Economics is essentially a peak. There is communism to one side, and capitalism to the other side. The far left and the far right represent the lowest, or least efficient, economic system. There is a peak halfway between the two, and this represents the best system with the goal being the best of both with the worst of neither.
My economic theory can be described with a simple arithmetical model. Suppose that we multiply numbers that sum to ten.
1 x 9 = 9
2 x 8 = 16
3 x 7 = 21
4 x 6 = 24
It is when we are at the center, with both sides being equal, that we get the peak value, 5 x 5 = 25.
This is a reflection of the two possible slants on freedom, there is "freedom to" and "freedom from". Simple examples might be smoking and guns. Should people have "freedom to" smoke and own guns, or should they have "freedom from" having people with guns and second-hand smoke around them? Far-right capitalism represents extreme "freedom to" at the expense of "freedom from", while communism is the opposite.
Extreme economic "freedom to" would mean that a few rich people could use their wealth to effectively set up the society to suit themselves, and the rest would have little or no "freedom from" being exploited by them. While extreme "freedom from" such inequality would result in a stultifying enforcement of equality which would destroy motivation and incentive to better oneself.
It is folly to imagine that either right or left, either seller or buyer, is more important than the other. No economic transaction could take place without both a buyer and a seller. It is not necessary to understand what an investor is to see how silly a debate would sound as to whether the right shoe or the left shoe was more important. Both are equally necessary.
Right and left, in terms of economics, are much like the warp and woof of thread used to weave cloth. China is a communist country, yet has produced world-class companies like Lenovo, Chery and, Baidu. America is a capitalist country yet has produced free web sites like Google and Wikipedia. This looks like something right out of the philosophy of Karl Marx, people producing to help their fellow man rather than just to make money, except that it was produced by a company rather than a collective state economy.
Best results are achieved when left and right are weaved together. A cloth made of threads going in only one direction will soon fall apart, so it is with economics.
The supply of money is a mirror image in value of all the goods and services that the economy produces. If there is too much concentration of wealth, it does not leave enough money in circulation to buy all of the goods and services that are being produced. Since it does not make sense to produce goods or services that are not going to sell, factories begin cutting back on production. This means that workers have even less money to spend, and we find ourselves with an inflationary spiral underway. You may notice that the three great crashes of the U.S. economic system in the past hundred years, 1929, 1987 and, 2008, each came after two consecutive well-to-the-right Republican presidential terms.
But it must also be remembered how easy it is to stray too far left, typically with taxing and spending on government programs. My opinion is that the best indicator of this is inflation. When there is more and more money relative to the value of goods and services being produced, then the prices of those goods and services will inflate since the money supply always has to be a mirror image of the value of all the goods and services being produced. When prices go upward, excepting other factors such as shortages, it simply means that workers are being paid too much relative to the value of what they are producing.
Communism is actually a higher system than capitalism. The trouble lies not in the system itself, but in human nature. Communes and collectives, such as the Israeli Kibbutz system, have actually been very productive with members working hard and then being supplied with what they need. But when it comes to the general population, with people who do not know each other or feel a sense of common purpose that they are willing to work together for, the system starts to break down with inferior goods being produced and corruption in allocating goods. Fixed prices tend to result in a "black market", where people can buy the quality goods that they want but at "real" prices.
The weakness of capitalism is the precarious link between production and consumption. If goods are not selling as well for any reason, the tendency is to cut back on production which will mean that workers will have even less money to spend and will get a recessionary spiral underway. What is good for the individual worker, such as saving money, is bad for the system as a whole because it takes money out of circulation that is needed to buy goods so that production keeps operating. There are places that capitalism works much less well than in others, such as education and health care.
What modern economics has introduced to the world is the artificial crisis. There is no real reason for an economic slowdown, or outright collapse, such as shortages of raw materials or a bad harvest. But the crisis happens because the economics is not working.
The reason for these troubles is that a so-called "market economy" is not a true market. A real market requires haggling because prices will be continuously changing due to fluctuating supply and demand. If something is not selling well, the merchant will immediately accept less money for it. In our modern economy, crises come about because the pricing is too slow to react and there ends up being a cutback in production that gets a recessionary spiral underway.
Unemployment should actually be a good thing, it means that we can make what we need with fewer workers than we have. Progress usually means that we can accomplish some task with fewer workers than previously. But then those redundant workers, unless they can be given some other work to do, will lack the money to spend to buy the goods and the progress will be of no benefit. Unemployment shows, better than anything else, the precarious link in capitalism between production and consumption.
When production, including farming, can be accomplished with fewer workers, the rest must be given something else to do. Progress thus brings about more and more non-production work, in other words workers who do not produce anything tangible in their daily work. But all of the economy must ultimately be supported by production and the result is that, as the proportion of non-production work increases, it drives up both wages and prices.
In an economy where most workers are engaged in production, both wages and prices will be relatively low. This is because it is the workers, as a whole, who are buying the goods and they can only afford to spend what they are being paid. So, paradoxically, when a country increases it's efficiency of production it actually drives production work away, to lower-wage countries, resulting in an even higher proportion of non-production work becoming necessary.
There are four fundamental types of worker: 1) those who make things 2) those who fix things 3) those who move things 4) those who run things. My theory is that should be the goal of economics, to have the greatest number of workers in the higher categories, actually making things, and the fewest in the lowest categories.
Prices are ultimately determined by what I have defined as the three fundamental costs. These are the cost of land, the cost of transportation and, the cost of communication. The cost of labor (labour) is not a fundamental cost because it is determined by these three. The cost of land is the reason that prices are higher in cities, because land is more expensive and this cost finds it's way into other prices.
Capitalist countries, with more "freedom to" at the expense of "freedom from", have one basic advantage over more socialist countries. There will always be people willing to give up the security and quality of life in a socialist state in order to earn as much money as they can. The trouble with emigration is that it is generally the most ambitious and capable people who are the ones that leave.
But yet, while some countries are clearly the place to go to make money, other countries are marketing themselves as the place to go when one already has money. There are an ever-increasing number of sunny, friendly, low-tax and, low-cost nations offering invitations to a pleasant retirement funded with money earned elsewhere.
The advantage of socialist countries is that the thinking tends to be more whole-picture and long-term. Conservatives wants you to look at the rags-to-riches stories, but not at the rags-to-worse-rags stories. An inevitable issue with capitalism is that money will always equal power, and those with the money will have the ability to arrange the system to suit themselves.
Economics forms a peak of efficiency in the center and we see this same pattern in currency strength. Both strong and weak currency has advantages and disadvantages. Weak currency is better for nations where a lot of goods are produced because it makes those goods more competitive abroad. China is often accused of manipulation of the Renmimbi downward for this reason. But a strong currency is better for an economy based more on finance, like Britain. A strong currency makes it easier for a country's companies to buy assets abroad, yet not have it's own assets cheap to buy.
The primary difference between an economic system and a household or corporate budget is that the economic system is not as absolute. When a household or company spends money that money is gone, but when a government spends money it is not necessarily gone because wages that are spent ultimately come back as tax revenue. When a company lets go of workers, it no longer has the expense of their wages. But the same is not true of government, because not only does it no longer have income from their payroll taxes but it must pay their unemployment benefits or social services and the government will lose tax money from their diminished spending.
I define a simple realm as one in which a statement must be either true or false, and opposing statements cannot both be true. A complex realm is where opposing statements may both possibly be true. Religion is a simple realm because if one says "there is a god", either it is true or it isn't. Economics is a complex realm because we cannot really say that "capitalism is true" or "socialism is false". Any stripe of economics has some valid points. In the same way, we can say that a household or corporate budget is a simple realm, while the economy as a whole is a complex realm.
Unlike the simple realm of a household or company budget, many things in economics are not totally good or totally bad. Just as both weak and strong currency has it's advantages, while with a public company's stock it is always bad if the value drops and always good if it climbs. Inflation is not completely negative because a moderate level of inflation enables the government to cover some of it's debt by printing more money. Even a recession has it's good points because the jobs that are lost in a recession, and do not come back, are jobs that should not really be there by the laws of economics anyway.
So what should be the goal in economics? The answer is to grow while avoiding spiraling. A healthy economy is one that is free of destructive spirals. One such spiral is the recessionary spiral, where sales of goods slow leading manufacturers to cut back on production so that workers have even less money to spend. Another is the wage-inflation spiral in which workers are given periodic pay raises to keep up with inflation and it forms a self-fulfilling spiral.
A knock against capitalism is that the rich tend to get richer while the poor get poorer, so that there is both an upward and a downward spiral because the way to make money is to have money in the first place. One ridiculous spiral is where a few people start announcing that they think there will be a recession, and this causes others to cut back on spending and this is what brings about the recession.
Bubbles are another form of spiral. Theoretically, valuables such as land and gold should always increase in value because their supply is fixed while the world's population, and thus demand, is always increasing. This makes sense until it becomes "conventional wisdom". Then, investors crowd in and drive prices up to artificial highs until the prices crash back to realistic levels.
One sector of the economy must not grow out of proportion to the other sectors, unless it is due to genuine progress. If it is due to a rush of investment, sooner or later it will crash.
A basic difficulty with economics is that it is an area where logical thinking is often cast aside. Religiofication takes place. Humans were designed to believe in something and when we do not have the real religion, we tend to put something else in it's place. A person makes their politics, ideology or, nation into their substitute for religion. Logical thinking is replaced by ideology.
In a complex realm like economics, we tend to oversimplify. A person sees one side of the picture, but not the other. We take what may have been good advice at one time and harden it into dogma.
Let's not forget to consider the cultural effects of economics. A system based primarily on competition is going to bring out the nastiness in people. A lot of people cannot compete without being nasty, and this will get into the culture and raise the level of nastiness that is considered as acceptable.
In advertising the objective is to get one's sales pitch across, while shutting out the competition if possible. This leads to a culture in which it is all right to interrupt others and monopolize a conversation so that one will feel as if they are expected to compete for a chance to talk. But this is not good for international relations, because it is considered as offensive in a lot of other cultures.
The corporate model in economics has a cultural effect in such things as cliques and gangs. In an economy where people group together to form competing companies, we can expect that their children in school will also group together to form rival cliques. National gangs in the U.S. like the Crips, the Bloods and, MS-13 are only imitating the same corporate model as Wal-Mart or McDonald's.
This is not to say that more leftward economics does not have it's cultural effects also. While there is more of a "we're all in this together" feeling in socialist societies. This tends to produce an attitude that no one else has a right to have anything that you do not have. This is just as bad as being around nasty people that interrupt you.
So, the best we can do with economics is to aim for the center, getting the best of both left and right with the worst of neither.
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