Matt Nolan

Redistribution and economics

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Noah Smith has an excellent post about the “macro wars” that are going on at the moment (ht a reader).

Most of the time, econ bloggers and columnists write as if we were speaking to an audience that has taken a few econ classes. But the more widely read our posts and columns become, the more our real audiences fail to fit this ideal. Most people who read us are smart and educated. But smart and educated non-economists (“normal people”, if you will) see econ – and especially macro – in fundamentally different ways from economists.

I’ve been thinking about these differences for a while, and I’ve reached two major conclusions:
1. Normal people see macro as inherently political.
2. Normal people see macro as being mostly about redistribution rather than about efficiency.
Indeed, this is true.  Even if an economist manages to convince someone they are not political, they will assume the questions we are trying to answer are redistributive ones and not efficiency ones.

Back in 2003, Paul Rubin wrote about this.  His view was the “folk economists” (people without sufficient training in economics – read pretty much everyone) view social interactions as zero sum games, and that this came from evolution and our pre-history.  Economics, specifically efficiency arguments, involve “breaking” these common sense arguments – as we are discussing positive sum games (gains from trade).  His conclusion is that the solution to this issue is to focus on efficiency more strongly, and to teach “folk economists” about economics [Note:  As I mention here I think this view is too harsh to folk economists, understanding heuristics is something WE have to do if we want them to throw away “common sense”]

However, at the moment as Noah states:
So most normal people seem to see macroeconomics as political (even if most economists don’t!), and see redistribution as the main question. The result is that public discussions of macro, on the blogs and elsewhere, usually break down into tribal camps, and thinkers are often seen more as tribal champions than as technocratic advisors or sources of intellectually interesting ideas. Many people see the “-isms” of macro – “New Keyneisanism”, “New Classicalism”, etc. – as political advocacy rather than as dispassionate scientific attempts to explain the world around us.
This is indeed true.  But there are two things here – and in both of them I think economists have to admit fault:
  1. For all the talk about not being in camps, and trying to do objective analysis, economists often turn around and “jump into camps”.  Folk economists can’t observe when it is the “economist” talking and when it is the “ideologue”.
  2. As Noah states in the post, society is VERY interested in distributional issues – and economists often chuck them in the too hard box.

Now you may think I’m being unfair on economists – something that is strange given how much I love them.  However, this is one area where I think economists make subtle logical leaps from “we are only discussing efficiency as it is the only thing we can comfortably discuss” to “only efficiency matters”.  This isn’t on purpose, and NO economist would say that, but the discipline DOES push things that way.

Here is Robert Lucas discussing the discipline saying the opposite.

Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution. In this very minute, a child is being born to an American family and another child, equally valued by God, is being born to a family in India. The resources of all kinds that will be at the disposal of this new American will be on the order of 15 times the resources available to his Indian brother. This seems to us a terrible wrong, justifying direct corrective action, and perhaps some actions of this kind can and should be taken. But of the vast increase in the well-being of hundreds of millions of people that has occurred in the 200-year course of the industrial revolution to date, virtually none of it can be attributed to the direct redistribution of resources from rich to poor. The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.
Yes folk economists understate the importance of growing the pie, and they understate the importance of the institutional relationships that exist for doing this (and the long-term responses to relative prices involved in that).  But, economists can use that as an excuse to ignore distributional consequences, or to have to “fit” distributional concerns in an efficiency framework.  I hardly see how economics is focusing too much on distributional issues when the distributional consequences of policy changes are supposed to be one of our main areas of interest!  I’m sorry, but saying we should ignore distribution because pushing out the technology frontier is a “win-win” sounds both oversimplistic and, dare I say it, naive.

Economists are not moral philosophers, they cannot say that something is good or bad especially not in relation to some cardinal value.  But as a discipline we can understand issues of distribution, and we do discuss them – just often not with the same discipline we do when discussing efficiency effects.

When I defended Mankiw it was because he was at least willing to mention distribution and he was saying what assumptions his views hung off.  When I reviewed the Spirit Level I was amazed at its virtual inability to understand the complex relationships involved, and why their conclusions can not be termed as completely “scientific” – their views and analysis are naive (even if I have sympathy for parts of the argument), and “economic science” can do this better.  When I compared economists to Tarot Card readers I was trying to indicate that the language and views we give create their own sort of knowledge for people – a stock of ideas about how the economy works.  If we have done analysis around efficiency and distribution, we need to put more thought in how to communicate those ideas – as they can be taken as statements of “fact” instead of conditional statements for the question at hand.

If you have a society where people are interested in trade-offs and distribution, economists should confront that fact.  Just saying something is efficient and walking off leaves a gap for people to come in and make nonsensical “common sense sounding” arguments about distribution that undermine the argument of economists – even without all the scientific analysis.  Economists can only push past the tribalism if they can improve the way they communicate the strength, logic, robustness, and “scientific” nature of the results the discipline does agree upon.
2 replies
  1. Luc Hansen
    Luc Hansen says:

    “Just saying something is efficient and walking off leaves a gap for people to come in…”

    Indeed, and what if the “efficient” solution is not everyone’s cup of tea?

    As in: “The New York Times called the remake “efficiently grisly”.”

    [http://www.stuff.co.nz/entertainment/film/8958903/Elijah-Woods-serial-killer-film-banned]

    Oh well, back to calculus…

    • Matt Nolan
      Matt Nolan says:

      The economists version of efficient is pretty non-threatening – it is a range, rather than a point. I suspect the term gets a little bit of unfair abuse 🙂

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