The complex dynamic model of an economy is analogous to the flow of water through our physical world. Every stream, creek, stream, river, lake and piece of shoreline represents a particular part of the economic river. One part of the river might represent Health Care, another Widgets, another Homes. Savings can be represented by lakes and oceans.
One might question, how do the resources in the economy (the water) get back up to the top of the river. Just as in nature, all of the resources in the economy eventually flow into a reservoir (lake or ocean) of some sort. From here, the water is floated back up to the mountains, lakes and streams as clouds (loans) for additional activity in the economy. Economically speaking, even the greatest economic folly of man eventually makes it way back to the economic ocean. It just may not make it directly back to the lake from where the cloud came from.
One might ponder that there is a limit in this analogy in that new water cannot be created in the physical world where as new wealth is created all of the time in the economic river. However, the degree of activity and wealth creation in the economic landscape is a measure of the entropy (diversity of economic activity, how many streams, lakes, ponds, etc.) and enthalpy (heat of the ocean and rate of flow) of the resources from the ocean to the rivers and then back to the ocean. Wealth creation in the economic river is not limited by the finite quantity of water in the ocean and rivers. Rather wealth is created in the economic river by increasing the rate of flow and/or complexity of drainage in the economic landscape.
Anything that impedes this entropic/ethalpic flow, generally works against the creation of wealth. Sadly, this is all too frequently the role of politicians and government. They may be acting with the best of intentions for individuals in the society, but by so doing, ignore the basic rules and well being of the economic river itself. Instead of promoting more flow and activity in the ecoriver, many government programs generally create economic swamps of stagnant economic resources whose primary beneficiary are the politicians and bureaucrats controlling the flow into the swamp.
Social Security is perhaps the best example of a stagnant economic resource government has created. Rather than promoting the general welfare of the entire economic river through promotion of investments for retirement by every worker that would increase general economic flow in the private sector, Social Security is the structural kin of an economic swamp where government siphons some flow from everywhere in the economy and redistributes this flow into a swamp called Social Security. This is not to say that the flow of resources through the senior economy will not result in the creation of additional economic wealth. Rather, with a modest set of reasonable policies (not programs), such activity would happen with or without the social security program. So why deny the general economy the benefit of increased general economic activity? Is the purpose of our government to promote the general welfare of the nation or the general welfare of politicians?
One can hardly speculate about the size the increase in economic prosperity that could be created by reforming Social Security and many other redistribution schemes. One would expect a surge of economic flow if one stops the drain of resources from the economy into the swamp and increases the flow of the economic river through natural self sustaining systems of investment and activity.
Examples of where privatization of retirement benefits has been tried (Chili) have resulted in successfully turning around economies and retirement systems that were in far worse shape than our bloated social security system. Such examples only go to show that properly designed and promoted independent individual initiative and enterprise will out perform a centralized system of social benefits guided by special interest politics.
2/24/96