the problem of the benevolent social planner

I’ve mentioned it in passing before but I am currently taking a macro econ class at NYU with Thomas Sargent and Lars Ljungqvist. A common theme when we want to look at problems from a third point view (rather than from the perspective of a firm or an agent) in order to consider overall social utility is to create this imaginary entity called the benevolent social planner.

The perks of being the social planner vary from problem to problem but often times they have the perks of being all knowing and also has infinite computational ability such that they can identify what allocation of consumption is socially optimal. I find the concept of such an entity quite intriguing because within the world of econ and academia there doesn’t seem to be that much controversy around it whereas bringing up the idea outside of this bubble is met with a lot of charged sentiments one way or the other. Inside the bubble, we understand that we are just making positive statements, we are trying to understand the actions of one such social planner if they were to exist and have the preferences that they do. We look at them as just one other economic agent that has a utility function that defines their behaviour and there is no questioning (at least from the perspective of an econ student) about the utility function itself or how we define social utility.

Outside of this bubble is an entirely different story. Even the word “social” in politically charged climates would remind people of the isms: socialism, communism, anarchism, etc. Even then, however, there is this disconnect between the social planner and the goal of the far left planning governments: the social planner of the textbook still allows for radical discrimination whereas in theory concepts like communism are all against it (however different they may be in practice).

All this discussion so far brings me to the topic we discussed in class that got me thinking about all of the above in the first place: indivisible labor markets. I read a lot of sci-fi and particularly enjoy the often adjacent genre that is dystopia fiction. A common plotline in the genre is a situation where the main character lives in this Big Brother government system where markets, especially the labor markets, are controlled at a very minute level. What people do and when they work are both controlled by some third party (usually the government), but this tends to be optimized to the highest degree, which oftentimes does not entail a normal 9-to-5 work schedule or a consistent job. This relates to the concept of indivisibility of labor, which is something I had not heard of until the Macro class. In our current labor markets (except for these new gig markets), we have such a pervasive friction that is the 9-to-5 job: this is such an intrinsic part of society that we do not even realize it is a friction. The more I think about it, the more I see intrinsic, widely accepted frictions everywhere: like paid leave or insurance benefits. Of course, I am not making a normative claim about these frictions or even a positive statement on their impact on the efficiency of labor markets—people generally dislike risk, and abiding by their preferences may be better for productivity; it all depends on total socially motivated utility functions that incorporate behavioral economics, which I simply do not know enough about to speak on.

Anyway, the more I write out, the more I am realizing that I am staying true to my initial disclaimer when I started this website, which stated that most of the posts would be stream of consciousness. The main point I am trying to make is that what would happen under a benevolent social planner is likely to be vastly different from the existing stereotypes. For example, benevolent social planners can take into consideration the heterogeneity of agents’ preferences (and abilities), and the resulting society is unlikely to be a communist state of total equality. that I feel is often portrayed to be what happens in such a scenario. We definitely don’t have the capability to make something that nuances right now, but I believe that at AI and computational ability becomes better (a lot lot lot better) these type of micro planned economies will become feasible (on a side note there was a recent sci-fi book I read called “To Sleep Among a Sea of Stars” that talked about this hybrid human and computer intelligence called ship minds that were able to take on these sorts of complicated tasks).

P.S. Speaking of dystopias, one of the first works of dystopia fiction is this book - originally written in Russian - called We. Good read for anyone interested in the genre and it’s origins.