What is wrong with Economics?

The new welfare economics that emerged following World War II was reliant only on welfarism and consequentialism; it was stripped of the sum-ranking assumption. Economists fell back on the Pareto principle as a weak utilitarian criterion for policy analysis.

The Pareto criterion, derived from Pareto's work, states that social state A is preferable to social state B if at least one individual is better off and no individual is worse off in A than in B. If this condition holds, then state A is said to be Pareto superior to state B. Given the impossibility of sum-ranking, a large—even an infinite—number of Pareto superior positions will exist, each corresponding to a prior distribution of wealth. Because the Pareto criterion cannot distinguish between such positions, it offers only a quasiordering of social welfare.

Because the Pareto criterion is normative in nature, it rests inevitably on a set of value judgments, albeit of a very limited range. Anyone who rejects the validity of these value judgments may legitimately reject the implications of the Pareto criterion since the validity of a normative theory depends on the acceptability of its assumptions.

Paretian welfare economics rests on the assumed value judgment that social welfare increases when a change in the economy leaves at least one person better off and no individual worse off. In this sense, it defines an individualistic approach, reaches out to all individuals in society, and excludes any organic notion of the state. Welfare is evaluated exclusively in terms of utility.

Whether or not each individual is considered the best judge of her own welfare is an unresolved issue among economists, though Charles Rowley rejects any notion of paternalism save with respect to infants and clinically diagnosed lunatics. In contrast, many wouldbe and meddlesome philosopher-kings are anxious to impose their own preferences on ...