The Pareto Efficiency Swindle
from Asad Zaman
This continues a sequence of posts explaining how conventional economics is actually the economic theory of the top 1%: ET1%: Blindfolds created by Economic Theories. Eight central concepts of economic theory are shown to be deceptive – they have an appearance of objectivity, fairness, and equity, but actually conceal a strong bias in the favor of the wealthy. The previous post was the “Illusion of Scarcity.”
We call the concept of “Pareto Efficiency” a swindle because it encapsulates a normative principle that property rights of the wealthy take precedence over the right to basic needs of the poor. However, it is disguised to have an appearance of scientific objectivity, while the opposite normative preference, which most people have, is said to depend on subjective and unreliable value judgments.
The principle of Pareto efficiency has a harmless and innocuous appearance. Who could object to the idea that if we give more material goods to everyone, then the society as a whole would be better off? However, we will show that Pareto Efficiency is deceptive and fully qualifies for the label ET1%. It appeals to everyone when we say that increasing social welfare requires giving more goods to all. But the hidden consequence of accepting this principle is that you cannot take wealth away from the super-rich to give to the hungry, because that would decrease the wealth of the super-rich. It also provides moral cover for increasing inequality, as we shall see. It also protects property rights against the taxation required to fulfill social needs of the poor. read more
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Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
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Maria Alejandra Madi / Jack Reardon
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Real-World Economics Review Blog 
This article goes into great length about why the Pareto efficient outcomes idea is not fair. It ignores, however, the most basic criticism, which is that the principle is wrong, not only in the indirect consequences, but also in the blatant face of what it tries to say. There are some economists(likely in the category I would describe as liberal people trapped in conservative economists bodies), who believe that the Pareto efficient outcomes idea describes a real and valid concept and that if you go for a Pareto efficient outcome, but you tax the winners a little more to compensate the losers, you get the best of both worlds.
Of course the idea is ridiculous because the whole point of Pareto optimality is to use a special property of economics that only exists on the Production Possibilities Frontier and to try to apply it to an economy that is deep below the PFF where manipulating exactly how far from the PFF is a far more effective way to grow an economy than trying to expand the frontier.
The above may sound like a mathematical semantics issue to some, but when you read and understand what is going on you literally get 180 degree changes in what is optimal – for example having theory that says reduced taxes are beneficial when in fact they are harmful and increased taxes would actually be beneficial.
Any ‘equilibrium’ is Pareto efficient, Jeff1089. If we have five people, four with no funds or credit, and one with $1,000,000, the ‘market equilibrium’ is Pareto efficient if the one with $1,000,000 is, er, ‘rational’, albeit, given subjective preferences which are presumed to be rational and ordered we are left only with the presumption of rationality in subjective preferences.
This said, if the five people each had $200,000, then, given mainstream economic assumptions that ‘remove’, er, ‘irrational’ people, then the outcome reached in the market is Pareto efficient.
In the first case, lack of ability to pay means that four people die (unless it is the ‘subjective preference of the million dollar holder to provide some subsistence to these to alleviate his or her loneliness, er, ‘whatever’). In standard analysis, this person couldn’t care less about the four dying, but one can build their basic subsistence into his or her preference function. If he or she lets them die, that’s Pareto efficient. If he or she assists them, that’s also Pareto efficient as long as no one is forcing him or her.
So all outcomes leading to any presumed equilibrium are Pareto efficient.
Consequently, the term is itself quite meaningless as a concept or a percept.