I've been reading on welfare economics the last few days, what I still don't get is how they are able to justify it. Can someone explain it to me please? how do they derive the social welfare function? does the liberal paradox refute it in anyway?
By welfare economics, I am guessing you mean the branch of modern economics that claims to be value free, but gives many sweeping policy justifications, under claims of utilitarian analysis?
It's rejected by limitations of knowledge. Most welfare economists are confident in their power of math and logic, but they never consider the limitation that they are humans themselves, and can't actually possess unlimited information to make any decision that they want to make.
If certainty were oil, your standard welfare economist would be Saudi Arabia. There is, of course, nothing but uncertainty in real life.
Welfare Economics is the theory that a third party can perform actions using coersion, theft and outright violence to increase the efficiency of an economy. And these actions that help one individual and do not hurt the rest of society are Pareto Efficient. You can see how difficult this is in reality to do something nice to any individual or group not using your own resources and not harm anyone. But never fear, the people who practice this hide this difficulty in the mathematic stuff and in utilitarian arguments about lots of benefits coming from small harms.
Contrast this with Austrian Economics that assumes all freely entered into transactions on mutually agreeable terms for mutual benefit that do not damage the person or property of someone else are by definition Pareto Efficient. Austrians do not believe that government or any other organization can take by force from one party and give that to another party and increase the efficiency of the economy.
I am guessing you mean the branch of modern economics that claims to be value free
Actually, welfare economics doesn't purport to be value free. It explicitly relies on a few, general accepted moral principles.
EconomistInTraining:Actually, welfare economics doesn't purport to be value free. It explicitly relies on a few, general accepted moral principles.
And those "general accepted moral principles" are...?
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
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