From: jwales@silver.ucs.indiana.edu (jimmy donal wales)
Subject: Re: Trade War?
Organization: Indiana University
Date: Mon, 16 Nov 1992 14:57:16 GMT

I think that T. Scott Thompson and I are in substantial agreement here.
But there is an important subtlety.

>I don't see this at all.  Pareto efficiency is a well-defined concept
>that does not require any interpersonal welfare comparisons
>whatsoever.  Where does "fairness" come into the definition?

Well, you and I agree on this.  But note that not everyone would!
There is a presumption here that an increased flow of material goods
for everyone is a valid goal of public policy.  But there are those
who would argue that it is (literally) 'unfair' for some to have more
than others.  Just stick 'envy' into the utility function and think
about it again. 

Think in terms of Marxist 'alienation', too.  That'll buy you the
same result.  (Well, sort of.)

Let's define two versions of 'Pareto efficient'.  I'll call an 
equilibrium 'material Patero efficient' (mPE) just when it is not possible
to give any individual more material goods without making some other
individual worse off.  And I'll call an equilibrium 'spiritual
Pareto efficient' (sPE) just when (taking into account envy) it is
not possible to give any individual more utility without making some
other individual worse off.

It is easy to see that the two will not, in general, be the same.
And it is easy to see that if an economist argues for policies which
are mPE, then that economist might be arguing for policies which are
NOT sPE.  

Which brings up my question:

>>  Any question of efficiency must first answer the
>>question 'efficient for what?'  and the 'for what' part must include
>>ethical judgements.
>
>I don't understand this at all.  What does the question "efficient for
>what?" mean.  Can you give some definitions or examples, preferably
>showing the implicit assumptions about fairness that I supposedly make
>in my arguments against EC agricultural price supports?

Do you see my answer now?  The implicit assumption that you are making
is that 'envy' is unimportant for considerations of public policy.

>Any discussion of policy must include some implicit vaLues.  After
>all, we need some criteria for deciding on what is a good or bad
>policy.  But a value judgement is not necessarily a statement about
>fairness (whatever the latter is).

Well, the last sentence is basically right, I think.  But I think that
almost every _public policy_ value judgement is a statement about fairness.
I would have to think about this more to totally clarify what I mean.

>I do not see that pure efficiency arguments require any more than
>this, however.  In terms of elementary concepts, the efficiency
>argument says that it is possible (and implicitly desirable) to
>increase the consumption level of every individual relative to the
>status quo.  It is possible to do this because the price subsidies
>prevent markets from moving producers to the world production
>possibilities frontier.

I agree with all of the above.  And note that I don't think that
it is an implausible or fantastic value judgement to state that
material goods matter, while 'envy' does not.  But it is important
to recognize that many radical critiques of capitalism question
just this assumption... and that this assumption may require some
ethical theory as backing.  A full defense of capitalism can not be
made on purely value-free grounds.

>I believe that I made it clear that this is a theoretical result.
>Conceivably it is not workable in the real world.  But I do not see
>any fundamental obstacles in the case of EC agricultural subsidies
>except for the political ones.

I agree with the above.

--Jimbo