Re: General Welfare

[Shann Turnbull <sturnbull@mba1963.hbs.edu>]

In response to Charles Upton's contribution, could he confirm my
understanding that GDP statistics do not concern themselves with the
sovereignty of who is better off.  So if growth in GDP is generated by
foreign owned corporations then the voting citizens (so this excludes
corporations) of the country may be no better off and indeed could be worse
off if their share of pie shrunk while the foreign owned pie grew.  

I raised this point with my posting of  Mon Nov 01, 1999 20:02 "Ownership
and Growth (Economics of Ownership 3)" click
http://cog.kent.edu/archives/ownership/msg00068.html  I made the point that
even within a country there can be resource rich communities where most
individuals are cash/income/asset poor because the cash/income/assets are
owned by individuals outside the community and by corporations owned and
controlled from outside.  I made a related a follow up comment on Nov 3rd,
20:23  Re: Ownership and "green" Growth (Economics of Ownership 3)
http://cog.kent.edu/archives/ownership/msg00080.html

Regards

Shann

At 09:08 AM 8/11/1999 , you wrote:
>In defining General Welfare, economists think it quite useful to use the
>concept of Pareto Optimality, after the Italian economist Pareto.  Like most
>economists, I forgot his first name a long time ago.
>
>Pareto optimality has a simple proposition:  a move from state X to state Y
>is better when at least one person is better off and no one is worse off.
>If some people are better off and others are worse off, then the move may or
>not be better.
>
>Let me use that concept to respond to Dan Bell.  I've interwoven my
>responses in is question.
>
>
>> What would economists say about defining General Welfare
>> in the following way:
>>
>> If GDP grows on a macrolevel from 1000 to 2000,
>> four things can happen.
>>
>> 1. Everyone has the same piece of the 1000 they had before.
>>    The new 1000 accrues to a concentrated group.
>>    No one is worse off economically.
>>    A small percentage are much better off.
>>    Wealth is more concentrated than before.
>>
>This is a Parteo Optimum improvement.  No one is worse off and some are
>better off.
>
>> 2. Everyone has the same piece of the 1000 they had before.
>>    The new 1000 accrues to a broad segment of the population,
>>     such that many people have a bigger piece than they had
>>     before.
>>    No one is worse off economically.
>>    A large percentage are better off.
>>    Wealth is less concentrated than before.
>
>I assume the phrase "new 1000" is a typo and really means "new 200".  If so,
>again this is a pareto optimum move.
>
>>
>> 3. Some have a smaller piece of the 1000 than they had before.
>>    Part of the original 1000 as well as all of the new 1000
>>     accrues to a concentrated group.
>>    Some are worse off economically.
>>    A small percentage are much better off.
>>    Wealth is more concentrated than before.
>
>This move is not pareto optimum.
>
>> 4. Some have a smaller piece of the 1000 than they had before.
>>    Part of the original 1000 as well as all of the new 1000
>>     accrues to a broad segment of the population, such that
>>     many people have a bigger piece than they had before.
>>    Some are worse off economically.
>>    A large percentage are better off.
>>    Wealth is less concentrated than before.
>>
>Again, this move is not pareto optimum.
>
>
>> I think that #2 clearly benefits the General Welfare
>> because no one is worse off and many are better off.
>>
>> #1 is less clear, but some might say it benefits the
>> General Welfare because no one is worse off and many
>> are better off.
>>
>> #3 and #4 may be said not to benefit the General
>> Welfare because some are worse off. Here we get into
>> the moral "should" issues, like, are the some who
>> are worse off those who "should not have been" as
>> well off as they were before? Are they still better
>> off than the average person?
>
>That is all we can really say.  Arrow's possibilty theorem showed years ago
>that there was no generally accepted welfare function.  There is, of course,
>the work of Sen, who won the Nobel Prize last year for his efforts to come
>up with a wlefare function.  But I dont think much of it, and so I am the
>wrong person to defend it.
>
>Note that the general idea is that, if we increase GDP from 1000 to 1200, we
>have the potential for a pareto optimum move.  But we dont have enough to
>say which one is best.  For example, suppose that initially 100 peole each
>get 10 units of GDP,.  When we increase GDP it either (a) results in each of
>the 100 people now getting 12 units of GDP or (b) 99 people getting the same
>old 10 units and one person getting 210.  Both are pareto optimum moves.
>Which is best?  It depends on how much we favor one person over another.
>
>I think the general assumption that underlies some of these comments is one
>that "everybody knows" that a uniform distribution of wealth is, other
>things equal, the optimum.  Maybe it is.  Maybe it isn't.  The General
>Possibility Theorem serves as a reminder that there is no simple basis for
>such a conclusion.
>
>

Shann Turnbull
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