The equity-efficiency trade-off and simplifying assumptions

Given my admission that I am now going to talk more about inequality, it is important for me to show a bit more analytical respect to the concept of the ‘equity-efficiency trade-off’.  This is a term that is often used in economics, and that we often use here, but which on the blog I have only explicitly dug into once before – back in 2008.

The reason I often prefer not digging myself into the equity-efficiency trade-off concept too much is that I fear I won’t dig myself out, and if I do I doubt much would come from it.  It is an overarching concept that exists in economics, one that we have to be sure we consider whenever we ask a specific question.  However, without reference to a question there isn’t terribly much to say.

When it comes to the equity-efficiency trade-off associated with policy and social organisation, it is clear that we cannot clearly separate individual concepts associated with fairness – ideas of inequality and poverty will be inextricably linked, one of the key reasons why I dislike to push by the Spirit Level to solely place focus on inequality.

Read more

Quote of the day: Uskali Maki on economics

From the prelude to ‘Fact and Fiction in Economics‘ comes the following gem by Maki:

“Is economics a respectful and useful reality-oriented discipline or just an intellectual game that economists play in their sandbox filled with toy models?”

Variants of these questions fly around all the time. Why are economists making unrealistic assumptions? Why won’t they just assage to “common sense” about the situation? Why are they making the ‘wrong’ choice in some trade-off between looking at the real world and narrative and/or mathmatical beauty?

These questions sound appealing, but in many ways they are often misspecified – not pointless, but without enough content to actually be answerable. As Maki says:

Read more

Economics sucks, it is just the study of ‘common sense’

This is a view I hear all the time, a view that (in my view and given how it is often framed) completely misses the point of economics, social science, and even common sense!

Common sense is an important thing to keep in mind, and the concept undeniably has a place when thinking about the application of economic ideas, or the reference point from where the social sciences should put effort into building understanding.

Common sense refers to judgements, knowledge, and beliefs that are shared between people. The context I’m using here is a touch weaker – but similar to the more common definition:

Common sense is a basic ability to perceiveunderstand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate

The main difference is that this is descriptive of the way common sense is treated, not an indication of the way we should treat it 😉

Read more

Quote of the day: Lambert and value judgments

I was excited to see James post about value judgments this morning – as that is exactly what I was about to throw a brief post on!  Partially motivated by this:

But also motivated by the fact I’ve been reading a bunch of ‘normative economics’ recently.  Here in the book “The Distribution and Redistribution of Income” by Peter Lambert is a quote about value judgments (with reference to, in this case, income inequality measures)”

It is hard to avoid making (often well-concealed) value judgments when assessing inequality

The points he goes on to make regarding valuing income distributions given certain measures are relatively well known, but worth repeating: Read more

That ‘values talk’ will get you respect

Economists love to distinguish between facts and values, positive and normative. We think of ourselves as scientists examining society and pronouncing truths that policy-makers can use to make a decision. Regular readers of this blog will know that we employ this rhetoric at every opportunity. I’ve read three people comment on it recently but I don’t know how I feel so I’ll put them here without judgement: Read more

On microfoundations

Some recent post on the necessity of microfoundations that I found interesting.

  1. Issues about microfoundations.
  2. Why you don’t need rigorous microfoundations.
  3. UpdateZombie Marx – illustrating the similarities between Marxism and Neo-classical economics.  ht Guan.

I agree with these in part, especially when it comes to macroeconomics (whether this is appropriate depends on your view on the nature of how we should treat macroeconomic aggregates).  But as with all things it is a matter of balance.

Read more