AN EXAM WEEK REVIEW SESSION.

The Welfare Economics Paradigm looks pretty on a blackboard, but it doesn't implement well.  Donald "Cafe Hayek" Boudreaux offers the details.

The apparent science on display seems impressive. Curves are drawn on the whiteboard to portray the difference left by free markets between marginal private cost and marginal social cost, between marginal private benefit and marginal social benefit, and the resulting failure of markets to produce socially optimal quantities of outputs and to attach to these outputs socially optimal prices.

Gazing at the curves – or, if the class is especially mathematical, studying the equations – reveals the remedial action that must be taken if society’s welfare is to be optimized. Shift this curve upward, or that one downward – or in the equations modify this coefficient that way or that coefficient this way – and, voila!, society is engineered to optimality with the aid of Scientific Economics.

By all means read, understand, react, to the essay in full. The key point, though, is that in practice there's something called the margin of error. "But these curves and equations are seldom realities on which researchers can gather actual data."  (And we generally don't burden introductory or intermediate students with a survey of econometrics before we get to welfare economics.)

Let alone that philosopher-kings don't exist outside Plato's dialogues or the early theoretical work of Joseph Stiglitz.

Yet despite more than a half-century of warnings from public-choice economists, mainstream economists continue to assume, without much apparent thought, that government officials act in a way that is categorically different from the way these same persons would act were they in the private sector: private persons are assumed to act to promote their own self-interests, while government officials are assumed to act to promote the public interest.

What, however, could be more unscientific than this assumption of dual motivations? It is justified neither by science nor by common sense, but it is crucial to the “scientific” case for government action to correct market failures.

In their absence, perhaps it's not "superstition" on the part of economists that makes the apparent default setting in textbooks the Welfare Economics Paradigm: rather, it is that selling Technocratic Advice to the governing classes raises the salaries of economists.