The good part of neoclassical welfare economics, the valuable contribution to knowledge, is the attempt to see how far we can get analyzing the desirability of different market structures using certain factual premises regarding human behavior while avoiding controversial ethical issues especially distributional issues (or most of them anyway, we get a few potentially controversial ethical issues as soon as we decide to resolve interpersonal conflicts of needs and desires using market mechanisms and at least one potentially controversial distributional issue as soon as we decide a system of property rights to set up a market in the first place, as any anarchist worth his or her salt will be happy to explain). In this context we can show some market structures are better than others, if there are indeed no controversial ethical or distributional issues, that is. The conclusion, if the factual premises are true, is that if one has a choice of market structures, all of which are consistent with one’s ethical views and in particular one’s distributional concerns, then a perfectly competitive market structure looks pretty good. It’s unfortunate economists have never been able to leave it at that but instead try always to confuse the issue relating to the factual premises of the argument and also to apply economic theory in situations that clearly involve (other) potentially controversial ethical issues especially distributional issues where it generates rather more heat than light and obscures the real issues rather than illuminating them. Economists really have no business showing us their equations and graphs when the real issues are conflicting values and ethics. Is it hubris? Is it egotism? Is it chicanery? Is it stupidity? Is it rhetorical cleverness? Are they just trying to foist their own distributional values on unsuspecting people while shielding those views from criticism and debate? Are they hired guns for people who make out well under certain distributional arrangements and don’t want to argue for those arrangements honestly and openly? So hard to tell, isn’t it? But one thing is for sure. When bad economists misuse neoclassical economic theory in ways and in contexts for which it was never designed they can do a good deal more harm to society than good.
Addendum
The factual premises used to remove the ethical controversy from the inputs to neoclassical welfare economics, assumptions like perfect information and perfect rationality, are never true except in what I call the Fairy Land of Economic Theory. To the extent one has evaluated the relevant normative inputs under those factual premises, one’s normative evaluation of the theory will be inapplicable to the real world.
