DeLong on Inequality

DeLong on economic orthodoxy:

The standard mode of discourse in economics is positive-sum win-win Pareto-optimality. You provide people with the right incentives through property rights to invest and accumulate and they do so—and the benefits of their investment and accumulation spill over and produce higher incomes for everybody else as well. You provide people with secure contract rights and they trade what they personally value less for what they personally value more—redistributing the goods of society across individuals until the Pareto frontier is reached. You incentivize people through property rights to be good stewards of natural resources, and they are.

But a look back at human history suggests that this focus is perhaps misplaced. Much of human economic and political history looks as though it is made up of thugs with spears (or kalishnikovs) taking stuff; or those who can for some reason command the services of thugs with spears taking stuff; or those who can for some reason command the services of thugs with spears threatening others so inducing them to enter into contracts on unfavorable terms. Slavery. Serfdom. Debt peonage. Latifundia. Land barons. Cattle barons. Capital barons. Perhaps economics should focus not on Pareto-optimal exchange equilibria and economic growth but instead on distribution: perhaps economics should be not a hymn to the win-win bounties of the division of labor but instead a discourse on the origins (and maintenance) of inequality.

It has always seemed to me that “the standard mode of discourse” does not merely de-emphasize inequality but serves to justify, rationalize, and otherwise perpetuate it. Mainstream economics is “a hymn to the … bounties of the division of labor” precisely because “a discourse on the origins (and maintenance) of inequality” would have to begin with economic orthodoxy itself, which has for too long been telling students and laypeople how beautiful is the emperor’s new suit.