Inequality, Justice, and Economics

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by Raji Jayaraman in 3QuarksDaily: In the last two decades the topic of inequality has entered the public discourse across a broad spectrum of issues, with an urgency that is astonishing. To name but a few examples, the Occupy movement has called for more income equality, Black Lives Matter protesters have demand racial equality, women’s advocates have rallied behind causes as varied as equal pay and reproductive rights ,  and environmental activists have advocated for climate justice.

Surprisingly, economists are not front and center of this discussion. I say “surprisingly” because economists are supposed to be the experts on inequality: they measure and study it. I think the reason why economists have not played a more central role in this discussion is that the protesters in today’s mass demonstrations are not just pointing out the existence of inequality. They are saying: “inequality is unjust”. With a few notable exceptions, however, today’s empirical economists don’t talk about justice. I fear that if economists don’t incorporate justice into their analysis, they risk losing relevance.

Why don’t applied economists who deal with data and policy design, speak of justice in a meaningful way? I think it boils down to four fundamental axioms that will be familiar to every economist. First, allocations must be efficient. Second, evidence must be data-driven. Third, policies should be forward-looking. Fourth, choices are made “at the margin”. As I explain below, I believe that these are very useful axioms. I also think, however, that they make it very hard for empirical economists who study inequality to effectively participate in the current debate on justice. In what follows, I explain why, using the four examples of protest movements to illustrate the crux of the problem.

To understand how the first axiom gets in the way, it is useful to start with a definition. In economics, an allocation is said to be efficient if there is no other allocation in which some other individual is better off and no individual is worse off. To understand what this means, consider a simple micro 101 example. Suppose I have ten dollars that can be allocated between two people, Asha and Madhavi. One possible allocation is that Asha gets four dollars and Madhavi gets five. This allocation is not Pareto efficient because I’ve left money on the table: I could give Asha one more dollar and make her better off without making Madhavi worse off. You can see from this example why insisting on allocative efficiency is important: society as a whole is better off when we don’t leave money on the table. A five-five allocation, which happens to be equal, is Pareto efficient. I have left no money on the table; from here, I can’t re-allocate this money to make one individual better off without making the other one worse off. Read the whole entry »

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Honorary contributors to DesPardes: Ajaz Ahmed, Ammar Jafri, Anwar Abbas, Arif Mirza, Aziz Ahmed, Bawar Tawfik, Dr. Razzak Ladha, G. R. Baloch, Jamil Usman, Jawed Ahmed, Ishaq Saqi, Khalid Sharif, Masroor Ali, Md. Ahmed, Md. Najibullah, Shahbaz Ali, Shahid Nayeem, Syed Hamza Gilani