Tuesday, May 11, 2010

Economics, Morals, and Linkage

Let's do a simple thought experiment:  imagine a world where you could ingest any substance you wanted, and some other anonymous sucker would suffer the consequences. Want a whole cheesecake? Fine! Eat away and some Mongolian or Kazakh would put on the weight. Want to get drunk on whiskey and beer? Go ahead. Some African or Israeli will get the hangover. Like fried foods? Not to worry. Live on fried chicken and french fries and some other sucker will suffer the coronary.

How long do you think we'd survive as a species in that world? I'd give us about a week. The only thing that's kept us alive all these centuries is the accountability of knowing that high risk behavior could kill us. End accountability, end the linkage, allow the amoral transfer of unlimited risk to anonymous others, and we are doomed.

Guess what? That is the economic world we live in and the death spiral is playing out in various places around the world including the US.

What do Greece, California, healthcare, runaway deficits, the mortgage meltdown, rising taxes, and high unemployment all have in common? Yeah, I know they are all in the news, but that's not the answer. No the correct answer is that in all cases, these things got to crisis levels because of Demand Side Economics (DSE) and its breakdown in Economic Linkage. Economic Linkage is the degree to which benefactors and beneficiaries are in a direct relationship. Once the link is broken, the amoral nature of DSE is obscured thus opening the door to the death spiral. That is the scenario we are seeing played out today.

In a previous post I defined Demand Side Economics (DSE) and this would be a good time to read it, or re-read it. Go ahead, follow the link. I can wait... The Irony of Keynes - Demand Side Economics

Ok, now that you have the background, you may be asking; Why would we fall for DSE time and time again after being burned whenever it is tried? And how do we get around the moral problems of DSE redistribution? The answer is Linkage. No linkage, no direct moral confrontation. We are allowed to act in morally ambiguous ways when the victims are anonymous. This is why Air Force pilots have an easier time dropping a bomb on a city than an infantryman does killing one person in hand to hand combat.

In Greece, the Greek beneficiaries of DSE who could retire at 53 with full pay and sail the Mediterranean knowing that some German would keep working and eventually bail out his bankrupt government was acting rationally, though not morally. The Californian legislator who kept himself in office by delivering DSE goodies to his constituents while bankrupting his country and state knows Washington will bail him out and stick the bill with some hard-working unborn innocent in Kansas. He is acting rationally, but not morally. American taxpayers and voters know they are passing debts onto their children and grandchildren, but hey, they like their social security, medicare, mortgage deductions, and new right-to-healthcare more than their obligations to someone else's kids. They are acting rationally but amorally too. The thing is, we are good at morals when faced with judgement face to face. But what if the poor sucker who has to pay for our greed is someone we will never have to face? This is how civilizations die.

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