The Mezunian

Die Positivität ist das Opium des Volkes, aber der Spott ist das Opium der Verrückten

The Fallacy o’ “Positive Economics” & Pareto Efficiency

Most mainstream economists–most notably Paul Samuelson, the most influential economist in the US, in his highly-influential college textbook, Economics–claim that economics can be split into normative economics, which includes issues such as income distribution, & ’bout which economist claim they should not discuss since it’s not objective, & “positive economics,” which mainly focuses on the “efficiency” o’ an economy, which is s’posedly objective.

This “efficiency” is based on a concept known as “Pareto Efficiency,” which is a case in which no change can be made that could improve one’s wellbeing without hurting ‘nother.

Already, one well-versed in English should see many problems with “Pareto Efficiency” being “objective” & “non-normative”:

1st, “wellbeing,” as well as the increase or decrease o’ such, is inherently subjective. Making any judgment ’bout whether anyone is made “better off” or not must inherently be normative, & thus “Pareto Efficiency” must be inherently normative.

Economists base their judgment on whether people are made better off or not based on a “competitive market” model that relies on many faulty assumptions that they themselves acknowledge are faulty–too many flaws to list, but I talk ’bout how inherently paradoxical the concept o’ a “competitive market” is in ‘nother article. The idea is that a “competitive market” naturally leads to efficiency through supply & demand: people get their wants served by getting money for serving other people willing to spend money & spending that money on anything they’re willing to spend money on. This is a s’posed “objective” system to serving subjective values.

This leads to a big conundrum: Pareto Efficiency not only relies on income distribution, but has an inherent bias toward the status quo income distribution. As we indicated earlier, economists claim that income distribution is inherently normative; economists acknowledge that they can’t objectively determine what is & is not an objectively-correct income distribution, thanks to the effects o’ all the chaos o’ the past (imperialism & slavery are only the biggest examples) & the fact that in a system o’ capital, one’s current income determines one’s potential for future income (one’s potential for investment is an obvious example).

But income distribution doesn’t only affect one’s potential for further economic gain, but also their ability to make purchase choices–to make what economists call “money votes.” It affects the distribution o’ commodity demand, which affects supply. If mo’ money went from people who eat meat to vegans, then obviously that would affect the profitability, & thus production, o’ businesses that sell vegetables & those that sell meat, to use an example as simplistic & made-up as those customary to economics.

As noted, the market’s Pareto Efficiency relies on supply & demand, & thus income distribution. Indeed, economists acknowledge this when they claim that income redistribution hurts efficiency. But this seems to assume that the status quo is the objectively-correct distribution–a claim that economists explicitly say that they aren’t saying, that is purely normative.

Indeed, Pareto Efficiency in general has a bias toward the status quo, with its talk o’ making people “better off” or “worse off” compared to the present state, giving an unfair bias toward the present state as the center for relation. In reality, the existence o’ any possible system o’ “Pareto Inefficiency” should inherently mean that the current system must be “Pareto Inefficienct” compared to that system. By definition, if one makes A better off by making B worse off, then going in reverse must make that B better off by making A worse off.

For example, economists claim that while a “competitive market” makes, for example, a CEO swimming in cash & goods better off by giving him e’en mo’ & a starving laborer better off by giving her the money to eat a’least 1 french fry a day (¡hooray for extreme examples!), income redistribution makes the latter better off by giving her the money to eat a’least 1 french fry a day but makes the former worse off by taxing ‘way a $ out o’ his billions, thereby punishing the possession o’ billions & making that CEO not want to make billions anymo’ in such envy o’ the woman who got 2 free french fries from the government.

But this all revolves round the current situation. If we flip things round–if we assume that the distribution o’ 2 free french fries for the woman & $1 short for the CEO as the center, & the $10 gained for the CEO & the single french fry gained for the starving woman1–then we must conclude that to not redistribute income is “Pareto Inefficient” in that it makes the starving woman worse off than the CEO.

In fact, there exists no situation in which you could make everyone better off, since there will always be situations that can make someone e’en mo’ better off, & thus in contrast to that, the situation that makes “everyone better off” makes that other someone worse off.

Thus, the assumption that a “competitive market” that produces mo’ meat than veggies is mo’ efficient ’cause mo’ people want to pay for meat than veggies relies on the assumption that those who pay for the meat deserve the money they have to pay for it & that there aren’t people who, given money, would spend mo’ on veggies.

But there’s mo’: demand not only affects supply, but also price, & thus price is reliant on income distribution; & since GPD is based on prices, GPD is also reliant on income distribution–which means that assuming that certain prices or GPD are “objectively efficient” means assuming that the current income distribution is inherently correct. Since economists can’t do the latter, they can’t do the former. They can’t truly say that any prices are objectively mo’ efficient than others, nor that any GPD is objectively efficient compared to others.


1 As Samuelson would say, where I derived these totally scientific #s is a technological engineering question. So get to answering my questions, technological engineers; I don’t have all day.

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