Maybe this week we can continue our series on misleading wordplay in conservative economics, set up in neoclassical welfare economics for use in bad economics in the conservative style. I’ve done “utility” and “efficiency,” so how about “welfare” this week? Good times.
To understand the idiosyncratic rhetorical use of the word “welfare” in neoclassical welfare economics, one must understand and keep in the mind the ethical half-theory nature of that theory as well as the status-quo protecting features. I’ve discussed the ethical half-theory nature of neoclassical welfare economics often enough, but just to review, that theory cannot process and thus holds as exogenous interpersonal ethics. The only normative argument endogenous to the system relates to preference ranks of individuals. Normative propositions developed in neoclassical welfare economics are based on individual preference ranks, called idiosyncratically as “utility,” thus “interpersonal comparisons of utility” are famously undefined (old style: impossible) in that theory. It’s not a full utilitarian ethical theory.
However, to riff off Ned, I mean Dewey, in School of Rock, just because interpersonal ethics are not in neoclassical welfare economics doesn’t mean they’re not in neoclassical welfare economics. That theory acknowledges the status and relevance of the exogenous ethics in the form of “equity.” Neoclassical welfare economics doesn’t say interpersonal ethics, equity issues, are irrelevant. It says they’re relevant but exogenous, not discussed within that theory. Big difference and one that conservative economic rhetoricians are often keen to suppress. That is to say, the better sort of economist will take pains to include in any normative suggestions based on neoclassical welfare economics that the suggestions are contingent on one not having any objections based in equity concerns, interpersonal ethics. Incidentally, the use of “equity” in neoclassical welfare economics probably deserves its own entry in our lexicon of dodgy terms because in plain English it normally means fairness, justice, but in neoclassical welfare economics it can also mean interpersonally valid definitions of “utility.”
The status-quo protecting feature shows up in the concept of the “Pareto Optimum,” which is all about doing the best one can in terms of individual preference ranks with the proviso one cannot move any person down his or her preference rank to move another up his or her preference rank. The concept is consistent with, and developed alongside, the treating of interpersonal ethics, equity issues, as exogenous in neoclassical welfare economics. It’s the innovation that really puts the “neo” in neoclassical welfare economics and differentiates it from the classical economics.
Putting these two elements of the status-quo preserving ethical half-theory of neoclassical welfare economics together and one ends up with conclusions as a Pareto optimal market result in which, say, one percent thrive and ninety-nine percent starve, “maximizes social welfare.” Why? Because changing anything that might conflict with the preferences of the one percent would be inconsistent with the definition of a Pareto Optimum based on individual preference ranks, which is the relevant criterion for the partial concept of “welfare maximization” in that theory. Basically, starving is not a relevant observation or fact in neoclassical welfare economics. It’s not a preference rank. The starving people might prefer not to starve, but if the only way to prevent it is to reduce the preferences of the one percent, then they’re at a welfare maximizing outcome. Now, of course, if one wants to take up the surely much more common interpersonally valid notion of “utility” as used in ethical philosophy and indeed in outmoded classical economics, then no, of course such an outcome would not be associated with social welfare maximization. That’s just repackaging the bit about exogenous interpersonal ethics or equity issues. If one is concerned about issues that may involve the relation of one person to another, one is introducing equity issues, which have standing in neoclassical economics and basically cancel those conclusions. Thus again in Ned’s, I mean Dewey’s words, just because something maximizes social welfare doesn’t mean it maximizes social welfare, if the first concept of welfare is a partial one excluding interpersonal ethics and the latter concept of welfare includes them.
Are you starting to get the game? Do you detect patterns in the dodgy uses of terms like “utility,” “welfare,” “efficiency,” “equity,” “maximum,” “social,” and so on? If so, you’re starting to understand neoclassical welfare economics and the bad economics in the conservative style built upon it.
