What is the difference between inclusive versus exclusive economic systems?

Welcome to Finance and Fury, the Furious Friday editon.

Last week – looked at laissez-faire economic system

1. What laissez-faire should provide – a system of let it be – at the core – a system of relative freedom for the individual – doesn’t mean freedom for everything
   1. There are still laws in place in society which a government needs to enforce – those of negative rights – where someone doesn’t have the right to infringe on you – unless what you are going is against the law – for instance murdering someone
   2. Talked in past episodes about the need for governments to have some role – that is to enforce freedom for the individual

• When talking about the free market – the role of governments would be to not let companies subvert the individual’s freedom – or for the financial system to take this over – once a system is taken over – it removes individual inclusion –

2. So in todays episode – we will be looking at what works elements work with a let it be system – that is economic inclusion versus exclusion –
3. What inclusion IMO means is FREEDOM! – the freedom to speak one’s mind and try at ventures that are in public demand – as well as economic freedoms
   1. Why is it important? Allows improvement, and people to dream of betterment –
   2. The idea of inclusion being that everyone gets along and thinks the exact same thing is the antithesis of this principal

Language has been changed over time – the concept of a free markets is now seen as extractive – whilst economic policies for social justice legislated by governments is seen as inclusive – but it is an inversion

1. The free market that we have isn’t inclusive by its nature – it is exclusive as it isn’t truly a free market –
   1. You have to get approval in a lot of cases for governments to approve what you are trying to achieve
   2. As well as governments having control as to whether you operate or not – this is pretty evident at the moment

The political System – Inclusive Vs Extractive systems

• Needs to be Inclusive – Equality of opportunity – everyone has the same rights
  1. Inclusive – Opportunity providing
     1. Lack of interference – restrictions (regulations)
        1. Barriers to entry, freedoms/opportunity – laws
     2. Non-exploitive (Extractive) – shouldn’t take from some to give to others

What inclusive systems have– what incentivises should be available and what basic tenets does it need to exist? The basic pillars for any system and economy to function properly

• Property rights – keep what you own
  1. Ownership of what you own and purchase,
  2. Patents and an incentive to be able to keep what you produce
  3. The right to operate and provide a service –
• Legal system – protect what you have, know deals are honoured
  1. Contracts and Borrowing capabilities = TRUST in the system – Economy is confidence
     1. Think about the economy – would you trade or transact with anyone without trust?
     2. Trust that when you purchase something that you will get it? Be it a service or a good? Trust is two fold –

• That when you employ someone that they will do their job? Or that as an employee – that when you do your job that you will get paid to do it

1. If there is no confidence that the system is there to protect your rights – rather than infringe upon them – you get into another inversion of the meaning of the legal system
2. Under the modern governmental systems – what is legal is at the states discretion

• Public services – Well functioning state – but well functioning means that it needs to let us as the population operate
  1. Infrastructure – Roads, transport, water, power, etc
     1. Goes without say that without power and clean water – society would fall apart pretty quickly –
     2. This is where the argument for who provides this can come in – major topic for another day –

• Whether it be private or public – depends on your POV and mostly political leanings

1. Legal system enforced – but this comes back to the legal system that is in place
   1. If the legal system is abusive – or draconian – it all falls apart –
   2. It is the difference between a free state and a police state

All are needed at once

What doesn’t work – Extractive systems – Socialism – or very heavily legislated system – it goes on a spectrum

1. Extraction from the productive is a race to the bottom – history repeatedly shows this
   1. The more people have to give up of their own time and resources – the less incentives that they have
2. Extractive – the more it is, more people will fight over it. Dictatorships and democracy are both fought over
   1. Dictatorships – violent overthrows, for power state has. At least they are public about it, as there is little the public can do to get them out beyond another violent overthrow – rinse and repeat
   2. Democracy – politicians rage political wars in a way – the very nature of a lot of promises is extractive – taxation and legislation
3. incentives – They are the thing that makes you want to do things.
   1. Example – state run systems – ‘they pretend to pay us, so we pretend to work’
   2. Property rights – providing people of china with property rights

If profits are the purpose of the free market, as the incentive is self interest – is this immoral?

1. Free markets is painted as heartless, but nobody wants to see the poor suffer.
2. Those that want to provide for the poor through taking what the wealthy have, stand on a moral position of wishes….and theft
3. Ask yourself – What is greedier – Keeping what you have earned, or demanding someone else provide for you with what they earn?
4. But more importantly, what has been proven to reduce poverty? Free markets – freedom for individuals to produce, keep what they own and exchange with others – those systems that are inclusive
   1. The more free markets produces = more things, the more things we have, the lower prices are and easier they are to get!
   2. China is a good example – looking at the change from collectivised farming with quotas to a system still with quotas however – they people got to keep the excess of what they created
5. At the economic level – the more this behaviour is incentivised – the more companies will exist – hence the more things being made, the more people need to be employed, so lower unemployment
   1. But also the greater the supply of goods that we have and the greater the competition within the market –
   2. So we get goods at a fair or market value price
6. These two together – having free markets and a system that protects them is what reduces poverty in the long term – but takes time – not an overnight fix – and there will be hiccups along the way
   1. Not as easy as the Venezuela model of reducing poverty by 50% – by stealing the wealth of the private sector and redistribution – worked well for a few years – until the money runs out – as the state does not produce – they can only redistribute –
   2. But there is only so much redistribution that can occur until all the incentives are gone and with it – all the wealth production – so you end up with a society with nothing further to redistribute – as all the wealth is gone
   3. But when you have a government with complete control – that has promised everything – the failures of the policy can never be their fault – hence you need a scape goat – this has inevitably been the wealthy initially – then once they have had everything taken away – it becomes the middle class – then it eventually becomes someone’s neighbour because they have a slightly nicer car then the person that dobbed them in – this has been human nature – petty revenge

What is better? A society that provides lower costs for things and greater employment opportunities through freedom of opportunity? Or one that promised more welfare (as more tax to redistribute) even though it relies on other to achieve this?

1. Society is a sum of all the individuals in it – if everyone is doing better, then so does society!
   1. But this isn’t up to the government to create – it is up to society to create – which is at the individual level
   2. The need for each person to better their own lives – as long as the infrastructure is in place – is what progresses society
   3. When this desire ceases – say you have 51% of the population happy to take opioids, sit on the couch watching Netflix and taking welfare checks – this in when society is likely to start taking a back turn
   4. Then what happens – the perceived need for the government is increase – as now you have a lot of needy people who need additional income through income support payments
2. Society is the sum of all individuals and the incentives that they face –
   1. If we are incentivised – individuals based around their own desire to better their own lives creates a situation where society as a sum grows
      1. But not linearly – the whole is greater than the sum of the parts – people working together in economic interactions creates economic growth
   2. If we have disincentives – like additional taxes or barries to entry – then this process works in the opposite
   3. Especially when these disincentives are legally enforced – if you don’t pay tax – you go to jail
3. Good quote from – Ludwig Von Mises (1990). “Economic freedom and interventionism: an anthology of articles and essays”
4. “It is important to remember that government interference always means either violent action or the threat of such action.Government is in the last resort the employment of armed men, of policemen, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by inevitably beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.”  
   1. Play any situation out – don’t pay a parking ticket – eventually – can be arrested – if you don’t pay – go to jail

What you can do – is become laissez-faire in your own life – self-organise your own life –

1. Governments will tend to reduce freedom – it is the nature of any system – the point is to grow – like an organism or bacteria – the natural state of any organism is to grow for survival
2. As an individual – important to learn from this behaviour – but not try to fight it but grow around it
3. You also have the capacity to grow – grow in your own wealth – in your family – in your community –
   1. This is a freedom that you are allowed – the ideal situation – what I work towards – is to be outside or above the system – self sufficiency through financial independence

Summary

Important to ignore the rhetoric – hopefully by now – can see that the more involved an authority is in the operation of the day to day of the economy is – the worse it becomes –

Just take the shut downs at the moment – created the most severe economic conditions Australia and most of the world has faced – and it has come at the hands of government or centrally planned policies

An economy needs to be inclusive – Thankfully we have one of the best economies in the world – but it is fragile – as has been shown at the moment – has some extractive elements –

1. System that allows for individual choice, and incentives to the individual to increase their wealth.
2. Inclusive – Equality of opportunity – everyone has access, same rights, no preferences – Property rights – Legal system – Public services
3. No point trying to fight the Fed or Governments – even trying to organise protests against government measures can get your arrested these days – but to learn from them and become your own person

Thanks for listening

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