On Economics, Part Two

Economics and economic behavior are ultimately about incentives. If there is an incentive for productivity and growth, then there will most likely be productivity and growth in an economy. In a modern and economically advanced society like the United States, the state can foster the incentives necessary for a boost in productivity and growth. Thus, if there is a role for the state in a capitalist society, it would perhaps be the fostering of incentives by virtue of leaner tax policies, boosting exports, infrastructure reform, and at times placing money into the hands of consumers as a boon for businesses and workers.

            There may or may not be a third path or a middle path between a capitalist system and a Marxist system. Assessing the role of interest in the economy and financial system as well as assessing the prospects of a social safety net which adjusts to inflation might be the only realistic adjustments to a capitalist system. Apparently, banks and financial institutions can now make or break an economy, as evinced by the 2008 global financial crisis. Traditionally, banks are places where people grow wealth, not to become wealthy. Interest is the tool by which banks grow wealth for themselves and for their clients. However, the traditional role of banks as a vehicle for growing wealth changed with the 2008 financial crisis when banks sought to accrue wealth through predatory acts.

            It is also worth noting that inflation is ultimately addressed by maintaining a fine balance between the money supply and government spending. Large sums of government spending are now allocated towards pensions and retiree benefits. Approximately two-thirds of spending by the U.S. Department of Defense is oriented towards pensions. Also, central banks are defined by their role in determining the supply of money in an economy and thus the inflation rate. Central banks seek independence from politicians, and if politicians drag central banks into politics to satisfy a certain constituency, the aggregate or overall economic effects of a central bank being dragged into politics can be disastrous.

But for the state to collectivize a society’s resources and wealth to advance societal well-being rather than letting the individual and the market allocate resources and wealth may not be the best course of action, especially when taking cultural and social factors into consideration within a Western context. Ultimately, the state is a collection of human beings, and human beings are self-interested creatures. Thus, the interests of the state may not coalesce with the interests of the individual and the market, which is why traditionally there has been a limited role for the state in the economies of Western societies. War is the bread and butter of the state, whereas commerce is the aim of the individual and the market. However, war and commerce cannot coexist, which is why the latter must take precedence and thus the role of the state should be limited.

            Although technology, industry, and capital developed with the assistance of the state, these things were largely the result of individual efforts. People are often far ahead of their governments in acknowledging reality. At times, the state has been the entity which obstructs the development of these things in many societies. Thus, families are the basic units of an economy, not states. In turn, the breakdown of the nuclear and extended family has adverse economic effects which are now exacerbated by technology, capital, and the state. Studies by Harvard economists Raj Chetty and Nathaniel Hendren have shown that married couples as well as children of married couples who are embedded in a vibrant community fare better in an economic sense than singles as well as children of single parents who do not have a strong community or social network.

            Arguably, modernization equates to westernization, which is why in non-Western societies, modernization is a state-guided process. But there is no need for a state-guided modernization process in Western societies because the West is already Western. Liberal capitalism is largely a repudiation of rigid traditions, which is a social phenomenon that has yet to occur in many parts of the globe. Nor can it occur through force, as was sought through the Afghanistan and Iraq wars of the early 21st century. Social cohesion is thought to be another factor in sustaining economic productivity and growth. Although the individual and the market has a built-in motive to maintain social cohesion along with the fact that social cohesion is an incentive for the market in and of itself, the role of ensuring social cohesion ultimately rests with the leadership and the state in a society, given that social order is ultimately the prerogative of the state.

Thus, statesmanship pertains to global and societal order, whereas economics is the domain of the individual and the market. America’s economy has evolved to the point where it is slowly turning into a “gig economy,” whereby the focus is mainly on projects rather than sustaining rigid careers. Whereas in the past the fixation was on sustaining a rigid career and a rigid work schedule, the evolution of the American economy now affords the freedom that necessarily undergirds a “gig economy.” After all, the purpose of economics is to enable the free pursuit of one’s ends in life, according to the free-market economist Ludwig Von Mises. Money and work are merely means to an end.

Although the differential between China’s annual growth rate of 6.6 percent and America’s 2.9 percent is perhaps a cause for concern, the differential is perhaps more a matter of China catching up to American standards rather than America falling behind China. America’s comparative advantage is in technology and capital, whereas China is largely confounded to a manufacturing and agrarian status. In sum, America only needs to make certain adjustments, whereas China needs to make significant strides to reach America’s level of economic and social development. America’s aggregate wealth amounts to about 105 trillion dollars, whereas China’s wealth amounts to approximately 63 trillion dollars, according to Credit Suisse. America’s GDP per capita amounts to $53,240, whereas China’s GDP per capita amounts to $8,130. America’s overall annual GDP amounts to 20.54 trillion dollars, whereas China’s overall annual GDP amounts to 13.61 trillion dollars, according to the World Bank.

Thus, all the major indicators and indices suggest that Americans on an individual as well as a societal basis fare better in an economic sense than individuals and societies in other nations. What remains unclear is what goal or objective an individual or a society is supposed to pursue once a superior and stable economic standing is achieved along with passive income. This is where modern notions of psychoanalysis come into play, the three domains of which are power, pleasure, and meaning. What determines “meaning” is either recourse to a cosmic power such as God or a task that a person is supposed to fulfill, as suggested by Irvin Yalom, one of America’s foremost existential psychologists.

            In the end, economic and social change or progress is usually marginal and incredibly slow. Nothing drastic can be done to change socioeconomic conditions significantly or quickly aside from theft or a miracle. Because drastic and miraculous occurrences are rare, there is not much going on in the economy or the world at large which can be considered noteworthy. Thus, Durkheimian “anomie,” Weberian “disenchantment,” and ennui are the normal situation. Boredom and stagnation is the default condition unless there is an intellectual curiosity for anything and everything. Acclimating to boredom is the foremost challenge for many.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s