The "experts" systematically ignore the experts. For example, Pisani-Ferry recommends that economists take a more granular approach and:
...economists should move beyond the (generally correct) observation that such distributional effects can be addressed through taxation and transfers, and work out how exactly that should happen. Yes, if a policy decision leads to aggregate gains, losers can in principle be compensated. But this is easier said than done.Except that this observation is not "generally correct" -- it is unacceptable nonsense. The so-called compensation principle has been studied to death and found to be utterly invalid. Never mind, though, it would be convenient for the experts if it was "generally correct" and if the losers could "in principle be compensated" and that's all that really matters.
4 comments:
Well, it's true that the losers could be compensated "in principle". However, economists should try and put some real-world expectations in their recommendations. Microsoft could "in principle" put all their patents into the public domain - but only an Ivory Tower recluse would use that as an argument in favor of extending patent protection periods.
No, it is not "true in principle." It may sometimes be possible to compensate the losers in principle but not necessarily. For example, if there is a large increase in military expenditures offset by a somewhat smaller decline in investment in home building then you are not going to compensate the losers by housing them in missile silos.
Economists have shied away from making the real-world expectations on the grounds that to do so would involve a value judgement and thus not be scientific. But, of course, the exclusion of value judgments is itself a value judgment so the whole thing is a cop out.
In Is The Road to Hell Paved with Pareto Improvements? I argue that the founding notiion of Pareto improvement incorporates a tacit ethical judgment and thus covertly violates its own injunction against interpersonal comparison of utilities. It does this by not noticing that the zero-sum and mutually beneficial cases are not exhaustive and that some outcomes are subject to prisoner's dilemma type dynamics.
We're saying the same thing - just because something is possible in principle doesn't mean that it will happen in practice. In your example, the effect of a large increase in military expenditures could "in principle" be offset by increased government housing subsidies.
In practice, of course, it wouldn't happen.
I agree that "just because something is possible in principle doesn't mean that i will happen in practice" but I'm arguing a further point: compensation is not necessarily possible, even in principle, unless we assume that either there are no scarcities of resources or that all goods are perfect substitutes for all other goods.
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