Everything I Needed to Know about Economics
I Should Have Learned in Kindergarten
But My Teacher was a Socialist

To work their hardest, people must have a large personal stake in what they do. If you remove the connection between performance and reward, people quickly become lazy. Furthermore, if people are rewarded as a group, the entire group will not work as hard because the top people will quickly lose their incentive. Consider the former Soviet Union, whose actual manufacturing output lagged ours. (Ignore the figures they published while they were around. We now know that they lied--big surprise.) Or consider the reputation of trade unions, which bargain and are rewarded as a group, not as individuals.

High taxes will lower the morale of an otherwise hard worker.

Mutual trust among members of a society is necessary for prosperity. In cultures where societal mistrust is high, an otherwise honest person must expend a large portion of his time and assets protecting himself from the unfaithful. Consider the relative poverty of Arab nations, where mutual trust is notably lower than in Western nations. [1]

Crime does not merely transfer wealth, it destroys it. Crime always involves damage, destruction and waste.

Centralized planning (read communism/socialism) is a bad idea. Telling people where they will work and what they will do is as inefficient and dispiriting of an idea as man could have developed. It deprives people of choice, and the right to change their minds during their careers. The energy for doing hard work comes from pursuing a dream, not from being a slave. (True slavery is the worst way to get work out of people.) Even socialist systems make it unnecessarily difficult for a person to switch careers.

Complicated governmental regulatory and reporting burdens never produced a single ounce of food for anyone.

Litigation transfers money to lawyers (and sometimes plaintiffs), without any useful goods or services having been produced in the transaction. It is therefore wasteful. Furthermore, litigation tends to slow innovation and reduce job creation by increasing the risks for the adventurous.

To summarize, you have three choices when it comes to economic systems and human nature:

1. Try to suppress or deny human nature. This is the mistake of idealistic liberals and duped communists. They would reshape the world by ridding it of selfishness--yet they never quite get down to specifics on how this will be achieved. The only outcome is poverty, or worse, for all but a privileged few.

2. Let human nature run wild. The selfishness of the strong and ruthless holds sway and everyone else loses. This is the choice of many Arab and African countries where the rule of law is a concept with which they are not universally familiar. It is also present to a lesser extent in Russia, where organized crime is rampant. Again, poverty.

3. Channel human nature. This is the choice of capitalists and free-market folks. Put fair rules in place, and allow competition to weed out the bad ideas and reward the good. Not everyone has a storybook life, but not everyone enters the world equally endowed either. A good middle ground.

Which one holds sway in the country where you choose to live?


[1] The following quote is from "Mind Reading: The new science of decision making." by Jerry Adler, Newsweek (online), July 5, 2004, http://www.msnbc.msn.com/id/5304846/site/newsweek/

Observing that some societies are consistently richer than others, social scientists have invoked such ingenious explanations as "the Protestant ethic" (of working and saving for the future) or "the resource curse" (when an elite controls a valuable natural resource, such as oil, and has no incentive to encourage political and economic modernization). One of the newest explanations is "trust," which varies widely between societies and is strongly correlated with economic growth, says Paul Zak, an economist at Claremont Graduate University. Trust encourages savings and investment, and reduces the "transaction cost" of investigating the people you do business with.

Note that it says that trust is, "one of the newest explanations..." They're just now figuring this out?