The Ethics and the Economics of Minimalist Government
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The Ethics and the Economics of Minimalist Government

Timothy P. Roth

Because it is technically flawed and morally bankrupt, the author argues, the economist’s consequence-based, procedurally detached theory of the state has contributed to the growth of government. As part of the Kantian–Rawlsian contractarian project, this book seeks to return economics to its foundations in moral philosophy. Given the moral equivalence of persons, the greatest possible equal participation must be promoted, persons must be impartially treated and, because it is grounded in consequentialist social welfare theory (SWT), the economist’s theory of the state must be rejected. Ad hoc deployment of SWT has facilitated discriminatory rent seeking and contributed to larger government. In contrast, this book argues that equal political participation and a constitutional impartiality constraint minimize rent seeking, respect individual perceptions of the ‘public good’ and underwrite the legitimacy of government. Economists, moral philosophers and political scientists will find this book a unique contribution to the literature.
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Chapter 6: The Indeterminacy of Social Welfare Theory

Timothy P. Roth


6.1 A REPRISE As has been repeatedly emphasized, the ‘new’ social welfare theory deploys two fundamental analytical constructs. Broadly speaking, the efficiency or welfare frontier may be regarded as summarizing the system of constraints operative at a cross-section of time, while the utilitarian social welfare function constitutes the objective function. While all points on the efficiency frontier satisfy the three marginal equivalences or ‘efficiency’ conditions, only one of these first-best Paretian optima constitutes the ‘competitive equilibrium’ to which a perfectly competitive system is impelled.1 A competitive equilibrium may or may not be an ‘ethical equilibrium’. The latter is determined at the point of tangency of a social indifference curve and the efficiency frontier. Finally, a reconciliation of the competitive and ethical equilibria can, in principle, be accomplished by appeal to a system of lump-sum taxes and bounties. While earlier chapters have raised fundamental questions about the new social welfare theory paradigm, immediate interest centers on the existence of the efficiency frontier. 6.2 THE FRICTIONLESS NEOCLASSICAL DECISION ENVIRONMENT As is well known, the logic of the efficiency frontier requires that the underlying utility and production functions possess orthodox, neoclassical properties, and that the decision environment be ‘frictionless’ (§ 4.2).2 Let us first stipulate that the properties imputed to functional relationships are embodied in sets of statements – generative assumptions – which serve to generate hypotheses, given certain auxiliary assumptions (Melitz 1965). From the positivist or instrumentalist perspective, this distinction is crucial: Whereas generative assumptions need not be...

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