From The Politics Of Economics To The Politics Of Society

As we had a three day weekend last week I used the opportunity of an extra day off to catch up on some reading. One of the pieces I read struck me as particularly pertinent given the elections on the continent last weekend. Woody Brock, the founder of the economic advisory service Strategic Economic Decisions (SED), regularly puts out thought provoking research reports discussing various topics encompassing economics, politics and philosophy. In his latest piece he has pulled all three strands together to discuss the conditions that are necessary for an ideal society.

The report is a fairly long piece but I will do my best to summarise. Dr Brock argues, and I tend to agree, that much of the debate about the current state of the world is too focused on creating an ideal economy. From the relative merits of western capitalism vs Chinese state capitalism to austerity vs growth policies in Europe the arguments are regularly hammered out in economic terms – potential GDP growth, inflation outcomes, effects on bond yields and so on. Whilst all these factors are important to our well-being they are not the entire story, one must also look to other elements that make up a society – politics and philosophy.

While Dr Brock feels that the optimal economy is one which essentially displays the characteristics of perfect competition he also accepts that government intervention is required to provide public goods (say the police) and to correct for negative externalities (e.g. pollution). Brock believes that the level of government involvement should be determined by the checks and balances written into a nation’s constitution/fundamental laws, or the collective philosophy of the people of the nation. In short, the constitution/courts are there to limit politicians’ powers to those that the people want to grant them, and politics is there to regulate the economy based on those parameters.

The conclusion that Brock comes to is that the optimal society is one in which these various spheres overlap as little as possible – politicians should leave the economy to its own devices as much as they can and not amend the constitution/laws that govern their own behaviour unless with good (social) cause. I’ve lifted the below diagram straight from the report to demonstrate this more clearly.

SED – The Ideal SocietyIt struck me as I was reading the report that if SED’s analysis is correct France has taken a step away from becoming an ideal society after electing Francois Hollande. He ran with a brazenly socialist platform – lowering the retirement age, creating subsidised jobs for the unemployed and creating 60,000 new teaching jobs.

The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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  1. Justin Pugsley says:

    Interesting post. By just looking at GDP data, which much of the financial media does, it is easy to come to the conclusion that Asia is paradise on earth, US is sort of purgatory while Europe is hell on earth, yet the latter arguably contains countries with some of the best living conditions in the world (whether sustainable is another matter), far better for the average person than say in growth miracle country China.
    “Brock believes that the level of government involvement should be determined by the checks and balances written into a nation’s constitution/fundamental laws, or the collective philosophy of the people of the nation.”
    I think that has to be from a philosophical point of view because levels of necessary government involvement can change drastically depending on war or peace, type of recession, depression, financial crises or steady growth, booms or necessary micro-economic management such as reviving dead regions or encouraging new industries.
    “It struck me as I was reading the report that if SED’s analysis is correct France has taken a step away from becoming an ideal society after electing Francois Hollande.”
    France is an example of a country with by far some of the best standards of living in the world if you have a steady job. It’s also a sorry example of a country steadily squandering its legacy of high productivity, great companies, good education etc and the revolutionary spirit that pervades French society seems to make the country un-reformable. What Hollande is doing is truly staggering – lowering the retirement age with a rapidly ageing population & expanding the public sector – how will this be paid for? German tax payers maybe? The bond markets?
    Maybe all those public sector workers in the UK who are striking over pensions and working longer, despite UK being massively indebted & needing to cut expenditure to survive, should seriously consider moving to the French socialist paradise. It’s much better than expecting UK private sector workers to work longer, often with no prospect of a pension, to feather civil servants’ gold plated pensions and much earlier retirements. Unlike in France I don’t think the UK public is in much mood to indulge civil servants’ retirement plans.  

    Posted on: 11/05/12 | 11:00 am

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