Self Interest And Neoclassical Welfare Economics

Can we talk this week about self interest as it appears in modern neoclassical welfare economics, yet again? I know I’ve discussed it before, probably many times, but it’s been awhile, and someone mentioned Rawls the other day, so that reminded me of it.

Self interest was a big deal in eighteenth century economics, when it was a branch of moral philosophy, for figures such as Adam Smith, concerned to support the Deistic religious proposition self interest was both natural and good, divinely introduced for a beneficial purpose. Mr. Smith was rather more careful than many later writers on the issue and didn’t contend greed was good generally. He discussed the bad that may follow from self interest in the wrong context. His interest was simply trying to establish some context in which it could be good. Much of the fun of reading Mr. Smith derives from following the verbal gymnastics centering on the multifaceted concept of “nature” to portray the construction and maintenance of the correct context for self interest to be good as natural and, relatedly for him, divinely inspired.

But modern economic theory has long since moved on from its roots in moral philosophy and religious movements. The status of self interest in modern neoclassical welfare economics is complex and fraught, albeit much simpler in related bad economics in the conservative style. To start, actors and roles are important in this context. In modern neoclassical welfare economics, the ciphers meant to represent consumers tautologically “maximize” their “utility,” which is just a funny way of saying they prefer whatever they prefer. As far as the definition of “utility” in modern neoclassical welfare economics, there is no real content beyond the preference ranking for a given individual, no limiting of the bases of his or her preferences, which may involve philosophy, religion, ethics, altruism, love. Indeed, at the propositional level, there is an explicit prohibition against normative evaluation of the bases of preferences in the form of the famous dictum “de gustibus non est disputandum,” and one can infer by the use of Latin it’s meant to be taken quite seriously indeed.

On the other hand, one notable difference between the theoretical ciphers standing for consumers in neoclassical welfare economics and real consumers is the ciphers conventionally appear to have a rather constrained set of issues about which they have preferences. For example, the theoretical ciphers standing for consumers in neoclassical welfare economics, unlike real consumers, aren’t usually portrayed as having preferences about ethics, fairness, justice, etc., and perhaps cannot, as funny things happen to the theory if they do. That discrepancy between theory and reality is an element of the so-called “methodological individualism” critique of normative neoclassical welfare economics, a nod to the funny business associated with doing ethics meant for an unreal fairy land then applying it in reality. Saying the same thing in a different way, it serves to remind us normative content enters into neoclassical welfare economics not only at the level of explicit normative propositions but also at the level of defining the theoretical context in which those propositions apply.

In contrast, the theoretical ciphers standing for business people in their role as business people (albeit not in other roles like consumers, citizens) are meant to maximize “profit,” money, not their own “utility,” so that’s rather closer to the typical idea of “self interest.” However, even in that restricted context “greed” as profit maximizing behavior is not portrayed as inherently good. To be socially useful it must be in a particular context. The theory does not portray the greed of monopolists, oligopolists, etc., as leading anywhere good. 

Then moving away from the theoretical ciphers we have the economist as observer and whoever he or she is meant to be talking to, entities outside the Fairy Land of Economic Theory, peering in at the ant-like ciphers as their scurry about their theoretical business. The economist is meant to be talking about what’s ostensibly optimal for the ciphers, so not about his own self interest, unless his own self interest is wrapped up with the ciphers in some obscure way, or he’s using the theory in the real world to promote his own self interest. The economist is talking to some interlocutor about normative ideas, ethical philosophy, relating to the ciphers, how they might beneficially arrange things for the ciphers. He’s not talking to the ciphers themselves, nor appealing to the self interest of the interlocutor. This leads to the ambiguity introduced by economists appearing to profess concern for the welfare of cipher society, expressing personal preferences relating to ethical propositions the ciphers themselves appear to have no preferences about. Brings to mind the image of purveyors of bad economics in the conservative style expressing their preferences about what’s best for society in reality, while ignoring the preferences of voters, presumably viewing them as like ciphers of the Fairy Land.

To complicate matters, we then have economists’ famous fascination with the ethical philosophy of people like Rawls, who are all about playing with the idea of “self interest,” so one might be forgiven for supposing they’re still quite fascinated by the old Deistic philosophy. Yes, some economists set aside the important task of explaining the normative, ethical limitations of neoclassical welfare economics and the rhetorical artifact of bad economics in the conservative style to think about a largely defunct eighteenth century moral theory. Instead of helping others understand the ethical issues involved, including how society might discuss or resolve them, some economists want to move directly from treating those issues as exogenous to resolving them based on their own study into self interest and dubious “nature.”

What’s my point? The status of self-interest, greed, in the normative program of neoclassical welfare economics is not as simple as many seem to propose and is quite different indeed to how it’s presented in bad economics in the conservative style. Something to watch for.

Democracy And Anti Democracy

I was discussing the other day the difference between those who support authoritarianism to guard against the tyranny of democracy and those who support democracy to guard against the tyranny of authoritarianism. Fun issue. Maybe we can discuss that this week?

Why do I tag the issue as relating to economics? Because the context in which these issues most commonly arise are laws relating to economic power resting on ethics relating to the definition, distribution, use of economic power, all exogenous to neoclassical welfare economics. The issue is clearly a normative one that hinges on what one supposes makes government legitimate, although it can involve some confusion and conflict if one equivocates on the term “tyranny” without explaining what one means by it, a common enough rhetorical ploy. As with other such terms, goodness, morality, freedom, liberty, etc., it’s always easy and tempting to avoid substantive discussion by simply assuming the conclusions, assuming a definition, then proposing those with other views are against the general concept. That leads to unproductive straw man arguments. No one opposes goodness, morality, freedom, liberty, etc. The issue is what one means by those terms, and in that context what one supposes good another may suppose bad, what one perceives as freedom another as a lack of freedom.

With respect to those who see democracy as tyranny, the legitimacy of non-tyrannical government is clearly based on something other than democracy, that is, the consent of (the majority of) the governed, typically involving their own ethical or religious thinking about “rights.” According to those people, if democracy doesn’t respect what they view as their “rights” that supersede democracy, then democracy is tyrannical, unethical. These “rights,” as one might guess, most often involve the ethics of the definition, distribution, use of economic power.

With respect to those who see authoritarian government as the tyranny of a power elite, the legitimacy of non-tyrannical government is based on democracy, that is, the consent of (the majority of) the governed, in which voters express their various ethical views and vote on law. According to those people, if power elites establish laws meant to supersede or be immune to democracy, then those elites are being tyrannical, unethical. These laws, as one might guess, most often involve the ethics of the definition, distribution, use of economic power.

These fundamentally contradictory views of government are artfully combined in the US Constitution, which proposes constitutional rights to protect against the tyranny of majority rule in democracy, to a degree, but also a mechanism to revise, amend those rights using democracy. Under the US Constitution, democracy, the consent of the governed, is the ultimate consideration meant to make government legitimate. This issue is at the crux of right wing, conservative ambiguity with respect to supporting or terminating the US Constitution. They talk at length about “constitutional republics,” but the republics they typically have in mind don’t seem to correspond to the one we have in the USA. Specifically, they involve fantasy constitutions immune to revision, amendment via democracy, often religious in nature.

Why do conservatives, Republican not perceive the tyranny of their fantasy constitutional republics? Presumably because they have in mind constitutions that comport with, and express, their own personal ethical views. Apparently, it isn’t tyranny if it’s their tyranny. If they could use their imaginations to consider an unchangeable constitutional republic inconsistent with their own ethical views, let’s say one that establishes communism, they might see the difficulty. But it seems a step too far for many egoists. One sees the same peculiar one-sidedness, the same “selective perception” as it’s often called, in many artifacts of conservative, right wing thought. When they speak of liberty they generally mean their own liberty, freedom their own freedom, ethics their own ethics, etc. It’s by this sleight of hand conservatives see authoritarian government expressing conservative views on economic power, commonly called fascism, as a force for freedom or liberty against the tyranny of democracy, and democracy itself as tyrannical “fascism.” Because conservatives actually support the anti-democracy element of communism, they see the problematic bit of that creed in terms of the ethics of economic power, so they see voters using democracy to express what they see as “leftist” views on economic power as “communists.” Hence, to a conservative or right winger, a voter expressing what they consider “leftist” ethical views on economic power in the context of voting in a democracy is both a “communist” and a “fascist,” leading to their famous confusion between those two very different creeds.

Conservatives supporting fascism, authoritarian government expressing conservative views on economic power against the ethical views of voters, democracy, while pretending to support the US Constitution, patriotism, freedom, liberty, are a major threat to democracy in the USA. This threat is closely linked to anti-democracy bad economics in the conservative style, based on the ethical half-theory of neoclassical welfare economics, which suppresses understanding of the role of democratic government in addressing ethical issues in market systems.