My feelings about all of this, including the Second Welfare Theorem, are roughly those outlined in this post (or rather, series of posts): https://www.interfluidity.com/v2/date/2014/06.
"Most recently, we’ve seen that the 'welfare theorems' — often cited as the deep science behind claims that markets are welfare optimizing — don’t help us out of our conundrum. The welfare theorems tell us that, under certain ideal circumstances, markets will find a Pareto optimal outcome, some circumstance under which no one can be made better off without making someone worse off. But they cannot help us with the question of WHICH Pareto optimal outcome should be found, and no plausible notions of welfare are indifferent between all Pareto optimal outcomes. The welfare theorems let us reduce the problem of choosing a desirable Pareto optimal outcome to the problem of choosing a money distribution — once we have the money distribution, markets will lead us to make optimal production and allocation decisions consistent with that distribution. But we find ourselves with no means of selecting the appropriate money distribution (and no scientific case at all that markets themselves optimize the distribution). We are back exactly where we began, wondering how to decide who gets what."
Thanks for your posts which I find interesting. Can you point me to any good sources on crafting better policies?
For context, I'm most interested in better policy choices that generally prioritize 'equal opportunity for all' as opposed to trying to engineer 'equal outcomes for all'.
Everyone agrees that Pareto efficiency isn't everything. But even there, the Second Welfare Theorem literally tells you how to efficiently redistribute wealth away from the trillionaire, to move to a different Pareto outcome.
Real policymaking is much messier than any of this, of course.