Seems it’s only been six months since my last “what does neoclassical welfare economics really say” post, but I feel we’ve moved the discussion along sufficiently at this point to warrant another go at distinguishing what real neoclassical welfare economics says from what bad economics loosely based on neoclassical welfare economics says or rather shouts at the top of its lungs at every opportunity. Wouldn’t it be nice to be so smart one could just say something once and consider it apt forever, an eternal monument to one’s perspicacity and expressive power? I said it once, why say it again? Alas, I seem destined to continually revisit, revise, rework, clarify, explain what I said before. I apparently can never leave anything alone. Oh well, I suppose we all have our little difficulties to overcome.
One point I wanted to stress this time around is that the most interesting thing about normative neoclassical welfare economics for me is not what it actually says, which is fine but amounts to precious little really, but rather its relationship to ubiquitous bad economics, that is, how people come to suppose it says something more and other than what it really says. That’s where all the action is, where all the fun is. With that thought in mind, let me start out this week by saying if one has some concerns, based in ethics, about what neoclassical welfare economics recommends in realistic policy situations, one is almost certainly talking about bad economics, not real neoclassical welfare economics. Let’s go over some examples of what I’m talking about.
Are you dissatisfied neoclassical welfare economics appears to oppose concerns relating to the fairness or justice of our system for distributing economic power via labor and capital markets, inheritance, taxation, government policy, etc., or the results, the economic outcomes, the distribution of goods and services, that result from that pattern of economic power in markets, based on issues involving some form of social ethics that wouldn't really apply to a hypothetical one person world? Real neoclassical welfare economics has nothing to say about distributional ethics and other social ethics and is indifferent to that sort of thing.
Are you confused about the idea we must weigh ethical considerations such as distributional concerns against a peculiar, free-floating “efficiency” that is ostensibly ethically significant no matter how one feels about the associated outcome? Neoclassical welfare economics doesn’t really say that. That’s a result of fake distributional indifference.
Are you concerned neoclassical welfare economics appears to suggest we must distribute everything, such as vaccines for example, by economic power in markets, to avoid the “social welfare cost” of those resources not going to their most valued use according to the market? Neoclassical welfare economics doesn’t really say that. It’s indifferent to the ethical issue of the extent of the market.
Are you troubled by the way neoclassical welfare economics proposes we can accept only impractical, difficult, complicated, expensive, unworkable, but arguably first best solutions to distributional issues and other ethical issues relating to economic systems and markets? Neoclassical welfare economics doesn’t really require that. That’s a result of some confusion involving economic efficiency and “utility.”
Are you put off by the notion “greed” is “good,” or the notion social ethics should always be based on self-interest or must always be based on self interest if they are to reflect reality? Neoclassical welfare economics doesn’t say that. That’s a result of misinterpreting theory possibly combined with equivocation on different definitions of greed.
Are you unsure about the ethical status of the proposition we should allow people to follow their preferences (“maximize” their “utility”) under conditions of ignorance, irrationality, duress, or other complicating factors? Neoclassical welfare economics doesn’t really address that normative or ethical proposition under those conditions, which are eliminated from consideration in the normative argument by false factual premises.
All real neoclassical welfare economics says with respect to evaluating economic systems and outcomes in the real world is that once one has addressed all relevant ethical issues, if multiple market structures are consistent with those ethics, then an economically efficient, Pareto optimal, perfectly competitive market structure looks pretty good. Which relevant ethical issues? All the normative or ethical issues exogenous to economic theory but important for evaluating economic systems and outcomes: the ethics relating to the distribution of economic power, the issue of the extent of the market or when to use economic power in markets to address interpersonal conflicts of needs and desires, how to treat other people following their preferences under conditions of ignorance, irrationality, etc.
In the ethically attenuated, partially unspecified, stridently counterfactual Fairy Land of Economic Theory, one can give copious and precise policy recommendations based only on neoclassical welfare economics, but in the real world, not so much. In the real world, any practical application of neoclassical welfare economics will necessarily involve normative, ethical, value inputs exogenous to that theory, some of which may be quite controversial. Inquiring minds will want to know those inputs came from, why they’re there, who made them. And that’s a good segue to bad economics, because the mark of bad economics is that it has something to say about every real world phenomenon, and it never, ever accurately identifies the exogenous value inputs, explains their origin, or evaluates them properly.
Surely you must have encountered bad economics, the whole right wing world of vaguely economic rhetoric involving themes like “the Free Market” and “The Economy,” addressing market “distortions” from the ostensibly ethically perfect ideal, preventing democratic government “interfering” with ostensibly optimal markets, minimizing democratic government, suggesting technocrats in the form of economists are the only people qualified to make the tough and controversial ethical decisions that necessarily underlie real economic policy, from which the ignorant and unqualified voters must be excluded, etc. Bad economics can be, and typically is, used as a rhetorical tool to support and defend those with economic power and to argue against policies intended to further the interests of those without economic power. It can be, and often is, used to perpetuate material want and human suffering, and depending on one’s ethics, injustice and unfairness as well. The confusion and frustration that attend it create social conflict.
One may, of course, agree with the exogenous ethical content introduced by purveyors of bad economics. One may suppose those inputs represent good ethics. But it’s bad economics because it involves introducing exogenous normative content as though it were part of economic theory. In addition, there are, of course, perfectly sensible criticisms of real neoclassical welfare economics, for example, involving opaque, missing, or contradictory normative elements, a state of affairs that facilitates and supports bad economics. We could and should clarify and address those normative omissions and oversights. However, the real confusion and conflict has to do with bad economics, not real economics.
Economists should be always on the forefront of the fight against bad economics, of breaking the conceptual and intellectual bonds between bad economics and real neoclassical welfare economics, but they so seldom are. In general, they don’t seem to really care all that much. Indeed, sometimes they are themselves the primary purveyors of bad economics. Why? Well, I don’t know. It’s a bit of a mystery, isn’t it? One possibility is lower level economics courses, such as the much derided by economists Econ 101, serve as an ideological filtering mechanism, so that most of those who go on to study the field are predisposed to accept bad economics as a dodgy means to a supposedly desirable end. Another possibility involves the role of money, economic power, in our educational system, and the importance of bad economics as a rhetorical device that can be used to support those with economic power. There seem likely quite strong financial incentives to actively promulgate or at least be soft on bad economics.
Whatever the reason, it’s certainly unfortunate so many economists and especially so many academic economists have proven themselves so ineffective in confronting bad economics. It’s so difficult for others to address the problem when the greater part of the supposed experts are actively working to create the problem or lounge about playing with their little models as though they perceived no problem at all, unless backed into a corner, in which case they case they promptly disavow everything and wonder how such a thing as bad economics could ever exist and how anyone could get the funny idea it’s related in any way to neoclassical welfare economics. But difficult or not, since most economists appear unwilling or unable to fight the baleful influence of anti-democratic bad economics and distinguish it clearly from neoclassical welfare economics, it becomes incumbent on the wider educated public to get involved. We apparently all need to fight bad economics, every one. And again when I say fight bad economics, I don’t necessarily mean dispute the normative inputs that lie behind bad economics. One can make of those what one will. I mean fight bad economics as a rhetorical tool used to complicate or evade criticism, evaluation, debate of those normative or ethical or value inputs, a rhetorical tool to create confusion and conflict and undermine the democratic ethos.
