I recently read a 2001 paper by the late, missed, Tony Atkinson, The Strange Disappearance of Welfare Economics. He wrote: “Despite the prevalence of welfare statements in modern economics, we are no long subjecting them to critical analysis.” And he’s right. Economics, macro and micro, is stuffed with statements about ‘optimality’. The article continues: “One cannot help noting the sharp contrast to [an] example used in a 1930s discussion of welfare criteria: the repeal of the Corn Laws, where conflicting interests are central to the analysis. A representative agent model would indeed have appeared extraordinary to classical economists.” One cannot help noting, either, that if (macro)economics had not disembowelled itself of the ability to focus on conflicts of interest, we as a discipline would have paid more attention to the consequences of globalisation and technical change since 1980. But that takes us into counterfactual history territory.
It’s with some smugness that I’ve read (in the recent past, not in my millennium ago student days) the three key books on welfare economics cited in Atkinson’s article: Will Baumol‘s Welfare Economics and the Theory of the State, J de V Graaff‘s Theoretical Welfare Economics and IMD Little’s A Critique of Welfare Economics. The Baumol is the most recent, updated in 1965. I got that from the library store, the Graaff second hand online and the Little was donated to me by Andrew Sentance, who said it was mouldering in his garage so I could have it.
Sixteen year’s after Atkinson’s article, it’s time for economists to look seriously at welfare economics again. It affects everything from environmental policy (discounting the future??) to macro (budget rules, optimal saving….) to national income accounts (my pet obsession – any aggregation has an implicit set of ethical assumptions).