How to measure social welfare?

Question

Ideas on how to measure or formulate social welfare are welcome. Myself and a colleague are working on a paper to formulate and apply aggregate social welfare on country level.

Comments

Socialism can be much more difficult to measure than capitalism.  Social morals for free even under Capitalism can be quite subjective as values based input to a market economy where money is used as the unit of account.   

In the US, we have a federal Constitution as our supreme law of the land, our welfare clause is General and must cover any given contingency and we have a Commerce Clause in particular which implies Capitalism and a market based economy.

Since Capital lends itself well to macro and micro economics and accounting purposes, it can become a more simple matter of ensuring full employment of resources in any given market in our economy by merely using Capitalism for all of its capital worth in modern times.

In the US, we can use the market for Labor as one example of where we can promote the general welfare by ensuring full employment of Capital resources in our market based economy.   Equal protection of the laws for unemployment compensation in our at-will employment States can solve simple poverty in a market friendly manner.  It can also ensure wages outpace inflation on an Institutional basis via market friendly means. And, it can be accomplished via existing legal and physical infrastructure.

As one example and in that alternative, let’s assume the cost of social services is approximately the equivalent to fourteen dollars  an hour and provides a rationale for a fifteen dollar an hour minimum wage in this scenario;  we could be optimizing Government as the social institution responsible for safety nets for the People.

In one version we can assume that persons can simply quit a low paying job and still collect unemployment benefits in an at-will employment State.  Lowering the Cost of Government could be accomplished by persons making the rational choice to apply for unemployment compensation and have the option to learn or improve their skill sets to command the wage they would prefer in our at-will employment States.  

Employers should be able to consider their bottom line for optimization purposes.  Shedding jobs for tasks easily automated would no longer affect Labor like it does now since individuals would not lose recourse to a income for being unemployed in an at-will employment State.  

Social benefits could be incurred by more optimum utilization of existing resources since Labor who must commute to work everyday would have less competition for those commuter resources since persons would not be required to work and would instead pursue their own individual liberty and happiness while circulating capital in our market based economy.  

More persons circulating more Capital can mean more accuracy and optimization potential from markets in our economy all based on rational choice and individuals as market participants under our form of Capitalism.  One goal could be to achieve capital metric based Pareto Optimalities for any given contingency.

The social goal would be to achieve this analogy:

If liberty and equality are chiefly to be found in democracy, they will be best attained when all persons alike share in government to the utmost.--Aristotle

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My dear colleague Nyiwul Mabughi of Gettysburg College and myself are working on a proposed welfare formulation which we would like to be applied to developing country data.

Proposed Formulation:

    We propose a multi-dimensional cardinal social welfare function. It is not a comprehensive set of all possible socio-economic dimensions, but rather intends to grasp the most critical socio-economic factors leading to social welfare. We also try to include variables which have readily available data on a country scale. Furthermore, the proposed function is static and not dynamic. We also adhere to the strict definition of social welfare as the total well-being of the society or community at large, rather than the quality of life of an individual citizen living in that society. Thus, we take the approach of Pearce (1992), Moulin (2004), Krabbe (1989), and Tresch (2015), in contrast to the traditional utilitarian views of Harsanyi (1987), Samuelson (1983), and I.M.D. Little (1957).

Given the above, we see this research as an attempt or initial proposition towards social welfare which is not exhaustive nor intended to be so. Nonetheless, we attempt a cardinal measure of social welfare encompassing critical dimensions of collective human welfare, rather than individually separable utilities.

The following factors are principally taken into consideration:
(1).    Per capita income (adjusted values based on purchasing power parity, and using Atkinson’s diminishing social utility of wealth concept)
(2).    Poverty (poverty incidence, poverty depth, and expenditures needed to eradicate poverty)
(3).    Income inequality (Gini index)
(4).    Clean water (as a social entitlement)
(5).    Access to health services (as a social entitlement)
(6).    Education attainment (human development)
(7).    Life expectancy (livelihood aspect of human welfare)
(8).    Gender equality (social equity and cohesion).

Indirect factors which may cause, or be caused by social welfare, are not directly included in the social welfare formulation. However, causality of social welfare to those factors can be addressed as separate data sets. For example, the World Economic Forum’s Global Competitiveness Index which basically measures a country’s aggregate productivity, can be viewed as a consequence to social welfare, or be caused by it. Similarly speaking, other indicators related to climate change, innovation, openness index, and the World Bank’s Doing Business index, all can be addressed using the same logic. Moreover, it must be mentioned that the approach taken in this research is a strict socio-economic formulation, rather than a political-cultural context of social welfare. Hence, political freedom, legal independence, and other related aspects are not directly incorporated into our formulation.

    An aggregate social welfare function is proposed mathematically and we apply the six axioms of social welfare on it. In addition, we apply it to most developing countries in which data is available.

The results are very interested, although not yet finalized.

If anyone has further thoughts, comments, and suggestions: you are most welcome to post them.

Many thanks,

Tarek H. Selim (World Economic Forum and American University in Cairo)
Nyiwul Mabughi (Gettysburg College)

Answer 1

Direct democracy theory sais that the only way to know the social welfare curve is through voting. There are a few problems concerning social voting as cyclical choices or rigged elections (where people make choices trying not to make other popular choices elected lying in their second choices) . I think that it's very difficult to know the actual choices of a large group of people is we don't rely on private market. But if every citizen is sincere and takes it's election as a binding one, we can measure public goods and services utility or social welfare by citizen's willingness to pay for them.

Comments

From my personal point of view you are right with this answer. Nevertheless through a concentration on voting a complex problem will arise. The problem of policymakers is, that they have only a limited knowledge about the majority believes of population. It is impossible to solve this problem through more democracy, because of time horizons and a limited availability of governmental resources. For measuring social welfare it is absolutely necessary to try to understand what people think about the state social welfare in there country. I want to refer here to danielpalos answer, which presents the US view on this question. In contrast to the US view peoples in my homeland Germany have a quite different view on this question. There focus lies more on the focus on equality. For example I read a few of weeks ago an article in a German news magazines. After this articles Germans a proud that a huge welfare state exist in there country. The common goal of a majority of German population seems to be to use social welfare for distribution of financial resources. Additionally a lot of German policymakers are following the same goals now. What I want to underline with this example is that there exist a lot of very different views on the goals and shapes of social welfare.

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Some on the political left in the US may believe that our Founding Fathers did an most excellent job at the convention with our federal Constitution and supreme law of the land.   There is no provision for excuses in our federal doctrine.   This is what we are supposed to be accomplishing with our form of Government:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

What objection can there be to solving simple poverty in the US via that market friendly manner which conforms to and is pursuant to our supreme law of the land.

In the version presented previously, simple poverty is abolished on an at-will basis in our at-will employment States using existing legal and physical infrastructure.  With wages outpacing inflation on an Institutional basis, as one result.

More people circulating more capital in an economy must affect the multiplier effect in a positive manner.   Since Government can fix this Standard, the general welfare can be provided for in a market friendly manner as well while making it more convenient for even small businesses to be competitive in their local economy.  More, local participants in any given local market could be better assured through full employment of capital resources in our market based economy that better conforms to our at-will employment concept.  It should be about Individual Liberty and natural rights.

Let’s further assume that the State takes over any function from the private sector for unemployment compensation in our at-will employment States.  

And, that private sector insurance has the legal opportunity to provide additional and complimentary benefits for the unemployed, since some basic income is guaranteed to help ensure sufficient capital circulates under our form of Capitalism for the desired multiplier effect to engender a profit motive for new firms; since, additional higher paid Labor creates more in Demand and generate more in Tax revenue for Government.

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From an economical perspective I strongly believe that inequality is no suitable and useful figure to measure social welfare. The problem is that it seems like that a lot of people are concerned about inequality. When a hard working man is suffering under extreme poverty it will not make a different for him, whether he live in a country with a huge inequality or in a country with a low inequality. For improving the situation of poor people in high developing countries it is important to give them the opportunity to save money and to buy there own property. It is clear that governments can not fulfill this task. I want to underline her the importance of education for giving people opportunities to safe money. Unfortunately most people have a lack of economical knowledge. For this schools has to teach people economical knowledge.

In generally I want to suggest the follow strategy to measure social welfare.

1. Hard facts are necessary to measure social welfare, but the problem is that hard facts do not go hand in hand with the feelings of people.

2. The question is what in a country want. It is not so important, whether there goals are from an economical perspective right or can be archived by the government.

3. The question is now why the people has this believes. I believe that often historical backgrounds exist for a more pro market or more socialism believe into the population. Sometimes it is also only a question of economical knowledge.

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In the US, capital inequality is much more simple to the extent macro and microeconomics can account for it.  Poverty also means being unable to afford justice under our form of Capitalism.  

Under our form of federal Government, simple poverty could have been solved for, Yesterday, but for politics.  We already have the legal and physical infrastructure in place, and automatic stabilization is much more market friendly than having to rely on more arbitrary and more capricious solutions from our representatives to Government.     Equality in the US must also be about equal protection of the laws.

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I think that a survey can be useful in every kind of country. You can ask everything you want about public welfare. For example, how much money do you think you should spend in the army forces.

Taking into account inequality, the opinion can be different in different stratums of the society. It's clear that if a 80% of the population would receive 300 $ in exchange of less investment or a weak position of banks, they would accept that money and the utility curve would be much more far from the axis. But if we explain them the basis of lucrative motive and the development of the world under Capitalism. Would they accept that money? . Maybe they would accept 100 $. To get a good welfare utility curve the common citizen needs to be well informed and he or she needs to think about every variable concerning his or her position in the present and in the future. That's a quite difficult task, so sometimes this task is translated into simple Democracy.

Concerning employment at-will, I think that the work of the people is what sustains our society. So you can accept 14$ and not to work, but that's not the true utility that a job gives to a society. I think that if the citizens are well informed they should accept a wage capable of making them live a decent live, taking into consideration that the product of everyone is spread in the society as a whole. For example, prices can increase if workers get more money than it's necessary. Or in the opposite, a low level of wages that doesn't allow to live a decent live can push people to criminality or lazyness under a welfare state.

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My point about unemployment compensation in our at-will employment States is that it can solve simple poverty in our economy as a function of automatic stabilization.  Full employment of capital resources is what I am referring to.  Capitalism requires capital to circulate to achieve any capital results.  It could benefit any local economy by providing those capital means to participate more effectively in our market based economy.  Anyone unemployed would not need to commute or increase commuter traffic times.  They could be going to local schools to learn new skills or upgrade current skills for as long as they want or until they can command the wage they would prefer.

Solving simple poverty in a market friendly manner means an Institutional upward pressure on wages.  And, even if employers cut jobs, more effectual unemployment compensation as a social safety net can help mitigate the issue since persons should be able to obtain unemployment compensation for simply being unemployed.  Only Capital must circulate under Capitalism.  It also means more tax revenue for Government.  

Simply raising the minimum wage could be a means to raise more tax revenue.  A fifteen dollar an hour  minimum wage generates several times more in US federal income tax revenue than our current minimum wage does now.  If wages are high enough, even the Poor can pay their share of the tax burden.

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Yes. I completely agree with you.