Some welfare statements:

Projection also has implications for efficiency. For instance, both dynamic pricing and a failure to appreciate selection effects can lead projectors to inefficiently overadopt a good.Tristan Gagnon-Bartsch and Antonio Rosato Arellano, “Micro Risks and (Robust) Pareto-Improving Policies”. American Economic Review. 2024. 114(11): 3669–3713.

…, despite their effectiveness in congestion reduction, driving restrictions generate a total welfare loss of ¥125,700 per household, though high-income households experience a much steeper reduction than low-income households.Panle Jia Barwick, Shanjun Li, Andrew Waxman, Jing Wu, and Tianli Xia. “Efficiency and Equity Impacts of Urban Transportation Policies with Equilibrium Sorting” American Economic Review. 2024. 114(11): 3746–3787.

Welfare economics is the application of ethics to economic problems. What should we do? It is the systematic study of normative questions in economics. The questions can be simple: Which way of designing a transfer program most improves the welfare its recipients for a given amount of expenditure? Or, incredibly complex: Should the State provide basic health care to its citizens? The two quotations above, from recent AER papers, are examples of the kinds of welfare statements economists make.

Should is an operative word in welfare questions. Is versus Should or ought is a basic distinction in economic thought, the positive–normative distinction. Every introductory economics textbook draws the distinction between ought, and hints that discussions of oughts is not “scientific”. For example,

A positive statement is an assertion about how the world is. A normative statement is an assertion about how the world ought to be. When economists make normative statements, they are acting more as policy advisers than as scientists.N. Gregory Mankiw. 2016. Principles of Economics. pp  36.

Hume first called our attention to the significance of this distinction. Positive and normative, facts and values, are alleged to be a dichotomy. A statement about the world can be one or the other, but not both. This dichotomy appears to be more durable than others that characterize logical positivism, such as the analytic/synthetic distinction. But the fact/value distinction is also under attack. A book of particular interest to economists is H. Putnam, The Collapse of the Fact/Value Dichotomy and Other Essays, 2002. Much of this book is about the consequences of the dichotomy for welfare economics, especially as seen in the work of Amartya Sen. If a collection of philosophy essays can be said to have a hero, Sen is the hero of this book.

In every system of morality, which I have hitherto met with, I have always remarked, that the author proceeds for some time in the ordinary way of reasoning, and establishes the being of a God, or makes observations concerning human affairs; when of a sudden I am surprised to find, that instead of the usual copulations of propositions, is, and is not, I meet with no proposition that is not connected with an ought, or an ought not. This change is imperceptible; but is, however, of the last consequence. For as this ought, or ought not, expresses some new relation or affirmation, it's necessary that it should be observed and explained; and at the same time that a reason should be given, for what seems altogether inconceivable, how this new relation can be a deduction from others, which are entirely different from it. But as authors do not commonly use this precaution, I shall presume to recommend it to the readers; and am persuaded, that this small attention would subvert all the vulgar systems of morality, and let us see, that the distinction of vice and virtue is not founded merely on the relations of objects, nor is perceived by reason.David Hume. 1739. A Treatise of Human Nature. Book III, part I, section I.

In thinking about ought, the first question that comes to mind is, “Why?” Why should the state provide basic health care? Why should society invest in more roads? In other words, what are the criteria for should? Adam Smith first defined the wealth of nations as the welfare of its workers, and proceeded to investigate how the organization of society, through the division of labor, could increase that wealth:

Among civilized and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great, that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire.Adam Smith. 1789. The Wealth of Nations. Introduction and Plan of the Work.

As we shall see, the criteria of modern welfare economics is somewhat different.

In the development of modern economics, is and ought have evolved separately.Amartya Sen writes,

It is, in fact, arguable that economics has had two rather different origins, both related to politics, but related in rather different ways, concerned with ‘ethics’, on the one hand, and ‘engineering ’ on the otherAmartya Sen. 1987. On Ethics & Economics. Cambridge: Blackwell. p 3.

In this same volume he goes on to say,

The position of welfare economics in modern economic theory has been a rather precarious one. In classical political economy there were no sharp boundaries drawn between welfare economic analyses and other types of intestigation. But as the suspicion of the use of ethics in economics has grown, welfare economics has appeared to be increasingly dubious. It has been put into an arbitrary narrow box, spearated from the rest of economics. op. cit pp 28.

These notes will develop the apparatus of contemporary economics, and before that explore the development of the relationship between ethics abnd economic thought. But to understand the sources of welfare economics as we know it the particular utilitarian traditions from which it springs must be situated within a broader discussion of ethics. Critically assessing the state of modern welfare economics requires some knowledge of those tools we use and those we have not – not yet.