

Watson Ladd 11.27.11 at 5:23 pm

William, come again? I’m sure there is something interesting beneath that mass of metonymy, but I’m not sure what. Anyway, from what I can tell it seems like there are no bagmen because no one is really trying to overthrow capital. Occupy Wall Street is no Second International! Even if the capitalist system enters into crisis and reconstitution the free sale of labor will continue.

20

Luis Enrique 11.27.11 at 5:38 pm

” it is really wise to be guided by the ideas of welfare economics.”

I have a nasty feeling I’m about to make a fool of myself, but don’t welfare economists say that if you start in a shitty position the market delivers shitty outcomes, isnt that what one of those welfare theorems is all about?, and dont they also emphasise that pareto optimality is a very poor judge of optimality in any broader sense and talk about social welfare functions that may differ wildly from market outcomes? At least, the lecturers that taught me did.

But I’m probably missing something

21

William Timberman 11.27.11 at 5:56 pm

Yes, I know, Watson. CT deals in facts, and careful extrapolations from those facts. Above all, careful, above all free of frivolous metaphor. Expertise isn’t a devalued commodity here, as it is elsewhere among Serious People, and good on all concerned, yet even experts need an attentive and engaged audience which extends beyond the circle of their expert colleagues. Otherwise, why go to the trouble to set up up a blog, or write for the NYT? You might say I’m just doing my job, although I do admit that no one hired me to pose as the Layman’s Trumpet, and probably wouldn’t, even if such jobs actually existed.

In any case, the problem I have with the good people grappling seriously here and elsewhere with the nuts and bolts of macroeconomic policy, and all the associated difficulties of political legitimacy, is the forest and trees problem. If OWS isn’t to be the New International (your idea of the numbering and mine differ somewhat), then where should we look for it? That really is the question isn’t it? Even if I concede that what we need to do isn’t controversial, how we should go about doing it is as much a mystery as it was before Cosma’s fields of study even existed.

22

P O'Neill 11.27.11 at 7:37 pm

Note the uselessness of tax cuts/”clever” subsidies in this framework. Even if the tax cuts were (1) only for Lazarus, (2) refundable i.e. he can receive payment in excess of liability and (3) fully funded by transfer from Dives — all features opposed by Republicans yet which maximize their impact — nothing about the structure of the outcome changes until the transfers bring their incomes much closer together.

23

Watson Ladd 11.27.11 at 10:32 pm

William, I meant second in the sense that the Second International overthrew capitalism in Russia, while others didn’t. OWS isn’t the second coming of Communism but rather cannot aspire to be that overcoming, which I think we both agree on. I also think we both agree that even if the future changes we want could be agreed on, the political forces that could make them don’t exist or aren’t apparent. Where you and I probably differ is that I think this is the result of not thinking through the past history of the Left, and we can right now only aspire to bring that issue into focus rather then start building the revolution now.

24

Malaclypse 11.27.11 at 10:52 pm

William, I meant second in the sense that the Second International overthrew capitalism in Russia, while others didn’t.

I Happen to Have Marshall McLuhan Right Here.

25

William Timberman 11.27.11 at 11:39 pm

Yes, Watson, I realized what you meant after I posted. And in fact I agree with you particularly with regard to the limitations on what we can aspire to right now. That’s why I limit my comments here to sometimes fanciful exhortations, while taking what I learn and trying to apply it to my dealings elsewhere.

I wave signs on street corners, do grunt work and fundraising for the Democratic Party, while also bitching at the county and state apparatchiks where appropriate. I collaborate on an AM progressive talk radio show, where I do a sort of populist Keynes was right shtick with themes borrowed not only from what the unfortunate Professor Williamson not so long ago called the Krugman/Thoma/DeLong League, but also from its Australian farm team. Last week I moderated a teach-in on what OWS wants attended by a grand total of 43 people. Penny-ante stuff, to be sure — and in AZ, where it actually might be more useful to preach to rocks in the desert. (Which, to be honest, I wouldn’t mind doing, if I thought I could come back later and baptize an actual messiah.)

No, I’m by no means a revolutionary, but I think that in spirit, if not in fact, Marx was more perceptive about what free labor actually implies than just about anyone else before, during or since. Free labor can so easily result in nothing more than atomization, fragmentation, alienation, and finally defenselessness, and the collective defenses inherited from earlier stages of historical development, even with all their modifications since, have simply not kept pace with the concentrated forces of capital that are now arrayed against them.

Even after we’ve said all anyone can say about gentlemanly ways around the political obstacles which threaten a sedate and beneficial social democracy, recent events seem to me poised to make nonsense of even our most modest aspirations on that front. My own instinct is that if, in the face of a credible threat of chaos and mayhem, we voluntarily restrict our aspirations to bringing issues into focus, we should concentrate on how to manage a complex political economy with, to coin a phrase, a decent respect to the opinions of mankind. That would do for starters, anyway.

26

Watson Ladd 11.28.11 at 1:10 am

Malacapyse, the Third International isn’t until after 1919. So Lenin was still in the Second International and indeed was prominent in it. All the Old Bolsheviks had earned their credentials in the party during its second international period, even as the German party screwed up in a big way on the eve of war. Lenin, Luxemburg, and Trotsky are commonly called the Second International radicals as a result of this, even if the International had collapsed by the time of the Revolution.

William, in a twisted way I am more optimistic then you. I can feel confident that someday there will be a Left again if Platypus succeeds. A social democratic rearguard action was once the start of a major revolutionary movement. Perhaps someday this will happen again, once the history of the Left to this moment is processed. By contrast it seems that the best you can hope for is the welfare state, whose proponents range from the cautious (Quiggen) to the outright fascist (Tony Judt). I doubt that’s what anyone on the Left in the 1973’s wanted: a return to the conditions they had rebelled against a few years earlier.

27

William Timberman 11.28.11 at 2:03 am

No, being an old fart, I can confirm that it most definitely wasn’t what any of us wanted. The idea that the same apparatus which oversaw our New Deal social democracy could also moonlight as the wheelhouse of global imperialism was anathema to us. I still remember the horror amongst my embryonic sociologist grad student friends when Ramparts blew the whistle on Michigan State’s involvement in the Strategic Hamlet program. If we’d lacked a certain clarity about who owned us before that moment, we were certainly never in any doubt afterward.

28

geo 11.28.11 at 4:11 am

Watson @26: Tony Judt was an outright fascist?

29

Henry 11.28.11 at 4:49 am

Watson – you’re on crack. Your amusement value is rapidly being outweighted by your annoying prolixity.

30

bob mcmanus 11.28.11 at 6:31 am

Tony Judt in Ill Fares the Land almost, but not quite rises to the status of tragic figure, almost asks “What Have I Done?”

He came closer to insight than many of his anti-communist allies in the liberal and social democratic community, who are looking around now and asking “Where is the Left? What happened?”

31

William Timberman 11.28.11 at 7:22 am

Tony Judt was a thoughtful man, and never, as I read him at least, a callous or vicious one, and never an ideologue, much less anything remotely resembling a fascist. Chapter 6 of Postwar is coldly eloquent about the reasons why, despite misgivings about what their own governments were up to, many thoughtful people in the West became fervent anti-communists after the war. Whatever the Left is now, or will be in the future, it can’t wish away what it was then.

Anyone looking for a contemporary example of the virtue of thinking one’s own thoughts, and keeping one’s own counsel, or an antidote to the fear-driven ideological solipsism which always seems to get us into the worst kind of trouble, Tony Judt’s work is there to provide it. It’s really too bad that he wasn’t allowed to live long enough to provide us with a lot more of it.

32

Henri Vieuxtemps 11.28.11 at 10:14 am

As the guys says, at the bottom of his piece, economic efficiency can be a useful tool, just shouldn’t be idolized. What does any of it have to do with numbered Internationals?

33

Leinad 11.28.11 at 12:42 pm

It’s just one of the laws of Trotskydynamics: Internationals once mentioned will overtake the previous topic, to a degree inverse to their relevance to same.

34

Matt McIrvin 11.28.11 at 1:36 pm

As devil’s advocate here, I think I know what the supply-side retort would be: it’s that the supply of turkey dinners in this situation is too small. In the actual situation described in the thought experiment, you’d actually have to give $5000.01 to Lazarus to keep him from starving, but it seems unreasonable to base welfare payments on the need to outbid extravagant conceptual artists. On the other hand, people who are like Dives are in limited supply, and if we can somehow persuade Alice to make two turkey dinners, the Pareto-optimal solution leaves Lazarus alive even if we give him nothing.

And it’s there, I think, that the real disagreements come in, because the question becomes how we make it worth Alice’s while to make that second turkey dinner. The supply-side claim is that if we cut Alice’s expenses enough, by cutting her taxes, deregulating her suppliers, letting her hire people who are as bad off as Lazarus for a penny a day, etc., she’ll actually be able to sell that turkey dinner for ten cents at a profit. The Keynesian claim is that it makes more sense to just give Lazarus enough money that he can buy the second one at a modest profit for Alice.

35

reason 11.28.11 at 2:55 pm

Matt McIrvin @34

I think we can do this just as easily with a real example. Lets imagine that stocks of basic grain are very low because of the failure of the Russian crop due to a drought and the Indian crop due to floods, and we have a global speculator (lets call him Morgan Goldman for short) who sees an opportunity for making a profit by buying substantial amounts of next years grain and removing parts of it from world markets for a few months in the northern winter to make the world really desperate in order to increase the value of his holdings (betting on the long range forecast of another bad harvest). Nothing illegal and markets are working as they should – BUT ….

36

reason 11.28.11 at 2:57 pm

P.S. You can do the same thing with a sudden and massive increase in the popularity of golf, and add fossil acquifers, peak phosphate and algal blooms into the mix.

37

ajay 11.28.11 at 2:59 pm

The supply-side claim is that if we cut Alice’s expenses enough, by cutting her taxes, deregulating her suppliers, letting her hire people who are as bad off as Lazarus for a penny a day, etc., she’ll actually be able to sell that turkey dinner for ten cents at a profit.

Or, alternatively, if the government just gets the hell out of the way then there will be nothing to stop Lazarus from starting his own restaurant.

38

reason 11.28.11 at 3:01 pm

Brad Delong
“Actually, here Marx was right: unless the distribution of wealth is correct ex ante, the free-market equilibrium alienates us from our species-being…”

But can’t we know what the “correct” distribution of wealth means first ex post?

39

reason 11.28.11 at 3:04 pm

ajay @37

That is pretty clever given how he has just starved.

40

ajay 11.28.11 at 3:35 pm

If you’re David Frum, the answer is obvious: Lazarus needs to eat Dives. (See Holbo, “Dead Right”).

41

Henri Vieuxtemps 11.28.11 at 3:48 pm

I thought he’s called Lazarus because he’s going to be resurrected anyway. So, he ain’t got nothing to worry about.

42

reason 11.28.11 at 4:03 pm

Henri Vieuxtemps
yeah that was the obvious punchline. Some one had to do it I suppose.

43

bianca steele 11.28.11 at 4:10 pm

There’s a possible solution whereby Lazarus no longer needs to get his food on the open market, namely providing him a wife, or at least helping him get it together enough that he can get married. Viz. all those Douthat and Brooks columns about how marriage and family life cause economic security.

44

bianca steele 11.28.11 at 4:11 pm

Or maybe he has a sister who’s slacking off.

45

William Timberman 11.28.11 at 4:29 pm

reason @ 38

If we see lots of pitchforks and torches when we step out on our balcony, we can presume that we got it wrong. It would be nice if we had a way of making earlier and more precise measurements, but the state of current technology unfortunately doesn’t allow us to.

46

Watson Ladd 11.28.11 at 5:45 pm

geo, Henry, Bob: In Ill Fares The Land Judt writes “The kind of society where trust is widespread is likely to be fairly compact and quite homogeneous.” I don’t see a distinction between that and any other racist calling for separate but equal, do you? So the ideology he calls for is one that has socialism on the basis of national identity. Add that to his love of collective life, and I think we can all imagine the world he wants to live in: lily-white, socialist, and nationalist. Hard to see it as anything but fascist. Anyway, Henry told me to stop commenting for a week, so this will be my last comment.

47

William Timberman 11.28.11 at 5:51 pm

Henry V @ 32

It has to do with what we’re now pleased to call — in the European context, at least — the democratic deficit. Yes, our little foray into Marx et al. was a digression, but the politics of who gets to split our resource allocation hairs is as current as today’s headlines. Despite its contribution to our understanding of the technical management of who gets what under what circumstances, welfare economics can’t do much to resolve the associated political problems, which are as thorny today as they were when the Internationals were still just a gleam in the old boy’s eye. Yes, all the smart folks know this already, thank you, but then here we are again anyway…aren’t we?

48

William Eric Uspal 11.28.11 at 6:19 pm

‘In Ill Fares The Land Judt writes “The kind of society where trust is widespread is likely to be fairly compact and quite homogeneous.” I don’t see a distinction between that and any other racist calling for separate but equal, do you?’

I don’t have my copy of IFTL at hand, but surely this is an empirical observation, not a prescription. Roemer makes similar remarks in A Future for Socialism, suggesting that the generalizability of the Nordic model may be limited.

I do think that the corporatism and soft nationalism inherent in folkhemmentish ideology ought to be more widely discussed (especially among leftish Americans, for whom Sweden is the land of Really Existing Social Democracy.) Sheri Berman is interesting on this; she thinks the flexible revisionism of Swedish Social Democracy forestalled the development of a local fascism.

49

Jeffrey Davis 11.28.11 at 7:04 pm

The point of the original parable is that God is going to fry Dives for not heeding the prophets.

Apt pun supplied upon request.

50

Henry 11.29.11 at 1:53 am

Watson – given that you’ve commented despite my telling you to go away for a week, and supplied us with some quite extraordinary reasoning to boot, please don’t bother coming back to my threads again, ever. You don’t add anything and you distract quite a lot. kthxbai.

51

Meredith 11.29.11 at 7:11 am

I love parables.
Alice has fed herself. Dives is not hungry. Only Lazarus is hungry, desperately hungry.
Now. Today.
What about tomorrow? Alice and Dives will need to eat again at some point. Each of them is already Lazarus, too, even if neither yet (or ever) realizes it.

I’ll probably mangle this wonderful parable, attributed (as I recall) to Hillel. Sorry.
Hell:
A group of people wander hungrily through the snowy cold forest till they sight a copse, wherein is a cozy cottage, smoke rising from its chimney. They enter. A table is laid out with a huge, steaming pot of soup at the center. They seat themselves and pick up their spoons — very, very long handles these spoons have, and each person struggles unsuccessfully to maneuver his or her soup-filled spoon to his or her mouth. They all die.
Heaven:
Same scenario. But each person extends his or her soup-filled, long-handled spoon to another person at the table, and everyone eats to the full.

My elaboration (inspired, perhaps, by a very happy Thanksgiving): as all those long-handled spoons criss-cross and clang over the table, a good deal of soup slops onto the table (what waste! and who’s going to get those stains out of the tablecloth?). And between the slurpy spoonfuls that everyone eventually enjoys, a great deal of laughter.

52

ajay 11.29.11 at 3:11 pm

I always wonder why you couldn’t just hold the soup spoon further down.

53

Tim Wilkinson 11.29.11 at 5:26 pm

Because a spoon that long has quite a hefty pommel (etc).

But even if a satisfying explanation can be found for the events depicted, the problem of mapping the analogy onto some real-world target phenomena in any detail remains. (Sorry Meredith, nothing personal.)

54

Meredith 11.29.11 at 5:31 pm

Well yes, detailed mapping remains the challenge. But it helps when getting deep among the trees to keep the larger forest in mind. For instance, Merkel et al. might benefit from reflecting on these parables.

55

Barry Freed 11.29.11 at 5:51 pm

There is no spoon.

(Please don’t beat me, I’m so very sorry)

56

Neil B. 11.30.11 at 12:50 am

Classical economics has made the grotesque error of presuming that “rational” means trying to maximize your own individual advantage. However, a truly rational being would try to see things as objectively as possible, and not consider himself any more important than anyone else (because he isn’t.) The most rational choice is to minimize misery and maximize the relative good. Since being alive at all is of great value to Lazarus, and getting some more satisfaction is of relatively minor value to Dives, rational beings would all agree on what to do as the single objective good: save Lazarus.

This conception of rationality is more legitimate because, as in science, the agents can actually agree on *what* is the actual best course of action – rather than varying and contradictory relative courses from their own perspective. True rational beings know that “I” versus “you” are just relative pronouns, not actual categories of thing that can be *logically* treated as genuinely different (like “circles” versus “squares.”) Such beings are taking a sort of “bird’s eye view” of reality, which is true objectivity. This is ironic given the complete reversal of this genuine rational perspective in “Objectivism.” Yet actually, self-interest is the height of sentimental unreality (“I” am more important and worthy than “them”, even though those are not true descriptive distinctions.)

57

bxg 11.30.11 at 6:02 am

I’m confused by the original article, and the comments are even bewildering to me (I need to work out – or care – what “N” is in “the N’th International would have ‘liked’ this post” ??!).

I’ve seen no end of dangerous economic arguments that rest on the claim/assumption that a non-Pareto-optimal solution is bad (because, if you just hand-wave away many actually rather important things, we can theoretically make things better with no one objecting to the change). This line of reasons seems worthy of dissection and criticism.

But to be fair on the other side, I don’t think I remember anything or anyone serious claim that if an outcome is Pareto optimal it is therefore _good_. In fact, personally, I don’t think I’ve seen a treatment of this doesn’t _actively_ warn against this mis-conclusion. So what/who is the original story supposed to be educating us against?

58

Tim Wilkinson 11.30.11 at 2:02 pm

bxg – the point would be that notwithstanding token caveats, market ‘efficiency’ is Pareto optimality, and ‘efficient’ outcomes, and thus the markets which are supposed to deliver them, are indeed treated as being good by ‘serious’ people.

59

William Timberman 11.30.11 at 2:38 pm

To 57 and 58 I would add that the while technocrats are responsible for writing scripture, it’s the usual suspects who most often quote it to their own purposes. So, pareto optimal often winds up meaning little more than screw the powerless, as Tim W. implies above. And as we saw so very recently, when the quants warned that under certain conditions, not entirely accounted for in their models, risk-spreading became risk-concentrating, nobody laughing on the top floors of the bank towers paid them any mind.

Internationals may be unhelpful handwaving to the smart folks, but if anyone in recent days has dropped the burden of proof, it’s been those very same smart folks. My little iPad CNN pop-up greeted me this morning with U.S. Federal Reserve, acting with other nations’ central banks, takes steps to support the global financial system. Should I hold my breath, d’ya think?

60

bxg 12.01.11 at 4:02 am

> “…market ‘efficiency’ is Pareto optimality…”

O.k., I just don’t believe people generally say this, token caveats or not. Yes, “efficiency” arguments need a lot of criticism. But to say (in effect), efficiency _is_ Pareto Optimality and then – look how silly the latter clearly is as criteria of goodness so the proponents of efficiency are stupid/evil- seem intellectually doubtful.
I understand both the “efficienvy is good” and the “efficiency => P.O” memes. Can anyone offer “mainstream” examples of someone, no matter how odious they may be, saying that in general “P.O. => efficiency that thus a P.O. outcome is a good one”?
Because I’m only coming up with extreme liberation bloggers when I think of the claim “any society which refuses to makes a single individual the tiniest bit unhappier no matter how much everyone else is happier [i.e. not P.O.]” is _good _society”. Actually, you can s/good/efficient/, and I’m _still_ drawing a blank. No text book. Not course work. No Op-Eds in the WSJ. Not Hedge-Fund-Weekly-Guide-To-XXXXing the 99%. Not by serious people. Not by the usual suspects. I haven’t read enough, so please help me!

Can someone submit a counterexample. Concrete? Boiling down to “If it’s P.O., it’s good”?. I do get “if it’s not P.O. it’s bad”, which though wrong is an utterly different and only loosely related claim.

61

Tim Wilkinson 12.01.11 at 4:03 pm

Yes, I found it hard to believe when, having walked through the fomrality of an economics A-level, I arrived at Oxford expecting to get the real grown-up version, and instead found that my tutors (the more junior ones at least) were still mired in the 50sd Cold War orthodox bullshit as concocted by Samuelson, Debreu etc.

Let me be quite clear and distinct about it. Pareto optimality is also called Pareto efficiency, and that is what economists are referring to when they use the term ‘efficiency’. That is what ‘efficient’ means, to provide a central example, in the expression ‘efficient markets’.

While – for the avoidance of doubt – I’m not accusing you of being disingenuous, your remarks about efficiency and ‘efficiency’ could be taken as a standard kind of equivocation – known in these parts as the ‘two-step of terrific triviality’. ‘Efficiency’ as used by (mainstream, neoclassical, what-have-you) economists taking a front-foot stance is indeed Pareto efficiency, even if they might (I suppose) try to deny it – or more relaistically – deny that they are comitted to it – when pinned down.

Supposing that they are actually being colloquial and using some informal and less determinate concept of efficiency is hardly workable in this case though – they really don’t have one to offer, because the raft of c0ncepts like revealed preference, interpersonal incommensurability of utility, individual property ownership as the general form of goods, etc that was built up in the 50s has a kind of coherence which means individual elements can’t really be altered piecemeal.

Actually, your requests for examples remind of nothing so much as Dershowitz’s response to complaints that defenders of Israeli state actions tend to assimilate criticism of Israel to the category of ‘antisemitism’. It’s a bravura biot of bullshit – he offered some impressive-sounding sum of money (good luck with claiming it in the courts) to anyone who could find an example of a ‘Jewish leader’ whatever exactly that is – stating that critcism of Israel is antisemitic per se. Which is exactly what those inviolved in a smear tactic will not commit themselves to doing.

You version is bordering on the demand that you not only be given an example of some myuthically ‘serious’ person explicitly stating that by efficiency they mean Pareto efficicncy, but also explicitly drawing out all the consequences that make this an unattractive position. While you’re at it, why not demand that this unimpeachably serious person also actually state that their opinion is stupid and wrong,?

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Tim Wilkinson 12.01.11 at 4:05 pm

Apologs for ty[pos

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Sebastian 12.01.11 at 4:41 pm

Shorter Tim: straw man arguments cannot exist.

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Donald Johnson 12.01.11 at 5:19 pm

“Classical economics has made the grotesque error of presuming that “rational” means trying to maximize your own individual advantage. However, a truly rational being would try to see things as objectively as possible, and not consider himself any more important than anyone else (because he isn’t.) The most rational choice is to minimize misery and maximize the relative good.”

I like that. I don’t live up to it, but that’s because selfishness makes me irrational.

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Tim Wilkinson 12.01.11 at 5:58 pm

No, Sebastian – shorter Tim is: Pareto optimality is also called Pareto efficiency, and that is what economists are referring to when they use the term ‘efficiency’.

You don’t deny this, I assume?

On this business about straw man arguments, if you would supply a ‘longer Sebastian’, so that I can narrow down exactly where you’ve gone wrong, I will happily refute whatever point you are making (or, alternatively as a theoretical possibly, accept it).

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