10/31/17

New traction in modern society: an economic model explaining the overall turn in elections and voting



There is an old economic model describing optimal behaviour of an agent in a company. A company is a close system and any person obeys rules or goes out. Therefore, one always needs to define own position and estimate optimal strategy maximizing profit/utility. There are two general opportunities to increase income – make herself more visible for decision makes (PR) or increase productivity. Competition between agents has to directions, but everybody has finite time to share between two activities – H. As everyone knows, people have different PR (PR) and work (W) capabilities (smile). Let’s the share one invests in PR is a, and then (1-a) is the time slot available for productive work. For a given person j, total income, M, in a company is defined by
Mj =  a*H*PR + (1-a)*H*W – G
where G – overhead, i.e the money spent to administration and so on.  The optimal strategy is based on the ratio of PR/W for this person and on her PR relative to other people in the company. When one has low PR the strategy is simple – make a=0 and get the small share of own productive work redistributed over the company. For the PR guru – work is not needed too much. Ceteris paribus, the company grows when people make correct decisions maximizing company and own profit/income. But everyone can leave unsuccessful company and try a new one.
At the level of nation-state, one cannot leave (or it is much harder) and has to find new ways to fight against increasing economic and social disparity, which we observe in many modern societies based on simple economic efficiency of investment.  In a country, G now is the money spent to run the government and political system. As a rule, these are people with the highest PRs and obtain income from their tongue work. They are supported if not bribed by investors. As economic data show, more and more people do not get any increase in M with growing productivity and even growing, e.g. the median real personal income has not been growing in the US since the 1980s. More than 90% of real GDP increment goes to top 1%. As we know, one cannot move to another country.
Here an alternative strategy comes – to counteract the increasing disparity or to put some sand in the wheels of political and economic system. When political /economic leaders in the UK spoke about lost billions, everybody knew who would loose them.   This was not sad news.  Bigger and bigger parts of many developed nations signal to the other part that they forget something – the roots of human rights. The above equation has to be extended by a new term – the counter force hampering the prosperity of PR part of the society – the main liberal idea:
Mj =  D*a*H*PR + (1-a)*H*W – G

where D is damping coefficient decreasing the efficiency of PR. With the overall slowdown of economic growth, the level of economic/social inequality may not grow so fast as during the two previous decades. D is likely proportional to the failure of the current elites in election process. Overall, many people are not happy anymore and look for alternative ways not to lag behind forever.

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