Glamor Economics

Chapter 156

Chapter 20 "Passport to Happiness" from Cradle to Rocking Chair - Welfare and Social Security
Section 1 How to Maximize Social Welfare—Social Welfare and Economic Welfare
As a branch of economics, welfare economics first appeared in England in the early 20th century. The publication of Pigou's Welfare Economics in 1920 marked the birth of welfare economics.

The outbreak of the First World War and the victory of the Russian October Revolution plunged capitalism into a comprehensive economic and political crisis.The emergence of welfare economics is the result of the sharpening of class contradictions and socioeconomic contradictions in the capitalist world, first of all in Britain.Western economists admit that the serious social problem of disparity between rich and poor in Britain became more acute due to the First World War, so there is a research trend aimed at establishing social welfare, which leads to the emergence of welfare economics. After the capitalist world economic crisis from 1929 to 1933, some bourgeois economists in Britain, the United States and other countries made many revisions and supplements to welfare economics under the new historical conditions.Pigou's welfare economics is called the old welfare economics, and the welfare economics after Pigou is called the new welfare economics.Since the Second World War, welfare economics has raised many new problems and is undergoing new development and changes.

Pigou defined the object of welfare economics as the study of improving the economic welfare of the world or a country.Pigou believes that welfare is a psychological response to enjoyment or satisfaction. Welfare can be divided into social welfare and economic welfare. Only the part of social welfare that can be measured by money is economic welfare.

Pigou proposed two basic welfare propositions based on the marginal utility base theory:

1. The greater the total national income, the greater the social and economic welfare.

2. The more equal the national income distribution is, the greater the social and economic welfare will be.

According to Pigou, economic welfare depends to a considerable extent on the amount of national income and the distribution of national income among members of society.Therefore, in order to increase economic welfare, the total national income must be increased in terms of production, and the inequality in the distribution of national income must be eliminated in terms of distribution.

Starting from the first basic welfare proposition, Pigou raised the issue of the optimal allocation of social production resources.He believed that to increase national income, it is necessary to increase social output.In order to increase social output, it is necessary to realize the optimal allocation of social production resources.Pigou believes that the net product obtained by adding a unit of production factors is not always equal when measured from a social point of view and from an individual point of view.When the marginal social net product is greater than the marginal private net product, the state should expand production through subsidies.When less than, the country should reduce production through taxation.The optimal allocation of social production resources can only be achieved when the marginal social net products in various uses of each factor of production are equal.Pigou's welfare economics is based on the premise of free competition. He believes that free competition can make the marginal social net product equal to the marginal private net product, thus maximizing social economic welfare.

Starting from the second basic welfare proposition, Pigou raised the issue of equalization of income distribution.In his view, to increase social and economic welfare, income must be equalized.He extended the law of diminishing marginal utility to money, asserting that the marginal utility of money for high-income earners is smaller than that for low-income earners.The income equalization he mentioned means that the state uses the tax collected from the rich through the progressive income tax policy to set up social welfare facilities for the low-income people to enjoy.Pigou believed that by realizing "equalization of income" that "transfers a part of money from the rich to the poor", social and economic welfare can be maximized.

For a long time, the perfectly competitive market has been considered by many economists as an effective welfare distribution mechanism.There are two main reasons:

The first reason is that consumers' evaluation of goods is conducive to the efficient distribution of welfare.Consumers' evaluation of items refers to consumers' subjective feelings about items.Whether a consumer feels that an item is useful and valuable to him is a measure of social and economic welfare.

In a perfectly competitive market, production resources will inevitably be transferred from high-cost producers to low-cost producers, thereby reducing the cost of producers and making scarce resources maximize the total surplus in the process of allocation. Configuration is the most efficient.From the point of view of price, in a perfectly competitive market, since its price is the lowest average cost of goods, as long as the evaluation of the goods is higher than or equal to the lowest average cost, consumers will choose to buy. Therefore, in this case, the total surplus in society will reach the maximum value.

The second reason is that a perfectly competitive market is conducive to achieving fair distribution.Fairness is another important measure of economic welfare.In a perfectly competitive market, all consumers are pursuing utility maximization, and all businesses are pursuing profit maximization.The result of the interaction between consumers and enterprises is both wonderful and surprising. The optimal combination of normal operation makes the most effective use of limited resources in society and maximizes the economic welfare of the entire society—this is exactly what all people want. The expected result is also the reason why economists have a soft spot for perfectly competitive markets.

[links to related words]

Economic efficiency refers to the conditions required for the social economy to reach the Pareto optimal state, including the optimal conditions of exchange and production.The new welfare economics extends the optimal conditions of two commodities exchanged by two consumers and the optimal conditions of two producers using two production resources to produce two products to the exchange and production of the whole society. Social indifference curve and social isoquant, the former means that any combination of goods can make every consumer in society get equal satisfaction, the latter means that any combination of resources can make every producer in society get equal output .

New welfare economics believes that when the optimal conditions of exchange and production of the entire society are met at the same time, that is, when the exchange and production of the entire society are most efficient and reach the optimal state, the entire society will be To achieve the optimal state, to achieve the maximum social welfare.

The compensatory principle is one of the important contents of the new welfare economics.Kaldor first proposed: If in situation A, the beneficiaries are still better than situation B after compensating the losers, then for society, situation A is better than situation B.

Hicks proposed on the Kaldor criterion: If in situation A, the loser has no way to induce the beneficiary not to change B into A, then for society, situation A is better than situation B.Sitowski supplemented the Kaldor standard and the Hicks standard, proposing a "double standard" for testing welfare: if the beneficiary can make the loser accept changing B to A, but the loser has no way to induce If the beneficiaries do not change B into A, then situation A is better for society than situation B.Kaldor, Hicks and others are called the principle of compensation school.Their central argument is that if a change increases welfare for some and decreases welfare for others, then the change can be said to increase social welfare as long as the increase in welfare exceeds the decrease in welfare.According to this standard, as long as the situation of monopoly capitalists gets better, no matter how many people's situation gets worse, it will increase social welfare.

Social Welfare Function Theory The welfare economic theory of Kaldor, Hicks and others was criticized by Bergson, Samuelson and others.In 1938, Bergson published the article "A Rediscussion of Some Aspects of Welfare Economics", which proposed a new direction for the study of social welfare functions.Samuelson and others made a further discussion on the social welfare function and formed the social function theory of welfare economics.

Social function theorists believe that social welfare is a function of the commodities purchased and provided by all individuals in society and other related variables, including the quantity of all commodities consumed by all households or individuals, and the quantity of each type of labor performed by all individuals , the amount of all capital inputs, and so on.Social welfare function theorists usually use multivariate functions to express.

(End of this chapter)