Anyways. Time to talk about the economic impact of perfectly equivalent incomes. Here we go!
Capitalism
Before even asking any questions, we first need to understand something - why is capitalism a strong framework for an economy to operate in? What is good at and, just as importantly, what is it bad at?
For comparison, we will also examine the sort of economy from which modern capitalism eventually formed - feudalism.
For comparison, we will also examine the sort of economy from which modern capitalism eventually formed - feudalism.
Since we all know more or less what capitalism is - I won't bother with a strict definition, a broad, general one is good enough for this discussion - let's take a look at feudalism and its characteristics.
The defining characteristic of feudalism was lack of mobility. Although the time period in which it was an economic system also inhibited physical mobility, one of the central tenets of feudalism is a lack of social and economic mobility. Serfdom, one of the primary characteristics of many feudal economic systems, tied people to specific areas performing simple, repetitive jobs from which they could rarely escape.
This leads to both the greatest strength and greatest weakness of the feudal economy - consistency. While a feudal economy rarely exhibits any large amount of growth or advancement, it is equally uncommon for economic problems to result in a slump of production or quality of living. Not to say that there were no such slumps, but any of those that are really remembered today
Empirical data - what little of it can be scavenged and gleaned from old documents - and economic theory both support this view of feudalism.
Capitalism, on the other hand, possesses the opposite of the defining characteristic of feudalism - mobility. In a capitalist economy, resources move around constantly in an attempt to allow market forces to find the optimal allocation of these resources.
Again, this defining characteristic leads to both the greatest strength and greatest weakness of capitalism - instability. Any capitalist economy has a business cycle, which is a rough sketch of the growing and recessing economy, constantly in flux. Growth tends to outweigh recession overall, but there is no avoiding the second without having the first.
While there's a whole branch of economics devoted to the topic of the business cycle, we will largely ignore that for the time being. For now, just imagine a capitalist economy as an enormous engine that is moving things around constantly, trying to fit everything into the slot that it best fits. As a result, you get a lot of growth and good things, but you also have problems that occur when things go in the wrong place.
As a general rule, of course, a growing economy is better than a stagnant one, assuming everything else is equal, as everyone will eventually be better off. Right?
People, however, are not resources. Every person is also a little machine, and that machine is constantly attempting to do what it wants to do.
This, of course, is the fabled self-interest that many economists used to argue was the primary driver of growth, innovation, and many other positive things.
While all of that may be true, self-interest creates its fair share of problems, as well.
As an example, let us consider a person who excels at managing others, and desires as much power and wealth as they can possibly acquire. If our economic system is working well, this person is pushed into a hole where they are in charge of something, and if they are better than everyone else around them, possibly quite a large something. As this is also what they desire out of life, it is fairly likely they will get there.
Let's say this person ends up in charge of a large business. In a perfect capitalist economy, this person would face constant competition from within the business for his position and from without for the position of the business itself. This, however, is not what that person wants - they want as much of everything as possible.
From here, the logical course of action is pretty clear - they need to impair the mechanism, and lock as many things into a position under themselves as possible, even if this is not the most efficient solution. Because of the mechanism, they are in a position to do so, and this is where many problems arise - monopolies, oligopolies, regulatory capture, and many others.
An argument could be made against that idea, specifically centered on the idea that product differentiation can create utility. That's an argument for another time and place, though, so let's move on...
Obviously, this sort of perfect competition would be incredibly difficult to maintain.
What I would like to examine - unfortunately in an article tomorrow or the next day, as this one is already getting quite long - is a different form of 'perfect'competition - when everyone makes an exactly equivalent income. We will take a look at the theoretical foundation of such an economic system, and see if it would be possible to make it retain the core functionality of capitalism, as well as its impact on things like the gap between the rich and the poor, unemployment, poverty, and the like.
I will say that I don't believe this to be the best solution to any problem. I also don't expect it to turn out to be a good solution, but I will withhold judgment for the moment. The primary purpose of this exercise is to examine the utmost extreme of wealth redistribution, to help determine what sorts of lower and upper bounds we will be looking at in the future.
Also, it's just plain interesting.
Pun of the Day: I missed the last pun, so there should be two here. Unfortunately, there's Obi Wan.
The defining characteristic of feudalism was lack of mobility. Although the time period in which it was an economic system also inhibited physical mobility, one of the central tenets of feudalism is a lack of social and economic mobility. Serfdom, one of the primary characteristics of many feudal economic systems, tied people to specific areas performing simple, repetitive jobs from which they could rarely escape.
This leads to both the greatest strength and greatest weakness of the feudal economy - consistency. While a feudal economy rarely exhibits any large amount of growth or advancement, it is equally uncommon for economic problems to result in a slump of production or quality of living. Not to say that there were no such slumps, but any of those that are really remembered today
Empirical data - what little of it can be scavenged and gleaned from old documents - and economic theory both support this view of feudalism.
Capitalism, on the other hand, possesses the opposite of the defining characteristic of feudalism - mobility. In a capitalist economy, resources move around constantly in an attempt to allow market forces to find the optimal allocation of these resources.
Again, this defining characteristic leads to both the greatest strength and greatest weakness of capitalism - instability. Any capitalist economy has a business cycle, which is a rough sketch of the growing and recessing economy, constantly in flux. Growth tends to outweigh recession overall, but there is no avoiding the second without having the first.
While there's a whole branch of economics devoted to the topic of the business cycle, we will largely ignore that for the time being. For now, just imagine a capitalist economy as an enormous engine that is moving things around constantly, trying to fit everything into the slot that it best fits. As a result, you get a lot of growth and good things, but you also have problems that occur when things go in the wrong place.
As a general rule, of course, a growing economy is better than a stagnant one, assuming everything else is equal, as everyone will eventually be better off. Right?
People
Capitalism treats people as resources. It moves them around, trying constantly to put them in the right place where they can do the most good.People, however, are not resources. Every person is also a little machine, and that machine is constantly attempting to do what it wants to do.
This, of course, is the fabled self-interest that many economists used to argue was the primary driver of growth, innovation, and many other positive things.
While all of that may be true, self-interest creates its fair share of problems, as well.
As an example, let us consider a person who excels at managing others, and desires as much power and wealth as they can possibly acquire. If our economic system is working well, this person is pushed into a hole where they are in charge of something, and if they are better than everyone else around them, possibly quite a large something. As this is also what they desire out of life, it is fairly likely they will get there.
Let's say this person ends up in charge of a large business. In a perfect capitalist economy, this person would face constant competition from within the business for his position and from without for the position of the business itself. This, however, is not what that person wants - they want as much of everything as possible.
From here, the logical course of action is pretty clear - they need to impair the mechanism, and lock as many things into a position under themselves as possible, even if this is not the most efficient solution. Because of the mechanism, they are in a position to do so, and this is where many problems arise - monopolies, oligopolies, regulatory capture, and many others.
Perfect Competition
In the fabled land of perfect competition, none of these problems exist. All products in a market are indistinguishable, and no producers make a profit. Price is fixed at marginal cost, which is fixed at cost. It is, theoretically, the utmost of efficiency and maximizes social utility.An argument could be made against that idea, specifically centered on the idea that product differentiation can create utility. That's an argument for another time and place, though, so let's move on...
Obviously, this sort of perfect competition would be incredibly difficult to maintain.
What I would like to examine - unfortunately in an article tomorrow or the next day, as this one is already getting quite long - is a different form of 'perfect'competition - when everyone makes an exactly equivalent income. We will take a look at the theoretical foundation of such an economic system, and see if it would be possible to make it retain the core functionality of capitalism, as well as its impact on things like the gap between the rich and the poor, unemployment, poverty, and the like.
I will say that I don't believe this to be the best solution to any problem. I also don't expect it to turn out to be a good solution, but I will withhold judgment for the moment. The primary purpose of this exercise is to examine the utmost extreme of wealth redistribution, to help determine what sorts of lower and upper bounds we will be looking at in the future.
Also, it's just plain interesting.
Pun of the Day: I missed the last pun, so there should be two here. Unfortunately, there's Obi Wan.
No comments:
Post a Comment