Good Economies & Governments Are Made, Not Born

Rules, in the form of genes, govern how people develop. You never know in advance if you’re going to end up with an Einstein or a Ted Bundy.

True Believers create governments the same way, by starting with a bunch of rules, only to find out later what how well or badly the society that grows from those rules actually works.

That’s ass backwards. First you need to figure out what you want your society to look like, and only then should you pick the rules that it will operate under.

By David Grace (www.DavidGraceAuthor.com)

The rules for a successful society should be designed to help it meet planned goals, not pulled out of some True Believer’s catechism of arbitrary principles.

Communists, libertarians, socialists, and anarchists, I’m talking to you.

Start With Goals, Then Make The Rules, Not Vice Versa

If you were going to construct a building, instead of carefully-drawn blueprints would you give the contractor a set of principles like “no room can be three times longer than it is wide” and “no window can be more than twice as big as any adjacent window” and “every hallway has to be at least half as wide as the width of the smallest room” and so forth, and then tell him to start pounding nails and we’ll see what the building looks like when he gets done?

Of course not. First, you’d decide what the building is going to be used for, the size of the lot, the amount of the budget, and the like. From that you would create a design that would direct the contractor how to proceed in order to achieve those design goals.

We don’t design buildings or machines or computer chips or anything by writing down a bunch of arbitrary rules and then organically applying them as you go along, eventually discovering what the end result of constructing something according to those made-up rules is going to look like and how well or poorly it’s going to work.

But that’s how True Believers design economies and governments. They start with a bunch of rules they’ve made up, turn them into laws, and then they hope that the society that functions under those laws will work well.

The history of utopian experiments tells us that it won’t.

It doesn’t matter if they’re communists, libertarians, socialists, monarchists or whatever “ists” you want to name.

First, they write up an arbitrary set of philosophical rules that they think are “fair” (“Taxes are stealing”, “The government can’t tell me how to run my business”, “The government should own the means of production”, “Social justice demands that everyone have a material share of the society’s wealth”) then they put them into effect, and then they hope that the economy and the society they end up with will function well.

And if, or rather when, it doesn’t, they blame the citizens for not following their rules closely enough.

That’s just plain stupid.

If you want to design an economy, a government or a society you start the same way you would design anything else, by figuring out what you want it to do, what overall goals you want it to achieve, what resources you can dedicate to it, and then you figure out the systems, rules and laws that will have the best chance of getting you where you want your society to go.

Let’s Design A Society

Let’s design an economy and a government (a society) without paying any attention to any liberal dogma, conservative dogma, communist dogma, or libertarian dogma.

We’re going to make whatever laws we need to make to end up with an economy and a government that does the best job of achieving the goals we’ve set, and screw what any of “ists” think the country’s laws should or should not be.

We won’t give any True-Believer ideas about fairness, taxes, government power and social justice the time of day.

What attributes should our society have?

As Free As Reasonably Possible

Our society should be as free for as many of the citizens as possible because that promotes innovation, experimentation, progress, tolerance, personal growth, and wealth. Also, most people want as much freedom as possible while still feeling that they are reasonable safe.

Every law that either makes someone do something or forbids them from doing something has two effects, one restrictive and one protective:

  • [restrictive] — It restricts your ability to do what you want to do to other people, and
  • [protective] — It protects you from what other people want to do to you.

Every rule restricts you or someone else from doing something and at the same time it protects you or someone else from something being done to them.

A rule that makes rape illegal prevents you from forcing a woman to have sex with you while at the same time protecting a woman from being forced to have sex with you.

An overtime-wage rule requires you to pay overtime wages while at the same time protecting workers from working extra hours without being paid extra.

Every rule is a balancing act. Functionally, every rule is on a slider control with total freedom for you and no protection for others on one end and total protection for others and no freedom for you on the other end.

For every rule, it’s always a judgment call where we place that slider on the continuum between your freedom and other’s protection.

I think we would like our society to be as free as reasonably possible for as many people as possible with the slider biased as much as reasonably possible in the free direction rather than in the protection direction.

Yes, that’s a judgment call but given the financial, personal, and societal benefits of more freedom I think that’s a judgment that most people would more or less approve of.

When we talk about freedom we need to keep in mind the equation:

Money → Power → Freedom

The richer you are, the more power you have. The more power you have, the freer you are.

As a general rule, rich people have more freedom than poor people because money is power and power energizes freedom.

If we want more people to have more freedom, then we want more people to have more money.

Prosperity

Also, though it’s been said many times in many ways, rich is better than poor. As an individual and as a society it’s always better for more people to have more money than for more people to have less money.

So, we want a society where as many people as possible are as rich as possible and where as many people as possible are as free as possible.

That’s reasonable, isn’t it? You’re not against that, are you?

OK, after widespread freedom, we want our society to promote widespread prosperity. What’s next?

Health

As many people as possible should be as healthy as possible. Sickness is not only a bummer, it’s also costly. It drags an economy down and drives costs up. Healthy people work harder and sick people cost society more.

So, let’s add the goal that as many people as possible should be as healthy as possible.

Safety

Safety from crime is closely related to health. Getting shot or robbed is definitely bad for your health. Of course, we would want a society with the lowest crime rate possible. We would like our society to have a low number of robberies, burglaries, assaults, rapes, murders, etc. We can all agree on that, can’t we?

So, low crime goes on the list.

Clean Air & Water

Another threat to health is pollution. We’d like clean air, clean water, and low toxics, wouldn’t we? Toxic air and water are bad for our health and we want the people in our society to be healthy.

Plenty of Good Food

To be healthy, people need good food and enough of it.

We want a system that produces plenty of healthy food priced cheaply enough so that everyone gets enough to eat.

Does anyone disagree with that?

Cool Stuff

People like stuff. Clothes, furniture, gadgets, toys, TVs, phones, cars, etc. We would like an economy that was good at designing and producing all kinds of stuff and we would want a population that, as much as possible, was prosperous enough to be able to afford to buy the stuff.

Let’s add economic productivity and innovation to the list.

Safe Stuff

And we don’t want stuff that’s going to make us sick, or poison us, blow us up, cut off our fingers, give us cancer, or electrocute us. That would be very bad for the health thing we’ve got going, so the economy needs to build reasonably safe and good stuff, or at least stuff with reasonable and known risks.

Low Prices

What good is cool stuff if it’s too expensive? Also lower-priced stuff means more money in the pockets of consumers which money they will be able to spend on even more other stuff.

We want an efficient, innovative economic system that produces products and services at the lowest possible prices.

Is anyone going to argue that we should have an economy where stuff is more expensive than it has to be? We all want low prices, don’t we?

Education

To make all this stuff and keep everybody healthy we’re going to need lots of trained people — doctors, engineers, scientists, mathematicians, teachers, etc. To get them, we’re going to need an educational system that will train as many qualified/talented people as are needed to make the economy function well.

Those Are The Goals We Want Our Economy, Government & Society To Maximize

That should give us a good start on the goals we’d like our society to shoot for. Notice that we haven’t set down a single rule about what the government can and cannot do in order to get us there.

We Haven’t Made Any Rules

We haven’t said: “There will be no private ownership of the tools of production” or “The government cannot tax people” or “Woman can’t own property” or “People can’t have sex until after they’re married” or “The government can’t make any rules that tell you how to run your business.”

Those are just a few of the rules that ideologues carve in stone at the very beginning of their society-building projects, but we’re not going to hamstring our economy, our government, or our society with any of those subjective, “This is what I think is fair” rules that the “ists” like to make up as they go along.

Our Economic System

What would an economic system that would help us reach these goals look like?

It would have to be one geared toward:

  • Prosperity — One that will generate as much wealth as possible for as many people as possible.
  • Freedom — One that will give everyone the chance to participate and benefit
  • Cool Stuff — One that will be innovative, productive, efficient and low cost.

Capitalism’s profit motive will certainly help us meet the freedom and cool stuff goals and market competition can handle a lot of the desire for low prices and innovative products.

I think market capitalism is a good start for a system that can meet those goals, but we’re going to have to tweak it. Straight out of the box, capitalism is like fire — when carefully controlled it does great things, but if turned loose without restraint, it’s capable of great harm.

Promoting Production & Innovation

The profit motive is the food that feeds the goose that lays the golden eggs. We want those golden eggs. The lure of profit gives people the incentive to invest in, design, and sell all this stuff. We don’t want to starve the goose.

BUT, we’re not here to make the goose happy. It isn’t a pet. It’s here to do a job: lay golden eggs. We need to be careful not to feed the goose any more than it needs to keep it laying the golden eggs.

Like the slider control for rules that has total freedom on one end and total safety on the other, the profit motive has a slider control too. The possibility of unlimited profit is on one end and the possibility of no profit is on the other.

We have to set that slider at the point where the possibility of profit is high enough to keep people investing, innovating and building, but not so high that the craving for more, more, more drives businesses to cheat, pollute, pay starvation wages, and misbehave.

Removing The Incentive To Make Crappy, Unsafe Stuff

Competition increases innovation and lowers prices. The problem is that every businessman instinctively hates competition and loves a monopoly.

Competition means less profits. Monopolies mean more profits.

We’re going to have to kill cartels and monopolies in order to have a shot at product quality, innovation and lower prices.

We’ll need to make monopolies and cartels illegal and vigorously stamp them out.

If corporations have no limit on how much profit they can make, then in pursuit of that unlimited profit they will be motivated to cut corners, reduce wages, increase prices, form cartels, mistreat customers, cheapen products, and do lots of things that are bad for the humans living in the society.

To the extent that the unlimited desire for unlimited profit motivates pollution, shoddy products and the lowest possible wages, we want to limit profits because we want clean air, good, safe stuff and widespread prosperity.

On the other hand, if corporations’ profits are too limited, if entrepreneurs don’t make enough money, then people will invest less, innovate less, and we won’t get as much new cool stuff as we would if they thought that could make a bigger profit.

So, we need to set a sweet spot for corporate profits and set the position of our slider control neither so high that corporations will be motivated to form cartels, raise prices and make crappy stuff nor so low that they won’t be motivated enough to make new, cool stuff.

We do that with an tax on profits that exceed an amount equal to a set percentage of costs. I think a ratio of profits to costs of 20% to 25% is about right.

Details on how this would work are in this column:

We Can Have Better Products At Lower Prices Without More Gov’t Regulation. How we can make the market system work for consumers and employees instead of against them.

We will be able to discourage a lot of corporate bad behavior by putting a cap on profits above a set percentage of costs.

If we combine:

  • Laws against cartels
  • Reasonable quality standards that stimulate competition through the creation of an even playing field among competitors, and
  • A cap on profits in the form of an excess-profits tax

We remove:

  • much of the carrot for shoddy products and pollution, and
  • introduce a bigger stick.

Promoting Higher Wages

We’ve decided that we want as many people as possible to have as much money as possible. How are we going to do that?

We could just tax everyone and then have the government write people a welfare check. Lots of people think that’s a wonderful idea.

It’s not. It’s a terrible idea for lots of reasons.

  • It’s inefficient.
  • It gives the government huge power and thus it is a threat to people’s freedom.
  • If people don’t feel that there is a purpose to their lives through work they will be unhappy.
  • Idle hands are the devil’s playthings.

I could go on, but this is another of those “fair” theories based on the idea that everyone “deserves” to share the wealth. Old-time socialism in a new dress.

Socialism doesn’t work. Let’s move past free, tax-funded money without work.

The excess profits tax will take away some of the corporations’ incentive to do everything possible to lower workers’ pay, but that’s not enough to increase their wealth.

A different strategy that will help make people on the bottom richer is to give employers an incentive to pay workers higher wages.

Every year the government calculates the median household income. Half the households in the country have an income less than the median amount and half the households have an income that is more than the median amount. For 2016, the median household income was approximately $59,000.

We can motivate corporations to increase wages by giving them an additional tax deduction equal to one-half of the wages they pay to employees who earn less than twice the median income.

For example, let’s say that BigCompany had sales of $1 billion and profits of $200 million after deducting labor costs of $100 million to employees earning less than $118,000. Under this rule BigCompany would get an extra deduction of another $50 million on top of the $100 million it’s already deducting for wage expenses.

$200 million profits — $50 million qualifying-wages additional deduction = taxable profits of $150 million instead of $200 million.

This would be a big incentive for BigCompany to pay middle-level and low-level workers more. The more they’re paid, the bigger the company’s tax deduction.

We could also attack the other end of the scale by removing the deduction for salary payments in excess of twenty times the median income. 20 X $59,000 = $1,180,000. We would allow BigCompany to only deduct half the payments to any employee or full-time consultant in excess of $1,180,000/year.

For example, if the CEO received taxable compensation and bonus payments of $5 million then $5,000,000 — $1,180,000 = $3,280,000/2 = $1,910,000. BigCompany would not be able to deduct $1,910,000 of the $5 million salary it paid to its CEO.

People could tinker with the numbers based on experience, but in general this sort of mechanism would tend to reduce compensation payments to those on the top end and increase wage payments to those on the bottom end without any government subsidy programs, taxes or additional bureaucracy.

Promoting Freedom

The Bill of Rights has done a pretty good job of protecting people’s basic freedoms so we would definitely want our government to have a Bill of Rights. We probably would want to add some protection for the right to vote, a guarantee of free elections, and the proper counting of ballots because none of that is specifically set out in the U.S. Constitution.

We would also want a judicial system separate from the other branches of government along the lines of the American model to provide for judicial independence and a check on executive and legislative power.

Reducing Pollution

We would want reasonable environmental protection laws.

Promoting Health

Healthy people need access to medical care. In order to avoid higher taxes and a bigger, more expensive government we could require all employers to pay 80% to 90% of the premium cost for a standardized major-medial insurance policy for every full-time employee (prorated for part-time employees).

That way the cost would become part of the price for each product and would be borne by the consumers of those products without the government getting involved and without increased taxes or bureaucracy.

Other Goals

I’m not going to go down the list with sample legislation for each one but they’re all doable without ever adopting any of the ideological rules out of some communist’s or libertarian’s catechism.

Do what works, not what some political-religion’s True Believer’s arbitrary rules proclaim is fair.

Compared to the benefits of widespread freedom and prosperity, so-called social justice and subjective notions of fairness just don’t make the cut.

–David Grace (www.DavidGraceAuthor.com)

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David Grace

David Grace

3.3K Followers

Graduate of Stanford University & U.C. Berkeley Law School. Author of 16 novels and over 400 Medium columns on Economics, Politics, Law, Humor & Satire.