The Pernicious Prison of the Price Theory Paradigm

Steve Randy Waldman has utterly pre-empted the need for this post, cut to the core of the thing, in the opening line of his latest (collect the whole series!):

When economics tried to put itself on a scientific basis by recasting utility in strictly ordinal terms, it threatened to perfect itself to uselessness. 

But I’ll try to help a little. What that means:

In the mid 20th century, economists decided:

It’s impossible to measure absolute utility. We can’t say what the value to you is of a heart bypass for your mother, or the value of a college education for your kid, or the value of (you or someone else) buying a third or fourth Lamborghini.

So we’re simply going to punt, and only talk about ‘preferences’. For our discipline, in its scientific impartiality, absolute utility — because we can’t measure it — will effectively not exist.

Inside our hermetic logical construct, we not only aren’t able to think about absolute utility — actual human value — we are forbidden to do so. Barred.

And with this spectacular piece of rhetorical legerdemain, the discipline disavowed itself of any responsibility for the implications and effects of that rhetorical legerdemain. (It’s hard not to be impressed.)

The effects? Economic analysts must assume, prima facie, that a billionaire buying a third or fourth Lamborghini delivers the same value as buying a college education for your kid or a heart bypass for your mom.

Who are we to second-guess preferences? They’re all the same price, right?

The (inexorable) implications? Concentration and distribution of wealth and income not only don’t matter. For economists who aren’t willing to tear open the prison door (at serious risk to tenure and employment), they can’t matter.

Steve explains it all far better, with circles and arrows and a paragraph on the back of each one explaining how each one is to be used as evidence against us. But I hope this little summation helps.

Cross-posted at Asymptosis.

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