• Efficiency ideology

    In what feels like (but may not be) his final NY Times Economix post relating to Arrow’s 1963 paper and his own 2001 article, Uwe Reinhardt offers a solemn warning,

    [R]ead carefully the columns written by eminent economists in the major news media and their Congressional testimony. Count how many times the authors justify their recommendations with appeal to efficiency. …

    Virtually all modern textbooks in economics … [do not acknowledge] the ethical dimensions of the concept. I use these texts in my economics courses as, I suppose, do most my colleagues around the world. But I explicitly alert my students to the ethical pitfalls in normative welfare economics. …

    My advice to students and readers is: When you hear us economists wax eloquent on the virtue of greater efficiency — beware!

    You’ll have to read the rest to get a better idea of what Reinhardt means by all this. Trust me, it’s worth a look. Personally encouraged by Reinhardt, I examined Arrow’s and his paper myself last year and offered my own warning,

    My own sense is that it is asking far too much of welfare economics to point to a unique solution that optimizes a universally accepted criterion. Indeed, one ought to be suspicious of any claims of unique optimality. It is plausible that any such result is preordained by the form of the optimand, even if not explicitly stated. Extra-utility welfare analysis (also called extra-welfarism) can very likely recommend “optimal” policies distinct from “optimal” ones suggested by utility-based (welfarist) approaches.

    But no approach has a unique claim to legitimacy. An unassailable argument does not exist for any one solution, whether public or private, to any problem, not even health care. Is this curse of nonuniqueness the death knell of welfare economics? Certainly not. The value of welfare economics in particular and economics in general is the clarity of thought it enforces. A welfare analysis of almost any type will lead the analyst to consider particulars and consequences that are opaque to casual thought. While it is relevant that health care is not a perfectly competitive market one misses the point of economics entirely to suggest that this renders it inaccessible to welfare analysis. Such a thought would be a grave mistake, especially since it appears as if private provision of health care and health insurance is here to stay.

    The responsibility of the economist is to understand the assumptions and limitations of his tools. This is the great virtue of Reinhardt’s contribution. By expanding and clarifying Arrow’s words, … he makes those facets of neo-classical welfare analysis plain, not just to the economist, but likely to any clear thinker motivated to read it.

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