This week I’m concluding the simplest, shortest explanation of the basics of bad economics in the conservative style this side of forever. Three easy blog posts. But they’re so long! Fine, I’ll power through extent of the market and false factual premises in one go. Satisfied?
Recall the first part of my three part summary dealt with some potentially confusing aspects of superfluous and idiosyncratically defined “utility” in neoclassical welfare economics, which contribute directly to bad economics. The second part of my three part summary dealt with a common rhetorical trick associated with bad economics: fake distributional indifference. Unlike “utility,” the rhetorical trick of fake distributional indifference is clearly not part of neoclassical welfare economics proper.
Under my old “onion of bad economics” scheme, we may say part one involved the inner layer or core, potentially confusing bits in neoclassical welfare economics itself, and part two involved the outer layer, issues that are clearly not part of neoclassical welfare economics, per se. This final third installment addresses issues from the difficult to delineate middle layer of the onion of bad economics; issues that are not really part of neoclassical welfare economics, per se, but some knowledgeable people might suppose are.
My first issue today is an ethical issue I call “extent of the market,” the choice of when to resolve interpersonal conflicts of preferences using economic power in markets and when to resolve them using some other mechanism, such as voting in a democratic political system. Does neoclassical welfare economics contain a normative or ethical argument about when we should use economic power in markets to resolve interpersonal conflicts? I would say, no, clearly not. That issue is exogenous to that theory. Why do I say that? The “utility” on which neoclassical welfare economics is based cannot support interpersonal utility comparison and thus cannot be used to resolve interpersonal conflicts. Deciding when to use economic power in markets to resolve such conflicts is no exception.
Supposing neoclassical welfare economics contains such a proposition would mean the theory expresses indifference to the distribution of economic power but not to the proposition interpersonal conflicts should be resolved on the basis of economic power. Why? What ethical theory is that? No, I’m just asking. If that were the case, some of the normative inputs to neoclassical welfare economics would not be based on “utility,” and would be not well identified, analyzed, evaluated, or discussed. That, I think, not only unfairly maligns the theory, but creates confusion and conflict.
Conservative bad economics in this context involves supposing neoclassical welfare economics does contain a normative or ethical argument relating to extent of the market in the case of particular or even all interpersonal conflicts. For example, a purveyor of bad economics may suggest neoclassical welfare economics says a vaccine should be distributed by economic power in markets, not by medical need. That’s an ethical position one might discuss, but it’s not one expressed in neoclassical welfare economics.
One can, of course, calculate a “social welfare loss” predicated on accepting the resolution of that interpersonal conflict based on economic power in markets, but attaching normative significance to that calculation is, in fact, exogenous to neoclassical welfare economics. The “social welfare loss,” when applied to reality, is just another bit of potentially misleading wordplay designed to trip up the inattentive and unwary, along the lines of (economic) “efficiency,” “social welfare” and “optimal” market outcomes. They don’t mean what one might suppose they mean in everyday speech. They mean something rather less than that.
One manifestation of confusion relating to the exogenous ethical issue of the extent of the market involves property “rights.” One can’t resolve interpersonal conflicts of preferences on the basis of economic power in markets without defining economic power (i.e., legally defining property). One often sees purveyors of bad economics trying to slip the necessary normative propositions into neoclassical welfare economics through the back door by saying, well, of course, one needs legal specifications of property to have markets. Yes, of course. That’s not the issue. The issue is whether the relevant normative propositions are inside or outside neoclassical welfare economics, endogenous or exogenous. That is, does the theory contain an argument against anarchy? Does it argue we should resolve interpersonal conflicts on the basis of law? If so, it’s not based on “utility.” If we’re looking at an interpersonal conflict, let’s say between two people over possession of a wallet, we don’t know if the person with a legal claim to the wallet will get higher “utility” from it than the other person, if indeed it even makes sense to ask that question. (Again, it only makes sense to ask that question if one is using the old fashioned internal perceptions of satisfaction from preference fulfillment “utility,” not if one is using the ostensibly standard individual preference rank “utility,” in which case “utility” would be undefined in interpersonal contexts.) The argument one would like to apply neoclassical welfare economics to reality, and one can’t unless one accepts some other random ethical propositions, so those other random propositions must be part of the theory, is not really a serious argument. That’s bad, as in inept, philosophy.
Next, consider false factual premises. When one evaluates the normative inputs relating to “utility,” which are really about how to treat other people expressing their preferences, if there are no interpersonal conflicts to muddy the ethical water, certain conditions are relevant. Like what? Well, does the person know what he or she is doing or talking about? Does he or she seem rational? That sort of thing. If those conditions are met, the proposition one should let him or her do whatever he or she likes is relatively ethically uncontroversial. (Note that for purposes of this blog post I’m setting aside the issue of whether the “no interpersonal conflict” case defined with respect to “utility” has any application to reality, given the variety and ubiquity of interpersonal conflict in real life. I’ve argued before, if one expresses the relevant ethical propositions in terms of how to treat other people expressing preferences under certain conditions, rather than in terms of the rhetorical and misleading “utility,” one can easily enough set parameters on what qualifies as ethically relevant interpersonal conflict.)
So does the ethical proposition in neoclassical welfare economics we should “maximize” total social “utility” involve conditions, like perfect information and perfect rationality, that render it non-controversial in the relevant no conflict case, or does it not? Again, I would say no, clearly not. “Utility” is about choices, observed preference rankings, not people’s knowledge or state of mind. It’s bad philosophy to pretend things are part of an ethical theory that are not actually there because one finds it convenient to imagine they are there.
If one wants to ascribe those conditions to neoclassical welfare economics itself, and say the relevant ethical proposition involves maximizing social “utility” only under particular, unreal conditions, then spell it out so everyone understands it’s not meant to apply to reality. In that context, it may be worth noting that factual premises in normative economics are often conflated with simplifying assumptions in positive economics, leading to the risible notion it doesn’t really matter if the factual premises in normative economics are true or false. Again, that’s just inept ethical philosophy. It would seem conservative bad economics involves not only tacking on controversial normative propositions to neoclassical welfare economics without identifying those exogenous ethical inputs as such, it also involves misstating the level of controversy associated with the inputs that are there, to make the bait and switch that much more effective.
Neoclassical welfare economics is an ethical half-theory that gives conclusions relevant to the real world only if one holds particular exogenous ethical beliefs about the definition, distribution, and use of economic power, and the significance of ignorance, irrationality, etc. It’s fine to supply those exogenous inputs yourself, or to argue they should be decided by the people through democratic government, but be honest about it. Identify, explain, evaluate them. Don’t just pretend they’re part of neoclassical welfare economics. That’s bad economics.
