05 December 2016

Pareto Failure, part the second

Well, well. Some, but not the true believers I'd expect, Trumpistas have discovered the issue with Pareto Optimal. Or, as I prefer, Pareto Fail. We have this article today, with some really scrumptious quotes.

Just to recap. Pareto was, sorta kinda, an economist of the Italian variety. Just as Mussolini began to drag the country into the mire. The signal example of his Optimal: given a pie and three people, where the status quo is that two divide the pie half-and-half, any attempt to re-distribute any part of the pie to the third people results in lowered utility. This assumes, of course, that the loss of utility by the pair exceeds the gain in utility by the singlet. And that assumption is based on further assumptions about utility curves and the like. Read up George Stiglitz (here's a start) for details.

So, what's the signal quote?
"Cutting taxes for shareholders will destroy more factories than whatever he saves by jawboning companies from the bully pulpit," Mr. Konczal said. And incentives like the ones Carrier received only forestall the inevitable shift by multinational giants to low-cost locales like Mexico and Asia. "They will just go later after pocketing some money," Mr. Konczal said.

As they always do. Just look at professional sports teams and their publicly paid for arenas. Welfare for billionaires.

Or this:
"The dry statistics on trade aren't working to counter Trump," Timothy A. Duy, an economics professor at the University of Oregon, said in a blog post on Sunday. "The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don't think we have it yet."

That's just saying "Pareto fails". It also obliquely raises the key point to all this: if moving 1,000 jobs to Mexico, or wherever, at a loss of, say, $30,000/job/annum leads to a $10/unit decline in the price of 1,000,000 unit/annum widget, what's best? With a long enough time horizon, the winners (all those buying the widget) could, through force of law, compensate the losers. The fact that the Carrier jobs weren't in support of consumer goods, but rather commercial ones, makes the compensation process either easier or harder, depending on the mechanism.

Pareto fails just because it is amoral. And it is commonly used to justify supply side voodoo economic tactics. Clowns are con men, and I hate clowns.

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