The Economic Role of Government as, in Part, a Matter of Selective Perception, Sentiment and Valuation: The Cases of Pigovian and Paretian Welfare Economics

WARREN J. SAMUELS [*] ABSTRACT. This essay identifies and explores the role of selective perception, sentiment and valuation in the formation of economic policy, with particular reference to the conduct of policy-making under the aegis of Pigovian and Paretian welfare economics. First, we identify certain background conditions. Second, we present an argument with regard to the economic role of government. Finally, we apply the argument to Pigovian and Paretian welfare economic reasoning, showing first the equivalence of Pigovian and Paretian reasoning under particular assumptions and their non-equivalence under more realistic conditions, and then how the latter results give rise to selective perception, sentiment and valuation in the formation of economic policy. We must consent to advance cautiously, step by step, feeling our way, adopting no foregone conclusions, trusting no single science, expecting no infallible guide. We must neither maximize the functions of Government at the beck of quasi-military officials, nor minimize them according to the theory of the very best philosophers. We must learn to judge each case upon its merits, interpreting with painful care all experience, which can be brought to bear upon the matter. William Stanley Jevons (1882) I Introduction THE HISTORY OF POLITICAL ECONOMY/ECONOMICS is replete with analyses of or views on the economic role of government and the manner by which the appropriate economic role of government is to be established. Within this history, two approaches to analyzing the economic role of government may be contrasted. One is the technical and the other is the ideological. The technical approach is pursued by the administrative or managerial mentality. It encompasses the perception of problems and the application of technical skills to working out solutions. The ideological approach encompasses the reaction to putative problems on the basis of ideological litmus tests. In the former case, success is achieved if expertise works out a program deemed likely to succeed. In the latter case, success is achieved if policies are adopted which comport with the ideology being applied. These are two polar extremes. In reality, decision-makers represent combinations of the two. And there are other approaches, one of which may be designated the pragmatic. It is the method of immersion, in which the decision-maker immerses himself or herself into the issues and materials and somehow intellectually arrives at a conclusion as to what the problem is and how to solve it. All approaches include selective perception, sentiment, and valuation by individual actors and analysts. The classification of particular schools or epochs within the history of political economy/economics along these lines is open to debate, and, in certain instances, the subject of continuing controversy. In this article we want to identify and explore the role of selective perception, sentiment and valuation in the formation of economic policy, with particular reference to the conduct of policy making under the aegis, respectively, of Pigovian and Paretian welfare economics. While the roles played by these forces within normative policy advocacy are widely acknowledged, we maintain that they are equally evident within positive welfare analysis; specifically, in the assessment of the efficiency of economic outcomes. In short, we will identify the selective perception, sentiment and valuation inexorably present in the Pigovian and Paretian welfare-economic approaches to policy analysis--doing so not with the goal of impugning either of these approaches but, rather, with the goal of elucidating the tentative an d partial nature of claims of determinate, optimal solutions to questions of economic policy. The paper will proceed as follows. First, we identify certain background conditions; second, we present an argument with regard to the economic role of government; and third, we apply the argument to Pigovian and Paretian welfare economic reasoning. …