Why does economic development matter?

[coberst]

Why does economic development matter?

Is economic development an end-in-itself or is it a means to some other end? What is the telos (ultimate end) of economic development?

The basic needs, as developed by Maslow and probably many others, are fundamentally dependent upon the economies of the nation within which we all live. The economy is not the only affecting reality, there also is social stratification, and other fundamentals, but economic development is a very important factor.

The economic development within a society is governed by many sources; local government, national government, NGOs (nongovernmental organizations), and now a growing globalization ties the whole world together more or less.

Economists generally define the goal of economic development in terms of sustained economic growth, i.e. sustained rise in per capita gross domestic growth, i.e. GDP. Some economists define the goal in terms of equity within development, i.e. growth with equity. If all of the benefits of growth merely make the rich richer and the poor poorer we are not reaching a desirable goal.

There are negative feedback control systems such as a furnace/thermostat or our own bodies. There are positive feedback control systems such as an ordinary fire or our capitalistic economic system.

In a fire the higher the temperature the faster the fuel is burned; the faster the fuel burns the higher goes the temperature. In a business enterprise it is common practice to put a percentage of profit into advertising. More advertising creates greater sales, which mean higher profit.

A negative feedback system seeks out equilibrium; a positive feedback system has no equilibrium and is ever accelerating.

If we have a positive feedback system, such as capitalism being now abetted by Globalism, we face the horrendous situation that the greater the progress the faster the spiral of destruction when considering that the world and humans are negative feedback systems.

If we choose to continue with our present Global/capitalistic program we must find a way to dampen the positive feedback system.

Biologists, and probably other sciences, inform us that human conceit, i.e. human ego, distorts our ability to comprehend our self. Egocentricities motivate us into irrational behavior thereby imperiling our survival; the human animal is arrogant and dangerous. Mark Twain was told that “man is the noblest work of God” to which he replied “Now, who found that out?”

Bernard James, author of “The Death of Progress” argues that perhaps a new moral order might be the solution to acquiring the means to avoid self-extinction. He argues that creation is a function of life. It is inventive acts that govern the evolution and survival requirements of human and ecosystems.

I suggest that we must find a new formula for the encouragement of creativity directed at this monumental problem. This is a problem that demands quick action and it seems to me that we cannot wait several generations for this to be accomplished. Today’s adults must recognize the problem and must energetically seek a solution. I think that an invigorated self-actualization through self-learning by adults is required. I am not talking about more schooling. Schooling has left us learning-handicapped. This effort must be self-learning. Adults must begin a concentrated effort toward developing an intellectual life far beyond that which now exists.

My solution is that the general level of intellectual sophistication of the population is necessary if our species is to survive. Do you have any interest in this matter?

[HydrogenBond]

Although economics is based on the laws of supply and demand, capitalism is dominated by the supply side. For example, people without health insurance may demand affordable care. From the point of view of supply side and capitalism, this goes in the opposite direction of revenue. The direction of increasing revenue requires inducing a type of demand that will cause the revenue to rise. The demand might be connected to another page on the menu for things to be concerned about. Once that is in motion, the laws of supply and demand are in affect, to set the price.

All the fast food restaurants were not induced by the demand side of the population saying, we need fast foods. With this demand, the supply jumped and presto fast foods. It started from the supply side creating a market niche and then creating demand. Once this induced demand is in motion the laws of the supply and demand set the price. But this demand was created by supply side. There is nothing wrong with that, since it allow creativity to enter the market, induce new demand, generating wealth.

There is an alternative that is never really put into play. It involves the opposite where demand creates demand. Once this demand is set, then the laws of supply and demand take over to help set the price. In this case, the capitalism is initiated at the demand side to maximize their revenue. This is implicit of spending less money to buy something. One gains revenue by having to spend less. This aspect of economics is connected to collective bargaining or collective buying.

The unions were an example of this. Before they were formed, there was demand for better working conditions. From the point of view of the supply side and capitalism this was not the type of demand they wished created, since it was going to cost money and will lower revenue. The supply side version for demand was more like you should happy to have a job, such that the demand for a job was good enough. What the unions did was create collective bargaining so they could force their demands. Eventually supply had to give in, since it became cheaper than for production to remain idle for a long time. The net affect was loss of revenue for the supply side. But from the demand side, this lowered their cost of hospital visits by making work related injuries less common. Their net revenue went up. But supply side is very ingenious and still evolved to increase wealth.

This is hypothetical and will not happen. But say all the people who buy apples demand that they pay only $1 per pound even though the supply and demand, from the supply side, has set the price at $1.50. The demand side would need to work as a team, like a union, and stop buying until the price falls. Then the laws of supply and demand can take over with this new demand side price.

One way for the demand group to do that without disrupting the supply of apples is for the group to buy wholesale. This way the farmers and their distributers are not affected, since they will still get what they are used to getting. Where the pinch will be felt, are with the middlemen. The middlemen are important to the economy, because they create jobs. They don't get the entire 50 cents but share that with their employees as wages. So to not mess up all these jobs, they are retained as a nonprofit business. The result begins to look like Socialism.

Pure supply side driving demand which then obeys the laws of supply and demand is the best way to create wealth, but can lead to some social injustice or problems. Pure demand side, driving demand, for the laws of supply and demand, may help with the social ills, but it can kill an economy by removing ones of its most creative sectors. Maybe the best of both world could be achieved with a compromise. The demand side can only use its collective leverage to set demand-price in areas of real need, such as the basic necessities. The rest of the stuff in the economy remains controlled by the supply side creating the demand with marketing. It is not fully capitalism or socialism but supply and demand both setting some of the demand which them follows supply and demand.

The way this is sort of heading is the government playing the role of the demand side. The problem with this is it is not free market. To stay free market would require the demand side be part of the free market. This would lead to a new type of free market with two layers of supply and demand, with front layers tugging the economy to efficiency.

[coberst]

Hydrogen


Would you make some comment regarding this business of positive feedback and capitalism? Will this positive feedback aspect eventually lead to our destuction?

A negative feedback system seeks out equilibrium; a positive feedback system has no equilibrium and is ever accelerating.

If we have a positive feedback system, such as capitalism being now abetted by Globalism, we face the horrendous situation that the greater the progress the faster the spiral of destruction when considering that the world and humans are negative feedback systems.

If we choose to continue with our present Global/capitalistic program we must find a way to dampen the positive feedback system.

[jedaisoul]

Originally Posted by HydrogenBond

Although economics is based on the laws of supply and demand, capitalism is dominated by the supply side...

Thank you for an educated and balanced appraisal of the reality of capitalistic economies. Neither pure capitalism, nor pure socialism, is desirable. Expressing it in terms of positive and negative feedback misses the essence of the balance that is required.