Back when I taught Economics to gullible undergrads, and to even more gullible grad students, I posed a conundrum. (I couldn’t push it too hard for fear of heresy.) But it’s actually not that difficult if put in straightforward terms, so those who have not been afflicted with Economics courses should bear with me.
It was regarding the distribution of income. Capitalist theory states that — if competition is perfect — all market trades are win-win transactions. Everyone is better off. It follows that, if the distribution of income is perfect to begin with, the perfectly competitive market will make it even perfecter.
Some students were perceptive enough to giggle at this. My question, obvious to anyone not too deeply immersed in economic orthodoxy, was a simple one. What if the initial distribution of income is not perfect? Then won’t the result be imperfect too?
The Economics Prof will say — “Oh you naive undergrad! We have a fix for that. But it’s too complicated for you to understand. Just go with it and pass your exams. When you’re a grad student, you’ll understand.”
Ok, I’m a grad student now. Tell me the secret. “Oh you naive grad student. The fix is in the journals. Go look at it if you want. But you’re committed to economics and you’re almost initiated now. Economics is built upon that fix, and you want a career in economics, don’t you? Just ace your exams and take your place in the fraternity.”
The fix is indeed there in the high journals and texts. Look at — Mas-Colell, A., M. D. Whinston et al. (1995), Microeconomic Theory, New York: Oxford University Press — based on an earlier work by Samuelson, P. A. (1956) ‘Social indifference curves,’ Quarterly Journal of Economics, 70(1): 1–22.
So ok, what’s the fix? Give it to me simple. Well, first we need a bizarreness warning. Try to imagine that the champions of all that is free in the world aren’t saying this.
So ok, here it is — straight from the sacred cannon of Economics. Let’s assume that — before trade happens — some benevolent dictator redistributes all incomes until everyone is happy. Then win-win trade will make them even happier. Problem solved. Ain’t capitalism wonderful?
Now some of you will think I just hate economists, and I’m making this up to make them look silly. Nope. They are silly. Check the references linked above if you want (both from Oxford). Note that Samuelson is one of the most revered economists in the discipline.
Not also that the entire edifice of capitalist economics stands or falls on this necessary dictator, who is of course benevolent. And all the freedom-loving economists governing your world worship at his feet.
Its just that — they don’t tell you that.