Markets in the Name of Socialism by Bockman Johanna

Author:Bockman, Johanna.
Language: eng
Format: epub
Publisher: Stanford University Press
Published: 2011-07-13T16:00:00+00:00

The Social Planner and Reform

In spite of this battle over neoclassical economics and the supposed decline of Keynesianism, all mainstream neoclassical economists—from the University of Chicago to Harvard and MIT to Eastern Europe—used socialisms for macroeconomic modeling. For example, Friedman compared the impact of an income tax versus an excise tax by stating:

Let us suppose that we are dealing with a community of many identical individuals—identical in tastes and preferences and also in kind and quantity of resources owned by each individual. In this community every individual will have the same income and consume the same bundle of goods, so we can represent the position of the community by the position of any one individual. (1962b: 61)

In the minds of economists, all members of a community can be considered identical and thus replaceable with one individual, whom economists called the “representative agent” or the “social planner,” which they use as the baseline for all macroeconomic modeling. In 1977, the term social planner appeared overtly in the professional economics literature (Carlton 1978; Grossman 1977; Khalatbari 1977; Mayshar 1977; Mussa 1977). These models entered the macroeconomic textbooks in the late 1980s (Bryant and Portes 1987) and continue to be taught today. The Chicago School (for example, Becker, Murphy, and Grossman 2006)38 and rational expectations school (Hansen and Sargent [1994] 1996; Kydland and Prescott 1982; Lucas 1972; Lucas and Prescott 1971), as well as the more left-leaning market failure school (Dasgupta and Stiglitz 1980a,b), base their models on a hypothesized social planner.39

Interestingly, the method of the social planner emerged publicly as neoclassically trained economists from Eastern Europe continued to criticize the central planning model of the Soviet Union and implemented a competitive market socialist model that might lead toward stateless communism. Many neoclassical economists also followed these market socialist models with great interest, while central planning remained at the center of their models. This use of the term social planner also came at a time when more conservative economists began to attack macroeconomic state policies. Robert E. Lucas famously argued that macroeconomic policies are ineffective and that markets were effective. In a different direction, Joseph Stiglitz and others argued that market failures are pervasive, and thus markets require state intervention. Both groups used the same socialist model as their fundamental method.40

Neoclassical economists continued to consider their methods relevant to both capitalist and socialist economies. The neoclassical economist as the social planner could seek to improve economic systems, so as to reach a Pareto-optimal equilibrium and maximize social welfare. As one of the most famous comparative economics textbook authors, Morris Bornstein, explained, “One may argue that the ultimate purpose of comparing economic systems is to find ways of improving the performance of a given system (in light of its social preference function)” (1989: 11). Economists had long criticized the Soviet socialist system (Grossman 1963) and suggested ways that this system could be improved. They found interest and excitement in various market socialist experiments, particularly in Yugoslavia and Hungary, which led them to think about ways to improve these economic systems, as socialist systems.

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