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Welfare economics

DNA Edit: Welfare economics – Stealing Peter to pay Paul is the new mantra

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Savvy analysts who have traditionally predicted the rise of the so-called “right-wing” economy in India with the arrival of the BJP are somewhat baffled. Instead of everything they had postulated and envisioned, a new form of welfare economics emerged, as demonstrated by the recent Union budget. For starters, the government has raised the highest tax bracket for the super-rich, increasing a surcharge of 3% for people earning Rs 2-5 crore and 7% for those earning more than 5 crore. of Rs. This surcharge will help the government to earn an additional Rs 13,000 crore.

The highest tax bracket would mean new effective rates of 39% for income of Rs 2 to 5 crore and of 42.74% for income above Rs 5 crore. This is no small surprise. in a country where taxpayers have traditionally made up the confined middle class, whose withholding tax deduction (TDS) leaves them no choice but to spit.

Fortunately, this scenario seems to be changing. The other government initiative is to monitor the increase in questionable cash transactions. Banks have been advised to keep track of cash transactions above Rs 1 crore per year. In the budget, Finance Minister Nirmala Sitharaman announced 2% TDS on cash withdrawals over Rs 1 crore per year, by bank account.

A senior official quoted by this article said that the number of those who make cash withdrawals over 1 crore rupees per year has reached a few lakh crore. In many cases, it has been found that their permanent account number or PAN is misquoted or not cited at all. As a result, the government believes the measure would help bring more of the wealthy below the top tax bracket.

Data from the Income Tax Department puts the number of individual taxpayers declaring income above 1 crore rupee at 81,344 in 2017-18. Even during Narendra Modi’s first term, the government has consistently insisted on using the PAN-Aadhaar link, to identify a better audit trail and to make all transactions responsible and legitimate to the extent possible. That this budget bears the stamp of the welfare economy everywhere is evident in its speech against the rich, while seeking the support of the business community in building a just and equitable society. No doubt the rich would complain, but there is consistency in the political message here.

The finance minister, in the aftermath of the budget, justified increasing the highest tax rates for the rich by saying that income disparities are increasing and that the rich need to help the government provide for them. needs of the poorest segments of society.

According to her, the poor simply cannot be allowed to remain without basic amenities. “We respect them (the rich) for the job-creating role they play … But with increasing income disparities, shouldn’t we all be participating?” Was his refrain. The government cited the example of several developed countries where those with higher incomes pay more taxes. Even so late, it is an idea whose time has come in India.

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Amartya Sen and her contribution to the welfare economy

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Amartya Sen, economist and philosopher, whose contribution to the welfare economy is globally recognized and appreciated.

Amartya Sen is recognized for his contribution to the welfare economy

Amartya Sen is an Indian economist and philosopher. He has worked in India, UK and USA.

He was born on November 3, 1933 to a Bengali family in Santiniketan, West Bengal. He is the second Indian after Rabindranath Tagore to receive a Nobel Prize.

Here’s what you need to know about him:

Childhood and studies

  • Amartya Sen was the son of Professor Ashutosh Sen and Amita Sen
  • Sen started his studies at St Gregory School in Dhaka, then moved to Santiniketan Viswa-Bharati
  • In 1951 he obtained his first class graduate degree in BA Economics from the Presidency College in Kolkata
  • In the same year, he attended Trinity College, Cambridge and obtained the BA degree in Pure Economics.
  • He was appointed professor and head of department at Jadavpur University in Kolkata
  • After working for some time at the University of Jadavpur, he returned to Cambridge to pursue his doctorate.
  • He was a professor at the Delhi School of Economics and professor of economics at the London School of Economics between 1961 and 1972.

Career

  • Sen’s first book “Collective Choice and Social Welfare” was launched around 1970. This book has been considered one of the most influential monographs dealing with the issue of primary welfare, justice, equality and individual rights.
  • Around 1973, his second book ‘On Economic Inequality’ published on the theories of economics in relation to the study of economic inequalities
  • After that he published numerous publications on the theories of economics

Major works and awards and achievements

  • His publication “Development as freedom” won recognition from the Nobel Prize committee
  • In 1992 he published his book “Inequality Re-examined” which covered all the important themes of his work.
  • He won the Adam Smith Prize in 1954
  • In 1998 he was awarded the Commemorative Nobel Prize in Economics for his contribution to the “welfare economy”
  • He also won the Bharat Ratna Prize IN 1999, the highest civilian honor in India and the National Humanities Medal in 2011

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Definition of welfare economics

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What is the welfare economy?

Well-being economics is the study of how the allocation of resources and goods affects social well-being. This is directly related to the study of economic efficiency and income distribution, as well as how these two factors affect the general well-being of people in the economy. Concretely, well-being economists seek to provide tools to guide public policies in order to obtain social and economic results beneficial for the whole of society. However, the economics of well-being is a subjective study that depends heavily on the assumptions chosen about how well-being can be defined, measured and compared for individuals and for society as a whole.

Key points to remember

  • Welfare economics is the study of how the structure of markets and the distribution of goods and economic resources determine the general welfare of society.
  • Welfare economics seeks to assess the costs and benefits of changes in the economy and to orient public policies towards increasing the total good of society, using tools such as analysis cost-benefit and social welfare functions.
  • The economics of well-being depends heavily on assumptions about the measurability and comparability of human well-being between individuals, and the value of other ethical and philosophical ideas about well-being.

Understanding the economics of well-being

Welfare economics begins with the application of utility theory in microeconomics. Utility refers to the perceived value associated with a particular good or service. In dominant microeconomic theory, individuals seek to maximize their utility through their actions and consumption choices, and the interactions of buyers and sellers through the laws of supply and demand in competitive markets generate surplus for consumers and producers.

The microeconomic comparison of consumer and producer surpluses in markets under different market structures and conditions provides a basic version of welfare economics. The simplest version of welfare economics can be thought of as the following question: “What market structures and what arrangements of economic resources between individuals and production processes will maximize the total sum of utility received by all individuals or will maximize the total consumer and producer surplus in all markets? ? “The welfare economy seeks the economic state that will create the highest overall level of social satisfaction among its members.

Pareto efficiency

This microeconomic analysis leads to the condition of Pareto efficiency as an ideal in welfare economics. When the economy is in a state of Pareto efficiency, social welfare is maximized in the sense that no resources can be reallocated to improve an individual’s situation without harming at least one individual. One of the goals of economic policy might be to try to move the economy to an efficient Pareto state.

To assess whether a proposed change in market conditions or in public policy will advance the economy towards Pareto efficiency, economists have developed various criteria, which estimate whether the welfare gains from a change in the economy economy outweigh the losses. These include the Hicks Criterion, Kaldor’s Criterion, Scitovsky’s Criterion (also known as the Kaldor-Hicks Criterion), and Buchanan’s Unanimity Principle. In general, this type of cost-benefit analysis assumes that the gains and losses of public services can be expressed in monetary terms. It also treats issues of equity (such as human rights, private property, justice and fairness) as out of the question or assumes that the status quo represents some sort of ideal over these types. of questions.

Maximization of social welfare

However, Pareto efficiency does not provide a one-size-fits-all solution to how the economy should be organized. Multiple Pareto efficient arrangements of the distributions of wealth, income and production are possible. Shifting the economy towards Pareto efficiency might be an overall improvement in social welfare, but it does not provide a specific goal as to the arrangement of economic resources between individuals and markets that will actually maximize the good. -be social. To do this, welfare economists have designed various types of welfare functions. Maximizing the value of these functions then becomes the objective of the economic analysis of the well-being of markets and public policies.

The results of this type of social welfare analysis depend heavily on assumptions about the possibility and how utility can be added or compared between individuals, as well as on philosophical and ethical assumptions about the value to be placed on the good. -being of different individuals. These allow for the introduction of ideas about equity, justice and rights to be incorporated into the analysis of social welfare, but make the exercise of welfare economics an inherently subjective area. and possibly contentious.

How is economic well-being determined?

Under the prism of Pareto efficiency, optimal welfare, or utility, is achieved when the market is allowed to reach an equilibrium price for a given good or service – it is at this point that consumer and producer surpluses are maximized.

However, the goal of most modern welfare economists is to apply notions of justice, rights and equality to the machinations of the market. In this sense, markets that are “efficient” do not necessarily achieve the greatest social good.

One of the reasons for this disconnection: the relative usefulness of different individuals and producers when evaluating an optimal outcome.Welfare economists could theoretically argue, for example, for a higher minimum wage – even if this reduces producer surplus – if they believe that the economic loss to employers would be felt less acutely than. the increased utility experienced by low-wage workers.

Practitioners of normative economics, based on value judgments, may also try to measure the desirability of “public goods” that consumers do not pay for in the free market.

The opportunity to improve air quality through government regulations is one example of what standards economy practitioners might measure.

Measuring the social utility of various outcomes is an inherently imprecise endeavor, which has long been a critique of welfare economics. However, economists have a number of tools at their disposal to assess the preferences of individuals for certain public goods.

They can conduct surveys, for example, asking how much consumers would be willing to spend on a new highway project. And as economist Per-Olov Johansson points out, researchers could estimate the value of a public park, for example, by analyzing the costs people are willing to incur to visit it.

Another example of applied welfare economics is the use of cost-benefit analyzes to determine the social impact of specific projects.In the case of a town planning commission trying to assess the creation of a new sports arena, the commissioners would likely balance the benefits for fans and team owners with those of businesses or owners displaced by new ones. infrastructure.

Critique of the welfare economy

In order for economists to arrive at a set of policies or economic conditions that maximize social utility, they must engage in interpersonal comparisons of utility. To build on a previous example, one would have to infer that minimum wage laws would help low-skilled workers more than they hurt employers (and, potentially, some workers who might lose their jobs).

Critics of welfare economics argue that making such comparisons accurately is an unrealistic goal. It is possible to understand the relative impact on utility, for example, of price changes to the individual. But, from the 1930s, British economist Lionel Robbins argued that comparing the value that different consumers place on a set of goods is less practical. Robbins also disparaged the lack of objective measurement units to compare utility between different market players.

Perhaps the most powerful attack on welfare economics is that of Kenneth Arrow, who in the early 1950s introduced the ‘impossibility theorem’, which suggests that the inference of social preferences in aggregating individual rankings is inherently flawed. It is rare that all the conditions combined make it possible to arrive at a true social order of the results available.

If, for example, you have three people and they are asked to rank different possible outcomes (X, Y, and Z), you might get these three orders:

  1. Y, Z, X
  2. X Y Z
  3. Z, X, Y

You might conclude that the group prefers X over Y because two people ranked the first over the second. Similarly, we can conclude that the group prefers Y to Z, since two of the participants put them in that order. But if we therefore expected X to rank above Z, we would be wrong – in fact, the majority of subjects put Z before of X. As a result, the desired social order is not achieved – we are simply stuck in a cycle of preferences.

Such attacks have dealt a serious blow to the welfare economy, whose popularity has declined in popularity since its heyday in the mid-20th century. However, it continues to attract followers who believe, despite these difficulties, that economics is, in the words of John Maynard Keynes, “a moral science.”

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The welfare economy by trickle down? – Acton Institute PowerBlog

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At NRO, Thomas Sowell tackles what he calls the “lie” of the “trickle-down economy”. So, writes Sowell, “the ‘drooping’ lie is a 100 percent lie.” Sowell cites Bill de Blasio and Barack Obama as figures perpetuating the “lie”, as well as writers in “the New York Times, in the Washington post, and by professors from prestigious American universities – and even from as far away as India. “

But we should also note that “runoff theories” are mentioned in Evangelii Gaudium, also: “Some people continue to defend fallout theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing more justice and inclusion to the world.

In the midst of his discussion, Sowell asks the following penetrating questions:

Why would anyone advocate that we “give” something to A in the hope that it would trickle down to B? Why on earth wouldn’t a sane person give it to B and eliminate the middleman?

Whether or not there is a “trickle-down economy” in discussions of the market economy, isn’t there something similar to what Sowell calls for at play in wellness programs? usual redistributives? Do we not “give” something to bureaucracies and government agencies in the hope that they will in turn redistribute it (hopefully in addition to a trickle) to the poor?

And with regard to the runoff part of the runoff welfare economy, Juan de Mariana observed a long time ago that “money, transferred by many ministers, is like cash. It always leaves a residue in the containers. So why not give directly to the poor and cut out the middlemen, as Sowell asks?

It is precisely the discussion taking place on the Bleeding Heart Libertarians blog, among others, on direct cash transfers to the poor in the place of bureaucratic welfare programs. Head over to the BHL blog to check it out.

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