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20160430 Mass Flourishing

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MAIN IDEA:

The main idea of this book is to review economic and political logic of western society development from relatively unabridged capitalism through socialist and corporatist systems of XX century to contemporary modern welfare economics, which combines relative material wellbeing with stagnation and psychological deterioration of human lives. The author seems to believe that the way out is expansion and improvement of education, encouragement of innovation, and creation of new dynamic environment via decrease in regulations and taxation.

DETAILS:

Introduction: Advent of the Modern Economies

It starts with review of history of development of economic knowledge. After brief reference to previous periods author starts with XIX century because it was period when people in developed countries started working for market rather than for direct consumption in order to meet their own needs. He looks first at mercantile approach to economics that was typical before 1820, but then was supplemented by different approach – free trade with explosive growth in productivity and output. Author is skeptical about usual explanation of this by economy of scale and/or increase in capital stock. He believes that much more important was development of economic knowledge: what market needs and how to meet these needs. Moreover this economic knowledge was acquired by millions of people of all intellectual levels in process of participating in market economy that rewarded useful innovation either technological, or in business process or whatever as long as this innovation provided good return on investment.

PART ONE: The Experience of the Modern Economy

This part looks at how modern economies come about and what caused dramatic change in the way people do things.

  1. How Modem Economies Got Their Dynamism

Author reviews the very concept of dynamism and then applies its method to understand formation of modern economies. Then he looks at “Inner working” of modern economies as system of innovations and at social system that allows it via competition, property rights, limitations on external control of business and technological decisions.

  1. Material Effects of the Modem Economies

This chapter is about tremendous growth of productivity and wages, but also about non-linear connection between these two characteristics. Overall, contrary to Marxist conceptions, this connection is strong and positive. For example ratio of wages to national output per capita grew from 191 in 1830 to 230 in 1910 in Britain and 199 in 1870s to 208 in France. However gains in overall resource availability were offset by increase in unreliability of income due to unemployment and impact on quality of live due to the nature of industrial labor. Overall material conditions of live changed dramatically with industrialization.

  1. The Experience of Modem Life

This is about changes in arts, philosophy, entertainment that occurred due to change in methods of resource production and acquisition in industrial society. It was not one directional change, but rather positive feedback loop when art impacted people’s attitudes and consequently caused changes in politics and business.

  1. How Modem Economies Formed

This is an analysis of what author calls “chronically innovative economies”, the ones typical for capitalistic development based on combination of Freedom, Property and Finance. Author also analyses political institutions necessary for maintaining all 3 components, making the case of Representative democracy being the only known system more or less effectively supporting all of them. At the end of chapter author summarizing his case for modern economics being a stunning success in both material and non-material dimensions. He also stresses huge difference between contemporary economy and mercantile economies of previous centuries.

PART TWO: Against the Modern Economy

This part about perceived evils of capitalism starts with a couple of charming quotes from Einstein and Lenin about need for socialism setup against quote from Craig Venter: “You don’t understand something until you built it”.

  1. The Lure of Socialism

Here author looks at discontents of capitalism and reasons for their unhappiness from cyclical character of economy to financial bubbles and initial absence of safety net. After that he looks at the Idea of socialism as a radical cure of capitalism’s ills. Unlike typical academic writers author provides a brief review of economic thought rejecting the very idea of socialism as unworkable due to human nature that required initiative for people to be effective and efficient (von Mises) and not less important just plain impossibility of valid economic calculation in socialist system where distributed knowledge is not applied in decision making (von Hayek). The failures of socialism were convincingly confirmed by its real live implementation in many countries and at the cost of hundreds of millions of human lives.

  1. The Third Way: Corporatism Right and Left

This chapter analyses the bastard child of socialism – corporatism as theoretical idea, its initial implementation in fascist Italy, and its consequential reincarnation as welfare state that more or less conquered western world, bringing with it suppression of innovation and slowing of economic growth. The key idea of corporatism is limitation of economic freedom by government bureaucracy that defines strategic directions, redistributes resources at will, and supposedly assure harmonization of interests in society overall without interfering in details of running business.

  1. Weighing the Rivals on Their Terms

In this chapter author compares different types of economic systems based on historical data. For socialism author uses its relatively benign form as public business in western countries, demonstrating nevertheless that even in this case in is greatly underperforms, failing to create superior levels of production. Similar look at corporatist economies clearly shows that while not as bad as socialist, these economies seriously underperform in area of innovation. Needless to say, that both these systems are producing extremely high levels of corruption.

  1. The Satisfaction of Nations

The last chapter of this part looks at the final result of economic system: people’s satisfaction with their lives. Author provides some interesting statistics including this one:

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He also analyses relation between satisfaction and cultural characteristics such as modernism and traditionalism:

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PART THREE: Decay and Refounding

  1. Markers of Post-1960s Decline

This chapter is about decline of growth and prosperity of the West after 1960s. Here is a nice graph demonstrating this point:

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  1. Understanding the Post-1960s Decline

This chapter goes into analysis of reasons for decline and comes up with the following:

  • Structural faults in large Firms, Mutual Funds, and Banks
  • The “Money Culture: Self-importance, Doing and Thinking”
  • A Broader Nexus Between the State and Economy

All above limit value of work and efforts, leading to decrease in participation in work force and wage to wealth ratio:

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  1. The Good Life: Aristotle and the Moderns

This chapter is somewhat deviation to philosophical issue of the meaning of good live. Author briefly reviews Humanitarian, Pragmatic, Aristotelian, and Vitalistian concepts of good live and stresses that all of them require good economy as necessary condition, stressing however that it is not enough because even good economy could fail to support good live if it has embedded inequalities and unfairness.

  1. The Good and the Just

The final chapter goes into more detailed discussion of justice in economy, especially in relation to huge diversity of human individuals and their multiple natures. It compares all discussed forms of economies: capitalist, socialist, and corporatists, inferring that the modern capitalist economy or in other words moderate welfare state is the system most conductive to human flourishing if correctly tuned for that. Author seems to be inclined to support economic freedom of capitalism, but find it insufficient because of limited access to resources for majority of people. He seems to be considers America as more shifted to the freedom at the expense of resources (welfare), while Europe as more shifted to resource redistribution at the expense of economic freedom. The former leads to overwork and unhappiness, while the latter to economic stagnation.

Epilogue: Regaining the Modem

At the end author looks at recent events including crisis of 2008 and discusses the way to the future that he believes should include an innovative combination of traditional capitalist values and modern welfare for everybody values.

MY TAKE ON IT:

I find the factual part of this book interesting, albeit quite familiar. However general recommendations for way out to the better future seems to me quite insufficient. I believe that in order to get out of this dead end we need not just a bit of tinkering with the system, but complete restructuring of the system, which I see as implementation of equal property right for natural resources for everybody with individuals most effective in use of natural resources renting rights for such use from individuals less effective, turning them from passive recipients of loot robbed by the state via taxes into active sellers of valuable commodity. I also believe that all regulations should be substituted by state provided information about all relevant issues to sellers and buyers, limiting therefore use of government violence to protection of property and acquisition of information that individual prefer not to disclose. I guess the most important idea in this book is that status quo is not sustainable on the long run and the great changes are required.

 


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