When wealth grows faster than it concentrates, wealth spreads. You get the upswing of an economic cycle. But when wealth concentrates faster than it grows, you get the downswing.The cause of the decline of civilizations is that "concentration" grows faster than "distribution" of wealth. Except, the word distribution is not quite right. It suggests a policy of redistribution. I mean something more on the order of natural distribution, where the act of creating wealth causes wealth to spread. I should use the word "dispersion" instead.
Distribution of wealth, dispersion, does not solve the problem if it does not arise spontaneously from the workings of the economy. You can't just tack redistribution onto the end of the process and hope to accomplish real change.
The policies that encourage wealth creation do so by creating incentives that reward wealth creators. These policies enhance the concentration of wealth, making the problem worse. Rewarding wealth creators skews the naturally-occurring distribution of wealth such that wealth concentrates at a faster rate. This puts the "dispersion of wealth" process at risk of being insufficient to sustain the long-term economic upswing. If downswing develops, you have the decline of civilization.
We can put this in terms Piketty uses. Dietrich Vollrath summarizes Piketty's view:
"Piketty says that if r>g, where r is the return to capital, and g is the growth rate of aggregate GDP, then wealth will become more and more concentrated."Add to this the understanding that the cycle of civilization is an economic cycle driven by the dispersion and concentration of wealth, and it becomes immediately obvious that r>g puts civilization at risk.
2 comments:
At Marginal Revolution, *The Enchantments of Mammon*
an advertisement by Tyler Cowen for a book of the same name.
I'm finding comments in praise of capitalism below Cowen's post. Smitty says capitalism "is an external system that seems to spread the wealth distribution more optimally than some other alternatives."
And Faze says "Historically, the emerging orders of capitalism and free(ish) markets have done more to elevate the poor, clothe the naked, feed the hungry, and care for the sick than any conscious force in history."
It is difficult to dispute comments like that, because history tends to support them. But past performance is not a guarantee of future results.
If civilization is an economic cycle -- a gigantic business cycle, as it were -- then at some point, perhaps now, there will have to be a peak of the cycle and a decline of the civilization.
I think the decline has already begun. I think Smitty and Faze see the past but describe it as if it were the present.
> Smitty and Faze see the past but describe it as if it were the present.
So does Timothy Taylor in Macaulay on Economic Progress, 100 Years Before Keynes. Taylor writes:
"Yes, maybe economic progress is about to stop and reverse itself. Maybe we will be immiserated by new technology. Maybe the future is one of mass starvation from overpopulation. But looking back at the historical experience of the last several hundred years, what can be the basis for having any confidence in such pessimistic claims?"
Past performance is no guarantee of future results.
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