Economics Paper
Here is a review I did for my economics class. It is interesting if I do say so myself.
Economy in Mind
Chapter 2: The Unlimited Economy in Mind
Note: Published in 1982, Brookes writes with an urgency that is revived by the recent 1980 presidential elections, in which Ronald Reagen won.
Brookes begins his chapter by explaining that we are running from a self-governing age to a more federal government age. The growing liberal-left media is trashing the classic and proved free market economy for the federally controlled economy. It comes down to who favors "controlling demand with heavy government spending and regulation, and those who want to stimulate more supply through more incentives and a freer market, and who see economic growth as the solution to our problems."
The demand-siders believe that wealth, being physical, is therefore finite. In that case, why push for freedom with the free market? It would be better worth our time to invest into security, the inevitable sacrifice being individual liberty.
On the other hand, the supply-siders see wealth as being potentially unlimited, as produced by the individual. In his Wealth of Nations, Adam Smith points out that real wealth and prosperity are generated by the individual, not the state, and that nation which can give the most individual freedom will ultimately gain the most prosperity and wealth for all.
The demand side suggests that the economy is best run when the government is "demanding" demand, that its fiscal taxes and regulations will control the demand. It says that redistributing the wealth is more efficient than letting individuals use what they make to improve the economy as consumers or as producers; to become an entrepreneur who starts his own business and created more jobs and more competition, which is the essence of capitalism.
As a result of the government-born regulations, supply becomes limited while demand constantly rises, producing a shortage of products. This will tip off inflation, which is good for nobody. Exchanging the freer market for more government control is like trading productivity and supply for demand and redistribution.
One government-born policy is Social Security. Unlike the commonly believed half-truth that it was created to help the elderly, Social Security was meant to pull money out of an individual’s savings, which would be thrown back into the consumer demand, stirring up the then stagnant economy; in a word, redistribute. Forty-five years later, it was still doing its job but on an inflated economy, taking over $150 billion a year from payrolls, and thereby decreasing investment and productivity. In 1995, Social Security’s taxes were fifty-percent more than the savings. Again the government policies tend to be pushing for a demand-centered economy. To quote Brookes:
"Deep beneath the surface of this debate over demand-side vs. supply-side economics is the basic struggle between those who now believe that an aggressive pursuit of growth and wealth is no longer a viable option for a resource-scarce world and those who still cherish and believe in the so-called American Dream of ever-upward mobility."
One of the main resources that has allowed this dream to progress is the advancement of technology in the 20th century. Brookes interestingly notes that in 1981, Massachusetts "had one of the lowest levels of new capital formation in the nation and one of the highest rates of economic growth."
To name a few examples: The average radio in the Thirties was a large box with a separate speaker and a small sound. Today, that idea has been compressed into a hand-held, three-inch rectangular cube than can emit a sound with such volume to make a baby scream, and it uses a fraction of the energy once needed. In 1960, it took 15 pounds of feed and 14 weeks to grow a 2 ½ pound frying chicken; now it takes 5 pounds of feed and half the time to produce the same chicken. High technology has also suggested solutions to some worldwide economic problems like inflation, productivity and capital costs.
In the second section titled The Economy of Mind vs. The Entropy of Matter, Brookes explains that the key to high technology and efficiency is not the materials you own, but the freedom you have of the mind. The media was declaring that as America’s natural resources, which have produced our wealth, (namely, oil,) started running out, then our standard of living would need to be scaled down. But Julian Simon of University of Illinois flatly refuted their notions with some stunning statistics:
"World per capita food production has been increasing roughly 1% for the last 40 years. Since World War II, there has been a dramatic decline of famines (worldwide). All the land used for urban areas, plus roadways, totals less than 3% of the U. S. Each year, 1.25 million acres are converted to efficient cropland, while only 0.9% million acres are converted to urban and transportation use."
Why is the U. S. increasing in wealth and efficiency regularly? Simon says, "Because we find new lodes, invent better production methods, and discover new substitutes; the ultimate constraint upon our capacity to enjoy unlimited raw materials at acceptable prices is knowledge… And the source of knowledge is the human mind."
The rest of the chapter continues to explain that America’s economic future "is not now and never has been tied to the physical assets we now use, but to the vast untapped potential of creative thinking." America will continue to prosper as we "continue to explore the unlimited economy that exists in the mind."
