I thought this week I might say a few words about the concept of “willingness to pay” as used in bad economics in the conservative style. I tend to see quite a lot of confusion about what it means, its normative significance, among conservatives especially. I’ve been meaning to write something on this for a while now, ever since someone purporting to be an academic economist informed me economic power has nothing really to do with market outcomes, the only thing that matters is “willingness to pay.” He or she explained that’s why poor people can buy cell phones, fancy coffee, and so on, the idea being the poor can easily enough get whatever they want, as long as they have the requisite “willingness” to have it. I found it remarkable. Let’s discuss the rhetoric.
First, note the concept of willingness to pay, in general, without some budget, ability to pay, economic power to put bounds on it, is meaningless. How much would I be willing to pay for product A? Well, I don’t know. A gazillion dollars? Two gazillion? How about this one? “How much would you be willing to pay for A? $10? Fine, I’d be willing to pay $11, so give it to me. Give you the money? Can’t. Haven’t got any.” Do you see where I’m going with this? To be sensible, economic power must ground willingness to pay. So really, as many have pointed out, “willingness to pay” used in realistic contexts is always “ability and willingness to pay.” It’s never just a generalized willingness. In market systems, people don’t get whatever they want, even they want it quite a lot.
Next, let’s talk about the normative significance of this ability and willingness to pay given the normative argument in neoclassical welfare economics based on individual preference ranks as “utility.” Recall utility is only relevant for a given individual, not interpersonally. Thus, in that theory, the fact individual X is able and willing to pay more for good A than good B is normatively significant. It suggests good A is higher on X’s preference ranking that good B or in the funny talk of economics, individual X “gets more utility” from A than B. Now consider what happens if we make an interpersonal comparison of ability and willingness to pay for two people, X and Y. What can we say about who would get more “utility” from good A if X is able and willing to pay more than Y? Nothing. “Utility” doesn't work that way. That is, what can we infer about “utility” as the individual preference ranks of X and Y relative to good A? Again, nothing. Obviously. It’s an interpersonal utility comparison in the guise of willingness to pay, and such comparisons are undefined or impossible in that theory. As many have pointed out, that corresponds to casual thinking about the ethics of the situation. Say X is able and willing to pay $1 M from a budget of $1 B, while Y is able and willing to pay only $1 K, but that’s his or her entire budget. Who wants, desires, needs it more?
What’s going is people are pulling a fast one and swapping out “utility” for economic power, money. However, the ethics relating to the definition, distribution, and use of economic power to address interpersonal conflicts are external to neoclassical welfare economics. If we’re making that swap, we’re leaving neoclassical welfare economics and taking up bad economics in the conservative style, in which additional normative propositions related to economic power are slipped in without proper identification, discussion, evaluation. Again, it doesn’t have to be bad economics in the conservative style. One might explicitly say, we’re leaving neoclassical welfare economics and introducing potentially controversial normative or ethical propositions about economic power A through Z, so let’s discuss them. It’s only “bad” economics in the sense I mean here if one tries to do it on the sly, is tricky about it, pretends one is talking about neoclassical welfare economics then, hey presto, suddenly is not. Then it’s not sincere ethical philosophy, it’s just misleading rhetoric.
When one hears anyone gushing about how special approximations of perfectly competitive markets are because they cleverly direct resources to their most valued use, keep in mind they mean valued under some preferred ethical views relating to economic power, not generally. If they attach any normative or ethical significance to that “value,” they’re making some sort of normative argument about ethics and laws relating to economic power, external to neoclassical welfare economics, which markets simply pass through and express. Neoclassical welfare economics does not actually propose it’s normatively or ethically superior to allocate scarce resources to castles on Mars or mega-yachts rather than to houses for the homeless, food for the hungry, care for the sick, education for the ignorant, and so on. Watch for that switch between the concept on which neoclassical welfare economics is based, “utility” as preference ranks of individuals, inapplicable in interpersonal contexts, with proposed stand-ins like economic power, money, word games involving “value,” and so on.
It’s a linguistic and conceptual minefield out there. Needn’t be, shouldn’t be, but conservative economists seem committed to making it one, most likely to support bad economics in the conservative style and promote their own views on the ethics of economic power in tricky ways.
