Social Welfare Functions

Maybe this week we can talk about the rhetoric of “social welfare functions” in anti-democracy bad economics in the conservative style and real neoclassical welfare economics. Might be good for a laugh or two.

To understand what’s going on with social welfare functions, one must return to the peculiar, idiosyncratic, suspiciously odd definition of “utility” used in neoclassical welfare economics. The most common modern definition is it’s just another way of talking about individual preference ranks. So if person A prefers good X to Y, we can say “A gets more utility from X than Y,” but it’s meant to add no content beyond that. It’s simply a funny way of talking about individual preference ranks. As such, it is linguistically incorrect to invoke it in an interpersonal context. It doesn’t make sense to say something like "A gets more utility from X than Y and we want to compare that to the utility B gets from whatever.” It’s really a form of equivocating on terms. One is invoking two different "utilities," one defined relative to A, the other defined relative to B. If one is going to talk about “utility” interpersonally, one needs a definition of utility that goes beyond preference ranks of given individuals as say the older “inaccessible internal perceptions of satisfaction from preference fulfillment,” meant to exist in an interpersonal context.

In their zeal to be positivists, some economists dealing with normative economics propose it doesn’t really matter which definition of “utility” one uses, it’s either defined to be individual preference rank or it’s only inferable by individual preference rank, but of course that’s incorrect. Not only does what one can sensibly say about “utility” depend on how it is defined, but the philosophical arguments in favor of why anyone should care about maximizing it in a social context, indeed what that even means, change depending on the definition. One can’t simply switch back and forth. If we’re talking about preference rank utility, the normative proposition society should strive to “maximize utility” is about how one should act with respect to individuals moving up their own preference ranks with no implications for resolving interpersonal conflicts of preferences. If we’re talking about inaccessible internal perceptions of satisfaction, we’re attaching normative significance to those perceptions so, for example, if one particular person had very strong such perceptions, maximizing “utility” implies that person’s preferences take precedence over all others. Critics will argue the problem doesn’t exist in reality because the whole point is we can’t access inaccessible perceptions, but one can hardly take seriously as an ethical theory we should do something with the proviso we can’t actually do it, and if we could, then we shouldn’t. It’s misdirection.

All that was just to review where the prohibition against making “interpersonal utility comparisons” in neoclassical welfare economics comes from, which informs the whole theory about perfectly competitive market outcomes that is taken up and misused in bad economics in the conservative style. The “social welfare function” is meant to get around that restriction, reintroducing interpersonal ethics, thus changing the entire argument in neoclassical welfare economics that informs arguments in bad economics in the conservative style about not interfering with or distorting market results. However, and perhaps less obviously, discussions of “social welfare functions” can happily co-exist with the rhetoric of bad economics in the conservative style and indeed even be used to support it. Not sure how that works? Allow me to explain.

First, social welfare functions allow the expression of interpersonal ethics, but only in an awkward way unjustified within neoclassical welfare economics itself. As noted earlier, one cannot really even talk about “utility” in an interpersonal context under the usual economic definition. The result is to make interpersonal ethics appear unjustified, arbitrary, a matter of preferring some mostly identical theoretical ciphers over others, suspiciously similar to the notion from bad economics in the conservative style that interpersonal ethics are empty virtue signaling, nonsense. But of course the actual ethical justification has nothing to do with that “utility.” Let’s have an example. Say one supposes A should not murder B. There is no rationale in neoclassical welfare economics to not allow that as we can’t compare the individual preference ranks of the two individuals. However, we could make up a “weight” based on our ethics and express our objection to murder by attaching a greater weight to the preference rank (or really again the strength of the internal perceptions) of the intended victim. But of course, that expression doesn’t express the ethical rationale.

Second, given the ethics of economic power may be context specific, for example, one may accept most goods being allocated on markets if acceptable distribution of economic power but exempt others, say vaccines or housing or whatever, defensible social welfare functions may be quite complex. In that sense, social welfare functions may be used rhetorically as “roadblocks,” a common stratagem of throwing up of technically difficult or perhaps practically impossible demands meant to make changes from some preferred situation difficult, costly, or indeed impossible.

Third, social welfare functions can be used in conjunction with fake indifference to present objections to the status quo based in social welfare functions as less ethically justified in economic theory than the status quo because someone needs to write up, defend social welfare functions. Of course, the same objection could be made to defending any particular status quo, or even The Status Quo in general, no matter what it is. There will always be an implied virtual social welfare function supporting the resolutions of interpersonal conflicts of preferences actually taking place. One might retort, sure, but that’s not why anyone supports any given status quo or even The Status Quo in general, no matter what it is. Indeed. And the proposing of explicit social welfare functions is similarly not the real reason anyone might object to any status quo. One can also find weird hybrid road block arguments, as trying to maintain the policy recommendation from bad economics in the conservative style one should first concentrate on attaining some approximation of a perfectly competitive market and only then introduce a social welfare function. 

Did I break the bank on this one? Sorry. Just trying to make people aware of the sorts of rhetorical games one may find not only in real neoclassical welfare economics but especially in anti-democracy bad economics in the conservative style. Keep your critical faculties close if you venture there.

Two Types of Neutrality

Let’s discuss two types of indifference or neutrality that sometimes get muddled, one supposes not entirely by accident, in anti-democracy bad economics in the conservative style and neoclassical welfare economics. 

First, we have indifference or neutrality with respect to resolving interpersonal conflicts of preferences. This is the indifference or neutrality relevant to real neoclassical welfare economics and is based on way “utility” is defined only in terms of a given individual's preference ranks.

Second, we have indifference or neutrality defined as accepting, defending, supporting, favoring, defaulting to whatever resolution of interpersonal conflicts of preferences is implied by current laws, and thus government, so a sort of neutrality to the ethical basis of those laws. That latter sort of indifference or neutrality is the one often featured in dodgy normative arguments from anti-democracy bad economics in the conservative style. 

Note that these two expressions of indifference or neutrality are not equivalent. If one accepts, supports, promotes, favors, defaults to existing resolutions of interpersonal conflicts of preferences due to indifference or neutrality with respect to the ethical basis of the resolution, one is no longer indifferent or neutral with respect to resolving those conflicts. I generally call the version or form of indifference inappropriate to real welfare economics that often features in normative arguments from bad economics in the conservative style as “fake indifference.” It’s not literally “fake,” of course. It’s one form of indifference, just not the form relevant to neoclassical welfare economics. When the term “indifference” is equivocated upon in bad economics in the conservative stye it becomes “fake” relative to the relevant form. It’s the sort of false, misleading rhetoric one associates with conservative discourse in general. It’s basically a rhetorical way for bad economists to support exogenous existing laws relating to the definition, distribution, use of economic power in markets without theoretical justification.

Now of course it would be perfectly acceptable for conservative economists to declare themselves supporters of the status quo, explicitly add a proposition to that effect, unrelated to “utility,” to the normative argument in neoclassical welfare economics. Normative or ethical argument is fine. What makes it objectionable, as with the rest of anti-democracy bad economics in the conservative style, is that it’s not done explicitly, openly, honestly. It’s done in a clever, indirect way obviously meant to deflect consideration, evaluation, criticism, debate. It’s intellectually dishonest. But as I’ve noted before, intellectual honesty is not what conservatives are about, even conservatives in academia who have a professional and social responsibility in that area. Conservatives are sly tricksters, grifters, rhetoricians; they’re not serious or sincere interlocutors.

Equity And Economic Power

Ready for more real economics? Not really? Let’s give it a go anyway. Consider this proposition: economic power used in markets is one way but not necessarily the only way to express interpersonal ethics or “equity” concerns. Let’s discuss.

If one sees interpersonal conflicts of preferences being resolved in ways one finds unethical, say resources not going where one supposes they ought to go, one may address it by changing the definition or distribution of economic power still using markets or not using economic power. For example, if one supposes a scarce medical vaccine should go to those in medical need of it, one may have some system for identifying those people and allocating it to them outside markets or, alternatively, some way to ensure they have the money to obtain it on the market. However, those alternatives are only equivalent ways to get certain people vaccines, per se, if economic power is manipulated, regulated, in such a way those who need the vaccine use it to buy the vaccine. Otherwise it’s simply a transfer of resources more generally.

If the increment in economic power is not restricted to vaccines, recipients may use it for goods higher up their individual preference rankings so for those uninterested in health, let’s say a case of whiskey. Does neoclassical welfare economics argue that is the ethically superior approach? No. Because providing economic power, here through taxes, to people to buy cases of whiskey or whatever has an opportunity cost for others. Those resources might be used for something voters find more ethically compelling. It involves an equity issue exogenous to neoclassical welfare economics. If one considers the case in which resources not spent to move one person up his or her preference ranking may instead by allocated to moving another person up his or her preference rankings for whatever reason one finds ethically compelling, then one is in the realm of interpersonal ethics, equity. During the covid pandemic, we allocated scare vaccine first to those in medical need. It did not seem particularly ethically controversial. No one argued we should instead provide the relevant economic power in case those in medical need preferred a case of whisky. Interesting to think why. Just to spell it out, one infers many voters may have interpersonal ethics involving getting vaccines to people in medical need that do not carry over to providing crates of brandy to possibly wealthy people in medical need if they prefer that to vaccine. Go figure. Is it controversial? Wrong?

My point here is simply to indicate the theoretical equivalence in neoclassical welfare economics of ethics expressed in terms of the definition and distribution of economic power, regulating the use of economic power, and the choice to use economic power versus alternative allocative systems. It’s about resolving interpersonal conflicts of preferences, as over goods, services, scarce resources. That normative or ethical issue is exogenous to neoclassical welfare economics. If you think you're finding the answers there, you're doing bad economics in the conservative style.