A recap of Econ101 price setting behavior and ethical claims (e.g., about improvement and superiority, the key themes of welfare economics):

I view the main job of an economist as an attempt to understand and explain the world as it is. Prior to making any recommendations to improve the world, one should have some understanding of how things work.

PARETO IMPROVEMENT: "A Pareto improvement occurs when someone or some people can be made better off without any becoming worse off."

KALDOR-HICKS criterion: "something is welfare-improving if the total gains exceed the total losses."

These considerations differ in that it's not the same people keeping the spoils.

If these new benefits exceed the new costs, then this is considered a Kaldor-Hicks improvement. If the winners use some of their benefits to compensate the losers, then the outcome could also be a Pareto improvement. Why? Well, if the benefits exceed the costs, then some fraction of the benefits could be transferred to the losers with some benefit still left over. Some people are better off and no one is worse off.

Economists in analysing/theorizing quite regularly don't care too much whether or not the added net benefit was actually transferred to compensate the losers. (This is a key point in Daniel Hausman's great The Inexact and Separate Science of Economics, probably the most important text I studied at length in Oxford econ methodology seminars)

A similar type of reasoning can help us to understand arguments over international trade. In a lot of standard trade models, you get the following type of result. Removing barriers to trade allows consumption beyond the production possibilities frontier. In other words, people are able to consume more than the productive capacity of their own economy because they exploit the new gains from trade. However, at the same time, the changing nature of production following the removal of the trade restriction will tend to lead to the convergence of factor prices. This means, for example, that workers in the high-wage country will tend to see downward-pressure on their wages. Overall, the benefits exceed the costs. Nonetheless, there are winners and losers. To turn the Kaldor-Hicks improvement into a Pareto improvement requires transfers to these workers. When there are no such transfers, it shouldn’t be surprising that some workers are opposed to the policy.

"if the transfer isn’t feasible, arguing that the policy should or should not be implemented requires an ethical judgement"

When there are distributional effects that produce winners and losers, it is not surprising that the losers are not persuaded by the Kaldor-Hicks argument that the overall benefits exceed the overall costs. Furthermore, distributional effects make it difficult for economists to make normative arguments about the policy because it necessarily requires using some ethical standard. [...] This isn’t a minor point about ethics and economics. Instead, I think that this distinction is often at the heart of political economy.

Very underwhelming conclusion, but alas quite powerful:

The Pareto criterion leads one in the direction of Coase and Ostrom when it comes to externalities and property rights issues. That is an advantage, in my view, because it points to the development of the institutions that make up civil society, which seem much more empirically relevant than a lot of textbook conversation and textbook solutions to these issues.