Altruism, Welfare, and Refugees

I have a hard time making sense of the world without simple models. The recent refugee situation/crisis out of Syria is one example where thinking through simple models has helped me make sense of small part of it. Let's see if people agree.

Consider two countries, both with 100 people and a government. Each has 40 rich people and 60 poor. The poor make $10 per day and the rich make $100. The only thing that is different between these two countries is how they set governmental policies.

In country 1, all people vote in an altruistic way to redistribute so that all wages are equal. Everyone agrees to redistribute. After redistribution, each person has $46. In country 2, each person is selfish and wants to use the state to take money from others. In a simple vote, the poor vote to redistribute income1. Again each person now has $46.

If policy is set in such a way, or this social welfare function that I've assumed approximately holds, we are left with the same prediction for what policy will be: complete redistribution. How could we differentiate whether a government's policy is more like 1 ("altruistic") or 2 ("taking")?

Now imagine another policy issue: whether to let another person outside of country 1 or 2 move to that country. This person has $0. Here, the two countries set different policies. If policy was set altruistically or benevolently, country 1 would let the person it. Country 2 would not.

What do we see around us? It's not controversial that we see both redistribution and immigration restrictions, although not completely. That suggests to me that governmental policy is more like country 2 than country 1. Policy is not to help the poor, but to take from some and give to others.

Of course, country 1 isn't the only world consistent with redistribution and no immigration. A SWF where people are altruistic nationalists (people are altruistic but only to people within the imaginary border that we call a country) would work too. There are probably many more.

What policy would distinguish between "taking from the rich" and altruistic nationalism?

1. I assume the poor can't take all the money for themselves. I could come up with a voting scheme that would make this the outcome, but that is beyond the scope of this post.

Welfare, Surplus, and Partial Equilibrium

I don't get welfare analysis. I don't. If you do, please let me know.

In posts on Stigler, MWG, Rothbard, and Buchanan, I have questioned the use of welfare analysis in economics. I can regurgitate the expressions that welfare economists use, but the supposed benefits of the model confuse me. That's why I am appealing to the brighter minds online.

The standard picture is below. In any market with a market-clearing price, P, there are certain consumers who would pay more if they had to. How do we know they would pay more? Stop asking stupid questions. We know everything. Well, we assume we know everything about everything that the person wants, that's how. OK. Let's ignore that problem for now.

The most willing person is at point A. He would pay A dollars, but only pays P. Lucky him. Therefore, he receives a "surplus" of A minus P dollars.  This approach similarly holds for producers. There is someone who would be willing to sell at price E. Instead, he sells at P and gains P minus E. Big money.

The gap in dollars is some sort of "welfare".  For this post, I'm not even worried about the comparison between dollars and utility here. I will act like a conversion between dollars and utils exists- we can't reject all premises at once. Continue reading