Used Poorly Politics And Economics Are A Bad Combination

As I grow older I become more confused about politics. At one time, I thought it was about a way to accumulate enough power and influence to accomplish things necessary for the success of the country and its citizens. It might still be that but it is deeply buried if it is.

Politics is now more about causes and details and there is little leadership aimed at the success of the people.

Economics is the study of scarcity. It plays out as the study of how people allocate scarce resources to optimize their own life. (microeconomics) The big brother is macroeconomics which is the study of how the societal system allocates the resources.

Capitalism is not a political system 

In its simplest form, it is a way to allocate resources. It becomes susceptible to political activity when you notice how it allocates scarce resources. In its simplest form resources accrue to those who make a contribution to others. People who don’t contribute much to society tend to accrue less.

That wealth is not distributed to everyone more or less fairly troubles some people. The very wealthy claim to be concerned about it and some do something about it. One example I heard recently was economist Glenn Loury talking about how Black colleges had very little money until John D. Rockefeller funded many of them. The Gates Foundation seems to provide value in the area of bacterial infectious diseases. Loury claims they look for programs that can solve a problem and one that has few if any patrons.

Those who feel they’d deserve more and others less are everywhere. They may not say it that way, but the meaning is clear. Most of these people believe in the redistribution of both wealth and income. Socialism and communism are versions of this thought.

Socialism and capitalism both relate to the distribution of scarce resources. In the beginning, neither is political. Socialism is a theoretical concept and would not evolve naturally. It is the first to need a political element.

Where politics shows up in socialism

For socialism to take root there is always and everywhere the need for a strong government. Socialism is not possible without such a government. Governments of this type grow stronger as they age because they must. Many if not all people resent the idea of giving up ever-larger shares of their income.

The idea of equality is a slippery one and even the Marxist approach recognizes differences in people. In 1875 Karl Marx made the pronouncement of Marxism purpose, “From each according to his ability, to each according to his needs.” Clearly, Marx recognized that in terms of the “from side” people were not equal. What he did not fully address was how the system would create wealth producers and at the same time make them want to work hard for the benefit of those who either could not work or didn’t want to.

I had a discussion recently with a smart young person and we talked about how large institutions like banks and governments can do anything. When they say they cannot, they lie. The trick for the outsider is to find a way to get them to want to do what you want.

The failure to address that means the producer group shrinks both in number and in production. The root of failure is to ignore what the people want with the idea the government can make them do what it wants. History says, so far no one has ever made it work. When things fail it behooves the architects to study causes, not push harder don’t eh failed approach.

Where politics shows up in capitalism

In theory, politics need not be involved in capitalism but people aren’t wired that way. If you want to know what is likely to happen, begin by looking for what people want to have happen. Let’s suppose you have built a business and have few competitors. What should you do first? I’m not sure what I would recommend every time, but preventing competitors from arising would be high on the list.

There are two ways to do that. Develop better and better products or services, deliverable at lower and lower prices. That leads to a large market share and cost leadership. Neither can be easily achieved by a new entrant. So few enter. But, that’s challenging work. What if there is a cheaper way?

The cheaper ways involve getting the government to pass laws “for the benefit of the people” that are easy for you to comply with but too expensive for smaller entities. Ideally, the new law should command something you already do.

Another form of advantage seeking through government is the development of licenses, employment standards, minimum wage laws, unions, immigration flooding keeps high skilled local workers at lower pay rates, (Look up H1-B visas), zoning rules, and a hundred more. That all of these can confer a benefit on the political apparatus is not a coincidence. Politicians love power and the ability to create rules and favours for friends is exactly what they like. Sometimes what they do helps the people, but that is often by mere accident.

When you look at objective evidence, many of the sacred things politicians do and want to do for the people turn out to be payoffs for their wealthy benefactors.

The problem

Politics is about accumulating power to accomplish tasks. Economics is about rewarding, skill, innovations, and risk in accomplishing value for the customers. The problem arises in two ways:

  1. when money is used to manipulate power, and
  2. when people who produce nothing that is marketable acquire power by promising to help the people who are not yet billionaires. Given inflation that could I happen, I suppose.

Using money to gain influence is as old as money and people.

Decades ago, Thomas Sowell commented on the second. “Much of the social history of the Western world, over the past three decades, has been a history of replacing what worked with what sounded good. “

Politicians are smart enough to convince the people that their efforts are valuable and required. Sometimes the cynic in me says, “What if they are not?” Then what?

The bits to take away.

When economics and politics combine, the people don’t see the power advantage and are often manipulated. It is not so different when religion and politics combine.

If there is an advantage to be gained by unethical behaviour, and it is unlikely you will be discovered or will be easily forgiven if caught, you can count on it happening 100% of the time.

Politics should be like an umpire in a baseball game. The best umpires do their work and no one notices them. The game doesn’t work very well when they become part of the show.

People should spend a little time thinking about how economics and politics work, and demand that their wishes be respected. Let’s minimize the manipulation of what is going on. Elon Musk’s purchase of Twitter may be a beginning.

When people don’t have the information they need and they don’t understand how the system works, very weak results come to be. Know more. Demand more. Participate more. Know what it means, not what they tell you it is.


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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com

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