The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [113]
The economic dilemmas facing western societies derive from the fact that we have sought to combine bourgeois appetites which resist curbs on acquisitiveness. . . .; a democratic polity which, increasingly and understandably, demands more and more social services as entitlements; and an individualistic ethos which at best defends the idea of personal liberty and at worst evades the necessary social responsibilities which a communal society demands.24
Is it impossible to achieve all the elements needed to enhance social welfare? Bell’s book implies the existence of a “trilemma,” in other words that it is possible to achieve only two out of the three aims simultaneously. In recent times Western economies have focused on growth and individualism but this has been achieved at the expense of equality. If equality is prioritized instead, as social chasms in some countries would seem to require, then in a diverse society with huge variation in incomes and capabilities it is hard to see how to avoid the kinds of inefficiencies that would reduce growth. If we did want instead to combine an efficient and dynamic economy with greater equality, Bell argues that individualism and self-realization would need to be sacrificed because those who earned the most would have to adopt a self-denying ethic. This was the case in the early years of capitalism, when what Max Weber called the Protestant work ethic led people to moderate their consumption and save for the future; status was linked not to conspicuous consumption but instead to hard work and civic virtue, even as that work contributed to the economic growth which made higher consumption possible. The ethic isn’t unique to Protestantism; other traditions share the idea of the importance of the common good, outlasting the individual’s interests. Indeed, there seems to be a pattern of swings from periods of inequality and social tension, coinciding with innovation and a dynamic economy (the 1870s, 1920s, 1960s) to periods of sobriety and cohesion (1890s, 1930s, 1970s).
If there is a “trilemma,” which means only two of the three elements of social welfare are attainable at the same time, this chimes with a wider “impossibility theorem” in social welfare theory. Famously, in 1951 economist Kenneth Arrow asked whether individual tastes and preferences could be aggregated in a way that was logically consistent, obeying a set of seemingly innocuous conditions—and concluded that the answer was “no.” Among the assumptions were that citizens had free choice and a range of credible alternatives before them. Each individual in the society (or equivalently, each “decision criterion”) is assumed to assign a particular order of preferences to the set of possible outcomes. Arrow was in effect looking for a preferential voting system, a “social welfare function,” which would transform the set of individuals’ preferences into a single preference order for society as a whole.
Arrow’s general theorem of possibility (commonly known as his “impossibility theorem” and for which he won the 1972 Nobel Prize for economics) says that if the decision-making body has at least two members and at least three options to decide among, then it is generally impossible (given his reasonable-looking set of logical assumptions) to design a social welfare function that implies an entirely free choice. Building on Arrow’s work, Amartya Sen, another Nobel economist, has argued that one can make consistent and rational social choices from a range of options that is limited in sensible ways.25 He writes that coming to terms with the impossibility problem in the case of social