A Case for Economic Equity and Long-Term Growth

Framework: Examine macroeconomic policy issues as well as the theoretical assumptions underpinning their conclusions within a political Liberalism framework that ensures and upholds the democratic values of liberty and equality inherent to the constitution. The complexity of economic development requires a holistic empirical approach that accounts for the historical, political, sociological, and business factors contributing to the makeup of society when crafting and recommending economic policy.

Overview: Economic growth is the aim for any society. Inequality is a product of increased bargaining power resulting from increasingly powerful institutions in the business, financial, and governmental sectors. Research has repeatedly confirmed growing inequality globally and domestically. Inequality, manifested as widening income and wealth disparity, contributes to domestic and global account imbalances, consumer debt, and economic stagflation, i.e. inflation and unemployment. In addition, inequality is linked to key social variables such as political stability, civil unrest, democratization, education attainment, health and longevity, and crime rates. Greater economic equality always results in greater long run economic prosperity for the whole.

Thesis: Bargaining power inequalities causally contribute to economic and socioeconomic inequality due to path dependency, organizational inertia, and habit formation. Bargaining power inequalities increase proportionally with capital accumulation, concentration, and centralization. Restoring bargaining power will rectify financial and labor market imperfections and spur economic growth.

The Problem

  1. Increasing debt, unequal capital accumulation, stagnating wages, and increasing inflation are responsible for the steadily rising economic inequalities experienced the past several decades. The habit formation of conspicuous consumption has compounded the impacts of income inequality.
  1. Inequality has deleterious effects on social well being and long term economic growth, and is the source of a host of cultural ills, affecting education, healthcare, political corruption, etc. It also affects entrepreneurship, creativity, and technological innovation in the long run.

The Cause

  1. Historical monetary policy, financialization, and financial liberalization (deregulation) have directly contributed to exacerbating economic inequality by negatively affecting business cycles through the misdirection of short term economic incentives and failing to consider the long-horizon. In addition, credit market imperfections, due to asymmetrical preferences and institutional constraints, causally contribute to inequality, in both physical and human capital accumulation.
  1. Bargaining power increases with capital accumulation, concentration, and centralization both domestically and globally, establishes organizational inertia in business and legal exchanges, and further compounds the effects of inequality. Avoiding full employment decreases labor demand, in turn decreasing wage bargaining power, leading to wage stagflation.

The Solution

  1. Increasing economic equity yields the highest long term economic growth, improves social well-being, facilitates creativity and innovation, and empowers society to resolve its cultural ills.
  1. Economic equity can be achieved by restoring bargaining power, regulating financial investment activities, incentivizing real-asset investment, and implementing a single structured tax policy on the wealthiest.

Liberalism: Making Mankind into Cattle

Liberalism is the transformation of mankind into cattle.
-Nietzsche, Human, All Too Human (1878). I.67

What does this mean? Liberalism, in the philosophical sense that Nietzsche is using it, is an ethical framework in which man is free, equal, and autonomous. While this conception of man resonates with most as evidently true, I maintain that this is an illusory conception of man. Do we really believe that we are free? Equal? Autonomous? As with most comforting notions, we avow these ideals simply as a means of preserving the familiar, a mechanism of evasion that allows us to avoid the biting reality of our situation; namely, that we are not free, nor are we equal and autonomous.

What does Nietzsche mean when he says that liberalism is the transformation of mankind into cattle? It is the process in which individuality is smoothed over en masse, in which minds are watered down into a cloudy collective consciousness, where man is no longer a thinking spirit that possesses a unique soul but a mere facsimile. Being lead to believe that our thoughts are freely chosen, that we are as valuable as any man, that we can choose according to a unique volition, we cease to employ our internal reason, fail to reflect on our position, and assume that the ideals in which we derive our greatness are a right rather than a product.

I insist that freedom is a state of being that follows from mind, but my fellow man would hold that freedom is a state of existence that follows from body. Where these most evidently diverge, in my opinion, is when man finds himself in a state of perfect equilibrium.

When man has all his bodily needs satisfied, with every desire or whim or passion cared and provided for so that nothing is wanting, do we have a free man? Such a man would be no more free than a domesticated animal whose instincts have been muted and dulled, like an animal coddled and conditioned with pleasures generated by no necessity of its own. My fellow man, swept up in his allegiance toward the sensational, would insist that a man with all his desires satisfied is free, for what more could he want? But I would ask whether this standard– of having pleasure metted out in proportion to wants– is a good mark of freedom. Where does this standard leave man? In a perfect state of equilibrium. But is equilibrium man’s greatest achievement, his highest aim, the natural denouement of successful living?

I must ask myself more about equilibrium to discover whether this is a good measure for judging man. What is equilibrium? A state of rest or balance due to the equal action of opposing forces, an equality of balance, a calmness. From this definition I would ask whether we could equate equilibrium with man’s desire for self-preservation; is their aim one in the same?  Self-preservation is a process of maintenance of body and mind, so as to keep alive or conserve existence, or make lasting. In this light, equilibrium and self-preservation seem to be compatible states, achieving one in the same end, namely balance or preservation.

I must implore, however, as to whether this situation is reflective of nature, or a product of man’s mind? Is nature constantly seeking to retain equilibrium? Is life characterized by preservation?

Let’s observe the most obvious characteristics, in my mind, of natural experience: when my mind meets with the impressions afforded to me by my senses, there are two reigning features which traverse through all collective experience past and present. These being the continuity of consciousness and the constancy of change. The continuity of consciousness, I can conclude, is not a feature of experience, for even when I sleep I possess a consciousness, but a feature of mind alone. The constancy of change, however, is a guarantee endemic to nature, indelibly present throughout the physical world, that renders every moment of experience wholly unique and never the same.

Can we say that equilibrium and change are synonymous features? Certainly not. Does life stay the same, or is it in perpetual change? I would reply that life is in perpetual change, for I am not the boy of  my youth, neither is a frog still a tadpole or butterfly a caterpillar.

To exist occurs in the moment, to live occurs over moments. I hold then, that equilibrium is death, whereas disequilibrium is life. In this way existing is a mode of self-preservation, whereas living is a mode of thriving.

In summation, the satisfaction of desires, the end of want, places man in a state of equilibrium that is typified by the complacent tranquility which is characteristic of death. For man to be truly alive he must evolve, he must seek out disequilibrium, living in a state of anxiety and incertitude. To do this, man must not feign satisfaction, nor be satisfied with equilibrium.

Freedom, then, is disequilibrium, a form of living that transcends and expands consciousness. When change occurs, the man living in disequilibrium, having no complacent expectations, and always ready for change, does not flinch nor does he hesitate to move or act or think. His life is a fluid change.

This is freedom. Not all men possess it. Those who do act alone.

“Companions the creator seeks, not corpses, not herds and believers. Fellow creators the creator seeks—those who write new values on new tablets. Companions the creator seeks, and fellow harvesters; for everything about him is ripe for the harvest.”
—Nietzsche, Thus Spake Zarathustra