Economics is the “soft science” of how (and more importantly why) people transfer goods and services throughout society, which requires observing how and why people transfer value, especially regarding decisions.
Money is the easiest way we can store and retrieve value, so measuring the flow of money is a decent-enough way to track how power and wealth is created and moves between people.
Money flow measures well-being, but only in a secondary sense. Other factors (e.g., the culture of the country) are far better indicator’s of well-being, but much harder to measure, so economists simply use money to measure human purpose and make educated guesses at why by using many charts to work with those measurable elements.
However, economic measurements aren’t very precise:
- They’re good for approximate understanding (e.g., a doctor gets paid more than an unskilled laborer) but terrible at precision (e.g., a lousy doctor is worse for society than a brilliant unskilled laborer).
- Any change to 1 thing automatically affects at least 3 other things, and nobody can predict how many things it’ll change.
- We gain value based on what we appear to do, not what we actually do. This is often the same, but not always.
Value
We make choices to trade or make things from our understanding of value. This value is entirely subjective, based on our needs and wants and our beliefs of others’ needs and wants, and ties closely into our concept of meaning.
We frequently find value in things we don’t care for ourselves, but have come to believe other people do. Unless we know specifically who, we’ll often stockpile those things for the gains we imagine long-term. Because it’s tethered to the culture instead of the individual, it’s a bit less volatile than individual concepts of value. It also means we only feel value in an individually useless pile of one specific thing based on the future value we’ll get from others’ trades for it.
We tend to assign more value to things we have than things we don’t, which means we tend to only feel right about selling our things at a price higher than what we paid for. For this reason, even when the price of something is very fixed, there’s always 2 prices (a lower “asking price” and a higher “receiving price”).
Anything associated with the physical world has a certain limited quantity (“scarcity”). The more scarce, the more we generally value it. Water, for example, is usually near-worthless, but someone will give everything for it if they’re close to dying of thirst.
With the odd exception of addiction, our decisions tend toward scarcer things.
Our concept of economic value is based on information, mostly on scarcity and others’ interpretation of value, which can never be complete.
The measurable value of something fluctuates constantly for several reasons:
- Information about things are constantly changing, and we’re constantly learning more about that thing as we observe it.
- Changing information implies a story, and therefore a trend we try to predict.
- We imagine everyone else who may be observing the thing is doing the two above things like we are.
Economists define “income” differently than accountants. While accountants generally define income as revenue minus expenses, economists consider income as any change in net worth plus things that were spent and given away (“consuming”).
Free competition with scarcity has a double-sided risk to it, and only people with a low-enough agreeableness personality can thrive in it. A consumer may enjoy producers competing for their spending decisions, but generally doesn’t like competing with other consumers for a limited supply of something, which is why job-hunting is typically stressful for most people.
Money Supply
Money is issued (“printed”) by governments. People use money for a few reasons:
- It’s scarce because governments only print a limited amount.
- It’s a measurable and “portable” type of power, so it’s easy to keep around and stockpile (except for the risks from inflation).
- For the sake of control and organizational understanding, government taxation policies are typically based on money transactions.
Governments can print money, but they’re not the only organizations who can. Blockchain technology, for example, is the backbone of cryptocurrency. In that situation, the scarcity is the mathematically regulated number of blocks contained on a chain instead of a government’s control on supply.
A country has to print more money constantly to keep up with the growth of a country, and it’s in the best interests of a government to have an overstated value of their currency, so inflation is a natural result. However, too much printing and there will be runaway inflation as the value of each “denomination” goes down. It’s a delicate balancing act.
If inflation gets too out-of-control, it can ravage society. However, a steady inflation rate is only a risk to those who have wealth stored. For non-wealthy people, they just have to find a better source of income instead of finding another place to safely weather out an inflationary spike.
Because of things like technology and society’s trends about commonplace activities, measuring inflation is absurdly complicated, and somewhat controversial on how to approach it. Plus, because so many people are observing metrics like inflation, some government policies can play math games with the money supply to make inflation appear differently than it really is.
Very often, when a disastrous destruction of value happens (such as getting invaded), a country will suffer massive hyper-inflation. This can make ridiculous situations like someone having to cart a wheelbarrow full of bills to the market just for a loaf of bread. On the other hand, tremendous increases in value (such as winning a war) can generate immense wealth for a country to print tons more money and keep it relatively at the same value.
Exchanges
Every economic activity is a trade, with any differentiation in timing or future promises becoming a type of business contract. People are always trading toward fulfilling their purposes, which almost always have self-interested elements.
We exchange many types of goods and services:
- Skills at operating, manipulating, or creating
- Expert knowledge or training about a subject
- Natural or farmed resources
- Finished goods
- Physical strength and energy
- Free time
- Networked connections with other people
- Feelings of peace or freedom from guilt
- Reputation or affiliation with groups
People only trade upward, never down. We only sacrifice something because it has less value to us than the thing we’re trading for.
In any exchange, both sides always benefit from the trade. Even under duress (e.g., blackmail), there’s a perceived benefit for both sides to make that exchange.
Even when we give things away, we’re usually calculating a more elaborate purpose:
- How those people interpret value
- Our relationship with those people
- The feelings we’ll have when they respond to our gift
a free market is where someone wants to trade something of value, and nothing else interferes with it. While the value of things are compared to other similar things, that value is constantly moving around because of how relative it is.
However, a market is never “pure”. Market distortions adapt a free market from huge factors that move things around:
- People will usually pay more for novelty (i.e., it’s a new trend).
- There may be “barriers to entry” for people new to buying or selling something (e.g., government certifications, insurance guaranty bond).
- Governments or large organizations may set price limits.
- Beyond the supply cost, labor costs can be affected by other factors like overtime laws, minimum wage, and labor unions.
Generally, most market dynamics are actually 2+ markets that influence each other. For example, news and social media are the markets for peoples’ attention, but are influenced by the market for advertisers wanting peoples’ attention. In some sense, all human interactions ripple into all other human interactions in some small way.
Public Goods
Many things are completely free (“public goods”):
- Public services like police and firefighting
- Libraries and parks
- Science funding
- Lighthouses and most roads
- Natural resources like clean air and water
People tend to take better care of things they own. Since nobody owns a public good, nobody can benefit from maintaining it and it usually depletes or decays (“tragedy of the commons”).
The tragedy of the commons has a few possible solutions:
- Most commonly, tax the public and maintain it with paid government workers.
- Use a variation of private property rights to motivate people to maintain it (e.g., advertising).
- Abolish all private property to make everything a public good, which is essentially communism.
- Assuming there’s no barriers to entry (e.g., “crony capitalism”), the tragedy of the commons gives entrepreneurs the motivation to create private versions of public goods.
Some economists believe the market shouldn’t dictate the cost of a worthwhile public good. They propose that governments should manage things society needs that are unprofitable to maintain.
Concepts like a Universal Basic Income, where everyone receives a fixed amount of subsistence money, make that amount of money everyone receives a public good.
Medium
Generally, items are easier to trade when they’re relatively permanent and easier to measure. They’re also easier for a government to control if they’re not that useful.
Thus, governments issue uncollected debts as a tradable commodity, and we know it as “money”. Money is a human universal because it represents stored power.
Specialization
People instinctively separate tasks and take specialized roles they prefer (industries and occupations).
Economies are immensely diverse. People of all types meet constantly and frequently to trade who would normally never associate with each other voluntarily.
Income inequality comes from how each job has a different value to everyone. Leftist governments typically lower the pay of high-paying jobs to equalize labor, but they always have to force future workers to invest their human capital to that task (e.g., becoming a lawyer takes lots of school, so it’s not worth the effort if welding pays the same).
Since unskilled workers don’t have a specialization, they have a difficult time entering the workforce and are usually paid a low wage:
- Most entry-level jobs are a very low wage, and usually impossible to subsist on.
- Minimum wage laws temporarily raise low-wage jobs’ pay, but force employers to hire fewer people. This prevents unskilled workers from building their human capital through work experience.
- Raising the minimum wage also creates a more difficult environment for smaller organizations to compete in the marketplace, meaning more monopolies can take control.
- Eventually, because everyone has more money (due to inflation), the collective value of it goes down. This means a minimum wage’s consequences are merely temporary.
Supply vs. Demand
Supply is how many of something there is, and demand is how much people want it. Their relationship determines how much people will pay for things:
- When there’s more supply or less demand, people won’t trade as much to get it.
- When there’s less supply or more demand, people will trade more to get it.
- This entire relationship is because everyone is considering what they desire, relative to what everyone else will do.
People make decisions, but with limited information. If all people had complete wisdom, they’d make perfectly wise decisions and any measurable value would only fluctuate a little bit. However, people choose to withhold information, plus there’s simply breakdowns in communication. For that reason, people make frequent incomplete decisions without realizing until later (“adverse selection”).
Sometimes, there are predictable cost increases for trading:
- The cost of making or transporting something
- Risks of damaged goods or theft
- Taxes and government fines
- Illegalization
Most of the time, technology improvements and infrastructure will lower costs:
- More affordable ways to deliver it
- Lowered risk of damage or theft
- Increased accessibility to new markets
Human Capital
Human capital is the added total of someone’s non-material assets:
- Knowledge and skills
- Health and strength
- Creativity
- Willpower
Unlike money, human capital is very hard to measure. Most economists don’t consider the culture of a people group in their projections, and ambitious cultures who value wealth are often compared with relaxed cultures who find meaning without money, with an extreme discrepancy between the measurement and reality.
Education is the most powerful human capital when with other people. With it, people can easily avoid or overcome most hardships and loss.
Illegal
When something becomes illegal or too difficult to do legally but people still like doing it, they will either find alternatives or trade secretly. This creates hard-to-measure underground “black markets” (also known as the “informal economy”).
Black market risks make items much more profitable because there’s a higher chance of death or loss from performing any services with it. Plus, people can use black market transactions to extort or blackmail.
Unlike normal markets regulated by governments and public attention, the only rules in black markets are strength and secrecy. Anything that’s made illegal slow civilization’s ability to freely develop.
Generally, shutting down black market activities or buying from them (i.e., to get those things off the market) will make that market more expensive and give more incentive to sell within it.
Black markets will trade almost any goods or services against organizational rules:
- Substances with addictive properties or the inspiration for destructive purposes like alcohol or recreational drugs.
- Heterosexual or homosexual pornography and prostitution services.
- Specific sexual fetishes like child pornography or watching people get murdered.
- Certain media like music, movies, or video games that symbolize specific ideas or educate about certain things.
- Specific collectible things like animal horns or objects from another people group.
- Objects that could be used as weapons (especially against the leadership), such as firearms, grenades, nuclear material, or biological weapons.
- Other people, typically for labor or sexual reasons.
Increased risks to transfer goods, as well as having no overseers to regulate it, the product’s quality in a black market will suffer compared to an open market.
Business
Every time someone trades a good or service, both people are busy exchanging something, which is doing “business”, often with an implied contract.
All business requires taking risks to succeed because we can’t precisely predict the purposes other people have.
These trades fulfill our wants and needs through exchanges, so business organizations aren’t just trying to make money:
- Each individual in a business has the self-interested need to survive.
- Businesses increase their survivability through maximizing profit.
- Businesses maximize profit by provoking others’ trust to trade with them. If there’s competition, they must do a better job than their competitors.
Capitalist societies reward organizations and individuals who add what the public perceives as value. While many people can distort their image, reality eventually catches up to them.
Entrepreneurship and corporate management aren’t at odds with charitable giving. A capitalist society permits entrepreneurs to find ways to fill society’s needs while profiting in the process. A huge corporation only exists because it added value to many people (even when it’s horrifically inefficient), not by stealing power away from everyone else.
As organizations grow, diminishing per-unit costs (“economies of scale”) permit enormous companies to produce items for far cheaper than individuals ever could.
Accounting is the language of business, and marketing is the art of conveying value. Individuals who understand business can often trade their things for more merely by crafting their image to customers and governments.
Speculation
Everyone expects markets, or at least certain items on those markets, to change value over time (“speculation”). The primary way they do this is by looking at the patterns that existed beforehand, typically with the belief that what happened last time will happen again.
Several factors mean the patterns of market behavior will never occur the exact same way every time:
- Across years and generations, the culture has shifted, so everyone’s decisions will be a little bit different.
- The technology has changed, often for the better, meaning information will flow much faster and change narratives more rapidly.
- People know what happened last time, so they will make changes based on that information. Often, they’ll start a trend of knowledge that can sometimes redirect the movement of activities through a completely different set of circumstances.
Further, in an over-information society, multiple trends may be playing out at the same time. It can be very unclear which trend will most articulately replay itself, and the results can be dramatically different.
Speculation Games
There’s one way for a government to discourage a market with speculation, though it only works if nobody is aware of it:
- Buy up or shut down a lot of the market, sending the price rapidly upward.
- When all the market owners want to cash out, dump all the assets back onto the market, dramatically lowering the price.
Private investors do it with a variation of it called a “pump and dump scheme”, where they inflate the market value as far as they can, then sell off tons of their ownership in the market.
Every time a government’s laws might change the availability of a market item, the market will reflect it. More government restrictions mean more expected costs, more lax restrictions means competition to lower prices.
Supply Chains
In a large-scale social system, it takes a long time for things to get from one point to another. This creates what’s called a “supply chain”. A seasonal item that’s higher demand when the weather changes, for example, might get manufactured halfway across the world half a year beforehand.
The existence of a supply chain means people can somewhat predict future market events and make investments on those expectations. For that reason, investors often make market decisions for future events like a pending product windfall or a looming shortage.
In any disaster, the risks to civilization’s collapse don’t come from any individual people or group being incapacitated, but the supply chain at large.
Market Corrections
Most economists argue incessantly about how much markets correct themselves (“the invisible hand”). Since markets are so vastly complicated, it’s currently impossible to understand them entirely. This means the general spectrum of opinion on the ideal way to approach markets ranges from complete “centralized planning” to completely permitting “emergent order”. Most of this boils to how economists believe people make decisions and how easily power can shift.
Centralized planning (aka “redistributionists”) is when people are given control of various aspects of society. The prevailing belief is that experts should manage everything. However, most real-life central planners are politicians and bureaucrats.
Emergent order (aka “growthist” or “supply-side economics”) is when each person is given freedom to manage themselves. The prevailing belief is that self-interested individuals will pursue their self-interest if they’re given freedom to benefit from it. From the outside, emergent order appears as a chaotic swarm of unrelated individuals doing unrelated things. But, it’s an organized type of chaos that somehow works, even though it’s hard to measure.
Many leaders believe individuals can’t correctly decide their long-term best interests, but those leaders are as prone to human error as their subjects. The world is far too complicated and chaotic for professionals to manage everything about everyone else.
But, complete emergent order would be complete anarchy because no central leadership structure would enforce any large-scale rules.
At the farthest end of supply-side economics is laissez-faire (“allow to do”), which implies that government intervention should be completely absent from private organizations’ affairs. This can frequently create monopolies and bad systems, though it’s a highly contentious question about whether monopolies persist indefinitely or decay quickly.
Centralized planning taken to its farthest becomes fascism or communism. So far, it’s always failed spectacularly.
Most free countries mix supply-side and redistributionism together. A tax system, for example, is centralized planning responding to emergent order, at least until it becomes social engineering.
History has shown that overly rigid government involvement will cause chaos and disorder when people are pushed far enough. To avoid a coup or war, people need at least some freedom to make decisions, even if they’re bad.
Economic theory uses the example of a mythical “crusonia plant”, which produces increasingly more of itself over time. The plant would increase its collective value over time, and therefore better than the effort of creating individual plants. However, this increased value only extends as far as core needs dictate, and additional plant production beyond that point would decrease the individual value of each plant. Whether it’s anthropology or technology, this is a major oversight in most forecasting models.
Macroeconomics
Macroeconomics is difficult to track. Political events can break and redefine economies, and each country/corporation tends to operate as its own group among others, with larger ones defining new elements that redefine the economic ecosystem. Game theoretical models often capture these distinctions, but only in a broad sense, and with many degrees of uncertainty because countries often know other countries are using game theoretical models on them (thus fulfilling Goodhart’s Law).
Broadly, macroeconomic activity of any entity is measured as “gross domestic product” (GDP), which adds together several major categories:
- Consuming (C) – resources spent on needs and wants.
- Investing (I) – resources spent to meet future needs and wants.
- Government (G) – administrative “maintenance” costs to keep things going (e.g., police, tax collectors).
- Net Exports (NX) – the amount of goods and services sent out to other groups.
Like any other measurable thing, people can play math games to distort GDP compared to a group’s actual wealth (e.g., extra government spending), and it doesn’t account for human welfare.
There are five major ways macroeconomists track movement:
- Taxation – how much does the government take, and how much does it adversely affect who is taxed?
- Spending – how much does the government spent, and on what?
- Monetary policy – how does the government manage its currency?
- Regulatory policy – how does the government make laws?
- Trade – how does a government and its people interact with other governments and their people?
It’s worth noting that the entire realm of macroeconomics becomes a matter of controlling individual decision-making. The motivation for this is either for power or love of humanity, depending on your opinion.
Authorities can directly control supply, but can’t fully influence demand. This is because it’s impossible to fully manage others’ desires without removing free will. The closest thing they can do is provoke fear to deter purposes.
One popular form of social engineering in the world of economics is to employ large-scale design patterns to steer people toward decisions that they “ought” to do (“libertarian paternalism”) to influence behavior and send wealth from whoever a government deems unworthy to whoever is deemed worthy.
Taxes
Generally, people will try to avoid a government’s taxes, and often hire exceptional accountants for the job:
- Lie about it and not pay it (“tax evasion”).
- Avoid certain taxable activities.
- Shift how they get their income (e.g., start a corporation or trust, use cryptocurrency).
- Move the income somewhere else (e.g., move to another country).
There are several unfortunate realities of taxation that combine themselves into a paradox for every government:
- People from all social classes will do what they can to not pay taxes.
- If there were no taxes above a certain level of wealth, but an even tax below a certain threshold, people would work really hard to earn above that threshold.
- Poor people can barely afford to live, so it’s unethical to tax them as much as wealthy people.
- The wealthy can afford taxes, but they can also afford a lot of tools to migrate their taxes elsewhere, and can afford to hire many creative and brilliant accountants and lawyers to manage their wealth while avoiding taxes.
- If a country closes off all the tricks to successfully tax the wealthiest of society, they’ll move to another country where they can take advantage of other tax benefits.
Generally, a good stopping point for raising taxes is when the benefits of the government money spent is just barely higher than the financial damages caused by taxing people (“Laffer curve”). If taxes are too low the government won’t make enough money, and if the taxes are too high people will find ways to avoid paying them (including not working or acting illegally). While conservatives and liberals argue where that line draws (somewhere between 27% and 78%), they’ll all agree that above that specific mark a 5% tax increase might become a 1% government revenue increase and significantly more unemployment and poverty.
Governments can focus their taxation on certain domains, which creates a type of social engineering:
- Tariffs, which levy against foreign goods and services, which can prevent a country from competing fairly with other countries if set too high.
- “Sin tax”, which levies against vice-based goods and services (e.g., smoking, alcohol, prostitution), which can create a perverse incentive to motivate people to over-consume their vices to pay for essential public services.
- Luxury tax, levied against high-quality goods and services, which can motivate wealthy people (and their money) to move to other countries.
- Progressive income tax, levied proportionally higher against wealthy people, which can motivate them to play international accounting games.
Many governments try to create costs for unrelated third parties who suffer from a decision (“negative externalities”):
- Pollution
- Damaging public goods
- Speeding on a highway
- Publicly consuming a substance (e.g., drugs or alcohol)
Authorities often attempt to prevent negative externalities with rules that come with fines and penalties, but they’ll also frequently make things worse:
- Innovators often create brilliant, better solutions that violate the spirit of the regulations even worse.
- Many times, delays from controlling measures will force waste from non-consumption.
- Undesirable social trends can often exploit a well-intended thing for bad purposes.
Even when they don’t outright ban things, governments often set price limits on goods and services to alter everyone’s consumption. If prices are too high, suppliers will waste the product because nobody will buy it. If prices are too low, the product will be unprofitable and nobody will make it, which will create a shortage.
Spending
While the public sector (e.g., government, academia) creates a variety of public goods, they’re often trend-resistant, and often poorly made.
The private sector, on the other hand, requires risk to function, which means they’ll make decisions that’ll often yield more rewards. All the value and innovation of society comes through private creations, even when public money funded it (e.g., intellectual properties).
Often, governments can provide “stimulus spending” to provoke more people to spend more money in private markets. This creates a distortion of the market (and the risks from corruption) because that money comes strictly from taxation.
A government can tweak its monetary policy to offset the timing of the taxation from their stimulus spending, but governments only redistribute things and don’t really make them.
Monetary Policy
Whatever form of money a government takes, it must be 5 things:
- Divisible – has easily-divided denominations that can break apart for easy trade and negotiations (e.g., not bars of gold).
- Durable – can withstand many trades without breaking apart (e.g., not bread).
- Recognizable – can’t be counterfeited and, therefore, severely drop in value (e.g., not car wash tokens).
- Portable – can allow people to bring it around with them to trade (e.g., not paper towels).
- Scarce – there’s a limited amount of it so that people would find it has value (e.g., not computer storage space).
The “standard” for paying back was once gold or silver, but most nations’ notes for the past century or so have been “fiat” (faith) currency. There’s are several reasons for this:
- Asset-backed currencies are limited by the size of the asset. Economies grow from population, and eventually there won’t be enough of that asset available relative to the currency without severely devaluing that asset.
- Typically, fiat currency is held together with debts for future repayment (i.e., government bonds). This means that the promises of the future determine the people trusting money today (instead of a barter for a valuable object). This is infinitely scalable if the monetary policy manage (e.g., the US Federal Reserve) does a decent job tracking it.
From a government’s point of view, money is an issued debt that people don’t collect. In other words, $1 US is a promissory note that the United States government will give $1 worth of…something…in exchange.
To avoid inflation, a government has a unique trick with reserve currency:
- Issue bonds, which are how large organizations borrow money from smaller parties, but don’t actually do anything with the money.
- Set the bond interest rate at a low rate relative to inflation (e.g., 0.25%).
- Since it’s a government, investors will like the bond because it’s a proven institution that’s incredibly safe.
- Hold onto that money, meaning it’s not in circulation as long as the bond hasn’t been redeemed before its “maturity” (i.e., 5-30 years).
- If inflation ever happens, ratchet up the interest rate (e.g., 4%) to get more money off the market. Within a few months, it’ll prevent the value of a currency from dropping too severely, but overshooting it can create deflation (where every unit of currency is worth more than it was).
As of the early 21st century, the exchange currency for the entire world is the US dollar, which is from them running a trade deficit for a long time (see below) and other countries pinning their currency’s value to a stable comparison. Before this point, other countries like Spain and Portugal have been the world reserve currency.
The only problem, however, is that debt has inherent risks. It’s slavery for institutions as well as individuals, and can make an economy very fragile if the debt gets too high compared to the total wealth of an organization.
When looking at the accounting of a country, make sure the balance sheet and income statement numbers aren’t crossed for projections. The total debt is a balance sheet item (as well as a nation’s wealth), while GDP is an income statement item (as well as debt payments).
Regulatory Policy
Individual motivations magnified to a massive body can blow vast sums of money on niche needs (“concentrated benefits” and “dispersed costs”).
- A multi-million dollar subsidy to a small community is significant but doesn’t feel like much when it’s a few cents across a few hundred million people.
- However, a few cents at a time for several thousand programs can become a tremendous tax burden.
In a free society where private individuals have power, governments aren’t free of company influence. While free markets may regulate evil somewhat, large companies can influence governments to make bad decisions:
- Governments can give benefits to large companies while harming smaller companies without those connections (“crony capitalism”).
- Large companies can influence rules to carve out markets for themselves and squash competition (“regulatory capture”).
Companies can solidify their control of a market with a simple procedure:
- Someone dies consuming a product.
- The largest company that creates the product sends many lobbyists to the government demanding they do something.
- The government passes laws for mandatory safeguards that only a large company can afford.
Frequently, governments will set price controls on various domains, which can create perverse incentives:
- Rent controls can prevent prices for rent going up above a certain legally-defined amount instead of letting the price fluctuate from market demand. Without the rent controls staying extremely lax, landlords eventually won’t be able to pay for basic maintenance on the rental properties.
- Minimum wage laws set a minimum price. However, it prevents inexperienced people who want the work experience to work for employers who wouldn’t hire them for a higher wage. Over time, it also raises the cost of living in areas that implement it due to a diminished scarcity of money in the region.
Trade
The domains of trade come from the fact that each nation has the means to specialize in certain goods and services. If everyone had the unrestrained freedom to trade with each other, everyone would collectively benefit.
However, a nation’s leadership doesn’t always want completely free trade. By placing tariffs and laws that make trade more difficult, they can protect themselves from losing power. For that reason, the discussions and optics about free trade are always more prominent than actual legislation that promotes it.
Even when a group is collectively producing more than exporting, they may operate at a trade surplus because of the relative market value of that product. This can get confusing when a rich nation is somehow making more of a product than they need from other countries, but the market price is still influenced by the supplier countries.
Over time, as long as people keep trading, savvy traders will edge out less savvy ones. In a culturally well-ordered system, the gap between the wealthiest and poorest will grow more dramatically from trading skills than a poorly ordered one. Irrespective, enough time with any social system guarantees a partially unfair redistribution of wealth, whether by war or bureaucratic incompetence.
A country can import more than they’re exporting. When that happens, they’re sending more of their money out and are operating at a “trade deficit”. On the other hand, a country can acquire more money by exporting more than they’re importing and run a “trade surplus”. A trade surplus is a nation’s means of gaining more economic power long-term by owning the means of getting people to do things later.
Conflicts
One of the most hotly contested ideological battles within the domain of economics ties to the battle over how people make decisions, and they tend to fall into two major camps with vastly different political consequences.
Proponents of John Maynard Keynes tend to believe that output and production are generally fixed realities of individuals, determined by their social context. Further, we can most effectively measure a society’s wealth by spending. For that reason, further social engineering (and large-scale government intervention) is the solution to most economic issues.
Friedrich Hayek’s values, on the other hand, adhere to the belief that output and production are completely based on individual perception and personality, and that the best measurement of a society’s wealth is from how well they save money. For that reason, less government intervention is critical to solving most economic issues.
Application
As long as people can privately own things, legally or illegally, they’ll try to trade for it to gain their self-interests. This is practically a human universal.
The stunning reality of capitalism is that it constantly plays out in society at large, even to the detriment of everyone’s equal treatment or political fashions that try to redirect it. No matter how bad a government can break everything or how much hardship everyone can endure, people form the natural order of free markets no matter what.
Capitalism only concerns itself with self-interest from others, so it’s oblivious to discrimination. In fact, it often hurts bigots who discriminate. The contested political issues around capitalism tie more closely to unequal power distribution among large groups. The elements that shape capitalism arise from net win/win from its consequences. Even with its inequalities and injustices, capitalism will persist as long as human nature has selfish elements.
Building wealth is valuable to advancing the good life in a society, but only as far as the middle-class. After that, any further wealth only runs the risk of corrupting unless it’s used for a virtuous end.
Economic growth is only partly connected to well-being. It can give more things people need, but true meaning comes from building wealth much more than having it. Any attempt to measure well-being in a society or between cultures is impossible because we can’t put numbers on satisfaction about anything and it’s a relative concept.
Markets are chaotic, so economists make statistical correlations, which don’t necessarily tie to causation. They’d be out of a job if they didn’t explain cause-and-effect, even if they’re utterly wrong.
Because we consider the price of things compared to what other people would pay, the easiest form of reflecting uninhibited demand would be a Vickrey auction, where everyone privately communicates their price to the seller and the winner pays the second-highest price.
By hiking the price on something, consumers won’t change up to where they start changing their motivation about buying that thing. In fact, extra income for a business often gives more opportunities to make risky and potentially value-adding risks elsewhere, so increased prices are a net benefit to society if that group hasn’t become dysfunctional.
Value is very relative to utility. For that reason, more of something (e.g., from technology) makes life easier in general, but decreases the unit value of each of those things. In the process, creating more of something slowly decreases its meaningfulness as more of it is in existence.
In a hyper-capitalistic society connected by many social networks, the most extreme personalities will naturally rise to the top of the social ladder, with the competition and social churn being the same as political/warfare but where nobody dies:
- The hardest-working people will run the leadership structures.
- The funniest and most charming people draw all the attention.
- The shrewdest contract negotiators become the wealthiest.
Anyone who praises how well capitalism works should have some awareness that it only works because of the selfish moral state of humanity. It proves how despicable our natural state is, and should lead us to some level of individual repentance. The fact that it doesn’t is some proof of further moral unawareness.
Further Exploring
Sim CB – try to regulate central banking like the Federal Reserve
Building an economy simulator from scratch – a reductionist computer simulation from the ground-up