Equity and Efficiency

Tuesday we will begin working meticulously through Ehrenberg and Smith’s Labor Economics. It is common for labor economists to differentiate between equity and efficiency when talking about labor policy and Ehrenberg and Smith are no exception. They share the widespread conviction that, because it is easier to model mathematically, efficiency is much easier to measure than equity:

Normative economics tends to stress efficiency over equity considerations, not because it is more important but because it can be analyzed more scientifically. For a transaction to be mutually beneficial, all that is required is for each party individually to feel better off. Thus, studying voluntary transactions (that is, market behavior) is useful when taking economic efficiency into account (12).

And, yet, on some level this misrepresents the choice being offered. Since Immanuel Kant we have known that for ethics to enjoy validity they must be transcendentally determined; that is to say, they must be grounded in the freedom enjoyed by the transcendental subject. However, since ethics are transcendentally determined, they do not lend themselves to rigorous mathematical modeling. Or, if you prefer, once made subject to rigorous mathematical modeling, they lose their ethical character and fall either under marginal or, better, positive economics. But this means that whenever we cross the line from marginal or positive economic analysis we suddenly find ourselves incapable of lending mathematical rigor to our claims. Considerations of efficiency are not used more often simply because they can be analyzed more scientifically. They are used more often because considerations of equity arise from the transcendental realm of freedom where causal explanations no longer enjoy validity.

Like GWF Hegel, however, we might wonder how this can be so; if ethics seem to occupy so central a position in our lives and world, how can it be that they are immune to forms of analysis that otherwise seem so vital to who we are and how we are in the world?  Let us assume, however, that some ethical goal, zero carbon emissions, is worth achieving since it is a condition of human life on the planet. (In this example, it does not matter whether or not this is actually the case. Perhaps increased carbon does not threaten human life; or perhaps human life is not a value. Even if zero emissions is not a goal worth achieving, we can nevertheless make this assumption and then observe how this plays out.)

Since it does not fall under the transcendental critique, we are no longer prevented from introducing causal mechanisms to account for the goal of zero emissions. We are now free to explore the conditions that would make it so. What are those conditions? Climate scientists are inclined to reduce this question to a matter of carbon reductions, but then (like Kant) to place social, political, and economic considerations to one side (as though political action, social location, and knowledge fell outside the causal nexus). Yet, clearly, the obstacles in the path of achieving zero emission are political, social, and informational. The question then becomes, can we think about politics, social location, and knowledge economically? And the answer is yes, we can.

Let us assume that, as we move up the income hierarchy, there is a direct and positive correlation between acknowledging the validity of climate science and wealth. Let us also assume that, as their human and cultural capital increase, political actors are more inclined to vote for policy makers who acknowledge the validity of climate science and to enact policies designed to reduce carbon emissions. And let us further assume that social security — i.e., security against threats from social, political, economic, or medical disturbances — is also positively correlated to acknowledging the validity of climate science.

Since we know the economic costs of climate change and can also measure the costs of raising the levels of social and human capital sufficiently to bring political actors to acknowledge the validity of and enact public policy effecting reductions in carbon emissions, we can also develop a multivariate equation that will identify where we will realize our greatest marginal benefit in the pursuit of zero carbon emissions.

Using this multivariate approach, we bypass objections arising from the standard approach that treats raising human and cultural capital levels as though it were (only) a matter of equity (i.e., transcendental freedom) and therefore not subject to rigorous mathematical modeling. Notice, we are not arguing that raising income levels, educational levels, or social security are goals worth achieving on account of equity. Rather are we arguing that such income levels, educational levels, and levels of social security are positively correlated to recognizing the validity of climate science and preferring policy makers who will pass and enforce effective climate change legislation. (Incidentally, we could imagine more authoritarian or totalitarian social formations under which education and income levels and social security are not correlated. For example, when pollution levels in Beijing rise to unacceptable levels policy makers can issue orders to reduce these levels and can take steps to make this so.)

More importantly, however, this alternative approach illustrates how choices are not in fact transcendentally determined but are intimately related to levels of income, education, and social security, which may help to explain why the standard approach, which treats income, education, and social security as matters of equity, invariably falls short of its mark. (In Europe, where legally and institutionally Hegel is held in much higher esteem than Kant, social actors are more inclined to see health, education, security, and welfare as socially generalized goods elevating the welfare of all of society and not merely individual goods or rights.)

This suggests, however, a general retheorizing of labor economics, part of which would entail the elimination of the distinction between matters of equity and matters of efficiency.

The Interregnum

As I surveyed my news outlets this morning (WSJ, NYT, Guardian, NPR), I suddenly found myself (as I am sure you found yourself) thinking  of Plato following the death of Socrates. Socrates had been right, had he not? Periclean democracy was a sham — an illustration of Gorgias’ fine art, rhetoric or speech-making: marketing.

SOCRATES: You said just now that even on matters of health the orator will be more convincing than the doctor.
GORGIAS: Before a mass audience – yes, I did.
SOCRATES: A mass audience means an ignorant audience, doesn’t it? He won’t be more convincing than the doctor before experts, I presume.
SOCRATES: Now, if he is more convincing than the doctor then does he turn out to be more convincing than the expert?
GORGIAS: Naturally.
SOCRATES: Not being a doctor, of course?
GORGIAS: Of course.
SOCRATES: And the non-doctor, presumably, is ignorant of what the doctor knows?
GORGIAS: Obviously.
SOCRATES: So when the orator is more convincing than the doctor, what happens is that an ignorant person is more convincing than the expert before an equally ignorant audience. Is this what happens?
GORGIAS: This is what happens in that case, no doubt. (459a-459b)

If Gorgias illustrates the fine art practiced by Athens’ politicians and if the Athenian courts are now packed with the ignorant who fall for Gorgias’ fine art, then clearly Socrates is at risk for publicizing his disdain for the politicians who will charge Socrates and the citizens who will weigh his innocence and guilt.

But I, like you, am not thinking about Socrates. I am thinking about Plato. When the political system is corrupt and when the judicial system is equally corrupt, how are the virtuous and wise to make their way in the world?

One way — Socrates’ way — has a bad ending. Clearly Plato rejects that path. Nor, however, does Plato wish to hold his tongue, stay low, and weather the storm. Instead, he gathers a group of trusted followers around him who, in effect, triangulate. They tell what Plato calls “noble lies,” “pretty stories” they have reason to believe citizens will swallow, but whose effect will be to encourage these citizens to do the right thing. The Guardians who tell these “noble lies” know, of course, that they are lies. But they also know that truth-telling will earn them the same fate as Socrates.

I, like you, woke up thinking of Plato because I am struck how similar he was to Hillary Clinton. It does her and us no good if, like, say, Bernie Sanders, she tells it like it is. She will be crucified. Does this then cast Bernie Sanders, the truth-teller, in the role of Socrates? Will he too be crucified? Are Ms Clinton’s noble lies then — wink, wink, nod, nod — simply the price of admission? Or does she actually believe them herself? Is she one of those who is fooled by Wall Street? If so, then she is neither wise nor virtuous.

The problem illustrates why republican institutions and values are so dependent on the virtue and wisdom of the electorate and why therefore institutions that cultivate virtue and wisdom are so essential to a well-functioning republic. In the absence of strong public institutions and broad economic independence, political actors are left with what are seemingly impossible choices: lie to win; truth-tell and lose.

Thucydides tells the story of what happened to Periclean Athens, how lying and deceit became an everyday practice, making Athens ripe for the kind of take-over contemplated by Phillip of Macedon; like shooting fish in a barrel. Is that what happens when the good guys are moved to lying and deceit simply to stay in the game?

I think I side with Socrates. I think he was right to speak directly even though it cost him dearly. I think that when Plato adopts the strategy of Gorgias (even though, unlike Gorgias, Plato is an expert who understands the lie); I think that Plato helps spoil the pond. Yet, this places Socrates in the unenviable position of being dead and right.

The fact that this increasingly is the alternative illuminates how desperate our situation is politically.