Is this a good time for another quick overview of bad economics? Another short summary of what’s wrong with neoclassical welfare economics and even more so with common misinterpretations of neoclassical welfare economics? Not really? Alrighty then, just come back next week because I’m feeling a need to recapitulate. Yes, I’m always a little concerned people may get so some wrapped up in my fascinating ruminations they lose sight of the forest for the trees as the old saying has it.
The normative argument expressed in or implied by neoclassical welfare economics is that the best way to resolve interpersonal conflicts of needs, wants, and desires and hence allocate scarce resources is through the use of economic power (money) in markets, and that with certain normative or value inputs and under certain conditions it would not be ethically controversial to suggest a perfectly competitive market structure beats other potential market structures such as monopoly. The conditions explicitly include the suspension or absence of issues relating to distributional ethics and by implication or the dictates of consistency the absence of certain other controversial ethical issues related to resolving interpersonal conflicts on the basis of relative economic power in markets, and relatedly some factual premises designed to preclude some situations in which some of those controversial ethical issues might arise.
The essential problems with the normative theory explicitly or implicitly developed in neoclassical welfare economics and with trying to apply that normative theory in realistic contexts to evaluate the desirability of economic arrangements, mechanisms, and outcomes, are that some of the requisite value inputs are unrelated to one another and in fact inconsistent with one another, some or all of the value propositions serving as inputs carry controversial ethical content of various degrees that contradicts the presumed non-controversial quality of those inputs and hence the conclusions, the specified conditions or assumptions introduced to avoid some of the ethically controversial issues are never actually met in reality, and at least partially as a result distributional and other controversial ethical issues are always involved when applying neoclassical welfare economics in realistic contexts.
To attempt to evade or downplay these problems purveyors of bad economics including unfortunately a great many economists use various rhetorical tricks to make neoclassical welfare economics appear less controversial and more relevant in real world contexts than it really is. Some of these tricks or stratagems were developed by economists and incorporated into neoclassical welfare economics itself; others are not part of the theory but often added on later and are hence technically errors or misinterpretations of that theory. Let’s go through the main rhetorical stratagems purveyors of bad economics have used to further bad economics.
They specify a philosophically idiosyncratic definition for “utility,” fail to properly explain or discuss the enormous normative significance of the differences between it and more conventional notions of utility one finds in mainstream ethical philosophy, and assume but don’t really properly evaluate the level of ethical controversy associated with accepting “maximizing” it as an ethical objective for society.
They ignore certain ethical propositions or value inputs required to support the normative conclusions that are clearly inconsistent with or unrelated to utility as they’ve defined it by simply assuming support for property rights in the abstract as well as for accepting markets as a means of resolving interpersonal conflicts, and they then fail to evaluate the ethical controversy associated with those value inputs under certain realistic conditions.
They conflate the methods of ethical philosophy and science to argue incorrectly that it doesn’t matter if the specified conditions or assumptions introduced in part to avoid controversial ethical situations are empirically true or false. In scientific models one can, of course, use false simplifying assumptions because the theory is meant to be evaluated as a whole based on its ability to predict empirical phenomena. In a normative or ethical theory, in contrast, the truth of any factual premises required to support the conclusion matters. If one is developing an ethical theory whose conclusions depends upon false factual premises, unreal conditions, then one is basically doing ethical philosophy for Fairy Land, not for the world we actually inhabit.
And my perennial favorite, they engage in various rhetorical tricks designed to generate and support fake distributional indifference, an odd but ubiquitous bit of conceptual confusion that allows them to talk out of both sides of their mouths by claiming indifference to distributional issues while nonetheless contriving to be somehow always in the middle of any discussions or disputes relating to distributional issues and policies.
Confronting and overcoming bad economics means accurately specifying the normative argument being made in neoclassical welfare economics as far as perfectly competitive market mechanisms being the best way to resolve interpersonal conflicts of needs, wants, and desires: identifying all the value inputs required to establish the conclusions; specifying how those value premises relate to one another; dispelling any potential confusion generated by superficial similarity with other normative or ethical systems based on inconsequential similarity of terminology; evaluating all the value premies or inputs carefully for controversial ethical content under realistic conditions; and overcoming fake distributional indifference by understanding the ubiquity and significance of controversial distributional and other ethical issues relating to resolving interpersonal conflicts using relative economic power in markets in real world contexts.
When the sickly and unhelpful specter of bad economics is finally banished from one’s thought through right thinking, and one truly understands the normative argument presented in neoclassical welfare economics, one can then make a conscious choice to retain it as an essentially irrelevant parlor game or treat it as a framework on which to construct a more relevant theory by introducing the additional value premises and revised factual premises that would render it, or really an enhanced and as yet unspecified or unnamed version of it, relevant in real world contexts. Purveyors of bad economics should feel free to argue openly and honestly for any normative or value or ethical position they like, but they shouldn’t feel free to use their positions and institutional power to advance their views obscurely and dishonestly by pretending those positions are based solely on neoclassical welfare economics when, in fact, they are not. That is intellectually dishonest and creates confusion and social conflict. We need to fix bad economics before it destroys our society and our democratic culture. We need to fix bad economics with or without the help of academic economists.
Addendum
I’ve lately changed my mind about the normative argument expressed in or implied by neoclassical welfare economics, which I describe here in the following terms: “the best way to resolve interpersonal conflicts of needs, wants, and desires and hence allocate scarce resources is through the use of economic power (money) in markets, and that with certain normative or value inputs and under certain conditions it would not be ethically controversial to suggest a perfectly competitive market structure beats other potential market structures such as monopoly.” In particular, I now believe it’s more sensible to present the choice to use economic power in markets to resolve interpersonal conflicts, and even the choice to support the legal conditions required to create or sustain markets, as exogenous to neoclassical welfare economics. It’s a point of interpretation, of what one believes reasonable to suppose neoclassical welfare economics is meant to say, but recently I’ve concluded it makes more sense to say neoclassical welfare economics says a good deal less than many people seem to suppose. For example, see the post Law Over Anarchy In Neoclassical Welfare Economics from June 2, 2021.
