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The Reference Social Indicator – Between Necessity and Moral Obligation

The Reference Social Indicator – Between Necessity and Moral Obligation Economy Near Us (XII)

The Reference Social Indicator (RSI) comes to our attention after a ten-year period in which its value has not changed. The lack of political stability and, sometimes, the irresponsibility of governing parties creates the risk of deviating the value of RSI, established by political decision, from the economic, social and moral significance with which this indicator is invested.

Considering the consequences generated by the possible arbitrary situation in setting the RSI value, it is necessary in the near future to identify a methodological anchor for the dynamic adjustment of the RSI value, avoiding the incidence of the political factor in this matter. It is therefore necessary to identify a relevant macroeconomic indicator for anchoring the Reference Social Indicator (RSI), so that its variation can be done automatically (via the automatic stabilization mechanism) without the conjunctural intervention of the political factor.

Considering that the national statistical infrastructure is relatively well developed, which means that macroeconomic and macro-social indicators are recorded systematically, accurately and over long periods of time, so it is possible to use such a macroeconomic indicator as a methodological anchor with which an automatic RSI adjustment is associated.

The recommendation of the European Union (as well as other international organizations: OECD, World Bank, IMF) to reduce discretionary government interventions in public policies also involves a reduction in the political character (including politicking or populist) of adjustments of macroeconomic reference indicators (i.e. the macroeconomic indicators on which other macroeconomic indicators depend) as is the RSI. Consequently, the opportunity, both economically and politically, to identify such a methodological anchor for the adjustment of the RSI to give this adjustment an automatic, non-discretionary character is fully justified.

In designing an RSI adjustment methodology, however, several objectives need to be considered: selecting the macroeconomic indicator that could be the objective methodological anchor for the annual adjustment of the RSI value; designing the methodology for annual adjustment of the RSI based on the identified methodological anchor; impact assessment, ex ante, qualitative, of the use of the methodological anchor; identifying the methodological and institutional precautions to be taken into account.

From a conceptual point of view, the macroeconomic indicator must meet, cumulatively, the following conditions:

  • be measured and registered officially by the National Institute of Statistics (NIS);
  • its statistical record has the lowest frequency, in this case, annual frequency;
  • to be correlated, as economic and social significance, with the economic and social significance of RSI;
  • not to be methodologically involved in direct and independent adjustment of macroeconomic indicators which are dependent on RSI.

Given that the first two mandatory conditions listed above are checked by any macroeconomic indicator measured and recorded by the NIS, and the last condition is a validity condition and not a selection one, it follows that the identification of the methodological anchor must be made by applying the third condition.

The economic significance of the RSI, as well as its institutional role, refers to the determination of the monetary value of sufficient social benefits, in terms of purchasing power, to ensure a decent standard of living, in accordance with the legal provisions. Using the third condition for selecting the methodological anchor to adjust the value of the RSI leads us to examine those macroeconomic indicators that have the potential to preserve the purchasing power of monetary amounts. Both the theory and the economic practice recommend for such a methodological role the price index. In connection with this indicator, we need to make the following clarifications:

  • Given that RSI aims at preserving (or increasing, as the case may be) the purchasing power of monetary amounts granted as social benefits, from among the price indices (Consumer Goods Price Index, Industrial Products Price Index, Investment Products Price Index, GDP deflator, consumer deflator, etc.) the most appropriate one is likely the consumer goods price index;
  • Whereas social benefits based on RSI are mainly intended to ensure a decent standard of living, we consider that the methodology for adjusting the annual value of RSI should be the consumer price index (i.e. inflation, i.e. the rhythm of goods prices consumption) as calculated by NIS;
  • Whereas purchasing (consumption) of consumer goods and services through the social benefits granted takes place throughout the calendar year, we believe that the consumer price index should be calculated as an annual average of the monthly indices;
  • Whereas the use of monetary amounts in the form of social benefits is not conditional on an eligible nomenclature for such goods and services, we consider that the annual average consumer goods price index (from which average annual inflation can be calculated) is, in NBR terminology, the Consumer Price Index (CPI).
  • Considering the status of Romania as a Member State of the European Union, which means that both legislation and institutions need to be convergent / harmonized with EU legislation and institutions, we consider that the most appropriate methodological anchor for adjusting the annual value of RSI should be, according to the NBR terminology, the Harmonized Index of Consumer Prices (HICP).

By using the proposed methodological anchor to adjust the annual value of RSI, we estimate that the following categories of impact will be generated:

  • From an institutional point of view: there is a reduction in the political implication (thus implicitly of possible arbitrariness) in the dimensioning of the monetary value of the social benefits, thus avoiding the electoral conditions in which the social benefits may be involved and there is an increase of the weight of automatic stabilizers in the functioning of the economy, with immediate effect in reducing discretionary state interventions in the economy;
  • From an economic point of view: there is no negative impact on the Consolidated General Budget deficit, as budget revenues are nominal, so they are boosted with inflation and the fundamental macroeconomic correlation between supply and demand (of course at the level of consumer goods) is strengthened;
  • From a social point of view: the purchasing power of citizens eligible for social benefits is preserved and, so, the proposed methodology will act as a social justice application in the field of social benefits.

 

NB: The illustration of the present article is represented by the painting entitled Roman Charity (Caritas Romana) by Peter Paul Rubens.

 
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OEconomica No. 1, 2016