The Fairness Doctrine and Economic Change

Formal economics used to be almost entirely devoted to issues of the allocation of scarce resources.  A subset of inquires, usually called welfare economics, frequently explored how  different allocative schemes affected economic welfare.  Welfare, however, had a rather arcane meaning in formal economics because inter-personal comparisons were generally frowned upon in formal theory and applications.   To get around the “dryness,” of such studies, economists adopted a compensation principle where by if at least one person was made better off and none worse off, then welfare was improved.  This skirted the issue of “fairness,” or as some wrote about it, of “justice.”   What if compensation by the winners was not paid to the losers after an economic policy change?  A mere glance at today’s media tells us that issues of “fairness” rule the day, almost to the exclusion of discussions of efficiency.   Social change is often motivated by issues of fairness and politicians of every stripe place fairness at the top of their choice menu.   But, what is fair to one person, clearly could be unfair to another.  Moreover, the achievement of “fairness,” brings with it economic costs.   The latter are often ignored, but the consequences should not be.   To truly be fair, we need to evaluate the cost of achieving fairness, however it is defined.   This is the first of a series of notes that discuss aspects of the linkage between fairness and efficiency in political economy.

Continue reading