The social nature of government actions

Economics begins with an idea of ​​individuals pursuing their own interests, and then discusses both the positive and negative dynamics that may emerge.

But there is a long-standing pattern in human affairs, dating back to the days of hunter-gatherers, that certain productions have been produced socially – by families, communities and, in modern times, also by government. . Emmanuel Saez explores this question in his Distinguished Lecture by the American Economic Association during the AEA virtual meetings last January on the subject “Public Economics and Inequality: Uncovering Our Social Nature” (AEA documents and acts 2021, 111: 1-26, subscription required, but available for free on the Saez website here). Saez writes:

[O]ur social nature, absent from the standard economic model, is crucial to understanding our great modern social states and why concerns about inequality are so pervasive. Caring for the young, the sick and the elderly has always been done by families and communities and probably best explains why education, health care and pension benefits are provided by the welfare state in economies advances today. Behavioral economics shows that we are not very good at solving these problems individually, but descriptive public economics shows that we are good enough at solving them socially. … Even though an individual solution via markets is theoretically possible, it does not work well in practice without significant institutional or government support. Human societies are good at providing education, health care, retirement and income support, even when individuals are not.

Although Saez offers a quick glimpse into earlier human societies, his main focus is on what he calls “the rise of the social state in the 20th century”: he writes:

Perhaps the most striking fact in modern economies illustrating both our social nature and our concerns about inequality is the size of government and the large direct impact it has on the distribution of economic resources. In modern advanced economies, we pool much of the economic output that we produce through government. In the richest countries today, taxes typically generate between 30 and 50 percent of national income and are used to finance not only the public goods necessary for the functioning of the economy, but also a wide range of return transfers. to individuals, in cash and in kind. . Even though modern economies generally allocate the fruits of production to workers and owners through a capitalist market system with well-defined property rights, as corporations a significant fraction of market income, usually between one-third and one-half, is shared (ie is effectively “socialized”) through government.

Here are some figures showing the increase in public spending in advanced economies in the 20th century:


(In the figure, “sovereign public goods” is a category that Saez defines as the basic roles of a very limited government, including defense, public order, administration and infrastructure).

As Saez notes, the US economy sits near the lower end of that range, but it’s still a substantial share. I would add that a significant part of the difference is that the United States has kept a large portion of its health care spending in a heavily regulated private sector. Saez also notes that there is relatively little cross-border redistribution, and when it does, it’s often in the form of disaster relief. People seem to define their sharing circle within their country, or to some extent within a lower level jurisdiction like a state or city,

Again, the four broad social categories that Saez focuses on are education, retirement benefits, health care, and income support. To get a feel for the tone of his argument, here are some of his comments on these categories:

Historically, mass education has always been run by the government through a combination of public funding (at all levels, including higher education) and compulsory education (for primary and then secondary education). …

Before the existence of public retirement programs, a large portion of the elderly worked (80 percent of men aged 65 and over had paid jobs in the United States at the end of the 19th century …). Seniors who could no longer work enough to support themselves had to rely on family support. Public pension systems were a way of providing social insurance through the state instead of relying on self-insurance or family insurance. …

[U]Universal health insurance creates a significant redistribution through income and also, of course, through health and state of health at risk. An important question is why the quality of health care is the same for all in such universal health care systems (at least as a principle, not always realized in practice). Why is health insurance not offered in tiers, with cheap insurance covering only the most cost-effective treatments. Probably because humans are willing to spend a lot of resources to save a specific life i.e. a real person with a disease that can be treated. This is probably a consequence of our evolutionary social nature: caring for the sick or injured has been useful to the survival of the group. This makes the denial of treatment to uninsured people socially unbearable. …

People make mistakes in health care use and treatment choices. User fees and deductibles lead consumers to reduce the demand for high-value care. This may explain why universal healthcare systems have low co-payments and deductibles, and why healthcare decisions for patients are made primarily by healthcare professionals. As with education, the difficulty for users to understand and navigate health care choices means that the market is not necessarily efficient. In sum, the problem of health care is also resolved primarily at the social level rather than at the individual level. …

Everywhere, there is a strong social condemnation against the “free loaders” who could work and support themselves but decide to live on government assistance This is why income assistance is concentrated among groups unable or unexpected to. work, such as the unemployed, the disabled and the elderly.

As Saez explains, the fact that advanced societies have decided that public offering will play such an important role in these four areas is rooted in other social judgments: for example, judgments about fairness and importance. generalized education for children, judgments about what older people should need to work (and how to define who is ‘older person’), judgments about whether the sick and injured will have access to care, and judgments about which groups of people deserve income support and under what conditions. Of course, that kind of social consensus can change. We saw a change in the 1980s and 1990s as to whether single mothers with young children had to work or not. Another example, in the 1980s, 50 to 55% of Americans aged 16 to 19 were in the labor force; now it’s about 35%. An important part of this shift is our perception of what people in this age group should do with their time. Saez writes:

However, the welfare state also intentionally reduces the supply of labor on purpose through various regulations: bans on child labor and compulsory education limit youth work, retirement benefits sharply reduce work in old age, and regulations on overtime and compulsory paid holidays (eg five weeks in France) reduce work at all levels. This implies that the labor supply must be seen in part as a social choice, as society has a disutility of work for the very young, the elderly and very long hours without vacation.

There is much more to the conference itself. But the main theme deserves attention. Saez writes: “Therefore, social organization seems to come naturally to us. We can easily take a group perspective and act on it. Understanding the group perspective and the resulting social organizations seems to be an important tool in understanding what we expect from government and what some of the barriers are in overhauling government programs to work more effectively.

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