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Wednesday, October 20, 2010

 

The Dynamics of Prosperity

According to The American Heritage Dictionary, prosperity is “the condition of being prosperous,” which in turn means “having success; flourishing.” An intrinsic aspect of this definition is that it is dynamic, not static. After all, in order for something to flourish, something must be changing for the better (i.e., advancing). Dr. Eubanks has emphasized again and again that Olson’s theories are dynamic and that we should think in a dynamic manner. In reality, everything in the world is constantly changing in response to the world around it. People are always responding to incentives, which change with each new piece of information that they acquire. The world is a dynamic place.

Olson emphasizes this in The Rise and Decline of Nations. First of all, he examines the change in group formation over time. Small groups rise more quickly, but over time, the number of groups in a stable society will grow. Someone has the incentive to sustain old, out-of-date groups and new groups will form (The Rise and Decline of Nations). Therefore, numbers are growing, a dynamic process.

In addition to the change in numbers of distributional coalitions, these groups will change the dynamics of the society. They rent-seek to increase their share of the pie, but in so doing, they use resources that could have been spent on an increase in productivity. Therefore, these exclusive groups reduce efficiency. By limiting their numbers and excluding others from the group, they also reduce equity (The Rise and Decline of Nations). These groups then reduce prosperity.

As we can see, this is a dynamic process. Everything is constantly changing as incentives change and groups grow, changing more incentives. In order for prosperity to increase, the incentives will have to change; the groups that contribute to the emergence of perverse incentives must dissolve; and the incentives to innovate and produce will have to emerge. All of these involve a dynamic world. However, is prosperity in and of itself dynamic, or does it exist forever once it is established?

Prosperity itself is a dynamic process that requires time, incentives, and innovation. People must work to maintain and advance prosperity (i.e., to continue and increase growth and advancement). Otherwise, the nation will become stable and distributional coalitions will form and incentives will change, morphing prosperity. I think that this relates to the question we briefly addressed in class a few weeks ago regarding whether or not prosperity can be passed on. Each generation can learn from the successes and failures of the previous ones. However, this is learned, not genetic. We must study to learn from the past and to build upon previous work; we are not born with that knowledge. In addition, since prosperity is dynamic, the next generation must promote prosperity or it will be lost. In other words, we can inherit a prosperous nation, but without the continuance of proper incentives and the innovation that follows, we will not be able to maintain prosperity. Instead, the nation’s growth will slow, stagnate, or even regress.

All of this shows that the world is a dynamic place, and as Dr. Eubanks continues to emphasize, we need dynamic theories to explain our dynamic world. Olson’s theories meet this necessary criterion.

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