Many people consider that meritocracy is one of the attributes of the liberalism. Given that the government’s involvement in private matters is minimal, the only force that can drive people’s wealth is their own value (and a little luck). But in the real world thing aren’t like this.
Many economists love to see economy as a jungle where all the parties are fighting for their survival. The tale of lion and cheetah says that lion should kill cheetah to eat and survive. Both should run fast – cheetah not to get trapped and survive and lion to hunt for food and not to die hungry. It’s fair not to help any of the parties from outside because both parties are fighting for their survival and we are not in the position to judge on who’s life is more important. Therefore, bringing this story to economy, there shouldn’t be any external power, such as Government, that decide who should survive and who should die.
But in the real life thing are a little different. Just consider a situation where a lion born specially fast. And with every trapped cheetah he gain experience that makes him more successful on his “job”, being able to trap virtually any cheetah. But then he has a lion-son, which is so-so in terms of speed and brain. But somehow the lion father is able to transfer him all his experience and knowledge to the way the very young lion becomes almost as good as his father. But not because of his brain or legs, but because he uses the wealth created by his father.
This is how things happen in the real world. Unlike in real jungle, the story of lion and cheetah don’t start with each and every new lion or cheetah. In the real world, if someone succeeded in his life this person will do utmost to help his children to succeed, doesn’t matter their IQ or hardworking. And this includes not only paying them the best education, but giving them the necessary network and contacts to get placed from the very beginning. Or, if parents have business, in most of the situations that business get transferred to their children, without any merit for it, only for being born in a specific moment in a specific place.
Is that bad? I wouldn’t say it is because this is part of our human nature. But it’s bad for the society, since resources aren’t distributed based on merit and capacities, but based on linage. I know that during the life there are chances to change everything (for good and for bad), but the life is heavily impacted by its beginning. Would a serious company look at your profile if you don’t get a degree? If your parent’s can’t afford your needs during university (I don’t even speak about tuition fees) most probably you’ll never go there. Furthmore, you’ll probably have to go work to some basic jobs with low wages, high rotation and almost no professional development. Although possible, it’s very difficult to escape from such situation, even if you’re good.
But for the well being of the society, the really good people should be identified and promoted. How to achieve it? Liberalism, although good for other things, isn’t good at identifying and promoting young people. Liberalism is all about fight in equal conditions, which is not the case of our society. So, some kind of government implication is severely needed to find la crème de la crème. Education, and specially higher education is the solution. I like Plato because of his search for excellence and I believe that we, the people, should look for such excellence. When we think about public education, in most of the cases we think of low quality education that basically serves to decrease the “cost” of university graduate by increasing the number of that graduates. Does it help to climb social stairs? I would say so-so.
To attract and promote the best of the society, education should change. The number of graduates should decrease, but the quality should improve. Basically, this would cost nothing to the government, since getting resources from one area you place them in another. Second – inequalities should be eliminated. State scholarships covering accommodation, meals, basic expenses at level of low wage workers should be provided for students at state universities. The selection should be a hard process, but as clear as possible, with free access to the materials needed to prepare the exams.
I do believe that each person should start his life from blank. And maybe this will not solve other injustice like heritage, which may be fought by high taxes on wealth transfer or similar measures. But it will give real chance for the really good people to succeed.
If there are anti trust measures on companies, why there are no similar things on citizens? The competition is good!
What is economic growth? From time to time I was wandering what kind of empiric evidence may explain the changes that this world experimented in las last two centuries. Economy classes at IESE shed some light onto that matter for me.
It seems evident that we live better than in XIX century, but I was struggling to understand how to quantify that difference. There’s an additional problem – economists used to operate with relative parameters that change all the time. There are very few constants in economy and in most cases that constants are estimated and not 100% measurable. For example if we think of money as the way to explain growth. The value of money depends on currency rate, monetary policy, interest rate, inflation and many other factors. So representing things in terms of money is a tricky thing. Economists try to place some order in that variability removing many of these factors, especially inflation, and representing values in “constant money”. Sometimes a PPP (Purchasing power parity) is also used for comparisons but my best measure is the time. The time an average worker should work in order to purchase a specific product which is similar in each and every case you compare. The most famous comparison of this kind is the Big Mac index. While you know the price of Big Mac menu virtually in each and every country and you have data of average wages, you can calculate the time an average worker should employ to gain the necessary amount of money to purchase a Big Mac menu. With similar kind of methodology you can compare wellbeing in the past and now, taking as reference product prices and salaries from the past and now. (Below an example)
Labour – time costs. De Long. The Reality of economic growth.
Although these methods do present with relative accuracy the long term trend, sometime you need to understand the exact meaning of acronyms like real GDP per capita or PPP in order to properly visualize the full picture in your head. But once you get it (at least in my case) you get excited on how beautiful the picture is, especially because the future seems to be bright for humanity.
Why? Let’s visualize it. There are basically 3 different economic models that explain growth. The first one, Malthusian model, quite pessimistic and dated XIX century, predicts that improvements in wellbeing lead to populations growth and the latter decrease GDP per capita (by increasing “capitas”).
The second one – neoclassic model predicted by Robert Solow, consider that capital savings may boost the growth up to some point where it will stabilize and remain constant.
And finally the Endogenous growth theory say that, thanks to entrepreneurship and ingenuity of humans, the growth is steady and unlimited (given the necessary stimulus to investigation, science and technology is given). I was speaking about the bright future because, if past help us to explain future, below graph give us some hint on which model is closer to reality:
Real GDP per capita from year 1. http://ourworldindata.org/
The graph is self-explanatory. From year 1 up to around 1820 the growth was kind a Malthusian model. Almost inexistent. But just as humanity started to incentivize science and progress, the growth per capita boomed. Basically, population also experiences unprecedented boost as you can see below.
Population growth. De Long. The Reality of economic growth.
But ingenuity of humans were way more important than population growth so in general terms our lives improved drastically. And the best part of this story is that there’s nothing known at the moment that can stop this trend. Even more, it seems that the growth rate may accelerate.
Taken from scientific term than describes the threshold of events near the massive black hole (I speak about Astronomy, not what you thought!), singularity is the moment when a computer get enough power not only to outperform humans, but to create more sophisticated machine than it is. This will lead to exponential unlimited growth, difficult to predict and understand now. In this case the GDP per capita will be virtually limitless. Let’s hope we will live to see this.