The Restoration of Welfare Economics

Nice short note by Anthony B. Atkinson of Nuffield College (HT: Bruegel Blog).

He writes on restoring welfare economics:

This paper argues that welfare economics should be restored to a prominent place on the agenda of economists and should occupy a central role in the teaching of economics. Economists should provide justification for the ethical criteria underlying welfare statements, and these criteria require constant reevaluation in the light of developments in economic analysis and in moral philosophy. Economists need to be more explicit about the relation between welfare criteria and the objectives of governments, policymakers and individual citizens. Moreover, such a restoration of welfare economics should be accompanied by consideration of the adoption of ethical guidelines for the economics profession.

This is really true. You hardly come across research which looks at welfare implications of any policy etc. It is pretty rare.

The main thrust of this paper is that welfare economics is not only a legitimate exercise, but that it is an exercise to which economists should devote more time and attention. As Keynes said, “economics is essentially a moral science” (in a letter to Sir Roy Harrod; see Richard Wright 1989, 473). 

Today, in contrast, there are relatively few journal articles on welfare criteria. For example, the 2009 volume of the American Economic Review contained, in the regular issues, some 65 articles, totaling more than 1,750 pages, but not one dealt with welfare criteria or the foundations  of welfare judgments. There are few textbooks written specifically on “welfare economics,” and few departments offer courses on the subject. In many places, welfare economics has been incorporated into  microeconomics courses or courses on general equilibrium. While welfare economics, as such, was a subject of importance half  a century ago, now it has largely disappeared from the mainstream (Anthony B. Atkinson 2001 and 2009).

This does not mean that economists have stopped making welfare propositions. Of the 65 articles in the 2009 volume, no fewer than 20 contained welfare analyses. The titles are instructive: two included the word “optimal,” four included “efficiency,” and one referred to  “welfare costs.” One asked in its title an explicitly normative question.

He covers why  econs have avoided welfare economics etc..

The last bit on how this will help economists is useful:

In the last section, I want, however, to raise a further field where economists need to engage with moral considerations. This concerns the behavior of economists themselves, an aspect about which they are uncharacteristically shy.  Economists are, in my view, insufficiently reflective about their professional role. 

Economists are important actors in the economy, but their activities are not typically modeled. Political economy studies the actions of politicians, government officials, voters, pressure groups, but usually allows no role for economists, either as advisers, or as officials, or as public commentators. Yet in their teaching, research, and public pronouncements, whether about financial markets or about poverty,  economists influence economic behavior and the decisions of governments. Just as with other actors, one has to ask what governs the economist acting in a professional capacity. What form does self-interest take in this context? How far is their behavior governed by a set of principles? 

In their influence, economists are no different from several other professions. These other professions tend, however, to have established guidelines for good practice. They engage in self-regulation. 

Points to example from American Statistical Association which has set a code of ethics. AEA has also recently set a code for economists.

When one reads such articles these days, one wonders what is economics doing these days? You have complaints from so many sub-areas that these days research does not include core issues. Monetary policy has no money in it, Economic Modelling has no finance in the models, Role of Fiscal Policy has been limited to just automatic stabilizers…And the list goes on..And then the core issues like welfare and humanity have just become history.

What is instead going on is playing the game of whose model is more abstract and arcane than the other. As Michael Edesess says  Econ is not math. They should go back to what they stand for:

If economists want to remain relevant they have to return mathematics and the precision it offers to its proper place in the discipline. Math should be a tool that economists use, not an end goal in and of itself.  And economists must focus on addressing humanity and morals and ethical dilemmas, which lie at the heart of it all.

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