Q = T x E / 100
Mainstream economics isn’t much more than a bunch of complex mathematical models built on top of absurdly unrealistic assumptions. It’s the main reason the profession’s been exposed as irrelevant in this and all past crises. The sad reality though, is that one will not be taken seriously in matters economic unless the argument can be reduced to a mathematical formula. In that spirit, here’s an equation that summarizes the essential argument of almost all my posts on this blog.
Q = T x E/100
Q is the quality of life of the population; T is the technological capacity of the civilization to achieve high standards of living using a scale of 1 for the lowest technological level to 100 for the highest; and E is a measure of equality from 1 (completely unequal) to 100 (full equality).
Using this equation, the maximum quality of life would be 100 if the technology was rated 100 and it was equally shared by all. The lowest would approach 0.
There can be no doubt our technology is extremely high today and in matters important to qualities of life, it probably approaches 100. One could argue it’s more like 90 or so but it’s really rather immaterial as we’ll see.
It’s also obvious, given the massive levels of inequality, unemployment, and insecurity which exist in every country of the world that the E measure is very low. Perhaps it’s 1 or at most maybe 10. Again, the exact level doesn’t change the conclusion.
Being conservative, let’s assume T=90 and E=10 and see what we get. Q = 90 x 10/100 = 9. Our quality of life could be 90 based on our technology but it ends up being only 9. One can play with the input assumptions but any that come close to the real world would demonstrate an outrageous disconnect between possibility and reality.
Many economists, so ever predictably, will argue that greater equality diminishes the quality of life for the rich and therefore isn’t “Pareto optimal”. This argument is extremely weak and one way to attack it is to use the much cited classical economic idea of marginal utility. The marginal utility idea is that the incremental value of any commodity declines as its quantity increases. While normally applied only to specific goods or labor, there’s no basis not to apply it to wealth in general. We all know that the marginal utility of each extra quantity of income is not quite as valuable as the preceding and the marginal utility theory therefore demonstrates that the highest utility is achieved with full equality.
Another standard economic argument is that inequality of income is needed to spur effort and creativity. This theory of human motivation, though, is completely contradicted by all research in psychology and anthropology. It’s false and has no basis. Money is not a prime motivator.
What conclusions can we derive from the formula? We can conclude that capitalism as we know it is grossly inefficient if our goal is quality of life. We can also conclude that efforts to improve the standard of living must be entirely focused on the E side of the formula rather than T. An incremental improvement in technology will do almost nothing to the quality of life and all efforts must therefore be put on increasing the level of equality. Standard economic arguments that focus on T are exposed as frauds.
We need to be creative in the ways we choose to increase equality. The standard idea is progressive taxation and re-distribution of market determined incomes. That’s a good start but by itself won’t get us to the quality of life we seek. The motivations of the largest corporations need to be changed so that their productive potential is put at the service of everyone. The private profit motive needs to be severely curtailed and replaced by motives that increase the quality of life of all. That’s not as outlandish as many would think since production today is so incredibly concentrated. Just 500 corporations control 40% of global revenue and these titans are “owned” by absentee stock holders having no knowledge of the underlying businesses and who contribute nothing other than their speculative funds. These companies are ripe targets for tight regulation or public ownership.
The illogic of our global financial system also needs to be completely reworked and replaced by a system that recognizes the potential of fiat currencies utilizing the fundamental insights of Functional Finance / Modern Monetary Theory. Today’s financial system is owned and operated by the forces of inequality and its primary logics of deficit control, high interest rates, unemployment, and austerity need to be wiped off the face of the earth. (I reject, though, the full employment ideas of some of the key MMT economists as they are distracting from what our real goal should be and fall far short of our quality of life potential.) All ideas should be judged on how close they match reality with our potential.
That’s it for my dabble into advanced mathematics!