I strayed into somewhat unfamiliar waters recently, normative economics in a macroeconomic context as opposed to my usual neoclassical welfare economics context. Maybe I should say a few more words about that this week. Interesting area. I took up the issue before not so long ago, but not very satisfactorily.
Normative economics in the context of neoclassical welfare economics is about things like “utility” defined in certain ways, Pareto optimality, economic efficiency (defined with respect to “utility”), market structure, market failure, “optimal” economic arrangements, etc. Neoclassical welfare economics is considered a branch of microeconomics despite dealing with markets, economic systems, and other macro scale issues because of the method, the focus on individual behavior, if not of real people, then at least of theoretical ciphers. It’s the familiar sort of normative economics I’ve been suggesting for the last couple of years is closely related to what I call anti-democracy bad economics in the conservative style, which I contend misinterprets it, plays games with it, uses it for rhetorical and political purposes. The sort of bad economics in the conservative style I have in mind is the sort that sees no particular role for democratic government, neglects the ethical half-theory structure of neoclassical welfare economics, tries to slip in additional ethical propositions, etc.
Confusingly, neoclassical welfare economics shares the “microeconomics” category with so-called “general welfare analysis,” which explicitly introduces additional normative propositions that often invalidate or contradict the conclusions of neoclassical welfare economics itself. “General welfare analysis” is not a defined normative theory like neoclassical welfare economics, but a limitless collection of normative or ethical theories involving individual economists adding whatever normative propositions strike their fancy, including potentially quite controversial ones, and playing with factual premises. That means normative economics in a general microeconomics context, as opposed to a specifically neoclassical welfare economics context, is not well defined and can be anything really, depending on the interpretation and manipulation of “utility” and other model elements.
In contrast, normative economics in a macroeconomics context concerns not “utility” but various economic metrics like total output, growth, inflation, unemployment, wages, etc., weighing them against one another and against various ethical issues relevant to economic policy. Like what ethical issue? Well, like those associated with the definition, distribution, and use of economic power in market to resolve interpersonal conflicts of preferences that are exogenous to neoclassical welfare economics, so human welfare, fairness, equity, rights, etc. The normative or ethical arguments that feature in applied macroeconomics, real policy recommendations, part of what I’m calling a macroeconomic context, are not explicitly discussed in macroeconomic theory. As far I know, the theory contains no explicit normative reasoning, as I’ve mentioned in previous posts.
Unlike most neoclassical welfare economists, who are quite often concerned to deny their theory has normative content or are cagey or confused about its limits as an ethical half-theory, macroeconomists seem quite comfortable with their own normative activities. I’m not a macroeconomist myself, but one fellow informed me recently macroeconomists begin their study of the ethical and normative issues involved in their policy recommendations as early as Macro 101, not to be confused with the rather more infamous Economics 101. I suppose one might thus consider macroeconomics anti-democratic in some ways by presuming to technocratically decide normative or ethical issues and tradeoffs one may think more suitably addressed by the people and democracy because of their subjective nature. The penchant of macroeconomists for talking about The Economy as a machine or organism, and giving their policy recommendations in terms of velocity, heat, tightness, health and so on, rather than explicitly in terms of the ethical issues involved, adds to the problem. If one is the ethical arbiter for society, the least society might reasonably expect is to hear clear discussions of any ethical decisions or tradeoffs involved, rather than opaque metaphors that neglect to mention people, tradeoffs, ethics, etc. However, that sort of opaque, technocratic overreach in social decision making is really a rather different issue from the sort of anti-democracy bad economics in the conservative style based on misinterpretations of neoclassical welfare economics that is my main focus.
My general point is that neoclassical welfare economics and applied macroeconomics represent two distinct types of normative economics based on different goals, using different arguments, with adherents viewing themselves differently related to normative issues. However, it’s not unusual for people to want to link them in various ways. Sometimes people simply get them twisted and, for example, conflate “utility” with money or output, or equivocate on “efficiency” defined with respect to “utility” and to output. Sometimes people link them explicitly, for example, in microeconomic general welfare analysis by adding exogenous normative propositions to neoclassical welfare economics to manipulate “utility” using “social welfare functions” to link it to macroeconomic concerns. The notion of a diminishing marginal “utility" of economic power (money), total consumption, etc., is an interesting example of an attempt to link the two arguments. I thought I might say a few words about it here, but I’m already pushing it, so maybe save it for another day.
Positive economics is well and good, but if one spends all day discussing philosophy of science, I suggest one is neglecting the part of economics that generates the lion’s share of confusion and conflict, and often supports anti-democracy sentiment: normative economics. One might want to spend a few moments on normative economics in the contexts of neoclassical welfare economics, bad economics in the conservative style, microeconomics including general welfare analysis, and applied macroeconomics. It’s a fun, interesting, timely area.
