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RESERVE RATIO: The amount of reserves required by the Federal Reserve System as a ratio of the amount deposits backed by the reserves. Modern reserve ratios are in the range of 1-3% for checkable deposits. The reserve ratio plays a key role in the deposit multiplier. The simple deposit multiplier is simply the inverse of the reserve ratio. If the reserve ratio is 5%, then the deposit multiplier is 20. It's just that simple.

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NEEDS STANDARD:

An income distribution standard in which income is divided among members of society based on how much production each person requires to maintain a given living standard. This is one of three basic income distribution standards that answers the For Whom? question of allocation. The other two are the contributive standard and the equality standard.
The needs standard allocates income based on how much each person needs to purchase a given quantity of goods and services. A manual laborer, for example, who exerts more physical effort, receives more income to buy more food than an office worker who burns fewer calories during the day.

A Communist Manifesto

The needs standard was a fundamental part of the utopian communistic system envisioned by Karl Marx. He contended that the standard of distribution should be "from each according to their abilities, to each according to their needs." Real world communistic/socialistic economic systems operated in the Soviet Union and China through the middle of the 20th Century attempted in principle, if not in actual practice, to distribute income based on the needs standard.

The U. S. Welfare System

The needs standard also plays a part of market-oriented capitalistic systems, like that in the United States. The U.S. welfare system, for example, primarily employs the needs standard when determining the poverty line and subsequent welfare payments.

The poverty line is the amount of income that a family needs to purchase the essential necessities of life. The line is based on family size, location, and characteristics of the head of the household. For example, the line is higher for larger families that live in cities than for smaller families living in rural areas.

Welfare payments to the poor take into consideration the poverty line.

Leaving No One Behind

The primary selling point of the needs standard is that it prevents members of society from going without necessary goods and services simply because they lack productive resources. In fact, every society throughout human history has used some sort of needs standard to provide for members who are unable to provide for themselves. Newborn babies, small children, elderly, invalids, disabled, and other nonproducers, through no fault of their own, receive little or no income from the sale of productive resources. However, their lack of productive income does not mean that they lack needs. As such, a needs standard is often implemented to provide for these members of society.

Who Needs What?

One key problem with the needs standard is the determination of needs, both in theory and in practice.
  • In Theory: Needs are generally considered the physiological requirements to continue existence, including such basic items food, water, and oxygen. A comparable term, wants, is then considered to be psychological desires that make a person better off, such as an evening spent at the theater, an aesthetically pleasing home decoration, or a relaxing vacation on the ski slopes of Colorado. These are enjoyable, but not necessary.

    There is, however, considerable debate over whether so-called wants are also really needs. A stressed out worker, for example, might need a relaxing vacation to prevent illness. Aesthetically pleasing environments might be needed to improve worker productivity. A middle-aged man might need a red sports car to maintain his sanity during a mid-life crisis.

  • In Practice: Theoretical debate aside, the actual practice of identifying relative needs is extremely difficult. Does a large man actually need to consume more calories than a smaller woman? What if the woman has a higher metabolic rate and the man is overweight? How much living space does a person need? Is a one-room, 200 square foot studio apartment large enough? What if the person suffers from claustrophobia? Is a larger living space needed? Do extroverts, who need to interact more with other people, have different entertainment needs than introverts, who need less contact with others?

    So many needs, so few answers.

No Incentives for Efficiency

The biggest problem with the needs standard is that it eliminates the incentives to excel or make use of natural skills, abilities, and talents. If people receive income based on what they need rather than want they do, there is no incentive to do anything. That is, people have no reason to work harder, produce more, or develop innovations. This is a just the thing that leads to a stagnate, inefficient, unproductive economy. While most economies are bound do a little distribution of income based on the needs standard, taking it to the extreme is bound to be bad.

Suppose, for example, that Winston Smythe Kennsington III is pondering the possibility of starting a new business based on a new wireless communications technology. If he has the prospects of receiving oodles of profit from this venture, which he would use to purchase a number of unnecessary luxury goods, he might be motivated to undertake the risk of a large financial investment. However, if the only reward he will receive is the income he needs to stay alive, then why bother? Of course, if he does not bother, then society loses out on a potentially useful product.

<= NEEDSNEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS =>


Recommended Citation:

NEEDS STANDARD, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: April 23, 2018].


Check Out These Related Terms...

     | distribution standards | contributive standard | equality standard |


Or For A Little Background...

     | economic goals | equity | three questions of allocation | For Whom? | third rule of inequality | incentive | efficiency |


And For Further Study...

     | communism | socialism | capitalism | normative economics | economic system | mixed economy | fifth rule of imperfection | four estates | government functions | production possibilities | utility analysis |


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