Video and transcript
Real New Network
So talk now about the other type. Give us an example of a political assumption that's hidden.
CHANG: So in trying to make what they do a science, Neoclassical economists have adopted this ethical criteria called the Pareto principle. Now, Pareto principle, what it says is that you cannot call a social change an improvement if it hurts even one person. Now, this is an important attempt to defend individuals against the tyranny of the majority, because if you begin to say, well you know, you can override minorities, where do you stop? I mean, before you know it you're in the same bed as Hitler and Stalin. So you know, the Pareto principle is quite an important principle.
But it still is a political principle. Because it assumes that the existing distribution of income, wealth, and power is a legitimate one and it, more importantly, assumes that you cannot disturb that status quo. So go to the other extreme and imagine a case where one dictator or one small group of elite own, I don’t know, 50%, 70% of national income. In that kind of society you might say, well, if these people give up 5% of what they have, we can eradicate extreme poverty. Well, according to the Pareto principle you cannot do that kind of thing because it will make those that are a minority worse off.
So I mean, I'm not saying that this is an easy decision to make. I mean, taken to the extreme any ethical principle becomes a monster. That's my general view. So I'm not saying that the Pareto principle is necessarily right or wrong, but you have to realize that it has a particular political bias towards the status quo. And in that sense economics can never become a science because there's always this ethical and political judgment that you are making when you are doing this apparently, you know, technical, scientific analysis.
How To Use Economics & Not Be Used By Economists (2/6)
Lynn Fries interviews Ha-Joon Chang
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