Social Economics Contrasted to Conventional Economics

Social and conventional economics both deal with the economic choices which people make. Although both are different perspectives of economic science, their differences come from their main assumptions. Social economics is based under the assumption that economy should be managed by few or all members of the community for the sake of all people who behave both according to self interest and deontologically. In contrast, classical economics is based under the assumption that economy does not need any authority and runs automatically by utility maximizers for the sake of consumers.

Conventional economists consider the satisfaction of the consumer demand as a main purpose of the economy. Therefore, the summation of all domestic expenditures made on final goods and services is their main economic goal. The Gross Domestic Product is the summation of consumption, government expenditures, investment, and net export. An increase in the consumption is an increase of the satisfaction of the consumer demand. Since government expenditure helps consumers, it is good under the assumption that government does not hurt private business. Investment and net export indirectly help consumers. From the income approach, GDP is the income of all consumers and firms. The more income they have, the more they buy, and, therefore, the more their demand is satisfied.

Social economists say that the consumer demand is not an independent variable which effects production. Businesses have more resources in order to promote their products, and consumers do not have enough information in order to choose the right products. Consumers are manipulated by advertisement, and, definitely, consumers do not demand new products. How can consumption of unhealthy food, violence of TV shows benefit consumers? Even if the satisfaction of consumer demand is necessary, some American social economists think that GDP does not measure adequately the increase of the consumers’ wealth. Therefore, GDP should not be the economic goal because “it left out the function of the family and community and the natural habitat.”[Cobb, p.62] Family problems are crime, divorce, mass- media addiction, children of unprepared teenage-mothers. Natural habitat problems are the drainage of depletable resources, the extraction of species for the sake of consumers, and pollution. Pollution is added to the GDP twice. First, the companies produce their products and toxic the environment on the same time. Second, the “nation spends billions of dollars to clean up the toxic Superfund that results.”[Cobb, p.66 ] The natural disaster and wars usually increase government expenditures and, therefore, GDP increases. Indeed, the demand for emergency equipments and weapons increases, but it is a tragedy for most of the people in that region because consumption of medical appliances, helicopters, weapons are not what people want in a peaceful life. Injuries lead to the consumption of health care industry, and deaths lead to consumption of the funeral industry. Due to the fact that GDP counts people problems as benefits social economists propose new measure, a genuine progress indicator, which counts better the wealth of the nation then GDP does.“The result is a balance sheet for the nation that start to distinguish between the costs and benefits of growth.” [Cobb, p.70] GPI counts among other factors the family and natural habitats such as the household and volunteer economy, crime, the distribution of income, resource depletion and degradation of the habitat, and loss of leisure.

In the theory of mainstream economics perfect competition is the best market because it runs automatically, and, therefore, it does not need government regulations. Social economists consider that this theory is very far from reality since there are only few industries which have a perfect competitive market. Moreover, in modern times government is involved in business affairs, and, therefore, market does not run automatically. Also, perfect competition can’t be the best market since firms of this market do not have enough money for research and development. Therefore, economy should be managed.

Social economists think that management of the economy can be made by all people like by Basques in the northern part of Spain. Ordinary workers manage retirement, education, research and development in this region. All decisions are made in groups. Moreover, the principle of subsidiarity is realized. According to this principle, the solution of the problem is solved at the lowest possible level, where the problem arises. The result is that this region is the most economically productive in Spain.

Assumption that people are only utility maximizers and economy is only for consumers makes conventional economics narrow. In contrast to this assumption, social economists consider that the purpose of the economy is the satisfaction of the people as customers and as producers, where each person cares about himself or herself and about community. For social economists if a person spends 90% of his or her time at the boring job and 5% consuming, the dissatisfaction of 90% of his or her time overweighs few minutes of enjoyment in the shop. The evidence that people are not just selfish utility maximizers, and activities of ordinary workers can be interesting is Basque coops, where well being of workers is dignified through principle of subsidiarity, and through group decision of ordinary workers regarding all their activitive.

Social and conventional economists perceive differently the wealth of the nation, labor participation, and an ideal market. Does business or the consumer drive the economy? Social and conventional economists have different answers. In my opinion, economy should be managed and economic policy should not be done based on calculus where the consumer demand is an independent variable.