Friday, March 25, 2011

The Central Tragedy of Economics

When I think about how I would like my society to be structured, I am torn between two very different motivations. One is that it be fair; the virtues I would like to see rewarded include ambition, competitiveness, honesty, nonviolence, and intelligence. The other motivation is that my society be functional. It does me little good if fair laws cannot be enforced and the streets are full of violent criminals. For laws to be enforced reliably, a society must be quite stable. For that matter, it must be robust and competitive—if only to defend itself against external enemies.

The central tragedy of economics is that it is impossible to create a society that's both stable and fair. A fair society would surely allow adult individuals to develop their own talents. Whether they needed to manage a lot of wealth to do this would depend on their goals, and would ultimately be up to them to decide. Wealth, however, is not infinite; some mechanism of allocation is required. The free market seems to me a fair and elegant solution to this problem. It would be unfair to punish the nonviolent accumulation of wealth by taking some of it, just as it would be unfair to reward it by adding to it.

But this fairness can be traded for more stability. The most productive citizens, wherever they end up, seem to be most concerned with their own work. They generally are not a threat to the rest of society no matter how much they are abused by it, and so they can be forced to work on behalf of the less creative majority. By contrast, allowing productive citizens to keep the wealth they earn necessarily has destabilizing consequences—those who create nothing of value will fall into poverty and become more violent. The national financial climate could become more volatile as fewer individuals command more of the economic capital. Capitalism, practically by definition, will tend to destroy that which involves no clear victims: the environment. At the end of the day, the field of economics is always a tragedy.

3 comments:

  1. Interesting argument, but I can't say I completely agree. One point I can quibble with is that you assume that the most productive citizens will keep accumulating more and more wealth with a zero sum game mentality (i.e. the less productive will not profit, but rather lose wealth); but that's not the case, studies show that, while the middle class is generally the loser, many studies pointing to inefficient government policies of wealth reallocation, the lower class tends to profit alongside upper class growth. Also, you assume that the most productive citizens accumulating disproportionate wealth will cause volatility in the economy, but I'm not sure that's the case; take a recent study on California's economy that shows that California's reliance on wealthy individuals, who's wealth is prone to volatility, find themselves in tough situations in bad economic times when there is a marked shift in the wealth of the richest, but that's a problem of governance not economic facility. Anyway, my final quibble would be that fairness is one of the least realistic concepts people have created that has no equivalent in nature, so the assumption that society should be fair is in my view utopian.

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  2. It's true that wealth is not a zero-sum game, and far too few people understand this. I do think most people would work a bit more efficiently in a free market, but I'm not sure the net productivity would be much higher. It seems new inefficiencies would be introduced, just one being that irresponsible people would make more bad decisions with irreversible consequences--leaving them unable to produce anything at all. Fair maybe, but not necessarily efficient.

    In an unregulated market, I think wealthy areas may tend to stabilize themselves financially. But if you considered the entire nation, I don't see it being very stable.

    Fairness is certainly a subjective judgement. Still, is it not the whole point of politics and morality?

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  3. "The most productive citizens, wherever they end up, seem to be most concerned with their own work. They generally are not a threat to the rest of society no matter how much they are abused by it, and so they can be forced to work on behalf of the less creative majority. "
    I don't think is always true ie political corruption, economic downturns caused by risky loans and speculations, paying workers 25 cents/ hour. It seems as those being least threatening to the rest of society are professionals (engineers, doctors, lawyers, etc.) not the richest of the rich.

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