One of the tenets of labor economics is to come up with viable social or welfare policies. Before I begin expounding on the importance of having good welfare policies in place, let us look at the impact of having/not having welfare policies.
If welfare policies do not exist, capitalism prevails. This is the world of Adam Smith, survival of the fittest where the meanest, the worst and the strongest has an upper hand against those who are weak. On the flip side is a nation with a full implementation of welfare policies or Karl Marx style communism. Nevertheless, this approach does not work as well because then, everyone will not have the incentive to work hard and to improvise. The collapse of communist Russia and the opening up of China is the best proof that a total welfare state is just not feasible.
In a society where cooperative effort is required, welfare policies certainly do have its merits. Survivalist or cooperative? How do we know if a group of animals are cooperative or do they butcher their brethren to death? A good way to measure this would be to look at the copulation rate of that particular species. Less than 10% of male walruses would live long enough to see themselves with a mate while more than 57% of the human population are married. This clearly shows that humans, in general, are a cooperative bunch.
In a survivalist setting, male animals kill each other to gain control of a harem of female animals. So, in this type of setting, evil is a necessary condition to survive because you either kill or you die without leaving any heirs behind. Contrast this to the cooperative setting where animals depend on each other to survive and those who try to "deviate" from the norm by killing their brethren are punished severely. A good example of such populations would undoubtedly be...humans. We have law enforcement officers to nab criminals and rules that are designed to ensure that the masses behave according to accepted social standards and norms.
So, let's tie this back to our discussion of welfare policies. Having good welfare policies is a necessary condition for a society to function properly. While welfare policies do not lead to innovation and progress, it certainly prevents crime rates from escalating to a level beyond our control. It is these negative externalities imposed on society with the absence of welfare policies that is truly worrying. Imagine a world without welfare policies where only the fittest survives. People would kill, steal and cheat their way to success. Power and wealth would be concentrated in the hands of the few individuals, leaving the masses having barely enough to make ends meet. While the former enjoys a stable, luxurious life, the same cannot be said for the latter. It is the second group who will kill, steal and cheat just to survive, causing havoc to the society and destroy the fabric of the social norm. Welfare policies must be in place to indirectly lower crime rates. It has been statistically proven that countries with a strong welfare policy tend to have lower crime rate.
Of course, welfare policies is a zero sum game. You take from the rich and give it to the poor but this is something that has to be done, either through forced or voluntary altruism because a society can only be stable with good welfare policies in place. When designing a policy, it is crucial to take the concept of utility into consideration. When you take money from the have's and give it to the have not's, you must make sure that the utility gained by the have not's far outweigh the utility lost by the have's.
I will demonstrate this with an example. Suppose you earn $500 every day and you give a hardworking homeless chap $20 (note: hardworking homeless, not bums). You lose 4% of your equity but you still have more than enough to last you for the rest of the day but the equity gain for the homeless individual will be 2000%. In this case, the utility gain for the latter exceeds the utility loss for the former. This is a good example where welfare policies can be used to redistribute wealth in order to maintain stability. After all, it is the "love but the lack" of money that is the root of all evils.
Now that I have answered the "WHY" question...it is time to tackle the "WHAT"! Obviously, you cant be giving out freebies to everyone or else they will not have any incentive to work. I will continue this is my next research dissertation.
LOL!!
See, not all actuaries are dumb!!
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