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Economics From a Mountaintop

Perspective: Culture January 25,2003

Printable Version

In a media environment filled with detailed, short-term information, it is easy to feel as if one is lost in a forest of data. In such a case, you need to get out of the valley and up a mountaintop to get perspective of where you are and the direction to move.

The stock market moves on a short-term information of occurrence and sentiment. An interest rate cut, uncertainty or a disaster can affect it. But the real issue is the trend, where will it or a company be two-years hence or ten-years hence?

To find an even higher mountaintop would be to understand the long-term interplay of economics, politics, and culture. Karl Marx viewed history as simply being economics in action. It was the key mover. Adam Smith saw all of the interaction of internal values in his The Theory of Moral Sentiment but broke out self-interest as the most powerful of his invisible hand on which The Wealth of Nations was based.

Of the three arenas of power, economics, politics, and media/culture, economics does the most to set the environment for the other two. Quite often the moralities of the culture or the emotionalism of the politics are used to hide or shield what may well be core economic goals.

However, that environment normally is controlled by the mindset, values and economic status of the people as a whole.

It is often determined by whether the society is dominated by or moving toward a strong middle class. The alternative involves varying degrees of discrepancy between rich and poor. There is usually an economic equilibrium in society. It has a lot to do with peoplesí impressions of the future and their own level of opportunity. They envy the rich less if they or their children have a chance to be one. If they perceive their future as a hopeless struggle, they challenge the system.

Since wealth has a tendency to accumulate or concentrate because of the economic advantage it gives if well used, the question of redistribution replays through out the ages.

Sometimes revolution redistributes, other times politics enters with policies toward that end or changes in governmental form.

Sometimes the economic system is such that it happens naturally. Many families go from shirtsleeves to shirtsleeves in generations because wealth is passed on, but not the wealth creation values. Other times the currency is debased to help debtors or inflation/deflation serve as vehicles of transfer. (Although inflation generally helps the wealthy who have hard assets.

The politics and culture do intervene with this process. You effectively have two major systems of approach socialism and free market capitalism. Socialistic approaches have given way to the free market in modern times because they have been less efficient in a fast paced, consumer driven environment and often had problems of bureaucratic corruption and limited competence. Capitalism, unchecked, has its own history of greed and excess but even with its problems lends more of a productive bias to the system. Markets work, but to be most efficient, they need optimum competition, which comes from a moral, honest market. That requires ethics in the culture and some oversight for fairness from politics. It has a distinct bias toward liberty and freedom of choice, and gives a concept of higher market value to certain skills rather than others. Where socialism looks to equality of individuals, markets must look to equality of opportunity.

To me, the goal to be sought is the market system with enforced and natural cultural ethics, complimented by a strong middle class, given opportunity at education and capital. It naturally provides a movement between the stratas of society depending on oneís ability. The issue of charity for the truly needy is a separate cultural issue.

If the system provides opportunity and it should if talent is fully valued, then the rich are not resented as much as copied and movement in the stratas of society take place.

We often view the present American system as being set, with little movement between stratas, but that is not the case. Age makes a difference regardless of race, religion or beginning economic class. When young you have less assets, often college debts, at retirement you usually have higher income and assets. Some born wealthy cannot manage wealth and fall. Education is a big contributor as is access to capital. Debt can help greatly or hurt as in the case of leveraged debt in a downturn. The point is, if the opportunity for movement in the stratas exist, it dramatically changes the perspective of the masses as to the need and degree for change in the system. The old Chinese proverb that it is better to teach a man to fish than to give a man a fish is on point. If government policies focus on redistribution for political gain and not on creation of opportunity, you eventually change the system such that opportunity is diminished.

What a family should want is not a structure that redistributes them money, but the opportunity to build wealth that transcends generations. That is usually a wealth creation set of values that is a great part of the familyís values. Usually this value set learns that greed, over time, causes mistaken judgment and alienates potential long-term partners. While many hit home runs by being in the right place or by possessing a rare skill, on average, families become wealthy over time through work and through each generation, preparing a nest egg for the next and teaching them the skills or giving them the education. They stairstep the family. If a man cares only about three houses he might enjoy, he may take risks; if he cares about building a solid inheritance, he may be more conservative.

But what he must consider is that if the system in which he operates loses equilibrium in politics, economics, or cultural values, it may diminish or take all he has or would leave. So he must care far beyond politics and his self-interest to the vision of a system that carries forward stability.

A quotation attributed to Abraham Lincoln by a biographer (but not agreed to by all historians), to me, captured not only Lincoln, but the thoughts of all men who have pondered these issues from a mountaintop and realize economics, politics, and cultural values are really an ever-changing mix that affect each other. It gives some fundamental rules for stability:

"You cannot bring about prosperity by discouraging thrift. You cannot strengthen the weak by weakening the strong. You cannot help the wage earner by pulling down the wage payer. You cannot further the brotherhood of many by encouraging class hatred. You cannot help the poor by destroying the rich. You cannot establish sound security on borrowed money. You cannot keep out of trouble by spending more than you earn. You cannot build character and courage by taking away a manís initiative and independence. You cannot help men permanently by doing for them what they could and should do for themselves."

In a totally different culture, Gandhi gave a close parallel with what he called the seven deadly sins:

-Politics without principle
-wealth without work
-commerce without morality
-pleasure without consequence
-science without humanity
-work without sacrifice
-education without character.

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