Bryan Caplan cites Brad DeLong’s non-Socratic dialogue on social welfare functions and provides his own follow-up on how markets value the welfare of the poor:
Glaukon: “Now that we know how little weight the market puts on the poor, I’ve been trying to find a system that’s better from their point of view. We know it’s not communism – the poor starved by the millions.”Agathon: “Sadly true, my dear Glaukon. The answer, of course, is social democracy. Communism kills the goose that lays the golden eggs. Social democracy, in contrast, gives the poor extra eggs so the market will treat them like human beings.”
Glaukon: “That sounds like a good answer, Agathon. But would you humor two objections I googled?”
Agathon: “I’d be delighted. Objection #1?”
Glaukon: “Well, here’s a little graph (Exhibit 1.13) that shows the income share of the poorest 10% as a function of countries’ economic freedom. It’s basically flat – however much latitude the market has, the poor get about 2.3% of national income.”
Agathon: “Hey, don’t start blaming social democracy for the evils of Third World kleptocracies!”
Glaukon: “I’m not trying to. Still, if the market is as indifferent toward the poor as you say, shouldn’t there be some noticeable tendency for their income share to be lower in countries where markets have more sway?”
Agathon: “Well, the fact that markets put a low weight on the welfare of the poor doesn’t necessarily mean that politics treats them any better.”
Glaukon: “Interesting you should say that, for it brings me to Objection #2. Remember how you highlighted the plight of the average Bengali peasant, who gets 1/16,000,000,000,000 the weight of Bill Gates in the market’s social welfare function?”
Agathon: “Indeed. A devastating critique of capitalism, isn’t it?”
Glaukon: “I’m not so sure. If those Bengalis somehow managed to get low-skilled jobs in the U.S., wouldn’t the market suddenly put vastly more weight on their welfare?”
Agathon: “Of course. That’s the golden rule – whoever has the gold (or dollars) makes the rules.”
Glaukon: “But what’s stopping those Bengalis from coming to the First World and taking those low-skilled jobs that are, by their standards, incredibly lucrative? Surely it’s not the price of a plane ticket.”
Agathon: “Fair enough. What’s your point?”
Glaukon: “Well, a very interesting paper I just read shows that in the absence of immigration restrictions imposed by First World governments, Third World workers could massively increase their income merely by moving here. It sounds like the market counts Bengalis very little largely because of governments’ labor market regulations. A free labor market would do vastly more for Bengalis than even the most internationally generous social democracy.”
Agathon: “But we can’t have a free international labor market! Without immigration restrictions, social democracy would collapse. Can you imagine all those Bengalis coming here and going on welfare? Not to mention their impact on domestic wages.”
Glaukon: “But isn’t your whole complaint about the market that it counts the welfare of the truly poor for virtually nothing? Now it sounds like you care less about their welfare than the market does. Maybe less than zero.”
Agathon: “‘Less than zero?’ Come now, Glaukon. You know I’m a compassionate man. How can you say such a thing?”
Glaukon: “Well, I read another piece that suggested an interesting compromise on immigration. We could keep the welfare state and improve the welfare of the truly poor if we made them the following deal: We admit them as second-class citizens who (a) can’t collect welfare and (b) pay a surtax to compensate low-skilled natives for the increased labor market competition.”
Agathon: “Sounds monstrous. It goes against the commitment to equality that defines social democracy.”
Glaukon: “But what’s so monstrous about it? Poor foreigners are much better off, and by hypothesis we’ve protected the natives as well. So what social welfare function does your rejection of this proposal imply?”
Agathon: “Sigh. Less than zero?”
Glaukon: “Verily, my dear Agathon. There may be good arguments out there for social democracy. But ‘It’s better for the poor than laissez-faire isn’t one of them.’”