Monday, April 30, 2007

Blog Post Outsourced!

by Tom Bozzo

To Dani Rodrik's new-ish blog (h/t The Street Light):
Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information. [True; snip. M]ost of us [i.e., non-economists] would care about the manner in which the distributional change occurred--i.e., about procedural fairness. The fact that the shock created a net gain of $1 is not enough to conclude that it is a change for the better.
Economists of many stripes tend to like the pie-increasing changes on the theory that the extra pie could, in principle, be redistributed to provide everyone with more pie (leaving aside the thorny question of the 'optimal' portions of pie). Of course, when there's no mechanism to efface a serious redistribution of the pie, it is not unlikely to be considered small comfort that the other guy could give you back your two slices of pie, were he less of a pie-hogging jerk. [*] This led various blogiversal commentators to dub the improvement-with-redistribution concept as a 'fallacy,' not at all without reason.

Back to Rodrik:
[This] clarifies... why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity. Trade and technological progress can have very different implications for procedural fairness. This is a point that most people instinctively grasp, but economists often miss.
People also may recognize that procedural fairness shortcomings increase the likelihood that the additional piece of pie may be a lobbyist's fiction or the like.

Kash Mansori notes approvingly in the Street Light post that Rodrik files his post in a category of "Economists' blindspots." It's a good one, indeed, to which we might eventually add something along the lines of, "Not even trying to resolve the contradictions." Cf. the NPR interview with Vivek Wadhwa this morning on outsourcing and the "engineer shortage," in which Wadhwa notes with concern trends towards outsourcing increasingly high-level tasks (while also making it clear that the private incentives favor hollowing-out), undermining arguments along the lines of, "Don't worry about outsourcing, it just means that we're retaining (indeed, specializing in) higher-valued intellectual property creation jobs."


[*] Madisonian FYI: LMNO'Pies' "pie bites," available at the Westside Community Market when LMNOPies [site layout really screwed up in Mac Firefox?!] makes an appearance, are really good.

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Ah yes, the biggest economic cop-out ever. If society would be better off even after the "losers" were compensated for their losses, then it's a Good Thing(TM), even if the losers are never compensated (and society has no genuine intent to compensate). And here's the colossal cop-out: distribution is a political consideration, and we, being impartial economists, don't deal with politics.
You're preaching to the choir here. Economists would make the world a better place if they made clearer the assumptions under which "impartial" results imply that X is a policy that should be adopted. It perhaps goes without saying that many economists don't really want to say "because this is optimal in my unrealistic model" or "because I don't think it's necessary to compensate the losers," which will make us seem callous or like smarty-pants asshats (which some of us are) and possibly diminish the influence of the profession.

On a somewhat separate note, while I think Rodrik is right to highlight out the public's ability to detect procedural unfairness, you can't discount the substantive results, either.
Sorry, I know you're part of the choir. It does annoy me, having sat through numerous classes where the professor intones "but that's politics, not economics," as if the division of the world into "impartial economics" vs. "messy politics" weren't itself an ideological statement, premised on a very particular worldview. And then I watch my fellow students nod and soak it up. Argh!

I also very much like what I've read of Dani Rodrik's work, and I was really psyched to discover that he now has a blog.
No need to apologize -- you're articulating a legitimate source of annoyance with many economists if not economics (at least as commonly practiced). If you visit our pals at Orgtheory, you can see related frustrations in the dep't of sociological economics vs. economic sociology, pertaining to Noam Scheiber's Cute-o-nomics article on Levitt et al. and Akerlof's AEA address.

I agree that Rodrik's blog looks like it'll do its think to keep the average level of discourse from declining.
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