Benefits of a more just system

First let’s imagine fixing a few of the big problems of our present systems.

Suppose we fixed the business cycles, the cycles of boom and bust that have been happening for hundreds of years. These cycles involve a period of calm and more or less stable business activity. Then gradually business activity picks up in one or a few areas — for example housing or commercial real estate. Prices rise, employment increases, credit, money increases. The process accelerates. More and more houses are built. The prices rise faster. More labor may be needed than is available further driving up labor costs and prices. More and more credit may be extended. People get the feeling that they need to buy a house as soon as possible before the prices increase beyond what they can afford. Some people speculate (gamble) by buying property with the hope of soon selling it at a higher price and making big profits.

In the real world (as contrasted with mathematical theory) nothing can keep increasing forever. The process can run out of labor, raw materials, buyers of new houses, credit and money can be limited for various reasons. Something will slow the process down and actually reverse it when more and more people see that there is a bubble occurring and realize it is deflating. Prices drop, fewer houses are being built, workers are laid off, credit is limited further, buyers hesitate, the speculators try to sell as fast as they can. All these decreases feed off each other to speed up the decreases. So the bubble pops, there is a bust, a crash. This is the boom and bust cycle.

It may be hard to believe but these kinds of cycles have been occurring for hundreds of years. They seem to be inherent in our economic systems. Yet economists, bankers, business people claim to be surprised whenever we have a crash. After every crash they claim that they now understand the problem and that they have fixed it so it won’t happen again. But it does. The cycles keep repeating. This is another proof that economics as presently understood and practiced is baloney.

I doubt if anyone has “the” answer to the boom/bust cycles. According to the grand theories, the static, the equilibrium models, booms and busts do not exist; they never occur. Yet they are characteristic of the systems we have had for the last several hundred years! From what I have read, these boom bust cycles may result from any or all of the following: the system’s emphasis on all individuals always making more and more money, unrestrained credit, charging interest on loans, emphasis on perpetual growth (no growth can continue indefinitely), the money system itself (with the hodge-podge of illogical self-contradictory ideas about the money supply, restrictions applicable to the days of a gold standard which do not apply today but which still seem to be fervently believed by some people today — see Modern Monetary Theory (MMT) and “Stabilizing an Unstable Economy” by Hyman P. Minsky. Since the theories are bunk, we have to try some things that have not been tried before.

Both the boom part and the bust part of the cycles seem to be self reinforcing processes. It would seem that we need to add to our systems some governors like Watt’s steam engine governor which slowed down the steam engine when it went too fast and which allowed it to speed up when it went too slow. Or maybe an economic thermostat.  Surely our economic experts can come up with some automatic economic stabilizers we could try. Or is it that they don’t want to do anything that would limit moneymaking during a boom?

But what would it be like if these cycles could be squashed — slow down or stop the boom before it can get too big and then there would be no crash, only a gentle slowing down. Then employment would be more steady. People could plan their futures better. Not as many people would suddenly be fired. People would be more confident about being able to get a job when they finished school. Businesses could plan better. Prices would be more stable. In general the system would be more stable. You would think that with all the emphasis economists put on stable states and equilibrium models that they would actually try to do something effective to automatically damp down these destructive business cycles.

More stability gives people more confidence. Doubts about what crazy things the system is going to do next discourage planning, discourages action, discourages investments in productive activities, and it increases speculation. A variable and chaotic system discourages people from educating themselves because they can’t imagine what their future will be, they wonder whether the things they might learn will prepare them for an available job. People will have less trust in the system; they will live more in the present; there will be less incentive to discover, invent, or create new things. Loss of your home, your property, your job often lead to hopelessness, depression, physical and mental illness, loss of or decreased social interactions, hostility, anger, sometimes violence, sometimes crime. People are more negatively affected by a loss than they are positively affected by an equal gain (Daniel Kahneman’s loss aversion). So our erratic system causes much unnecessary suffering. And it wastes human resources.

An unstable system holds back human development. A more stable system promotes human development.

OK, for now let’s assume we have fixed the business cycle. Next, what would it be like if we could eliminate unemployment once and for all.

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