Some Problems Of Mathematical Formalism In Economics

Speaking of the confusion and intellectual sloppiness introduced into neoclassical welfare economics by rigorous mathematical formalism, can we just review the concept of “utility” one more time? It’s an interesting case study.

Have you ever had someone tell you it just doesn’t really matter what exactly “utility” in economic theory means and, in particular, it can refer to either individual preference rankings or inaccessible internal perceptions of satisfaction from preference fulfillment? In one case, interpersonal utility comparisons are undefined; in the other case, they’re impossible. It amounts to the same thing as far as deriving theoretical conclusions, so just choose whatever interpretation calls out to you?

The supposed equivalence of the two conceptions of utility is only true in a formal, mathematical sense. Obviously, when trying to explain, discuss, assess, evaluate, support or reject the normative propositions involved, it makes a big difference. The now more usual “individual preference ranking” utility leads straightaway to an understanding of neoclassical welfare economics as an ethical half-theory. That sort of utility is not even defined in interpersonal conflict situations. One obviously can’t base a full system of ethics on a concept like that. The older “inaccessible internal perceptions of satisfaction from preference fulfillment” utility, in contrast, can be related to an extraordinarily weak, indeed entirely implausible, full ethical theory in the utilitarian vein. That theory can lead to an endorsement of practical amorality on the grounds one can never know the ethically correct answer, one only knows all other answers about how to ethically resolve interpersonal conflicts of preferences, needs, desires, are wrong. As an aside, I should mention if one is going to do that, one should at least be consistent and not carve out random exceptions for status quo property arrangements, markets, laws, or anything else. If one is treading this well worn path, everything relating to resolving interpersonal conflicts of preferences, needs, wants, desires, is just as ethically incorrect as anything else.

The notion it doesn’t matter which form of utility one is using when discussing normative propositions in neoclassical welfare economics, such as we should “maximize” total social “utility,” is the positive analysis of normative economics at its worst and most confusing. Expressing a normative or ethical theory without defining the concepts, specifying and explaining the normative inputs, ostensibly because one is simply checking the positive logic that leads to the conclusions, so whatever works is fine, is intellectually disingenuous. If one is presenting arguments ostensibly demonstrating this, that, or the other is “optimal” or “maximizes social welfare” and so on, one is going well beyond simply checking the internal logic of someone else’s random, unevaluated normative or ethical theory. One is presenting a normative or ethical theory of one’s own. That this sort of thing is so common demonstrates why economists have no business delving into the normative or ethical issues associated with evaluating economic systems or outcomes, even in the positive sense of checking the internal logic of ostensibly arbitrary, unevaluated normative arguments. Just for the record, one can be a positive economist without playing rhetorical games relating to bad, unexamined, unexplained, unevaluated ethical philosophy. It’s called doing science. One can direct one’s attention to objective, empirical phenomena rather than matters of subjective ethics. Just saying. One does have options.

Want more? Fine by me. Have you ever had someone suggest the only relevant issue when it comes to “utility” in neoclassical welfare economics is the mathematical difference between ordinal and cardinal utility functions? Again, that may be all that matters from a mathematical perspective, but not from a conceptual, philosophical, normative, ethical perspective. Preference rank utility seems obviously an ordinal concept requiring an ordinal function, but one could model the essentially cardinal notion of inaccessible internal perceptions of satisfaction from preference fulfillment with either ordinal or cardinal functions. If one wants to be get serious about neoclassical welfare economics, one will want to go beyond mathematical functions, often perceived as arbitrary modeling choices, and look at the underlying concepts themselves.

It’s a never-ending source of wonder to me that neoclassical welfare economics, a theory extolled by its practitioners for its supposed rigor and clarity, is based on a concept it can’t be bothered to fully define, leading to perpetual conflict and confusion. Just choose one for goodness sake. What reason can there be to not do that, beyond the rhetorical one of playing funny word games? On the one hand, if we’re talking about individual preference ranking utility, stop with the “interpersonal utility comparisons are impossible.” They’re undefined, not “impossible.” Stop talking about aggregating “utility” across people. That doesn’t make sense. Stop introducing unrelated ethical propositions by weighting “utility” and then adding it up, that’s gibberish. If necessary, just introduce some exogenous ethical propositions. Indeed, as I’ve suggested before, just stop talking about “utility” altogether and start talking about “individual preference rankings.” All you’re doing with the superfluous term “utility” is introducing opportunities for equivocation on concepts and terms. On the other hand, if we’re talking about inaccessible inner perceptions of satisfaction from preference fulfillment utility, draw out the implications, help people evaluate it, discuss what it means for interpersonal conflict situations, etc. If that’s what you have in mind, don’t treat it like it’s someone else’s random concept you found lying on the floor when you arrived. It’s yours. Own it. Understand it. Discuss it.

We really need to introduce some rigor into the field of neoclassical economics, and I don’t mean the empty, superficial rigor of mathematic formalism, but real, substantive, philosophical, intellectual rigor dealing with concepts, definitions, normative propositions, ethics, etc. Bad economics creates confusion and conflict. We should fix bad economics.

Marginal Productivity as Distributional Ethics

Speaking of normative and positive issues in neoclassical welfare economics, and the funny conflation of normative and positive issues in ubiquitous bad economics loosely based upon neoclassical welfare economics, how about “marginal productivity” theory? In the old days, that’s what we here in the USA might have called a real humdinger. When I speak of “marginal productivity” theory, do I mean the old normative theory from classical economics relating to distributional ethics, or the positive theoretical result from modern neoclassical welfare economics? Exactly. Yes. That’s what I’m talking about.

Distributional ethics are exogenous to modern neoclassical welfare economics. Did I mention? Distributional ethics cannot be addressed using the type of “utility” relevant to that theory because that type of utility cannot support “interpersonal utility comparisons” and thus cannot be used to resolve interpersonal conflicts of preferences, desires, needs, and so on, and hence resolve issues relating to the allocation of scarce resources. The marginal productivity theory of distributional ethics is not a part of neoclassical welfare economics. It’s exogenous. It belongs to the world of ethical philosophy, not economics.

I guess we can go home now, right? Because I’m all about neoclassical welfare economics. It’s some kind of record! Well, no, not really. I’m also about bad economics based loosely on neoclassical welfare economics, and one hears about marginal productivity a lot in bad economics, so let’s soldier on a bit, shall we?

Positive economics may be involved in discussions of marginal productivity in two ways. First, neoclassical economic theory demonstrates that under the unreal, arbitrary conditions of “perfect competition,” inputs are paid their marginal product. That’s just a formal matter of logic, definitions, math, etc. Second, we have the positive, empirical question of how productive inputs are actually paid in real markets. Is it similar to what happens in the “perfectly competitive” markets of economic theory? How similar? Or is it more a matter of relative bargaining power, how easy it is to replace those inputs, excess supply of labor, nepotism, etc.? Those are issues the empirical, scientific side of economics might take up.

But you know my primary area of interest is normative economics, not positive economics, so let’s do a little counterfactual dream experiment to consider marginal productivity specifically in the context of distributional ethics. Let’s think about a dream world that’s just like the real world except we have “perfectly competitive” markets and hence inputs are paid their marginal product. Our dream world isn’t the Fairy Land of Economic Theory I’m always on about. For example, as in the real world, we’re allowing subjects to hold distributional ethics. However, we’re introducing whatever unreal conditions or factual premises we need for “perfect competition” from the Fairy Land, perfect information and rationality, etc.

In our dream world, let’s say we’re at some particular instance of a perfectly competitive, economically efficient, Pareto optimal market outcome. Again, we’re not in the Fairy Land, so we’re not at a generic, unspecified outcome, but a particular real instance. We’re allowing distributional ethics for subjects, so some subjects think we’re in an optimal situation and others prefer we move, even if only to certain non-perfectly competitive outcomes, for reasons of distributional ethics. Imagine some people espousing the proposition there’s something normatively or ethically special or correct about the system for distributing economic power in this dream world based on the existing marginal productivity of productive inputs.

One point I think it’s probably worthwhile making is that if the people espousing that normative or ethical proposition are economists supposedly basing their distributional ethics on neoclassical welfare economics, we’re talking about bad economics. We haven’t changed economic theory in our dream world. Distributional ethics are still exogenous to that theory. Based on neoclassical welfare economics, economists qua economists are meant to be indifferent to such matters. To the extent the people in question flash their economist badges, they’re engaging in the underhanded, unprofessional behavior associated with economists who peddle bad economics. No, they’re simply giving their ethical views in their role as private individuals, similar to everyone else. Did I trip you up when I said distributional ethics were allowed, for subjects? Yes, that can happen. There are two levels at which distributional ethics may appear in neoclassical welfare economics: at the level of the subjects, and at the level of the economist / observer. And there are two contexts in which we can discuss distributional ethics: the real world, and the Fairy Land of Economic Theory. Subjects in the real world can have distributional ethics. Theoretical ciphers in the Fairy Land cannot have distributional ethics involving relative “utility” because that would play havoc with the concept of Pareto improvements based on “utility.” Economists / observers cannot have distributional ethics if they’re meant to confine their commentary to what they can say on the basis of neoclassical welfare economics. Economists / observers can, of course, have distributional ethics in their role as everyday people and potential subjects of other economists / observers.

I suppose since we’ve gone this far we might as well talk a bit about distributional ethics based in marginal productivity, whoever may be espousing them. Why not? It’s not economics, and I’m certainly no authority on the subject, but I’ve got a few minutes, so … anything interesting or noteworthy jump out at me? Funny you should ask.

Well, one interesting thing is that distributional ethics based on marginal productivity would seem to conflict with some other common forms of distributional ethics, such as merit based ethics, unless one simply equates merit to marginal productivity, and human welfare based real “utilitarian” ethics. If one restricts “merit” to things under one’s control like effort, hard work, etc., it will diverge from marginal productivity to the extent workers differ with respect not only to inherent talent, ability, intelligence, etc., but also accident of birth and upbringing, luck, etc. In addition, capital has a “marginal productivity” as well, so unless one’s notion of “merit” involves the “merit” of doing nothing in particular beyond owning capital, we have some divergence there as well. Distributional ethics based on marginal productivity obviously can’t support the rights based distributional mechanism of inheritance, so we have some issues there as well, unless we’re getting into some unusual inter-generational or family merit rather than the more common individual merit. Distributional ethics based on marginal productivity also conflict with human welfare based utilitarian ethics (not the fake utilitarianism of the ethical half theory of neoclassical welfare economics limited to propositions about people expressing preferences in situations with no interpersonal conflicts of preferences). Marginal productivity as a form of distributional ethics is very much in the “lottery of life” vein. Whatever happens happens. You may be destined to live like royalty or like a pauper, but it’s ostensibly all good because in some metaphysical sense any of us could have been born into any situation.

Should we do a few examples of marginal productivity based distributional ethics in practice, just to envision the sort of issues and potential controversies we might encounter? Fine, but I’m not doing a philosophical treatise, if that’s what you had in mind. It’s hardly the forum for that. No, let’s just set up a few scenarios and highlight the ethical propositions involved.

Something happens. Recession, depression, war, famine, natural disaster, whatever. Some people’s marginal productivity drops to zero. If they have no savings, they should drop dead. As a matter of ethics, they deserve no economic power based on their marginal productivity.

Lazy, pampered, layabout A has a shipload of money dropped in her lap when her parents die, the marginal productivity of her prodigious capital means she deserves vastly more economic power from sitting by the pool after investing her capital than conscientious, hardworking, materially suffering B.

Golden child A grows up with all the advantages: best education, supportive parents, resources, connections, endless second chances, opportunities, no responsibilities to struggling parents or relatives. Ethically, he deserves more economic power than overachieving B from a difficult background because he easily lands a job with higher marginal productivity.

Rare bird A has an unusual, innate ability or talent that is highly in demand under prevailing conditions. She has spent only five minutes working in all her life, but ethically she should have much more economic power than hardworking every-person B makes in her lifetime. 

Are those enough to serve as an example of the sorts of issues we’d probably want to consider if we were going to take up marginal productivity as a form of distributional ethics in earnest? You know, I’m not a serious ethical philosopher by any means. I’m just throwing out a few random thoughts off the top of my head after spending five minutes thinking about it. Seems likely other issues may be involved.

To be honest, I’m not sure how I think about the marginal productivity theory of distributional ethics. Sounds a bit like something wealthy people with all the advantages might espouse. “Look at me, everyone! I have a good job! Yes, other people, family, society, upbringing, innate ability, luck had a lot to do with it, and I actually have much more than I could ever need or use, but the market has spoken, so all you struggling peons can just drop dead. My goodness, I’m special!” Maybe it sounds better when other people say it? If it makes sense to you, then by all means support it. Just don’t try to pass it off as neoclassical welfare economics. Marginal productivity has no ethical significance in neoclassical welfare economics. Did I mention?

Bad Economics: The Onion Lives

It’s a bit of a special week for me because my recent discussions of the ethical issues of the extent of the market and law over anarchy, which I now contend are exogenous to neoclassical welfare economics because they go beyond what one can say on the basis of “utility,” have prompted me to fix up my little ebook take on what I call the “onion of bad economics.” I thought for a moment the onion had passed away, but then I realized that notion was predicating on following the well trodden path of conflating bad economics with the neoclassical welfare economics on which it is loosely based. Ironic, isn’t it? Given my concern to help others avoid that fate? No, the onion lives on, although I did find it sensible to do some major revising to better explain what the onion is all about. It’s the onion of bad economics, not the onion of neoclassical welfare economics. Maybe we can use this opportunity to review that whole side of my project. I’ve found summaries and recaps rarely go amiss.

Why am I always on about what I call bad economics? It may help to remember what I have in mind by bad economics is not any old form of what anyone might consider bad economics, but anti-democracy “government should not interfere with markets” forms of pseudo-economic reasoning posing as conclusions derived from neoclassical welfare economics. I’m always talking about it because it’s false and creates confusion and conflict. We have real neoclassical welfare economics, the specific, defined, normative theory developed in, and relevant to, what I’ve taken to calling the Fairy Land of Economic Theory, and we have bad economics typically associated with inappropriately invoking that theory under the rather different conditions one finds in the real world. The tricky bits of bad economics derive from the unique ethical half-theory structure of neoclassical welfare economics, in which some normative issues are in and some out, or to put it another way, from the tricky relationship of the Fairy Land and the real world. It encourages people to play games, fudge things. What’s in? What’s out? No, What’s on third! (If the allusion eludes you, don’t even worry about it, it’s an expression of confusion from an old comedy routine, but that’s not important now.)

Opaque normative or ethical content arrives in bad economics in three ways. First, it arrives from the opaque normative propositions in neoclassical welfare economics itself, typically involving “utility” or the conditions under which propositions involving “utility” are analyzed in the Fairy Land. I call that the inner layer or core of the onion of bad economics. Second, it arrives via opaque normative propositions exogenous to neoclassical welfare economics, that is to say, not based on “utility,” but involving using or establishing markets, and often incorrectly associated with neoclassical welfare economics. I call that the middle layer of the onion of bad economics. Third, it arrives via simple errors or misinterpretations of neoclassical welfare economics that can occur when one attempts to relate that theory to the real world, so things like fake distributional indifferences and references to nonexistent distributional mechanisms. I call that the outer layer of the onion of bad economics. The developments that have prompted the recent revisions of my book involve the second pathway, the middle layer of the onion. That’s where the ethical issues of the extent of the market and law over anarchy create problems.

What I’ve determined somewhat recently is the only sensible approach when thinking about the normative or ethical content of normative neoclassical welfare economics itself is to draw the line at what we can say using the relevant definitions of “utility.” That means any attempt to apply the conclusions of neoclassical welfare economics to reality necessarily involves exogenous normative or ethical content. One simply can never really get there on the basis of “utility” alone, even as far as choosing to use markets or indeed choosing to have the conditions necessary for markets to exist. Any attempt to portray a real world policy recommendation as resting on neoclassical welfare economics alone is bad economics, the only real issues are what manner of bad economics is it, how does it work, what are the exogenous ethical propositions involved?

That’s really what I was trying to demonstrate in my ebook on bad economics. I wanted to delve into the sort of opaque normative content one typically finds in bad economics and discuss how it evolves from, or is at least related to, applying neoclassical welfare economics in realistic settings. I really do hope there’s no confusion on that point. The book is not about supporting bad economics or advocating for the type of normative or ethical content one finds in bad economics. The perspective may be different, a little odd, like most things I write, but I still suspect it may be potentially useful for some people. I think it’s interesting, anyway. However, in the previous version of my book, I bent over backwards a bit as far as giving neoclassical welfare economics some relevance for the real world by suggesting certain simple exogenous normative inputs might reasonably be viewed as implicit in that theory. Which ones? Extent of the market and law over anarchy. However, that approach is untenable. It leads to ambiguity and confusion when it comes to the ethical half-theory of neoclassical welfare economics and the relationship of the Fairy Land of Economic Theory to the real world. It also leads to the sort of funny, contradictory results I’ve been discussing these past several weeks. No, the only sensible solution is to draw the line at “utility” when identifying normative content endogenous to neoclassical welfare economics.

Looking for answers? I’m afraid you’re looking in the wrong place, my friend. But I might come up with some interesting questions now and again, if that helps at all. I’m trying to raise awareness of issues, start discussions, dispel confusion and conflict, fight bad economics. Do you think it a modest goal? I don’t. You know what I find truly comical, no matter how many times I hear it? Listening to a discussion in which one person presents a form of bad economics as neoclassical welfare economics, another criticizes what he or she supposes is neoclassical welfare economics on that account, and an economist then refutes the criticism based on real neoclassical welfare economics. Let’s simplify, differentiate, define, draw some boundaries. For my economist friends and associates, let’s look behind the criticisms of neoclassical welfare economics in a sincere way instead of clawing desperately at some excuse, any excuse, to dismiss them. Let’s take the problem of bad economics seriously.

Fixing instances of bad economics is all very well, but the potential for bad economics will remain as long as economists work with neoclassical welfare economics and try to apply it in realistic setting by adding their own variable, exogenous, subjective normative propositions. Want to know how to eliminate the potential for bad economics of the sort I mean occurring? Remove the normative content from neoclassical economics, all of it, and make economics a positive science at long last. Fulfill the childhood dream. Perhaps economists can show where normative inputs are required to evaluate economic systems and outcomes, but as long as they feel their role is to supply those inputs, we will never be rid of the potential for confusing, conflict generating bad economics. When it comes to normative or ethical theorizing, the substantive intellectual discourse belongs with ethical philosophers, who understand the issues and the methods of philosophy, while the decisions lie with voters and their democratically elected representatives. Economists should stop doing what they shouldn’t be doing, confusingly supplying the world with their own subjective and idiosyncratic ethical stylings as though it were economics, and start doing what they should be doing, addressing bad economics.

Two Levels Of Ethics In Neoclassical Welfare Economics

I probably mentioned it before, but one of the elements of neoclassical welfare economics I suspect may generate the sort of confusion that leads to bad economics is the presence of two levels of normative issues or ethics to consider: the ethics of the economist / observer, and the ethics of the subjects or theoretical ciphers. I sometimes have some fun with that issue in the context of a theoretical “one person world” meant to analyze “utility” in the absence of interpersonal conflict along the lines of whether we’re including the economist and his or her preferences about let’s say ethics, and the potential interpersonal conflict that involves, or whether we have in mind just the subject with the economist observing from on high, uninvolved, not really part of the world, like an impassive scientist studying an ant. But let’s just take a step back this week and look at this issue a little more soberly, shall we?

Theoretically, an economist can negate distributional indifference by applying his or her own exogenous ethics or by assuming the subjects all share the same ethics, or lack thereof, and the economist is just passing that information along. I suppose that’s what probably lies behind some common equivocations on terms one finds in bad economics relating to different meanings of “neutrality” or “indifference” to distributional issues and ethics, and also why some economists appear to have such difficulty perceiving exogenous normative content in bad economics. “The people have spoken. Economic power is distributed one way and not another. Laws surrounding markets exist. People support following the law. Everyone is fine with markets. It’s not me, it’s you.” It’s a nod to a sort of neutrality, but not the one relevant to economics. Neoclassical welfare economics lies above and beyond that sort of thing. Its normative propositions are based on “utility,” not particular forms of government or laws, however popular. Supporting a status quo legal regime relating to economic power and markets breaks neutrality in neoclassical welfare economics.

Neoclassical welfare economics theory itself entails a judgment about what is meant to be ethically controversial and uncontroversial for purposes of that theory: maximizing individual preference rankings (“utility”), when no conflict is present, is meant to be uncontroversial, other ethical propositions are meant to be controversial. That judgment is expressed in the definition of “utility” relevant to neoclassical welfare economics. It’s not up to individual economists to decide what they feel is ethically uncontroversial, to add random normative or ethical propositions as inputs of neoclassical welfare economics. It’s not up to individual economists to decide to treat random exogenous normative or ethical inputs as having the same status as “utility” because that economist believes or assumes most or all of the subjects support those inputs and they’re uncontroversial in that sense, etc. The theoretical potential for controversy is what matters.

At the risk of spelling it out one too many times, if one supports given, traditional, existing, status quo views on distributional ethics and other ethics exogenous to neoclassical welfare economics, one is not being neutral or indifferent to those ethics for purposes of neoclassical welfare economics. One is breaking distributional indifference and going beyond what can be supported using neoclassical welfare economics alone, that is, supported on the basis of “utility.” The economist / observer is taking a normative or ethical stance on what is given, traditional, existing, status quo, etc., albeit possibly from an interest in not doing so. 

There is, of course, an area of economics, generalized “welfare analysis,” where economists apply their own random, idiosyncratic, subjective ethics, define “utility” however they like, add whatever assumptions and conditions they like, but that’s not neoclassical welfare economics. Generalized “welfare analysis” is basically just ethical philosophy done by economists, one supposes generally rather dodgy ethical philosophy because of the typical lack of training and isolation from serious philosophical critique, but I suppose some is better than others.

Note this applies as well to “public choice” economists who believe they’re not actively doing ethics as economists when they propose an ethically “ideal” voting scheme because they’re just talking about the ethical views, the preferences, of their theoretical subjects. The “ideal” voting scheme can only be defined relative to some subjective system of ethics. It’s not the role of economists to tell society what voting system is “ideal” or even when some issue should be resolved on the basis of voting as opposed to, let’s say, economic power in markets. It’s up to society to tell economists what voting system they find ethically acceptable, and when they think they should use it rather than economic power and market systems.

Resolving interpersonal conflicts of needs and desires on any basis is always an ethical position. Adopting any possible criteria, let’s say intensity of preferences, is an ultimately subjective ethical position. Others may disagree. It’s potentially controversial. It’s ethics, not science. Someone espousing ethics involving rights to property or whatever doesn’t care how intense one’s preferences are. Someone espousing ethics based on human welfare, traditional (non-economic) utilitarianism, doesn’t care how intense one’s preference are. It’s ethics, not science. If, let’s say, some bully has an intense preference to smash his or her diffident, nearly suicidal neighbor on the head with a rock, it’s an ethical choice to allow him or her to do that. If that’s your ethics fine, but represent. One person one vote democracy has a certain normative, ethical, justification. Voting indexed by, let’s say, some measure of intensity of preferences, has another. Voting indexed by, let’s say, a combination of intensity of preferences and economic power, pay to vote, has another. It’s fine to support whatever one supports, but acknowledge, evaluate, discuss the ethical choice involved. It’s ethics, not science.

Honestly, how many times do I have to say it? Ethical philosophy is different from science, value from fact, normative from positive, is from ought. There is no objective, scientifically correct ethics. There is no normatively or ethically “optimal” or “ideal,” except to an individual and in reference to his or her own ultimately subjective moral sense or moral sentiments. At the social level, there is only temporary compromise and agreement. If the economist / observer wants to leave his or her own ethical judgment out of the equation, then he or she should learn to stop at simply indicating the relevant ethics issues, the potentially significant tradeoffs, and letting the people decide how to resolve them. Economists should really give up their self-appointed role as ethical arbiters of society and stop trying to tell everyone else what is optimal or ideal.

Law Over Anarchy In Neoclassical Welfare Economics

One form of bad economics I often mention is fake “anarchy” with markets, property, economic power, but no government or laws. It’s comical. However, the relationship of actual neoclassical welfare economics to anarchism is an interesting question. It occurred to me recently the exogenous normative or ethical issue I’ve been calling “extent of the market” may rest on an even more fundamental exogenous normative or ethical issue, which maybe I’ll call “law over anarchy.” 

If you recall, traditional neoclassical welfare economics exhibits indifference to distributional ethics because neoclassical welfare economics uses a definition of “utility” that by design cannot be used to address or resolve interpersonal conflicts of needs or desires. That result follows from the fact we cannot make “interpersonal utility comparisons” using the sort of “utility” relevant to neoclassical welfare economics, which refers, by either definition or in practice, to the preference rankings of individuals.

Note I’m not talking about the more general “welfare analysis” one sees these days in which random economists interpret “utility” however they like, analyze it under whatever conditions they like, and derive this, that, or a bit of the other conclusion. Nor am I talking about a substance-free toolbox of techniques and concepts. I’m talking about the theory of neoclassical welfare economics, which uses terms and concepts in specific, defined ways to derive specific, defined conclusions. Why am I always so interested in now quaintly old fashioned neoclassical welfare economics? The theory of Pareto optimal, economically efficient, perfectly competitive markets? Because that’s the theory that shows up, in mangled form, in ubiquitous bad economics of the anti-democracy “Free Market” variety. And you know I’m all about addressing bad economics, right?

I’ve previously argued a normative or ethical issue closely related to distributional ethics that should really be understood and acknowledged as exogenous to neoclassical welfare economics in the same way distributional ethics are understood and acknowledged as exogenous to neoclassical welfare economics is the “extent of the market.” Whereas distributional ethics are commonly meant to refer to the distribution of economic power, extent of the market is about whether we should use economic power in markets to address or resolve particular interpersonal conflicts of needs, desires, preferences. A vaccine is a good example. The ethical issue of who gets the scarce resource of the vaccine is exogenous to economic theory and can be addressed by adjusting who has the economic power to get it on the market or by simply deciding to allocate it using some non-market mechanism. Interestingly, both adjusting the distribution of economic power and using a non-market mechanism to distribute a particular good or service, like a vaccine, can be seen as expressing “distributional ethics” of different sorts or levels. The decisions are related in a fundamental way. Equivocation alert! I’m always interested in the point at which a term may split into two versions, a situation all but guaranteed to create confusion down the line somewhere, a problem philosophers call equivocation on terms. One should always keep in mind what exactly one has in mind by “distributional” issues and ethics or things just might start going a bit pear shaped later on.

Just to set everyone’s mind at ease, yes, I understand I’m doing interpretation here. Unfortunately, the normative or ethical inputs of traditional neoclassical welfare economics are unclear and one must resort to a certain amount of interpretation, surprising after all this time, but there we are. A big deal is made in the context of neoclassical welfare economics of the normative inputs related to “utility,” but is that meant to preclude value inputs not based on “utility?” Well, I don’t know. One might suppose by focusing on markets, neoclassical welfare economics entails a sort of implicit normative proposition economic power in markets is the ethically superior approach to resolving interpersonal conflicts of preferences, needs, desires.  However, we’d then be saying something like, we’re indifferent to how interpersonal conflicts are resolved in the sense of the distribution of economic power, but we believe as a point of ethics the resolution must involve economic power in markets. Hard to see the ethical justification for such a determination.

In addition to logically requiring some ethical basis other than “utility,” such a normative proposition raises what seem to me some odd issues inconsistent with the handling of the distribution of economic power. For example, those with medical need but somewhat indifferent to their own health may prefer having money to spend rather than the vaccine, but that doesn’t allow us to evaluate those ostensible social benefits relative to any additional cost associated with providing money rather than vaccines. More significantly, I’ve argued before it seems to disallow distributional ethics of a more situational sort as opposed to person-based sort, for example, distributional ethics relating specifically to the distribution of vaccines rather than also the equivalent economic power. That seems to me a controversial normative proposition relating to distributional ethics inconsistent with defining “utility” ostensibly to avoid what may in many cases be rather less controversial ethics about the distribution of economic power itself. Why do I say controversial? Just what I see. The idea of at least offering the vaccine first to people with medical need seems generally ethically less controversial than the notion of giving people with medical need the currently equivalent amount of money to do with as they like, irrespective of their current wealth, and I don’t think the controversy stems from an inability to perceive the potential increased preference satisfaction of the people getting the money. No, when it comes to identifying the normative or ethical inputs to neoclassical welfare economics, my inclination is to hold the line at “utility” and say any normative proposition going beyond it, which may be ethically controversial, is meant to be exogenous to that theory. That seems a rather more sensible approach than accepting as normative or ethical inputs to neoclassical welfare economics a hodgepodge of random and unrelated propositions, but I suppose everyone may have their own opinion on that.

A further step back from even the extent of the market is the ethical issue of support for the legal arrangements required to even have a market, such as legal specifications of property ownership (property “rights”), contracts, etc., as opposed to lawless anarchy. That’s another issue clearly going beyond what one can say based on “utility.” If two people are fighting over a wallet and one legally owns it and one does not, that tells us nothing about who might get the most “utility” from it, not in neoclassical welfare economics anyway. So does neoclassical welfare economics contain or imply the normative proposition a regime of laws beats anarchy? Certainly not based on “utility,” nor on any conclusions derived from “utility,” such as the supposed social optimality of certain market structures given the existence and use of markets. It would be an odd sort of normative or ethical input to find in neoclassical welfare economics if we accept the exogenous status of extent of the market decisions. As a matter of ethics we must have the conditions for a market, even if we choose to not use markets to resolve potentially any interpersonal conflicts of desires? Why?

Like I suppose most people, I personally prefer law over anarchy, but that’s not the issue here. The issue is whether such a normative proposition is expressed or implied by neoclassical welfare economics and, if so, the ethical or normative basis involved. Again, my inclination is to hold the line at “utility” and say any normative proposition going beyond it, which may be ethically controversial, is meant to be exogenous to economic theory. In that case, neoclassical welfare economics would not propose law beats anarchy. To my way of thinking, it makes a nice, symmetrical set. It fits. In that case, neoclassical welfare economics would not propose the ethical primacy of any particular resolution of interpersonal conflict, expressed via the distribution of economic power given the use of markets, the use of markets as opposed to non-market mechanisms, or even the presence of the conditions required to potentially use markets if one so chose. In this view or interpretation, neoclassical welfare economics basically says simply, if one accepts, as a point of ethics, how some interpersonal conflict of preferences or needs is resolved using economic power in markets, then certain market structures look pretty good. That is all. It makes sense given the simple normative propositions associated with “utility” as defined in neoclassical welfare economics that serve as the explicit normative or ethical foundations of the theory. Were you thinking surely it says something more than that? You may be thinking of bad economics, where people start with neoclassical welfare economics and misinterpret it or add random, obscure, unannounced ethical propositions of their own manufacture. The normative propositions in bad economics may be just fine at least according to the subjective moral sensibilities of some observers, but the way of expressing those propositions is not fine, not if they’re incorrectly ascribed to neoclassical welfare economics.