Updated! Scroll down for the new material.
Josh Wright has a wonderful post titled Economists’ Indifference, Straw Men, and the Costs of Regulating Inequality at Truth on the Market. Here's an extended quote:
[T]he claim that economics is indifferent to market structures is something that any undergraduate economics student knows is wrong. To the extent that a policy of maximizing social welfare (in the economic sense), or consumer welfare, carries an opportunity cost of decreasing “social justice” (let’s just call it that for now), that’s fine. We can talk about the trade-offs. But as J.B. Ruhl notes in his comment to Frank’s post at Jurisdynamics:
I need to know what we are getting in return before I can say whether the “costs of inequality” are, when all is taken into account, actually costs or benefits, and I need to know the effects of regulating some particular manifestation of the inequality before I know whether it produces a net gain or loss.
Exactly! And this is why it is so important that we confront the trade-offs head on rather than taking the straw man approach. The mistaken assertion that economics has nothing to say about different market structures, and the economic forces that get us there, might lead one to incorrectly conclude that the cost of regulating some “particular manifestation of the inequality” are zero in economic terms. I’m all for discussing the competitive consequences of regulatory efforts as agents re-optimize and respond to incentives. But keeping the discussion realistic will only improve our ability to make sound policy choices.
I'm not sure I really understand, but I wonder if there is a sense in this post that the normative case for equality must be cashed out in terms of "costs" or "benfits". If so, this seems to me to miss the point of distributive justice theories (in their most sophisticated forms). Such theories do not conceive of inequality as a cost--that would be to make a category mistake--confusing a deontic constraint for a consequentialist consideration. I'm certainly not accusing Ruhl or Wright of making this mistake. I just can't quite tell what they are trying to say.
Update: More from Wright here. And to appreciate the full context of Wright's remarks, surf to this post.
Before saying anything more, I want to apologize to Wright for not tracking back to the original context of his remarks. Having read a bit more, it seems to me that the real debate was about the appropriateness of normative law and economics as a general framework for evaluating antitrust policy in the context of the Apple's dominance of the digital download market and the possibility that it may be extending its market power to the market for MP3 (digital music) players, i.e. the market in which the iPod competes.
As I understand Frank Pasquale's remarks, his essential point could be rephrased as the claim that normative law and economics does not capture the full spectrum of values that are implicated in the debate over Apple's conduct. The discussion was framed in terms of consumer welfare, but it seems to me that this formulation elides the deeper points. There are two questions we might be asking. One question goes to the equation of costs and benefits that can be measured via economic transactions with welfare--where welfare is understood on the preference satisfaction model. A second question goes to whether preference satisfaction, however measured, should be taken as the the only relevant consequence that counts noninstrumentally, i.e. for its own sake. Both issues are deep and important ones.
With respect to the second question, there are general reasons to doubt that any theory based on preference satisfaction can ultimately succeed as a general theory of value. These objections are well known, with an extensive literature. My sense of the current state of play is that preference-satisfaction consequentialism faces deep and apparently unsurmountable difficulties. One well-know problem concerns the notion that preferences are "given" and not themselves subject to evaluation on independent (i.e. not preference-based) moral grounds. This problem is nicely illustrated by the context of so-called "culture" industries--where market power may translate into the power to shape preferences. If this is the case, then it might well be true that a market structure that is superior when evaluated by standard of quantifiable costs and benefits--that is, in terms of consumer welfare quantified in economic terms--could nonetheless be inferior once preferences themselves are seen as "good" or "bad" or as contributing to flourishing or impoverished lives. To bring that down to earth, it might be that a market structure that encourages a plurality of shapers of musical taste could result in richer preference structures but less music at a higher cost. I am ready and eager to learn more, but my understanding of the normative foundations of law and economics suggests that this sort of argument is difficult to translate into conventional economic frameworks.
Of course, there is much more to be said. I owe Josh Wright a big "thank you" for his very patient attempt to draw my attention to the original context for his remarks.
