PD Dr. Peter T. Baltes To my wife, my (academic & military) teachers, my family and my friends
Online: * August 2012
Economics and the Economics of Defense II
Nobody will deny that wasting scarce resources should be avoided. But even more than
200 years of struggle to identify a more specific welfare criterion did not lead
to a consensus among economists, let alone among the members of (democratic) societies.
Take, for example, the famous Pareto-criterion: It states that only those allocations
can be (morally) justified that leave no room for further improvements in welfare
positions. I.e., the economic situation of one person can only be improved by diminishing
the well being of another individual.
But how can such a condition be verified in a globalized world where people lack
the information about all the (potentially) relevant transactions and their conditions
→Tullock (1999)? Furthermore, a significant part of the global population does not
even own the means ─ in particular, the income / wealth ─ to participate in the most
basic transactions: “He who can not pay, dies.” →McMillan (2002).
The society’s primary tool to organize the allocation of scarce resources is the
economy. Consequently, the ─ evolutionary grown as well as intentionally designed
─ arrangements in an economy are part of the “implicit social contract”.
Looking back on the various “experiments” in economy design conducted by societies
in history, the following statement seems not too far fetched: When the performance
of the different designs is compared in realistic settings, the various “Social Market
Economies” (SoME) like the USA, Germany or Sweden ─ differing, in particular, in
their weights they attribute to social components ─ represent the most convincing
answer to a society’s allocation problem so far.