Evening Must-Read: Steve Randy Waldmann: Welfare Economics: an Introduction

Steve Randy Waldmann: Welfare Economics: an Introduction: “Whenever a claim about ‘welfare’ is asserted…

…assumptions regarding ethical value are necessarily invoked as well. If you believe otherwise, you have been swindled. If claims about welfare can’t be asserted in a value-neutral way, then neither can claims of ‘efficiency’. Greg Mankiw teaches that ‘[under] free markets…[transactors] are together led by an invisible hand to an equilibrium that maximizes total benefit to buyers and sellers’. That assertion becomes completely insupportable. Even the narrow and technical notion of Pareto efficiency… is rendered problematic, as nonmarket allocations can also be Pareto efficient…. Market efficiency, deadweight loss, tax incidence, price discrimination, international trade–all of these topics are diagrammed and understood in terms of what happens to the area between supply and demand curves. If we cannot redeem those diagrams, all of that becomes little more than propaganda…. If the best ‘scientific’ economics can do is say nothing about interpersonal welfare comparison, that is neither evidence for nor evidence against policies which, like all nontrivial policies, benefit some and harm others, including policies of outright redistribution…