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Economics for Democratic Socialism Drexel University Spring Quarter 2009.

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1 Economics for Democratic Socialism Drexel University Spring Quarter 2009

2 To Each According to Need The slogan From each according to ability, to each according to need is often attributed to Marx. Marx wrote about it in The Critique of the Gotha Program In that letter, he was relatively dismissive, treating allocation according to need as a characteristic of the future communist society, while holding that in a socialist society, allocation would be according to work. It seems that allocation according to need was a popular idea among socialists at the time, and Marx was discouraging it.

3 France The slogan originated in The Organization of Labor, by Louis Blanc, In French, a chacun selon ses besoins, de chacun selon ses facultes." Louis Blanc

4 Need vs Want For present purposes, we need to distinguish between needs and wants. Market systems (at their best) allocate according to wants. In economics, wants are usually (somewhat more precisely) expressed as utility or preferences. Most economists prefer to avoid the word need entirely, and they can get pretty angry about it.

5 Resources As a result, scholarly resources for economic study of needs are scarce. In economic development, there is some discussion of basic needs (to which we will return.) Philosophers are not quite as reluctant as economists to discuss need, but even here, need is a neglected topic, according to some philosophers.

6 From Soran Reader, 2003 The concept of need plays a significant but still relatively unexplored role in philosophy.

7 My need versus your want One reason for this reluctance to discuss need is that the concept lends itself to arguments that are both self- interested and specious, as your want should give away to my need. Since philosophers are interested in need as a basis for some obligation, that is, as a category of moral philosophy, the problem is (if anything) even trickier for them. A problem that occurs to me is: if need implies obligation, on whom does the obligation fall?

8 Some Philosophy of Need Need is commonly used in two ways: –Relatively intense want I really need a Latte. –Necessary means to some goal, such as survival I need medication in order to breathe normally. (true) I need a business suit for interviews to get a good job. –We will be using it in the latter sense.

9 From Ohlsson There are two concepts expressed by the term need -- one referring to certain psychological drives and one referring to certain causal connections between states. A has a need for x in the situation s, if and only if there is a goal y for A and x is a necessary and in s sufficient condition for A to reach y.

10 The Preference Approach As noted, Twentieth-century economists have usually thought of consumer motivations (wants) in terms of preference. Example: Think of a restaurant that sells barbecued chicken wings by the wing and french fries by the piece. The prices will be 45c a wing and 3c a piece of fried potatoes. I know some restaurants that will sell you steak by the ounce, though, so maybe there really is one somewhere that sells wings by the wing.

11 Preferences, Wings and Fries Let's consider some alternative menus that John Doe could choose: no wings, one wing, two wings, and no fries, fifteen pieces of fries, or thirty pieces of fries. taking all possible combinations, we have 3x3 = 9 alternative lunches. His preferences are as shown.

12 Some Points First, preference is an order-ranking, not a number. Second, John's preferences are applied to combinations of the two goods. Third, given the amount of one good, more of the other good is preferred to less. Fourth, notice that 1 wing and 15 fries is in a tie with no wings and 30 fries for fourth place. When two alternatives come up with the same ranking, we say the consumer is "indifferent" between them, and that the two alternatives are "indifferent choices" or "indifferent alternatives."

13 Limited income Suppose that John has $1.35 to spend for his lunch. John can afford 2 wings and 15 fries or 1 wing and 30 fries (or one wing and 5 fries or one wing and no fries or no wings and 15 fries). These alternatives rank third and second, so John's "rational" choice is 1 wing and 30 fries. This is the choice that John most prefers, within his budget. By choosing it, we might say, John is "maximizing his preference." That's an awkward phrase, but it will have to do: in the preference approach, we say that a rational consumer maximizes her or his preferences within the limit of her or his budget.

14 More Options Rankings are relative and we assume that any collection of alternatives can be consistently ranked. (Check for consistency here).

15 Indifference Now we have a three-way tie. No wings and 30 fries, 1 wing and 15 fries, and 3 wings and no fries are all tied for 6th place. These three menus, together, form what preference theory calls an "indifference curve" -- a linking of all the combinations of goods and services that come up with the same ranking in a person's preference ranking.

16 Visualizing One of the best ways to visualize a consumer's preferences is with an "indifference curve" diagram.

17 Marginal Benefit What is the marginal benefit of the first wing? We can get that by traveling along the indifference curve corresponding to sixth place. Since John is indifferent between no wings and 30 fries (on the one hand) and 1 wing and 15 fries (on the other hand) we can conclude that John would give up 15 fries to get that first wing -- no more and no less. So John's marginal benefit from one wing is the market value of 15 fries, that is, 45 cents.

18 Caution! The marginal benefit will be different if we start out from a different place. For example, suppose we started out with just 15 fries and no wings. We can see that John would NOT give 15 fries for that first wing -- that would reduce him from eighth place in his preference ranking to ninth. So the marginal benefit of the first wing will be somewhat less than the 45 cents it was when John could start from 30 fries.

19 Preferences as Wants According to this view, wants are 1.Subjective 2.Relative – Consistent, in that whenever A is preferred to B and B is preferred to C, then A is preferred to C. 3.Uncontingent. – The heart wants what it wants. – De Gustibus non est disputandum. 4.Insatiable

20 Needs By contrast needs are 1.Objective 2.Abstract and Absolute 3.Contingent 4.Satiable

21 From Ohlsson Which specific needs a certain person will be ascribed is left for experts in biology, physiology, and so on to determine.

22 From Garrett Thomson Needs are objective because it is a discoverable matter of fact what needs a person has, and yet this fact has a bearing on what one ought to do. The concept is both factual and evaluative.

23 I Need Medication … The objective character of needs is perhaps best illustrated by medical care. Whether (for example) I need treatment for high blood pressure is objective: a question of fact. It is best judged by an expert in the practice of medicine. I myself am not a good judge of whether or not I need treatment for high blood pressure.

24 Contingent and Satiable Notice that this need is contingent in two ways: –It depends on my medical condition –It depends on the existence of effective medication. It is also satiable. I have my medication, and I feel just fine.

25 From Ohlsson Needs are in a way relative to circumstances. In the climate of Greenland human beings have needs for warm clothing in order to survive, in central Africa this need is not so important.

26 Absolute The medication either attains the goal (normal breathing, normal blood pressure) or it does not. This is not relative, but absolute. (It may be modified in relative ways: for example, it may be that one medicine will more probably meet my need than another -- but the fundamental requirement is not relative.) This is by contrast with wants.

27 Basic Needs 1 We can classify needs according to the objectives that define them. –Medical care is a basic need, that is, something we need in order to survive with good health. –In that category also are needs for food, clothing, and shelter. –But the basic need for food can be satisfied with very cheap food: a mid-twentieth century estimate (Stigler) suggested that the cheapest subsistence diet would consist largely of oatmeal and peanut butter.

28 Basic Needs 2 Can we say that there is a need for a diet that is not only adequate for health but also delicious and varied? Some critics of need theorizing reject it because it considers only basic minima. But that is valid only if we limit ourselves tobasic need, and possibly not even then.

29 From Ohlsson If you are never allowed to develop some specifically human features you are harmed as a human being. … people need some, however rudimentary, education, and they need a certain amount of freedom.

30 More From Ohlsson One of the reasons behind ascribing moral relevance to desires [wants] is that you ought to respect other persons and their autonomy. … the needs are more important than the satisfaction of desires.

31 Social Participation Needs There are also needs that represent things we must have in order to function as members of our society. Let us call these social participation needs. In a modern society, education stands out as such a social participation need, although, again, just how much education is necessary is unclear. In the United States, transportation in some form is essential, and in some localities a person without an automobile is objectively handicapped.

32 Hierarchy of Needs Maslovian psychology hypothesizes a hierarchy of needs: –Basic needs –Security and stimulation, –social identity –self-realization. The tasty and varied diet mentioned above, for example, might help to meet a need for stimulation.

33 Public Needs In order to ensure the health of the population of a region, it may be necessary to reduce air pollution. Clearly, this category is connected to the neoclassical category of public goods. However, public goods are a category of wants. What we have here is an objective condition that can be attained only by the production of a public or quasipublic good, that is, in this instance, a reduction of air pollution. Such a need will be designated by the parallel termpublic need.

34 Specious Needs There are needs that no society is likely to try to meet. I need a personal jet aircraft and personal pilot if I am to travel rapidly and conveniently across the continent. But if I do not have a job that demands such travel of me (such as a high military commander might), then I suspect no-one would suggest that the public authority should be expected to supply that particular need.

35 Needs as Wants 1 In many cases people will want to meet their needs. As a result, many needs would automatically be met if people only had enough income to meet them, and this would be especially true of some basic needs. Conversely, one way to address needs is to increase the lowest incomes

36 Needs as Wants 2 But the want to meet ones needs is a want among other wants. I want to meet my need for medical insurance, but I also want a vacation in Hawaii, and I may not be able to afford both; therefore, no medical insurance. As a result, meeting needs through increasing minimum incomes may be a relatively costly method. Policies like food stamps address this.

37 Needs as Wants 3 The example (again) of medical care illustrates a case in which increases in minimum income cannot plausibly assure that needs will be met, both because of the role of expert knowledge in determining needs and because of the extremely skewed distribution of needs to be met.

38 Homelessness Shelter is a basic need. Homelessness may be the most important instance of basic needs deprival in the USA today. It probably is a contributing cause of other instances of basic needs deprival. Homelessness has also been a growing visible problem in my lifetime. Is it that Americans dont care? Maybe not. When I was a kid, homeless persons were bums, vagrants, hobos. The problem was there -- but just invisible. However, that may not be the whole story ….

39 Paternalism 1 Homelessness does illustrate another problem for distribution according to need. Need is objective, and may conflict with subjective want, or may be beyond the knowledge or mental capacity of the person to address. In such a case, do we compel the person to meet her need? In the case of homelessness, paternalist solutions have been pretty clear failures. If a person needs a medical treatment, such as a blood transfusion, but refuses it due to religious conviction, ought that persons objections be overridden and she forced to accept the transfusion?

40 Paternalism 2 Or should we respect the persons autonomy in the case of religious objections? Perhaps we have gone too far in liberating those who are mentally incapable and consequently homeless. Perhaps homelessness and mental difficulty should be grounds for some compulsory assistance. How extreme needs the case be to trigger the compulsory assistance? How to assure that the policies will be effective and not just a means of hiding the problem?

41 Participation Needs Again Social participation needs may be quite costly, as the example of automobiles and gasoline illustrate. Should we aim to assure everyone of access to an automobile? But for needs in this category, there is another approach. Instead of trying to satisfy them, whatever they may be, we might change society in such a way as to reduce the social participation needs.

42 Participation Needs Yet Again Would we consider changing society in such a way as to reduce the social participation need for education? Perhaps we should: extensive schooling is not for everyone. But since a highly efficient, modern economy requires a high level of general education, we probably could not go very far in that direction.

43 A Puzzle Medical care is at the center of yet another puzzle with respect to need. The puzzle is the rising cost of medical care. Over the last generation Americans have consumed increasing quantities of medical care at even more rapidly increasing cost. Can this be a matter of need? Can needs be increased by increasing knowledge?

44 Explanation 1 The answer is that they can. A need exists only when there is both an objective (such as recovered good health) and a means to attain that objective or measurably increase the probability that it will be attained. Before effective treatments for cancer were known, patients cannot be said to have needed treatment for cancer.

45 Explanation 2 There was the objective of recovered good health as there is now, but no known means to attain it, and thus no need. As effective treatments have been discovered, new needs have been created, for those who suffer from cancer and other illnesses. It is possible (as in medicine) that the advance of knowledge might increase our needs even more rapidly than it advances our ability to meet them.

46 So What? If we aspire to allocate some resources to meet some classes of needs, presumably the state will play some role in this. Is the state a moral agent? Can we say that the state is obliged to meet certain classes of needs? This is a very old-fashioned view of public policy!

47 The State As Cooperative Coalition We might hope that our political system is a way of obtaining a cooperative solution in the sense of game theory. Such a solution presupposes that people commit themselves to accept common constraints on their action in order to obtain some mutual benefit. The mutual benefit might be the benefit of meeting some categories of needs, in addition to satisfying wants.

48 Want Satisfaction Neoclassical economics describes a process of (market) want satisfaction, constrained by an upper limit due to limited resources and technology. Since needs are satiable, we could think of need- satisfaction as another kind of limit on want- satisfaction. But will this leave any scope at all for want- satisfaction?

49 Affluent Society In a poor society, it may be very difficult to assure that even basic needs are met for the entire society. Perhaps this was the basis for Marx concern that distribution according to need could not be expected until communist society had created abundance and abolished scarcity. However, in the more developed world we have what Galbraith called an affluent society. Presumably we can meet basic need with a great deal left over for want- satisfaction.

50 On the other hand 1.To the extent that people want to meet their needs, public measures to meet needs will dilute incentives to work. 2.Medical care, social participation and public needs might consume much more than (non-medical) basic needs. 3.Still other categories of needs might be endorsed. 4.The decision as to what needs are to be met is irreducibly political, even though the needs themselves are objective.

51 Summary Some (not all) socialists have called for allocation according to need. Neoclassical economics avoids any concept of need and models wants as preferences. However, needs are quite unlike wants, thought the two can be interlinked. While needs are satiable, there are a number of categories of need, and increasing knowledge may increase some needs. Public policy to meet needs seems reasonable, but more complex than policy based on costs and benefits in the sense of wants.

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