By HopeForTheDismalScience (William P Bell)
A fortnight ago in my post ‘The G8 protests and the logically inconsistent foundations of neoclassical economics’, I discussed how neoclassical economics is theoretically and philosophical flawed and how it has become entrenched in our political systems via university economics departments indoctrinating undergraduates with the neoclassical ideology . This article discusses how the indoctrination produces a world view which causes confusion over the role of government and the concept of freedom of choice. Additionally, provides an economic perspective on “Weighing the blame for illness: biology versus personal responsibility” by Dena T. Smith.
One of the axioms in neoclassical economics is that individuals are utility maximising agents who know their own preferences and have constant tastes, unlimited cognitive ability and access to all the relevant information. These utility maximising assumptions are obviously incorrect. However neoclassical economics uses these assumptions to derive the ‘Fundamental Theorems of Welfare’. Simply, individuals without government interference make the optimal decisions for themselves and via the invisible hand for the whole economy. It is optimal in the sense that you cannot make somebody better off without making somebody else worse off.
Among other issues, behavioural economics addresses self-control problems, which range from the fairly minor, such as watching too much TV, to significant social problems, such as obesity, smoking, drinking, drug-taking, gambling, speeding, and using too much credit and the inability to save. These self-control problems are sufficient to prove the ‘Fundamental Theorems of Welfare’ is invalid without the need to address all the other anomalies of the utility maximising assumptions.
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