Pareto efficient is such a useless concept for any economic controversy; most real world decisions about how to structure society aren't between one Pareto efficient outcome and one non-Pareto efficient outcome, but between two Pareto efficient outcomes with different stakeholders gaining and losing.
If one trillionaire has their every indulgence satisfied, while the rest of the world starves, and our one trillionaire refuses the minor inconvenience of selling off one of their dozen yachts to invest in feeding everyone else? That's a Pareto efficient outcome; you can't make everyone else happier without making the trillionaire slightly less happy. This is a made-up story, but analogous to what actually happens, where there are many, many possible Pareto efficient ways to run the world, but those which privilege the status quo wealthy are always pointed to as somehow imbued with mathematically proven optimality because they are "Pareto efficient".
You mean that right now you think the world is in a Pareto efficient state, and the only question is distribution? You have a much more optimistic view of the world than I do.
Everyone agrees that Pareto efficiency isn't everything. But even there, the Second Welfare Theorem literally tells you how to efficiently redistribute wealth away from the trillionaire, to move to a different Pareto outcome.
Real policymaking is much messier than any of this, of course.
I believe most controversies over how to structure our economy/society/etc are not between "possibility X" and "possibility Y which everyone considers as good as or better than possibility X", given that they are, well, controversies. However poorly one thinks of the masses, Pareto improvements are not the stuff that people argue over; this is a red herring to the substantive questions.
My feelings about all of this, including the Second Welfare Theorem, are roughly those outlined in this post (or rather, series of posts): https://www.interfluidity.com/v2/date/2014/06.
"Most recently, we’ve seen that the 'welfare theorems' — often cited as the deep science behind claims that markets are welfare optimizing — don’t help us out of our conundrum. The welfare theorems tell us that, under certain ideal circumstances, markets will find a Pareto optimal outcome, some circumstance under which no one can be made better off without making someone worse off. But they cannot help us with the question of WHICH Pareto optimal outcome should be found, and no plausible notions of welfare are indifferent between all Pareto optimal outcomes. The welfare theorems let us reduce the problem of choosing a desirable Pareto optimal outcome to the problem of choosing a money distribution — once we have the money distribution, markets will lead us to make optimal production and allocation decisions consistent with that distribution. But we find ourselves with no means of selecting the appropriate money distribution (and no scientific case at all that markets themselves optimize the distribution). We are back exactly where we began, wondering how to decide who gets what."
> Real policymaking is much messier than any of this, of course.
Thanks for your posts which I find interesting. Can you point me to any good sources on crafting better policies?
For context, I'm most interested in better policy choices that generally prioritize 'equal opportunity for all' as opposed to trying to engineer 'equal outcomes for all'.
I don't know a good new source, but there's an old book by Alan Blinder, "Hard Heads, Soft Hearts" that talks about how to take existing policy goals and how to redo them so that they are more economically efficient.
If one trillionaire has their every indulgence satisfied, while the rest of the world starves, and our one trillionaire refuses the minor inconvenience of selling off one of their dozen yachts to invest in feeding everyone else? That's a Pareto efficient outcome; you can't make everyone else happier without making the trillionaire slightly less happy. This is a made-up story, but analogous to what actually happens, where there are many, many possible Pareto efficient ways to run the world, but those which privilege the status quo wealthy are always pointed to as somehow imbued with mathematically proven optimality because they are "Pareto efficient".