Approaching Social Issues

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Approaching Social Issues

• Trade-Offs An Introduction to Economic Reasoning
  and Social Issues by Harold Winter

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The Economic Way of Thinking

• Step 1 Identify the theoretical trade-offs of
  the issue in question.
• This is the costs and benefits step
• Regardless of the issue, there are always
  trade-offs to consider.
• For any policy solution proposed, there will be
  proponents and opponents.

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Ignoring Personal Concerns

• Economists can argue in favor of drug abuse,
  theft, and even death.
• Economists can argue against both safer products
  and pollution control.

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Id like to introduce you to Marty Thorndecker.
Hes an economist but hes really very nice.
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Step 2

• Step 2 If possible, empirically measure the
  trade-offs to determine if the costs outweigh the
  benefits, or vice versa.
• If you are interested in proposing a policy
  solution, it helps to have some relative idea of
  the magnitude of the trade-offs identified in
  step 1.
• How you measure the trade-offs is an important
  issue.

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Pitfalls in Step 2

• First, empirical analysis requires data.
• Often difficult to collect data that is accurate.
• Second, the real world is a big and messy place
  to study.
• Data simply may not be available.
• Third, there are many statistical methods that
  can be used to measure the trade-offs.
• Cheap computers means many different approaches.
• Finally, empirical approaches can differ in
  statistical techniques, but also in empirical
  design.
• What data are most relevant?

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Empirical Work

• It must be necessary to replicate your results.

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Step 3

• Step 3 Recommend (or implement) social policy
  based on the first two steps.
• The bulk of public policy economic research is
  meant to imply, or recommend, policy solutions.
• Some economists step out into the public arena
  and make their positions clear (e.g., John Lott,
  Steven Levitt).

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Objectively Speaking

• Many of the academic debates over public policy
  occur due to the difficulties associated with
  step 2.
• Levitt vs. Lott. Did Roe v. Wade reduce or
  increase crime in the 1990s.
• Its an empirical question.
• Debate is not over the results, but over how
  those results were achieved (what model, what
  data, the statistical methods used).

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Trade-Offs

• The other two steps can pose challenges, too.
• It is one thing to say that we are going to
  identify trade-offs, but it is another thing to
  say exactly which trade-offs we are going to
  identify.
• Only the most relevant trade-offs are usually
  considered.
• This depends on what policy objective is being
  considered.

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Social Welfare Maximization

• Lets assume we can identify and accurately
  measure costs and benefits.
• If benefits of the solution outweigh the costs,
  adopt the solution.
• If more than one solution, select the one with
  the greatest net benefits.
• This is often referred to as social welfare (or
  social wealth) maximization.

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Example

• If our policy goal is to maximize social welfare,
  we want to identify trade-offs that affect social
  welfare.
• New workplace safety regulation
• Benefit reduce worker injury or death
• Cost resources used to install and maintain the
  safety feature.
• Once benefits and costs have been identified,
  then measure them.

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Measuring Trade-Offs

• In measuring trade-offs, it is common for
  economists to place a monetary value on all the
  relevant costs and benefits.
• Example
• Costs of installation and maintenance of the
  safety feature will already be measured in
  dollars.
• On the benefit side, a dollar equivalent can be
  established for the value of lives saved or
  injuries avoided.

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Definition of Social Welfare

• Even if there is agreement on the broad objective
  of maximizing social welfare, policy objectives
  may differ due to differences in the definition
  of social welfare.
• Economics of crime
• Should the benefits that accrue to individuals
  who commit crime be added to social welfare?
• This is opinion as to whether this benefit should
  be counted.
• Policy objectives and definitions of social
  welfare are subjectively determined.

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Defining Social Welfare

• What should be counted as social welfare?
• Economists tend toward inclusiveness in defining
  social welfare.
• Economists are concerned about identifying costs
  and benefits, but not about who reaps the
  benefits or incurs the costs.
• Efficiency vs. Equity
• We will focus on efficiency, with an occasional
  mention of equity considerations.

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Winters Game Plan

• Primary focus will be on step 1.
• Identifying trade-offs is the most enjoyable
  work, because this is where the policy analysis
  begins.
• The least contentious step among economists.
• Strong agreement over identifying costs and
  benefits.
• The important debates over empirical work (step
  2) is not about the results, but over the data
  and the statistical techniques used.
• Social welfare maximization is the objective
  policy makers should care about.