Someone mentioned “social welfare functions” the other day, so I thought I’d say a few words about that this week. I’m sure I did it all before, multiple times, but it’s been a while, so let’s have another go, shall we? I’m mostly talking this week to people who know a little something about neoclassical welfare economics, but if you’re just along for the ride, “social welfare functions” are mathematical functions meant to “weight” different people’s “utility” to define an overall social optimum.
One point I’d like to stress is that if one is using “social welfare functions” to manipulate “utility,” one cannot be talking about the most typical definition of “utility” in neoclassical welfare economics: “utility” defined as individual preference rankings, typically referred to as preference rank “utility.” Preference rank “utility” can only sensibly be used in the context of a given individual. With this definition of “utility,” it’s grammatical nonsense to look at two different people and ask, “Who is getting higher ‘utility’ from good X?” It’s like asking the square root of red or whatever nonsense question catches one’s fancy. If we take two individual preference rankings, “weight” them using a social welfare function, and add them up, what do we get? Gibberish. Nonsense. It’s the sort of thing an inattentive engineer might do if he or she forgot the substantive context or content relating to some equations. If one is listening to someone who has previously defined “utility” in terms of individual preference rankings but suddenly starts talking about “social welfare functions,” one is listening to bad economics. One will want to exit the bus, as soon as possible.
If we’re not talking about individual preference rank “utility” when using social welfare functions, what sort of utility are we talking about? Well, I suppose the older definition of “utility” defined as internal perceptions of satisfaction from preference fulfillment. Why do I think that? Well, it must have to do with preferences if we’re still meant to attach significance to revealed preference, and it must be empirically inaccessible if we need to come up with a “social welfare function” to make interpersonal utility comparisons.
That switch, so insignificant in a mathematical sense, is momentous in a substantive normative or ethical sense. It changes the entire interpretation and evaluation of the normative or ethical argument made in neoclassical welfare economics. Indeed, one must appreciate normative neoclassical welfare economics is really two theories: Neoclassical Welfare Economics One, and Neoclassical Welfare Economics Two. Talk about one at a time and you'll feel better in the morning.
Using “utility” defined as internal perceptions of satisfaction from preference fulfillment, one might reasonably suppose accepting the ostensible goal of maximizing “utility” means one should use that criterion to resolve interpersonal conflicts, if one could. The funny thing is, as I’ve argued before on numerous occasions, no one really would, or at the very least it would be very controversial indeed. If we had a dream where we could peer into people’s minds and observe and measure the strength of these elusive internal perceptions and thus actually maximize that type of “utility,” and someone like, say, the infamous Mr. Hitler was the biggest producer of “utility” around, well, that would get a bit awkward, wouldn’t it? No, the proposition we should maximize that type of “utility” is basically a faux or fake ethical objective that is acceptable only as long as one can’t actually do it, hence making room for other more sensible forms of ethical reasoning to be applied to resolving interpersonal conflicts in practice.
Neoclassical Welfare Economics Two, based on internal perceptions of preference satisfaction “utility,” is a weak, implausible, full ethical theory based on adding up and maximizing a certain type of “utility” across people. Neoclassical Welfare Economics One, based on individual preference rank “utility,” is an ethical half-theory. It isn’t really about adding up and maximizing “utility” across people. Indeed, that doesn’t even make sense with that type of “utility.” It’s about what one can say when limiting oneself to certain propositions about how to treat other people expressing individual preferences. It can be viewed as either clever rhetorical word play to muddy the water or a simplistic attempt to make economics more “scientific” in the old logical positivist sense by defining concepts by their observable attributes. See the difference?
So how about those “social welfare functions?” Well, those are simply attempts to introduce exogenous ethical content on top of ethically implausible internal perception of satisfaction from preference fulfillment “utility” by “weighting” different people’s “utility.” They’re an attempt to convert Neoclassical Welfare Economics Two into a more acceptable full ethical theory, very unlike the explicit ethical half-theory of Neoclassical Welfare Economics One with its individual preference rank “utility.” Comically, and confusingly, the exogenous ethical or normative content added on might (but needn’t) relate to commonly accepted indications of human welfare, the most typical definition of “utility” one finds in serious utilitarian ethical philosophy. So “social welfare functions” often represent real, sincere ethical utilitarianism being re-introduced into a weak, controversial, arguably insincere form of “utilitarianism” by “weighting" the wonky, implausible “utility” of the latter according to the rather more sensible “utility” of the former.
Is it even internally consistent? We start out with an inaccessible sort of “utility” as internal perceptions, but since that implies nothing useful beyond individual preference rankings if no interpersonal conflict, we take up potentially conflicting ethical principles for that. And what funny business do you suppose occurs because we started our normative journey talking about one type of “utility,” making arguments based on that, but ended up manipulating it to correspond to other ethical beliefs, possibly involving other forms of “utility?” Do you suppose “social welfare functions” are just about choosing between defined economically efficient, Pareto optimal, perfectly competitive, socially “optimal” outcomes? That’s just the sort of funny business I’m talking about. A mash-up of two ethical theories, really. Because once one has a “social welfare function,” there’s nothing significant about the “wrong” economically efficient, “optimal” outcomes. Indeed if market institutions are inconsistent with or cannot produce the desired optimal outcome, well ...
Of course, there’s nothing inherently wrong with an ethical theory combining propositions about how to treat people expressing preferences if no interpersonal conflict under various conditions, and recommending various criteria for resolving interpersonal conflict, but say it right. Say it in a way that makes the ethical argument clear so people can discuss the potentially problematic bits, the controversies, evaluate the arguments. Talk sensibly. Don’t just play fast and loose with terms to make it come out right. That creates confusion and conflict.
Because you know the ethical stylings of individual economists have no special significance, or shouldn’t anyway. It’s the subjective stylings of the people delivered via democratic government that’s significant, or should be. They should be involved, not hoodwinked. For consumers, students, if you’ve come to realize economists aren’t necessarily always talking about the same thing when they discuss “utility,” don’t stop there, shrug your shoulders, and walk away. Don’t settle for baby level analysis. It’s your economy. Stick up for yourself. Consider why someone might play games with terms in that way. Investigate what happens when one sticks with one definition of “utility,” identify and evaluate the real normative inputs involved, see what conclusions really follow from particular definitions of “utility.” Don’t settle for bad economics.
Got all that? Well, if you do, you’re halfway to overcoming bad economics. Take up fake distributional indifference, the exogenous ethical issue of the extent of the market, and the role of false factual premises, and you will have gotten what I suppose are the essentials. As I’ve just now reviewed some of the funny business associated with “utility,” which is a major component of bad economics, maybe I'll treat this as part one of a three part series and do a quick review of the other bits in the next couple of storms.
