Knowledge About Welfare: Legal Realism and the Separation of Law and Economics

The welfare state could not function without judgments about how well off its citizens are. For example, governments devise progressive income taxes, which are designed to capture more wealth from the well off and less from the impecunious. These policies presume an ability to take a manageable amount of information about an individual\u27s income or assets and make judgments about her welfare. In fact, people do this all the time, mostly without thinking about the methodological problems involved. The superficial casualness of our daily observations about welfare belies the state of the economic science of welfare measurement. Economists have attempted to measure welfare scientifically for more than a century, but after an early period of optimism, the general history of welfare measurement has not been a happy one. In the 1930s many economists began to conclude that the measurement of welfare involved interpersonal comparisons of utilities, and that we lacked the observation and measurement tools to make such comparisons scientifically. Progressive legal thought, and particularly the Legal Realists, developed out of the coalescence of three important ideas: (1) Darwinism in the social sciences, which was the view that all organisms, including the human race, are both evolving and struggling to survive in an essentially hostile environment; (2) marginalism in economics, which stressed that rational people make choices by ranking their preferences, committing resources to that which they want most first, and so on; and (3) objective welfare judgments, which are basically judgments about welfare that do not depend on assumptions about other people\u27s mental states. Progressive legal thought was more republican than liberal in its social theory, and was never very comfortable with mainstream neoclassical economics. While economists became increasingly strict and pessimistic about the science of measuring welfare, Progressive legal policy was able to lay the foundation for the New Deal, and later the Great Society - both based on visions about the role of government that required elaborate and ubiquitous assumptions about people\u27s welfare. The Progressives\u27 use of objective welfare judgments serves to remind us that technical methodologies in the social sciences are used for a purpose, that they rarely lack alternatives, and that the search for methodological elegance and sophistication should never trump the search for answers