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.
