Monday, October 3, 2016

Revolution Risk

Revolution Risk is a long conveniently forgotten concept that I am reintroducing in my book, by way of describing the "Level Playing Field" - an economy based upon local small businesses, with a poverty safety net.

I offer this preview by way of explaining that the current economic model of Ponzi Capitalism is not politically stable at high altitudes. And hence it won't survive the crash...

Moral Choice and Revolution Risk

Moral choice is the extent to which an economic model leaves economic assistance to the state versus private individuals aka. charities. The less degree of state assistance, the larger extent of imputed “moral choice”. At the macro level, moral choice is viewed as a governor on societal decadence because it requires individuals to accept responsibility for themselves AND more importantly others. For example, Socialism is often perceived as providing very little moral degrees of freedom with respect to assisting others or indeed oneself. The state buffers the individual from the downside of their own bad decisions, which creates a form of moral hazard leading to stagnation and decadence.

Revolution risk on the other hand is the likelihood that the incumbent political regime/economic system could be violently overturned due to extreme poverty - hence it’s the downside of allowing additional moral choice in the model. What we find is that moral choice works very well in a booming economy when systemic downside risk is extremely low, and then fails in a bust economy when poverty is rampant and charity is wholesale withdrawn. The question on the table therefore is to what extent should poverty be left to the vicissitudes of moral choice, which is least evident when it’s most needed?

Each of the economic models employs different levels of state control and hence embeds a different range of potential wealth, poverty, moral choice, and revolution risk. Capitalism has the most upside and the most downside both at the individual level and at the state level. Socialism mitigates downside by mitigating upside. Communism embeds the least economic upside however it maximizes state control and is therefore highly popular with authoritarian regimes, at the expense of individual rights. The Level Playing Field achieves slightly less upside than pure capitalism with far less downside both at the individual and state level. In other words it’s politically stable.