Dear Friends,
It seems to me, a simple way to think about a nation’s economy, is that of a balance. On one side of the scale there would be education, entrepreneurial ethos, work ethic, incentives, etc… and the other would be, cost of labor versus productivity, cost of start up, taxes, regulation, cronyism, etc… If the balance tips to the first side, GDP will have a positive incentive for growth, but if is tipped the other, the incentives for GDP growth turn negative. If we add to education and then to regulation, at a balance the scale is not changed, but moment of inertia is. If we take away from education by such follies as Common Core, while adding to regulation, the balance is tipped to negative incentives. The opposite is true if we add to productivity and subtract from taxes. If this is done the scale will be tipped to positive incentives for growth. This is important for people to understand… because when GDP is growing people’s lives get better and when GDP is not growing people’s lives get worse.
Moment of inertia in such a scale would be the resistance to change in the system. As an economy becomes more advanced it also necessarily becomes more weighted by the taxes and regulations that accompany an advanced economy. The same resistance both makes the system harder to change and over react when it does. Just like a fly wheel, it is hard to get spinning, but it imparts a great deal of power once it is.
The pivot point for our scale is how much a country’s people want to get ahead economically. This varies depending on all the factors that make up our scale. If the basic ethos of a society is to weigh the cost versus the benefit of a given action, as those who are raised in a capitalist society do, the point of the scale will be sharp. People who reason their actions differently have a large negative incentive to prosperity. In such countries, where capitalism has not trained the people to weigh cost v benefit, the pivot point will be so sticky it is certain to resist change until it breaks, and in total failure falls off the machine altogether.
On the positive side of the scale, education can always be improved. Perhaps the best method for improving the entrepreneurial education of children would be to add basic economics to the curriculum as early as possible. The basic concepts of economics are really pretty easy to understand, especially if theory and history are stressed, eschewing the heavy duty mathematics. A courteous society is helpful to creating the conditions where a country becomes prosperous. Courtesy really is the grease that allows society to function.
On the negative side many of the factors can be changed really pretty easily. Regulation and taxation can be directly changed by fiat of the political elite. It is almost never done because a corresponding loss of political might is lost as well. Cronyism can also be changed at the will of the ruling elite, but provides such an economic windfall for the political elite and their patrons that option is not even considered, except in spurious campaign ads targeted at conservatives.
The scale is actually the complex system that is a nation’s economy. All of us doing our thing. Every economic decision everyone makes every day is what makes our economy grow, stagnate or shrink. If we are flush we spend, if we are scraping by with high fuel prices, low wages, rising food prices, stressed at work and facing waves of cheap imported labor, we cannot spend, we have none to spend or save. When entrepreneurs are dissuaded from starting a business the economy suffers a critical wound. As expectations shrink with a new normal the standard of living must also go down. All this can be changed simply by removing weight from the negative side of the scale, but our leaders find it too vexing to lower taxes, or regulation, never mind limiting their cronyism, they drive up the cost of legal labor with minimum wage laws while lowering the cost of illegal labor with amnesty, plus they remove from the education system with folly and undermining morality. With all the weight our leaders are loading up on the negative side, seems no wonder that regardless of the stimulus of central banks, we are getting poorer as a planet.
Sincerely,
John Pepin
