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The Myth that Economic Success Requires Personal Freedom

There is a persistent myth that democracy and personal freedom are necessary to produce economic growth, and that the USA will somehow retain its economic dominance solely because of our relative degree of personal freedom. (This myth is most commonly known as ‘The Power of American Ingenuity.’)

I don’t believe this is the case. Left to themselves, people decide at some point that free time and their own sports, hobbies, or other non-productive pursuits are worth more to them than an extra quarter point of GDP.

However, if the governing class restricts personal freedom sufficiently, then economic success is the only personal freedom left, and people will pursue it because it’s all they have. This is why countries like China and Singapore actively restrict personal freedom: it’s actually counterproductive to the goal of boundless exponential economic growth to let people enjoy themselves.

If the environment is sufficiently polluted and destroyed, people won’t want to do unproductive things like go outside. If people have no freedom to act politically, they won’t waste time on unproductive pursuits like political activism. If people have no freedom to do anything but work and shop until they die of environmentally-caused cancer, they’ll work and shop, maximizing GDP, and require expensive cancer treatment, maximizing GDP and minimizing that awkward unproductive time between retirement and death.

Countries like China and Singapore have broken the illusion that personal freedom is necessary for economic success. (And, therefore, political success—having the best technology and the most surplus economic capacity to have the biggest, best-armed military in the world is what has made the USA dominant in world politics.)

This blog post summarizes a Robert Barro essay that appears to corroborate my thesis: the rule of law is most important for economic growth, regardless of personal freedom. Democracy is a much smaller determinant…and it turns out that too much democracy is just as detrimental to economic growth as too little.

This leaves us with a question:

If personal freedom is not the most efficient way to achieve economic success—and personal freedom is more important to us than the final increment of economic success that losing some of our freedom brings—then how do we maintain independence against more efficient entities?

(We see a practical application of this problem every time a happy, peaceful native tribe is slaughtered or dispossessed in order to drill for oil or mine for metal. The tribe members are much happier than the mine workers who replace them—or even the mining company owners—but they are helpless to prevent their own slaughter.)

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  • Dimitri

    I totally agree. Free society is hampered by negative externalities (I think thats the term). That when the benefit to the individual is much larger then the cost to others. Ie, you pour fertilizer on your lawn and it looks great (benefit to you), but the runoff flows into the river and damages the ecosystem there (cost). The benefit to you is larger then the cost to society so you keep doing it. Also I think free markets are often not fwd looking, in the sense that they can’t accurately predict future costs. In the example above we could argue that eventually the cost of clean water would go up and force you to stop polluting. The problem is that by the time this happens, it might be too late and the damage might be irreversible. Less free societies are more planned and therefore by definition more fwd looking, so they operate smoother. Totally free markets drive by looking backwards, looking at what has already happened, planned societies drive by looking fwd at what could happen.

  • First off, you are using freedom and democracy interchangeably. Democracy is majority rule, not freedom.

    A republic with a proper constitution that protects individual rights including property rights is. Requirement for progress.

    What you’re seeing in the west is the effects of ever increasing statism and the corresponding entitlement mentality, not the effect of too much freedom, but just the opposite.

    What youre seeing in china and Singapore is the introduction of a certain amount of property rights and the corresponding improvements that are very predictable. They are thriving because of this and despite the restriction of other liberties. As they get more and more a taste of freedom, they will want more as well.

    The rule of law that you speak of, is a requirement but not in the way that you state it. What is needed is rule of law that protects rights and prevents fraud and enforces contracts thus making sure you dont have rule of force of mafia types. You are crediting tyranny and oppression.

    I’m hoping I misunderstood your article. If so, correct me, if not, it is disturbing.

  • Rick:

    Stated another way:

    1) Economic and personal freedom are separable concepts, both in theory and in practice.

    2) It is possible to achieve greater economic productivity by allowing economic freedom while curtailing personal freedom than by allowing both economic and personal freedom.

    3) Currently, I believe that China best exemplifies this thesis.

    Does that help?


  • Freedom is freedom. The only reason it is working in china is because they went from no freedom to some freedom. More freedom = better economy.

    You could not go the other way from more freedom to less, I.e. Curtail personal and expect more productivity.

    This has been proven over and over again.. Are you advocating curtailing freedom? Or are you advocating that productivity is bad per se? This is what disturbs me about the article other than the fact that you are using democracy and freedom as synonyms, a very common error that implies a misunderstanding of the concept of individual rights at a very basic level.

    Again, the decline in the west’s productivity is due to decReasing not excessive freedom.

    “Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries.”. Ayn Rand

  • Rick:

    I'm not advocating curtailing freedom.  Furthermore, the current US political climate is one of decreased economic AND personal freedom, and it has been so for decades regardless of the party in power.

    I'm showing that the path to maximum GDP most likely involves a combination of decreased personal freedom and increased economic freedom.  Therefore:

    1) If we decide that maximum economic output is our most important goal as a society, that goal is most likely not compatible with a goal of maximum personal freedom.

    2) If we choose freedom, then in the long term, how do we deal with other nations that are more economically efficient than we are?


  • Chris

    This is yet another example of the broken window fallacy: the idea that we can become more wealthy by replacing things of greater value (in this case, what we would do if we had the freedom) with things of lesser value (what we do because we can’t do what we really want).

  • Sam

    I'm not familiar with the myth that freedom and democracy are a requirement for economic growth.  Where can I read about this myth? 

  • Chris:

    That's true: “GDP” doesn't measure anyone's personal wealth, it measures aggregate economic activity.  Getting cancer increases GDP in the short term, because you'll need expensive treatment…and so on.  What is seen and what is not seen, etc.

    The interesting question is: how do we compete against entities willing to force the tradeoff of personal wealth (and freedom) for aggregate national productivity?


    Google “democracy and economic growth” for a raft of papers on the subject — few of which agree.


  • Chris

    That it doesn’t matter to GDP whether I spend $100K to build a second house to spend summers in or rebuild a house destroyed by a hurricane should make it obvious that GDP is a deeply flawed metric. GDP goes up by $100K in both scenarios but I have one house in one scenario and two houses in the other. Which scenario shows a greater increase in real aggregate wealth?

    How to compete is not a particularly interesting question because it’s one that has long since been answered with black markets and the occasional revolution.

  • Sam

    OK, I think I'm starting to follow what the point of this is.  J is concerned that if our society is too free we won't be able to compete with societies with more restrictive governments.  I think I can address this a couple of different ways.  First, the United States is hardly a free society.  We may be more free than almost every other nation, but we are regulated in almost everything we do.  Try doing something where no law is directly or indirectly impacting what you are doing.  I think you will find it very difficult if not impossible.  So, we undoubtedly have plenty of restrictions and direction to keep us competitive. 


    The other way that I look at this is that liberty as a value should have nothing to do with GDP.  If one believes, as I do, that freedom is a right, and any limitation on it should be given carefully and grudgingly, then GDP is irrelevant.  I would rather live in a smaller, less productive country with maximum freedom, then one that further limits freedoms in order to boost wealth.  I am not conceding that more freedom would make us less productive, but simply saying it doesn't matter.

  • Chris:

    You'll hear no argument from me abotu GDP.

    However, I'm not sure that “black markets and the occasional revolution” trump the Panopticon society of “everyone has a cell phone and the government knows where they are at all times”.  Is it even possible for China to erupt in revolt anymore?  They do such a good job of suppressing potentially dangerous political/social movements that I'm not sure it is.  I fear the only trump is complete economic and technological collapse.


    Recall that I'm talking about economic competition.  The US was the pre-eminent world power after WWII because everyone else's industrial base was rubble and cinders.  Now we're losing our grip because an economy based on selling real estate back and forth at ever-inflating prices isn't the same thing as having the ability to make things the rest of the world wants.

    And I'm pretty sure that being an economic power does matter: access to basic things like oil and copper is getting tight, which is why China is buying up the rest of the world as quickly as it can, while all its US dollars are still worth something.  Free and desperately poor (and paying rent to China/Russia) isn't a recipe for success in the long run: you'll just get overrun by countries with functional militaries.


  • Chris

    Technology is a powerful force for empowering individuals and precipitating radical change–vis. the middle east protests. And the USSR used to be very good at suppressing revolution, too, but the results of that experiment remind me of an Ovid quote: Dripping water hollows out stone, not through force but through persistence.

    Regarding what you said to Sam, so what if China spends all its hoarded US dollars buying up valuable stuff? The US dollar is only valuable because it can buy stuff in the US. The global value of the dollar will drop, which will drive down US imports and drive up US exports and foreign investments in the US and lead to long-run economic growth of the sort the US is desperate for. The only one who can hurt the US in that deal is the US by imposing trade restrictions on the American people and driving up the cost and down the likelihood of foreigners doing business with the US. It doesn’t matter who owns the building where your office is when you’re free to do business with whoever offers the best office space at the best price.

  • Chris:

    Technology can be a powerful force: but the Chinese seem to be doing a smart job of making sure they control the flow of information on it.  And if China buys up access to raw materials, then a weak US dollar doesn't result in US profits.  Even bringing manufacturing home would mean that China profits, since we'd have to pay rent to them to get the raw materials.

    Yes, the free market solves most problems: but since market participants profit from subverting a free market, the natural state is coercion and monopoly.  Markets must be actively maintained.


  • DT

    JS: couldn't agree more.  China is the perfect example of what happens when you restrict personal liberty and loosen the reigns on the economy.  and it's obvious that the markets must be maintained because those in power already know that a mildly corruptable market is still better for them than a failed one.  

    IMO, China is run just like a corporation: my corp tells me(tries anyway) what to wear to work, how to work, when to work, how much I get paid, when to open and close, what I'm allowed to do on the clock and not(cell phones, smoking weed lol, eating, etc.). They also determine in large part where I will live, if I can move, and all sorts of other things.  The PRC does exactly the same thing.  The only things that the Corp and the PRC dont restrict as much of is economic growth.  They both want us( or the Chinese people) to make them as much money as possible.  And ok, I'll admit that this is a grossly simplistic example and it sounds like I'm in full support of communism(which i'm not) but I believe it works.  

    Never underestimate the chinese people or their government.  I've made a 15 year study of that country and it's people and traditions(especially Taoism-which despite what the modern “white people taoists” would have you believe is surprisingly Paleo; just google “taoism against grains”) they are much smarter than we even give them credit for in our jokes about how smart they are.  lol  


  • DT:

    That's a fascinating bit of information about Taoism…thanks!

    And you make an excellent point about the PRC acting similarly to a corporation, which is the main problem I have with libertarianism — the idea that profit-making entities somehow deserve special exemptions to the rules of liability.  Let's see, I can be completely not responsible for my own actions if I've first created a legal fiction known as a “corporation”, which is immortal and cannot be jailed or restrained, onto which I can deflect all consequences of what I do…?  And now we're surprised that these immortal, unpunishable fictional entities own and run everything?

    If libertarians really believed their own rhetoric, the first plank of every libertarian would be “Abolish corporations.”  (The second is strictly a subset of the first, but to be clear, it should be “Abolish banks,” which are just another set of special exemptions to the rules you and I must follow.)



    Since this is my first post on your blog I have to start by saying that I loved the book and your little corner of the internet.  That being said I think you're opinion of libertarianism is probally being biased from one popular libertarian site on the internet.  I consider myself a Libertarian and definelty do not believe in the protection given by incorporation.  Any tru free market economist would recognize that corporations are just another government intervention in the market place.  Also most libertarian writing I have read do want to get rid of the banks (or at least the current version of it).

    While I think your thesis is interesting I personally think that you cant separate personal and economic freedom.  How do you say you are personally free but not economically free?  IMO your labor is the most personal thing that you can own and if you dont own it fully then you are not free.  I realize that by my definition almost no one is free and I think that it probably is an accurate reflection of the world.  That's not to say I don't believe that some people are more free than others or that we are in terrible shape because we dont live in a truly free society.  There are degrees to everything.

    I agree with your assertion that markets need to be maintained by rule of law.  But I believe that like many things there is a U shaped curve where at one end government involvement increases output and at the other end it diminishes it.  Both the US and China are both on the end of to much governement involvement.  I also think that they are both to far up the curve for “Freedom”  of any type to matter.  Closer to the bottom of the curve I think “Freedom” would most definetly play a role but both economies are to centrally planned at this point to really have an affect.  At this point it is more a matter of who has the better plan which only time will tell.

    Thanks again for a cool little website



    I meant an inverted U shaped curve not a normal U shaped curve. 

  • Scotlyn

    Not sure if there is any connection between (finely parsed) degrees of freedom and economic growth.  Economic growth, as we know it in this and the past century, is an artifact of an abnormally high input of energy into the system, in the form of oil, stored in the earth over hundreds of millions of years, and (largely) mined and used up all in one go in the space of around 150 years or so (including an estimated 30-50 years into the future). 

    It is very hard to imagine endless economic growth under any other circumstances than this artificial, never to be repeated, energy boost. (PS – as a farmer, I can also tell you it is very hard to imagine cereal-based agriculture under any other circumstances either).  Once we are confronted with the end of the oil supply (peak oil analysts estimate that the “peak” in terms of worldwide production, occurred in 2005/2006 or thereabouts), growth will no longer be as attractive a concept as sustainability. 

    Importantly, we will then have to figure out what it is we want to sustain.  For example, lifestyles that have a component of enjoyable, creative leisure time, once we have satisfied our body's wants, may turn out to be what we really want. 

    I certainly see freedom as compatible with sustainability. 


    I'm glad you enjoyed The Gnoll Credo!

    “Any tru free market economist would recognize that corporations are just another government intervention in the market place.”

    I absolutely agree!  But I don't see that acknowledged by mainstream libertarianism.  Perhaps I'm not looking in the right places, but the critique of corporations seems to belong exclusively to the Left — and even then is generally limited to revoking corporate personhood, not to questioning the existence of corporate privilege itself.

    As far as separating personal and economic freedom, look at Singapore or China.  Neither has any concept of inalienable rights — let alone those listed in our Constitution or its first ten amendments.  Yet their residents have roughly the same degree of freedom to do business that we do.

    You're probably right about the U-shaped curve.  Both ends are a free-for-all — one end because there is no authority, one end because everything is done on the black market, which has no recourse to authority.

    Thanks for your perceptive comments.  Stop by anytime!


    Yes.  Even if you gloss over the oil issue and posit free energy, topsoil depletion, groundwater contamination/eutrophication, and ocean overfishing hit us very quickly.  Not to mention that all the rare earths which make technology possible are in even shorter supply, and AFAIK 98% of them come out of one hole in China…

    As far as freedom vs. sustainability, it's actually a triangular tradeoff between freedom, sustainability, and population.  With low population, we can have more freedom because we don't have to work as hard at sustainability.  With high population, we have less freedom for the same sustainability.  In order to have ultimate freedom, we must either sacrifice sustainability or high population.  Etc.


  • Scotlyn

    I suppose I should clarify – you initially spoke of economic “success” but then the concept of economic “growth” crept in, as if it was interchangeable.  “Growth” is an artifact of the readily available supply of something that initially seems endless – in the past few centuries, this has included new lands (forget about the people already living there), oceans, and petroleum-based easy energy (which feeds easy cereal feeding of the world).  All of these things will quickly prove (I expect within my lifetime and that of my children) NOT to be endless. 

    I understand your point about population, freedom and sustainability, but we can't really even have this conversation properly until we give up the delusion of growth, and start focussing on quality of life, quality of planet, and issues of that nature.

    Human overpopulation is also an artifact of this recent (in planetary terms) of “growth” – especially as it has made possible the over-feeding with petroleum-pumped cereals – all animal populations increase their numbers in the face of surplus food.  Severe reductions in our population may lie ahead in any case, through war, starvation, illness, storm, drought, etc…  Planned reductions would be nicer and less violent, of course, but again, we have to give up the delusion of economic “growth”  to even have that conversation sensibly.  And one other thing we need to give up in order to have that conversation sensibly is the implication that “you're hurting me by having all those babies” to which the reply might (just as correctly) be “you're hurting me by stealing my food, water and self-sufficiency, to support your lifestyle and if I can rear two children to adulthood out of all the children I give birth to, I'll be lucky.”  None of this recrimination helps the conversation at all.

    What helps is paying attention to the detail of what's wrong, and doing what we can to help it go better.

    Then there is the originally stated concept of economic “success.”  On an individual basis, of course, this definition is very subjective. For example, actual money is a thing that rarely shows itself in my house, and when it does, we usually manage to send it on its way again fairly quickly.  Nevertheless, since we measure our life satisfaction in terms of good food, good company, creative opportunities for making or bartering for what we need, leisure time to sit and think, a few good books to read, a productive garden in the summer and fat pigs in the winter, coupled with very little “wanting” of things in shops, we are personally much more than “successful.”

    As to the economic success of a country, I measure economic success by the condition of the poorest.  If its economy cannot lift all boats to some degree, it is not a success.  The super-wealthy have always been with us (well, at least since
    agriculture was invented).  Nothing new, innovative or successful about
    that. The super-wealth of a few can happily co-exist with slavery or serfdom.  It is the democratisation of wealth, land-owning, production, etc,
    that is new, and when allowed to develop properly, successful.  By this measure, the US was much more “successful” post-depression and up to the 70's or so, as FDR's measures kicked in and took hold.  This success began to erode once Reagan began overturning as many of these measures as he could – uncoupling the fortunes of the wealthy from those of the poorest, in the face of which no “common good” is possible.  And to a reversion to a type of debt-serfdom of the majority. In the present day, countries such as Sweden and Norway are among the most “successful” in my view. Their economy is run at the service of the citizens, not the citizens at the service of the economy.


  • Scotlyn

    PS – The “Mars Trilogy” by Kim Stanley Robinson (particularly book two) is excellent for thinking about economies in really innovative new ways, especially on how to run an economy in the context of resources that are scarce by definition.

  • mm

    Stanton, I don’t know if this was intentional or not but your joke of inducing cancer to increase GDP growth from cancer treatment sounds quite Keynesian and a huge malinvestment of funds… they might as well pay people to break windows and pay others to build and fix them to boost the economy.

    That got me thinking: if you don’t know who Keynes is and what I mean by that, you should stop making economics-related blog posts until you transcend the dunning-kruger effect affecting most people’s conventional views on economics.

    I don’t mean that as an insult or to show how smarter I am for knowing about some random dead guy; I really think you should read up on John Maynard Keynes, and so should anyone else reading this comment. I’m guessing you might know Keynes’ general theories already but for those who don’t, I suggest Hunter Lewis’ book, Where Keynes Went Wrong: And Why World Governments Keep Creating Inflation, Bubbles, and Busts

    Also watch this youtube video:

    Funny video that highlights many of Keynes’ bad ideas. If you understand most of what they’re saying in it, you probably know more about economics than 99% of laymen and probably a decent chunk of “experts” too, especially those in governments – governments like to use Keynesian economics, for obvious reasons.

    Note: politically, Keynes is a “liberal” economist. I’m not saying everyone who believes in Keynesian or liberal economics is suffering from the dunning-kruger effect, just anyone who doesn’t know his principle theories and criticisms since outdated Keynesian theories are lurking everywhere. (I do however think anyone who knows Keynes’ theories and counter-arguments but still believes in his more outdated theories is probably not a very good economist, but at least they’re informed)

    Keynes, in addition to inventing a made-up economic formula about spending and GDP growth, brought us stupid ideas like “consumers need to buy junk to boost our economy” “deficit spending on inefficient make-work programs and stimulus packages helps fight recessions” “Wars are good for the economy. WW2 got America out of the depression” (ha! Keynes got America into a protracted depression – ever heard of the ?)

  • Scotlyn:

    The problem I'm talking about is that a government which values growth above all will outcompete a country that values sustainability, because it's more productive (in the short and medium term).

    If you mine out your resources to overproduce corn and weapons — or, even better, mine out someone else's — you can economically and militarily dominate a country that exists sustainably.  This is basically the history of every empire ever: they expand as long as they can conquer new resources more quickly than they deplete existing ones. 

    This was most obvious with, say, the Romans.  In the modern era, the conquering tends to be softer.  Witness the US practice of agricultural dumping (which I know you've mentioned before) to destabilize local sustainable agriculture, and the historical propping up of banana republics to keep the bananas coming.  We outsource the dirty work of politics to local dictators while keeping the economic spoils.  And China is even more hands-off…they can simply wave around all the trillions of US dollars they've got from keeping the exchange rate artificially low.

    And this is the conundrum I'm bringing to our attention: any sustainable country is competing with a handicap.  If we decide that there are things we value more than economic growth, the countries that value economic growth over all have a huge advantage.

    “By this measure, the US was much more “successful” post-depression and up to the 70's or so, as FDR's measures kicked in and took hold.”

    The US was successful post-WWII because we were the only industrialized world power whose infrastructure didn't consist primarily of smoking craters.  I don't think FDR or his policies had much to do with it, with the probable exception of the GI Bill.

    However, it is true that corporate dominance really got moving in the 1970s and kicked in through the 1980s, as evidenced by the fact that real wages peaked in 1974 and have stagnated or declined ever since.  Corporate welfare is far more pervasive and damaging than individual welfare.

    Also, I don't measure economic success by the condition of the poorest: I measure it by opportunity.  It is very important to note that what currently passes for a “free market” is simple corporate thuggery: any truly free market would immediately abolish the concept of a corporation, which is just a special exemption to the rules for profit-seeking groups.  It's a complex issue.


  • mm:

    I'm absolutely familiar with Keynes' theories, and with why they're wrong — which is why I use the cancer example.  And yes, the “depression of 1920″ was quickly fixed by allowing deflation to take its course, allowing those who had been prudent and saved money (instead of participating in the bubble) to buy overleveraged assets and start them producing again.  What we're doing now is stealing money from the prudent (who would otherwise invest it to restart the economy) and giving it to the stupid and reckless.  Result: less prudence, more stupidity and recklessness.





  • BPT

    This is partly why the earth is going to hell in a hand basket, the idea that growth is the answer to all ills. Bhutan has a wellness measure that is showing alternatives are available. What we value though is getting the bigger TV or the faster car, or now even the electric car.

    Solutions to the topsoil issue, food chain compromise, health and wellbeing are individual concerns and Govt, or Corporate interests will only be mobilised when actual disfunction or an economic need can be identified…so until it is all broken, the current diabolical misallocation of wealth will prevail.

    We are now experiencing what the “Indians” said would be ours to enjoy…not all the trees are felled but we are heading that way.

  • BPT:

    The need for endless growth is an inbuilt 'feature' of our current monetary system, which must expand or crash…but that's another topic for another time.


  • WalterB

    But economic opportunity depends on the rule of law. Without personal freedom the rule of law will be suborned by rich parents obtaining special privileges for their children, if not by an oligarchy of rich people in chahoots

    Once the courts and government are suborned there is no lawful way of retuning to economic freedom.

  • eddie watts

    so must be awkward with the american elections:
    on the one hand most libertarians seem to vote republican, who get “6,000 year old earth” voters too.(along with stopping equal rights and a whole lot of other craziness, rape victims own bodies prevent pregnancy etc etc)

    or the socialism side of liberals, who seem to mess up the economy by some peoples views.

  • WalterB:

    The “rule of law” always ends up giving special privileges to someone.  In previous years, it was primogeniture: currently it's banks (given the right to create money out of thin air) and corporations (given the right to avoid responsibility for their actions, so long as they're organized as a profit-making enterprise).


    Don't forget the Obama administration deliberately letting semiautomatic weapons get smuggled to Mexican drug cartels so that they can blame Mexico's crime on lax American gun laws, whereupon they were used to kill American border patrol agents (google “Fast and the Furious”), renewing the Patriot Act, signing the NDAA (authorizing indefinite detention without being charged with any crime for all Americans), not closing Guantanamo, etc.  

    The difference is more of rhetoric than actual policy.


  • dilberryhoundog

    Just a few observations,

    Firstly growth….

    I think growth comes down to 2 factors, urbanisation and population (generational) growth.

    Urbanization serves to change self sufficient persons living off the land to persons relying on others to service most of their needs. Urbanization reaches a tipping point where further urbanization doesn’t serve to increase economic growth of countries (most western countries are at this point). China has seen massive growth from urbanisation.
    Generational growth depends on the simple fact that there are more consumers to buy products in the future than there are now.

    I think once your country sees negatives in both, growth stops and collapse will ensue. I just don’t think societies are truly collectively smart enough to continue growth through innovation in the face of falling demand.

    On free markets….

    Free markets should work but they don’t because they truly aren’t free, the problem I see is that the money you need to participate in free markets aren’t subject to supply and demand forces. Interest Rates set by governments whom need to be re-elected are the scuttler of free markets. If people whom demanded money could negotiate a fair price with the people who could supply it, the whole system would work. Banks would become arbitrageurs again, between savers and spenders and also between the people and their governers.

    On the American empire….

    The American empire is probably the most laughable in modern human history. Empires work by a home state improving its standard of life by extracting tribute from satellite states either through fear or through protection. The USA’s large funny mistake is that the tribute it receives off satellite states it one day has to pay back in the future.

  • dilberry:

    I suspect that a substantial fraction of the “growth” that results from urbanization is fake. 

    In a primarily rural society, people feed themselves via subsistence agriculture, which isn't part of the economic system: they're eating the food they grow themselves.  In a primarily urban society, people must work, earn money, and buy the food from someone else — transactions which can be tracked and considered part of GDP.

    And yes, you're correct: in the absence of productivity improvements, the only way to produce growth is to produce more people.  However, this also assumes the presence of sufficient natural resources to feed them and sufficient demand for whatever they can produce — the problem with the latter being that people have to be educated and capable enough to produce something others want, and paid enough that they can afford to buy it.

    Meanwhile, the drive towards corporate profit involves reducing labor costs by reducing them to interchangeable unskilled labor or automating everything.

    Result: a growth-based economy is an unstable equilibrium on all sides.

    “the problem I see is that the money you need to participate in free markets aren't subject to supply and demand forces.”

    That's a big part of it: when your medium of exchange represents government debt, i.e. a claim on your future earnings, all the incentives go haywire.  It'll be interesting to see how cryptocurrencies shake out, and whether they can represent another usable alternative medium of exchange. 

    As far as the American empire, we get a free pass on that as long as US government debt is the least laughable of all government debt.  Where else are you going to park your trade surplus?  The only countries that are anywhere approaching solvent are also too small to absorb any usable fraction of world wealth…

    It's like the old joke:

    “What are you doing?  You can't outrun a bear!”

    “I don't have to.  All I have to do is outrun you.”


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