A Possible Solution to Smithian Economics

Abstract:

The incentives in global economics are generally top down. Governments are creating economic policy with incentives; but are not effectively leveraging incentives toward economy and risk management in global economics. Sanctions and tariffs are negative utility that is very limited in affect; and tends to increase tensions. The positive utility of cooperation toward global economic goals might be a path toward more diplomatic problem solving. Incentives that promote security, both global and domestic, might improve not only relations; but also cooperation with the shared challenges we face and the stability of the global economy. Gross Domestic Product:

Accounting issues in estimating GDPs appear to be quite serious. Since this is the mechanism with which countries compete with each other in modern times, it would be a candidate for leveraging incentives. As it stands, all profits go toward GDPs as gains; as opposed to profits that are the product of solutions to issues that economies themselves have created being considered losses. The profits are not actually gains when considering that they are the product of correcting economic issues. This is not only lack of an incentive to correct the economic model, it’s also an incentive to exploit the issue; in the interest of inflating the GDP. This would be expected to result in and perpetuate failures in economic policy.

Productivity and Correction:

Innovation of markets, products and services are of course very productive. It stands to reason to credit a nation with doing so. Where a nation is correcting for the mistakes that they have made however it's not so reasonable; to treat it as productivity. Because resources are leveraged toward these corrections, as opposed to being leveraged toward real productivity, it stands to reason to count the investments of capital, and material and human resources as losses. These are all resources that could be being leveraged toward positive gains.

The profits that result from corrective endeavors are in essence rewards for correction; however they are also rewards for lack of correction of models for economic policy. Because those profits are counted as gains in the GDP, there is not only a lack of incentive to correct those models, but also a systemic exploit; that would allow inflating GDPs with accrued corrective investments. It would stand to reason that the profits from corrective endeavors be counted against GDPs as well. Otherwise, nations would be rewarded for their economic policy failures.

Global Economic Challenges:

Because nations are so competitive and have such large populations, global economic issues have become global ecology issues. Coordinating global economics with the natural systems that sustain human life stands to reason as a global economic risk management method. Concerns over issues such as anthropogenic affect on atmospheric carbon, for instance, might very well be addressed with the positive utility of competition to solve for the risks. If this directly affected GDPs, there would be a global economic incentive to do just that. Agreement between nations to solve the accounting issues in approximating GDPs could result in an incentive to solve for such risk factors; for the sake of their GDPs.

This could also be an incentive against military action; as profits from weapons manufacturing and other government contracts could count against GDPs. Incentives to be more productive and less destructive could result in savings all the way around; including human life, material resources, deficit spending, and could even improve relations across the globe, as less military conflict would equate to less tension.

This could have a positive effect on public health; both physical and mental, as corrective expenses and profits could also be counted against GDPs. It’s observed that healthcare systems are challenged with the issue that a maximally healthy population does not produce a maximally profitable healthcare system. The incentive for that issue in particular is being demonstrated to be counter productive; and an incentive to correct it is in every ones’ interest. Public health is a far reaching influence that accrues costs across the board; from public services, to unemployment, to decreased productivity, to added insurance claims and even public safety issues, the costs can become enormous.

Adam Smith:

In his books “An Inquiry Into the Nature and Causes of The Wealth of Nations”, Adam Smith in his focus on global economics, also focused on the competition between nations. He seemed to be particularly concerned with the manner in which nations were competing with each other. In his explanations and criticisms of global economic processes, he seemed to be arguing for more positive utility in that competition. More recently, this seems possible if nations agree to incentivize themselves and each other; with more accurate accounting of GDP. This may be key in increasing prosperity and security across the globe.