Elements of a Functional Economy

Much debate is invested into the health of the economy. However, much of that debate centers on very unreliable and misleading measures of the economy. To have a reasonable discussion we must not only evaluate the quality of our measures, we must reconsider our unasked questions. What is an economy? What would a fully functional economy be accomplishing? Without asking these questions, we don't even know what to measure or how to measure it. Below we address these questions.

So what does a healthy functioning economy do? What are the key purposes of an economy? Let's enumerate the major dimensions.

1: Create Opportunity 2: Limit Consumption
3: Promote Community 4: Promote Stability

Draft: January 2013

 

 

1: Create Opportunity and Provide Goods and Services: These aspects of a healthy economy seem rather obvious. These are the things we attempt to measure and discuss. Each citizen needs an opportunity to be productive within his community and provide for his family. To ensure this, we measure employment, unemployment, and productivity. Each person needs food and shelter. We measure incomes and GDP. But each of these measures contains limitations and oversights.

Opportunity must be diverse enough to cover the range of personalities, interests, skills, and ages that citizens have. Creating opportunities in sales for skilled mechanics fails to meet real needs. Creating heavy labor jobs for senior citizens fails to meet real needs. When the jobs being offered fail to match the needs and limitations of the workforce, we have short-term dysfunction in our economy.

For the economy to be functional in the long term, workers will need training for new skills, time to train for those new skills, and resources to train with. Even so, the economy will still need to provide diverse opportunities in every community to meet the real needs of that community. But we see our economy failing to provide citizens with the training that will match the changing job market. Many citizens work over forty hours a week at a low pay high stress jobs that don't provide enough spare time or money for retraining. We can not blame the laborer that his job doesn't pay enough or leave him enough spare time to retrain. This is a systemic problem, not an individual problem.

Additional measures needed: opportunity diversity & opportunity for worker advancement

2: Limit Consumption to Sustainable Levels: The need to limit consumption is less obvious, but is just as important. We live on a finite planet. Some resources exist in rather small supplies considering their potential use. Obvious examples include strategic metals. Some resources are extracted and consumed. Once consumed they no longer exist and can never be used again. The obvious example would be fossil fuels. Other critical resources can only be produced at a finite speed. Trying to consume faster than their natural production rate destroys the means of production. The major example here would be food. Failure to limit consumption to sustainable levels is the traditionally attributed to the Tragedy of the Commons.

Unfortunately, we actually tend to interpret consumption reports as if increased consumption is always positive. A functioning economy must limit consumption to sustainable rates. This is not happening, nor being measured, nor popularly discussed. We have no clear measures of sustainable consumption rates.
We know we are consuming fossil fuels at non-sustainable rates. We have been consuming ground water, soil nutrients on farms, and fish at non-sustainable rates. We are changing our atmosphere (primarily CO2) at non-sustainable rates. We have been increasing nitrogen in our ecosystem at non-sustainable rates. We have economic dysfunction every place that rates of consumption are above the sustainable limits. But we have no measures, no tools to guide discussions.

Measures needed: sustainability of consumption, resource dependency

3: Develop Community, Self & Purpose: We are social. We have feelings. We desire connection with family and community. We seek purpose in life. A healthy economy would provide citizens time to truly connect with family and community, and opportunity to discover one's sense of self and purpose. After necessities, these social and emotional needs are more important than goods and services, luxuries and investments. Yet, these needs do not get measured. These very real human needs are not admitted into economic debate.
But in modern America, many families lack quality time as both parents are working. Many people come home so exhausted from work that they have no strength left to invest into family or community. Many people feel isolated. Medication for depression is at an all time high. All of this anecdotal evidence tells us that the American economy is actually rather dysfunctional. It doesn't really support the social and emotional needs of its citizens.
We need measures to help us evaluate how well our economy meets these needs. One group created a national happiness index. But what really supports our ability to develop community and develop purpose and self worth? People need family time when they are not struggling for money. They need job satisfaction. People who don't have these things are prone to be depressed or anxious. Large numbers of Americans work very long hours. They are tired and depressed. Many have stress related and life style related illnesses. These are not indicators of a highly successful economy.

Measures needed: job satisfaction, free time, depression and anxiety rates, preventable illnesses

4: Create Stability: People need a sense of stability. A person who has to move every few years, and retrain for new job skills is likely to feel anxiety. He's not likely to feel connected to his community, family, or sense of purpose. As people age, they need to know what they can rely on for retirement and old age. They can't have their investments rapidly dry up, their neighborhood go through rapid decline, or their family move away out of economic necessity. People need a basic level of stability, so stability is a critical measure of economic function. When there is low stability the economy is not really serving the citizens.

Again, no attempts to measure this economic stability really exist. But America does not appear to be performing well. Most workers have experienced layoff more than once in the last 20 years. Many factories have been closed and communities disbanded. Most citizens have had to move from their community or give up their house out of economic necessity. Many people have seen their retirement accounts vaporize in the investment bubbles. Even while no clear measure exists, we see strong persistent evidence that Americans are severely stressed from lack of stability. By this dimension the American economy appears to be rather dysfunctional.

Measures needed: stability, resilience

Summation:
Because we fail to ask what a functional economy must accomplish, we fail to estimate those accomplishments. Without a regular estimate, we fail to discuss our critical economic needs. Having failed to ask, failed to measure, and failed to discuss, Americans tend to live with the impression that the needs either do not exist, do not matter, or that the challenges can be dismissed as socialism or alarmism. But even as we ignore the economic causes, depression remains high, stress related health problems and environmental health problems remain high, and critical resources continue to approach crisis boundaries.
We need to acknowledge these intrinsic functions of economies. We need to create estimates, measures of their trends. We need to become aware of where our economic blind-spots really are. These blind spots will be the crises of the future.

Related pages at this site

"We value what we measure rather than measuring what we value"

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Fossil Fuel Dependency: The American economy is almost totally dependent on fossil fuels. We are not only dependent on oil to transport our goods, we depend on oil to harvest and process our food. Yet, we know that the fossil fuel supply is finite, and the cost of going farther and digging deeper to get it will keep going up. Even while we know that consumption is far outpacing potential long-term production we still have no Plan B. Failure to limit consumption to sustainable levels will eventually cost us dearly.
 

 

 

Converse: Dysfunctional Economy

Above we asked what does a functional economy need to do and how can we measure how well it is doing those things? The converse of that would be to ask what do dysfunctional economies do and how can we measure how much the dysfunction? Two historically established answers become quickly evident.

A: Wealth & power concentrated into the hands of a few

Dysfunctional economies concentrate large portions of wealth into the hands of a few. When this happens opportunities for the rest of the populace declines. Concentration of too much wealth into the hands of too few is typically followed by depressions as the investment bubbles burst, or revolutions as those falling deeper into poverty attempt to rebel against those who have amassed the wealth and power.
Various attempts to measure this type of dysfunction have been created: GINI, portion of wealth controlled by the 1%, ratio of CEO to worker compensation, and portion of GDP going to the middle class. Over the last 40 years, America has been declining into dysfunction by most of these measures.

B: Resources depleted & environment destroyed

Another measure of economic dysfunction would be the depletion of natural resources and the destruction of the environment. Environmental destruction is frequently disregarded in economic discussions, but it actually has significant economic costs. When resources are depleted or ecosystems collapse the economy no longer has the ability to provide the citizens with the wealth (food, materials, and opportunities) that the citizens require. Some attempts to measure environmental costs have been created, but none are in common use.

Measures attempted: costs of climate change, ground water depletion, decline in genetic diversity, oil decline, environmental illness rate, etc.

By many of these measures, the American economy continues to move deeper into dysfunction.

Summation:

We want to determine the health of our economy. But we can't really do that without first examining what we really need. Once we determine our needs, we can attempt to measure whether the economy serves our needs while preventing other problems. When we do this we find evidence that our economy is not really doing what it needs to. Without these considerations, we can be easily blind-sided by crises that we failed to anticipate, but should have.
What do you, your family, and your community really need from the economy? Are these things actually being reported in the economic news? Why not?

 

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