Speaking of economic theory, it occurs to me the concept of “Pareto Optimality” that defines “economic efficiency” is the only proposition in interpersonal ethics, only equity issue, treated as endogenous to neoclassical welfare economics. Weird, isn’t it? Let’s discuss.
In my previous posts, I followed neoclassical welfare economics to stress the distinction between what one can say on the basis of individual preference ranks called as “utility” versus the interpersonal ethics that may be used to resolve interpersonal conflicts of preferences. I noted that normative statements based on individual preference ranks were considered endogenous to neoclassical welfare economics while normative statements dealing with interpersonal ethics, equity, had standing in that theory but were considered exogenous. However, when talking about the so-called “Pareto Optimality” proposition that underlies “economic efficiency” and odd claims of “welfare” maximization, it occurred to me I had to introduce it as a separate proposition as it is not, itself, based on individual preference ranks. That is to say, one may accept, particularly under unreal factual premises like perfect information and perfect rationality, the significance of individual preference ranks without necessarily agreeing Pareto Optimality. That proposition is, in fact, an equity proposition. It’s an ethical proposition that purports to resolve interpersonal conflicts because it calls as ethically optimal a situation where one cannot move anyone up his or her preference rank without moving someone else down their own, so if interpersonal conflicts of preferences, that’s the resolution. Why? If we’re meant to not consider interpersonal ethics, equity, if we’re meant to look only at individual preference ranks, surely the answer to interpersonal conflicts of preferences must be indifference, not proclaiming as optimal or efficient one solution or another. In that sense, Pareto Optimality and thus “economic efficiency” are part of the larger rhetorical program in neoclassical welfare economics to suggest propositions supporting status quo equity arrangements are neutral, express indifference, or as here are not really equity propositions at all.
Want more? Consider what happens to Pareto Optimality and hence “economic efficiency” if one addresses (a part of) the so-called Methodological Individualism critique and allows the ciphers to have preferences over interpersonal ethics, equity issues, economic systems and outcomes, as in reality. If the subjects have preferences over relative positions in preference ranks based on equity, justice, welfare considerations, what have you, the notion of a Pareto Improvement becomes rather excessively rarefied if one also allows variation in interpersonal ethics. Any movement of one individual up his or her preference rank may move another down his or her preference rank if he or she supposes that result inconsistent with justice, fairness, equity, welfare maximization, etc. Pareto Optimality and economic efficiency become simply the status quo. Nor do the characteristics of the status quo seem to have any relevance. Ninety-nine percent may disapprove it and one percent approve it, but because of the way Pareto Optimality is defined, that result will be Pareto Optimal, thus economically efficient.
So why does neoclassical welfare economics propose to treat equity propositions as exogenous then slip in an undeclared, internally unjustified equity proposition on the sly and in a way so fundamental to its conclusions relating to the economic efficiency and optimality of markets? Why indeed. One assumes for the same reason ciphers in normative economics don’t have preferences over interpersonal ethics and equity concerns, for the same reason it’s constructed as an odd ethical half-theory, for the same reason it’s presented under false factual premises, and so on. And an economic efficiency versus equity tradeoff? Doesn’t look like it. Looks like economic efficiency involves an equity proposition, so equity versus equity, although granted that equity proposition appears at a different level of the theory than typically, in the Fairy Land rather than reality.
Neoclassical welfare economics is above all else a bit of conservative political rhetoric purpose built to support bad economics in the conservative style, which is meant to confuse, deceive, and manipulate readers into supporting conservative economic values. Apprehend it for what it really is.
