I was just contemplating what one must presume based on anecdotal observation to be a vast ocean of confusion created over the years by the self-consciously partial or incomplete normative theory of neoclassical welfare economics, in which certain issues like distributional ethics, and by extension some other controversial ethical issues, are set aside or would have been set aside if economists were better ethical philosophers than they are. It’s a very unusual form and unique I believe to neoclassical welfare economics. I can’t really think of any other ethical half-theories at the moment. Can you?
The bit that’s likely to be confusing for many people, including many economists one supposes, is that giving normative advice in real world contexts on economic systems or outcomes from the point of view of economic theory, or from the point of view of economists qua economists, or however one wants to say it, does not have the same intellectual status as normative advice from the point of view of some ostensibly complete ethical theory such as real utilitarianism or religious ethics. Neoclassical welfare economics is not and was never meant to represent a complete, stand-alone ethical system. One doesn’t speak as an economist or on the basis of economic theory on behalf of a particular complete normative or ethical theory, but on behalf of a partial one. In real world contexts neoclassical welfare economics must always be used, and was always meant to be used, in conjunction with other normative or ethical beliefs from outside that theory.
What it means is that neoclassical welfare economics cannot and was never meant to support normative statements in the real world relating to the desirability or optimality of particular economic outcomes nor really economic systems or mechanisms, such as the outcomes of perfectly competitive market systems or those systems themselves. Doing so invariably involves one in the ethical controversies neoclassical welfare economics was designed to avoid. Neoclassical welfare economics derives conclusions relating to evaluating generalized, unspecified economic outcomes and systems for a pale half-world or reflection of this world in which certain ethical issues do not exist. When one leaves the shadow world and re-enters the real world, one must naturally reintroduce the important ethical issues left behind when one entered the shadow world. All real world markets and markets outcomes are necessarily particular expressions of their type and thus associated with all the ethical controversies one left behind when entering the shadowy half-world of neoclassical welfare economics.
It also means speaking from the point of view of an economist or from the perspective of neoclassical welfare economics is not the same as speaking from the point of view of someone living in the real world. It’s speaking from the point of view of a denizen of the shadow world. Thus, for example, neoclassical welfare economics does not express what in the real world would be the absurdly controversial ethical argument that distributional ethics and mechanisms and outcomes are unimportant or irrelevant to evaluating or assessing particular economic outcomes or indeed systems in the real world. Distributional indifference is a resolution from the shadow world. Real people in the real word invariably have distributional ethics. They care who gets what and why, who has more or less economic power and why, whether the conditions under which they live are fair, just, maximize welfare, are ethical. Everyone may like some imaginary Pareto optimal, economically efficient, perfectly competitive market outcome, and everyone make like some Pareto improvement, but not the same ones. Indeed, some may be impossible to attain either logically or practically. The notion particular instances are not controversial is a resolution from the shadow world.
If you’re new to my blog and mystified by the “some may be impossible,” I’m alluding here to my previous argument that because the incentive structures in capital and labor markets are sometimes included in the definition of perfectly competitive markets changing the resulting distribution may be thought logically incompatible. And, of course, even when logically compatible, some may be extraordinarily difficult to pull off in a practical or logistical sense depending on the distributive criteria one has in mind. The Pareto optimal, economically efficient, perfectly competitive situation consistent with one’s distributional views may be a practically unattainable, chimerical ideal. See for example my post of June 10, 2020, Appeals to Nonexistent Mechanisms for Addressing Distributional Concerns, or indeed my post of July 15, 2020, The Equity Efficiency Tradeoff and Fake Distributional Indifference. Actually, I suppose quite a few of my posts address that issues one way or the other, including this one. Never really noticed that before. Odd.
Nor should neoclassical welfare economics really be read as expressing arguments involving certain other controversial ethical propositions relating to resolving interpersonal conflicts of wants, needs, and desires on the basis of economic power in markets, which if avoiding ethical or normative controversy is the goal behind breaking out distributional issues really deserve the same treatment, so for example controversial ethical judgments relating to the status of future generations; or assessing the ethical suitability of resolving interpersonal conflicts using economic power in markets when some people are acting less than entirely rationally, have less than complete information, are acting under duress; or dealing with the sort of situational ethics involving particular transactions or types of transactions that may or may not be thought of as distributional issues, and so on. Again, such issues don’t exist in the shadow world by explicit banishment, assumption, or studious ignorance. But we live in the real world, not the shadow world. In our world distributional and other controversial ethical issues lie at the heart of most economic issues and conflicts.
The problem with bad economics is not so much problems with the normative theory of neoclassical welfare economics, per se, which is admittedly unnecessarily confusing and presumably designed to be that way but essentially empty and irrelevant almost to the point of absurdity, but the funny things that happen when people try to apply that theory in realistic situations without specifying and defending the additional normative inputs logically required to do so. The interesting bit of bad economics is the flawed and misleading economic rhetoric purveyors of bad economics try to associate with neoclassical welfare economics more than the peculiar and peculiarly irrelevant theory itself. One should argue for any normative or value or ethical belief or theory one likes, but one should do it openly, honestly, carefully, transparently, not try to slip it in through the backdoor when no one is looking. Bad economics creates confusion and conflict. We should fix bad economics.
