Culture and Economics

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People on both sides of the Atlantic think they can judge the economic systems of their countries by looking at cold facts and statistics such as the unemployment rate, the poverty rate, gdp per capita and so on. While this certainly has some merits, it fails to capture the essence of the systems observed; that is, the people living in those systems.

When you lay out a set of incentives, over time human behavior adjusts in an optimal way to these incentives. In a democratic system this creates a feedback loop. For example; in America people for the most part have to rely on their own labor to live a comfortable life. This has shaped a work ethic and a respect for wealth. In Europe, a welfare system was installed when people still had this work ethic. The next generation, ‘freed’ from cultural leftovers to work hard and not take advantage of the welfare system adjusted in an optimal way to this system. They try to get away with working as little as possible and taking as much advantage of the state as possible.

The tragedy here is that this also takes away a certain dependence on your fellow humans and a realisation that your all in the same boat, trying to survive by working. Instead you start to regard each other with suspicion, wondering if your neighbor is living of your tax dollars. If this neighbor is a recent immigrant from Morocco and doesnt speak your language because he doesn’t have to to survive this suspicion turns into xenophobia.

And here lies the danger, because in the feedback loop people go back to vote, and they start to vote nationalist and socialist, a logical outcome of a welfare society with high immigration. They turn inwards, and become statist. This is Western Europe in the present.

Statistics don’t tell the whole story in economics. It’s the interplay of political systems and institutions, and purposeful behavior.

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2 Responses to “Culture and Economics”

  1. Eli Says:

    Ralph, are you arguing that statism is more prevalent in ethnically heterogeneous societies? It seems to me that, other thing equal, one would be less likely to support a welfare state when he regards his neighbor with suspicion, and more likely to do so when he views his neighbor as pretty much the same as him. I would think that more ethnically homogeneous societies, like Sweden, would be more statist than the US, which is what we find, no?

    I think you’re right that we have to look at more than statistics, though.

  2. Stewart Says:

    Is it that we need to look at more than statistics or that we need new statistics?

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