Month: May 2025

A perfect world (economically)

The goal of policy should be to maximize world income (output) and its distribution that reflects the contribution of each player. That occurs when resources (capital and labor) are allocate to their most productive uses. But how is that achieved? First by ensuring that the government does not interfere. If the government subsidizes an activity, it will draw resources from its most productive use to the subsidized one thus reducing income.

The government’s role is important for defining and protecting property rights and the rule of law and the basic infrastructure on which firms operate. For example, in the U.S. the government funded basic research because there is no market incentive to undertake it. Much of it provides knowledge that is never used or exploited, but some is exploited by private firms for purposes the government could not guess in advance.

In the real world, consumers’ tastes change and the products and services being offered evolve and the optimal allocation of resources (capital and labor) must evolve as well. Those that are not the most productive tend to go out of business, freeing those resources for better uses. When governments intervene via subsidies or differential taxes they invariably reduce the efficiency of resource allocation and thus lower incomes. Bilateral trade deals introduce large distortions in resource allocation and thus lower global income.

The global maximum thus requires common rules for fair trade globally. The World Trade Organization is the institution through which such rules are developed and enforced (or at lease it should be). Bilateral deals undermine the level playing field optimal resource allocation requires and thus lower world income. With the weakening of the WTO and other international rules and norms, the world is increasingly falling below the income it is capable of.

Tolerance

Tolerance is an essential feature of a flourishing society, but it is a low bar. Jesus of Nazareth told his followers that they should “love thy neighbors as themselves.” This view is widely shared among most religions.

My Afghan friends say Islam is rooted in both love and peace. The Qur’an and Islamic teachings emphasize God’s love and compassion as central, motivating principles, with believers encouraged to love God and one another in return. The Prophet Muhammad is portrayed as a model of mercy, kindness, and tolerance, teaching forgiveness and respect for others, regardless of their beliefs. But the Quran also demands harsh punishments of transgressors, and we have seen horrible acts perpetrated in the name of Islam by radical wings of the religion (e.g. Wahabis in Saudi Arabia and the Taliban regime in Afghanistan).

Like the Qur’an, the Christian Bible also demands harsh punishments of transgressors. Radical wings of Christianity have also undertaken horrible acts. For example, the January 6, 2021, attack on the U.S. Capitol involved participants motivated by radical Christian nationalist beliefs, blending religious rhetoric with calls for violence and anti-democratic actions. Leaders within certain Neo-Charismatic Pentecostal movements promoted the idea of “spiritual warfare,” which helped justify extreme actions among followers.

Most Christians and Muslims ignore these demands in their holy books, which would send them to jail most anywhere in the world. My favorite presentation of the bible’s horrible demands was a scene in the TV series “West Wing”:  https://www.youtube.com/watch?v=3CPjWd4MUXs.

My question here is how best to promote Jesus’s call to love our neighbors. We are born with the protective instinct to trust those we know and distrust “others”. But with the huge increase in wealth from trade and other interactions and cooperation, dealings with “others” increased. The siloing of religious and racial groups gave way to tolerance, and with greater exposure, tolerance gave way often to friendship. Though some of us were born with an urge to explore and meet new and different people, most are not. Their natural aversion to “others” requires social encouragement to overcome it.

Look at almost any of today’s TV series (especially British). The total mix of black, white, brown and yellow has now become the norm and feels natural. A white man’s boss is as likely to be a black woman as the other way around. This is a wonderful development in which each person is judged on their own talents and character. It is also a more interesting world. But how did we get from the culture of tribalism to our more exciting world of today?

Teaching our children the rightness of treating each person individual on the basis of their talents and character and then exposing them to those not like them was the path. As more white people encountered blacks, they became more relaxed around them. TV shows like the Bill Cosby Show were incredibly important in making normal blacks seem “normal” to whites.

Gays became more fully accepted as more and more families discovered that one of their members was gay. But the TV show Will and Grace played the incredibly important role played by the Bill Cosby Show of demystifying Gays and making the straight public more understanding and comfortable with them. Combined with Jesus’s call to love our neighbors, actual exposure to all types does the job. Companies that want a more interesting (and productive) work environment will go out of their way to hire from all races and creeds. This is an area in which real progress has been made toward a fairer, and more interesting society.