Creation and Preservation of True Wealth

Economic Mechanisms for the Creation and Preservation of True Wealth: Part 1

As I have pointed before, in advanced economies with a high degree of specialization of labor, economic self-reliance is a delusion. Suppose that you are an entrepreneur who is one of the most industrious, hard-working, creative, entrepreneurial individuals who ever lived. After decades of productivity, you have chosen to keep your stored wealth in the form of gold bars in a guarded vault. One night as you are sleeping a malevolent sorcerer casts a spell on you, and you and your pile of gold bars are magically transported to another world where you are the only intelligent, tool using creature alive. You will no longer be a rich person. You will have to collect/grow/hunt your own food, build and maintain your own shelter, manufacture your own clothes, collect your own energy supplies etc. Your pile of gold bars will cease to have any meaning. Without a functioning, healthy economic system populated with educated, skilled workers, your so-called private wealth has vanished.

Or suppose that another magician casts a spell which caused every bit of fossil fuel, every bit of uranium, every bit of heavy metal ore to vanish from the earth overnight while the human race and its manufactured artifacts remain in place. In the chaos that ensues the only short term wealth will accrue to those who can plunder goods from existing stores by forming coalitions of coercive power. In the longer term, new productive systems could be established, although the level of productivity would never match that of the older resource rich society. In this second case you might, in time, become relatively wealthy again though some combination of further entrepreneurship and/or hanging on to your gold until such time as a relatively ordered economic system re-emerged, and people started to value gold for jewelry or as a display of relative rank. However, your absolute wealth would never return to its previous high level.

Thus the only true source of wealth in modern complex economies is a functioning, healthy economic system, with adequate supplies of production resources. What is truly bizarre about our society is that no explicit mechanism exists for recognizing and fostering this source of wealth. As economic actors our job is to find some specialized task and to concentrate on performing it as effectively as possible in order to maximize the amount of output we can command from the overall productive system, at the same time simply trusting that the overall productivity of the system will be maintained (and, in fact, will grow forever!) without explicit effort on our part to ensure that such maintenance takes place.

If, like myself, you reject the notion promoted by cornucopian economists that human inventiveness will transcend all possible resource limitations so that our economic productivity will grow forever, then we must think about how to explicitly include concern for the overall health of the productive system as part of our daily economic lives. I see two mechanisms for building such concern into the structure of the economy. The first involves income distribution and the second involves economic planning (Yes, I said the P word). In this post I will discuss the mechanism involving income distribution, and I will save a discussion of the dreaded ogre, economic planning, for a later post.

My idea then is to substantially equalize incomes. A maximum income should exist which cannot be exceeded and to which in fact the vast majority of competent working people (including blue collar workers, white collar workers, manual laborers, engineers, high level managers, politicians, etc) would attain. No matter how talented, hard working, creative, etc you are your income will not exceed the level obtained by the majority of competent workers. Of course people may earn less than this maximum income. A business which is performing poorly might reduce salaries in an effort to survive, and people who are unemployed or under employed or who simply refuse to work will receive less income than this common maximum. The reason for this equalization of incomes is that the average income depends on the overall productivity of the economic system, so that if we start damaging the true sources of our long term wealth, everyone will starting hurting together and will be motivated to pursue actions which maintain the size of the overall pie rather than trying to make their own piece as large as possible.

It is also necessary to include future income (i.e. retirement income) in this scheme as well as present income. Retirement would be based on a system of universal social security. The physical reality of retirement income is that the people who are still working give economic output to the people who are retired. Pensions, IRAs, 401K plans etc. are merely an accounting system which determines the relative amount of economic output that the various retirees are entitled to receive. If the workers of the world went on strike tomorrow even Bill Gates would be in trouble. According to my idea, money would be taken from the incomes of currently employed people and given to people who are retired. The amount of income that a retired person receives would be based on the total income they made during the years they were employed and on the age at which they start receiving retirement income. During your years of employment you are supporting the people who are retired, and when you finally retire you are supported by the following generation of workers. This arrangement is the physical reality of our current economic system anyway. This proposal just makes the retirement accounting system more universal and equitable.

Since we are envisioning a post growth economy, there would of course be no interest bearing financial investments available. However, one could still save money if one wanted to. Saving money of course is simply forgoing your right to consume economic output. Your income represents the economic output you produce, so saving some of it implies that you are not taking everything in trade for that output to which you are entitled in the current year. These savings could be used to tide you over during a period of unemployment or they could be used to retire early if you value freedom more than excess economic consumption. Nevertheless, retirement security would no longer be based on the accumulation of large sums of money, so that anxiety about the future would not lead to the kind of destructive behavior which is almost universal in our current economic system.

But this idea will never work! you tell me. If exceptionally productive people cannot consume more economic output than their less productive fellows, then they will just lay around the shanty all day and smoke pot rather than working. Well, not quite all day. They will still have to earn enough money to maintain their shanty and to buy pot (not to mention food and clothing). However, if they can earn this much money by working one day a week then they would indeed be free to lay around for the rest of the time if they chose to so. The drive to endlessly accumulate personal wealth is precisely the drive we are trying to eliminate.

However, since the economic system I am envisioning would arise only in response to a substantial loss of productivity caused by resource shortages, I think that percentage of people who could earn money hand over fist without really trying would be relatively small. Still, I cannot deny that in such an economic system a person with a relatively rare talent that was in high demand could work less hours than the majority of people. After all, if higher salary cannot be used as an economic carrot then the only other option is easier working conditions. The reward of superior productivity would be freedom. For me such a system would be economic heaven. For me, free time would be a hundred times stronger motivation for productivity improvements than salary increases or job promotion. Since peak oil website are full of postings claiming that human beings are programmed by their genes to compete for resources, I can only conclude that I am a genetic freak. I pray, however, that other freaks like me exist in this world.

Of course society would be much better off if talented people who earned a lot of time off did something more productive with that time than laying about and consuming recreational drugs. The poverty of the modern imagination spawned by the domination of the market mentality is an incredible phenomenon to behold. Why do we imagine that productivity cannot exist outside of the market? Scientific, medical, agricultural, medical, and engineering research would still be needed. The purpose of this research would no longer be to increase the volume of production of new toys as fast as possible. Rather the purpose would be to produce necessary economic output with a minimum consumption of production resources and minimum destructive effect on the biosphere. Is it really impossible for people to be motivated to contribute to such research without an immediate motivation of personal riches? And what about the public sphere of production? Wouldn’t it be nice to devote some of our creative energy to building beautiful, livable, villages, towns and cities, rather than building endless hideous housing tracts and strip malls that earn lots of money for developers but make our civic spaces oppressive places to live? And what about eco-system restoration and species preservation? Such activities may be vital to our long term sustainable wealth even though their short term payback in market terms may not be high or easily measurable. Other important and valuable activities can be added to this list by people whose creative faculty has not completely atrophied. As long as we go on insisting that the only proper outlet for our creative and entrepreneurial energy is the accumulation of private wealth, the cycle of destruction of public wealth cannot be halted.

June 13, 2007