Welfare Economics

Welfare economics, which was developed from the 1930s on (by Hicks, Kaldor, Samuelson…), was once a major field of economic theory, but now seems absent from academic curricula – except perhaps in its offshoot of cost-benefit analysis and in the parallel field of social choice theory (Arrow, Sen…). Welfare economists were interested in developing criteria for government intervention in case of market failure, which they saw everywhere. However, the main conclusion of welfare economics was finally that there is no purely scientific criteria, only moral ones – that is, criteria imposed by the value judgments of some dictator or politically dominant group. On this, see my article “Social Welfare, State Intervention, and Value Judgments,” The Independent Review 11(1) (Summer 2006), pp. 19-36; and ” One could say that public choice theory (“politics without romance,” as Buchanan said) destroyed welfare economics; from another perspective, that welfare economics sowed the seeds of its own irrelevance. See “The Vacuity of the Political ‘We’,” Library of Economics and Liberty, October 6, 2014. Yet, proving that government intervention and redistribution cannot be based on scientific criteria is a crucial result, which would justify bringing welfare economics back to the forefront of academic concerns. Economists (and policy makers) cannot meaningfully talk about public policy without referring to welfare economics.

Reminder on Adam Smith and Businessmen

“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”
— Adam Smith, The Wealth of Nations (1776).

James Mill’s 1808 Commerce Defended and Today’s Protectionism

James Mill (1773–1836) was a Scottish economist, philosopher, and journalist. He was the father of an even more famous figure of the 19th century, economist and philosopher John Stuart Mill. Like other classical economists, James was a defender of free trade. His 1808 pamphlet Commerce Defended answers many of today’s arguments for protectionism.
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The Wealth of Nations and Free Trade

Adam Smith’s famous book The Wealth of Nations (1776) developed economic and moral arguments against “the mercantile system” or protectionism. The relevant chapters are among the best of the book and there is much to be learned from them.
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Trump: The Role of the Establishment

There is something funny about the establishment’s dismay at Donald Trump’s election victory. It is not so much the disruption of their suspicious comfort and contentment. We still don’t know how disrupted they will be, because we don’t know what Mr. Trump’s policies will be. Judging from the financial markets’ salivating at new stimulus expenditures, they may not be disrupted much. Continue reading

The Progress of Statistical Justice

In Steven Spielberg’s movie “Minority Report” (with Tom Cruise) and in the original 1956 science-fiction novel by Philip K. Dick, mutants called “precogs” can predict future crimes – “precrimes” – so that their authors can be arrested in advance. “In our society,” says the head of the precrime police, “we have no major crimes. But we have a detention camp full of would-be criminals.”

This is not only science fiction. Continue reading