The Role of Government has Changed
The proper role of government before the development of “sophisticated” economic models, was to provide sound economic policy that would bring wealth to and for its citizens. In other words, to raise the citizens’ standard of living while at the same time reducing the amount of effort needed by the citizens. When the first civilization and the first government originated its purpose was to provide security and improved comfort for a collective organization of individuals, i.e. society. This was greatly achieved because the new citizens could now merge ideas, labor and capital thereby achieving higher levels of output with lower levels of input; basically, they were able to either work less or get more for the same work. Government was there to protect the society and ensure their collective system worked.
Sometimes projects that were too expensive for one or even a small group of individuals to pay for, yet beneficial to society as a whole, were funded by the government by pooling a small portion of everyone’s resources to fund the project which would benefit everyone. Sometimes another city would attack and the government would be charged with taking more resources from the citizens to pay for the universally beneficial defense of their borders. Essentially, the government’s success was measured based on its actual performance. If the country was unable to produce efficiently and collectively, the government’s actions were deemed a failure.
However, due to the prattle spouted by modern economists, tools have developed that measure government’s “success” in a much different way. The biggest offender is GDP. Instead of providing citizens with real progress governments can simply pump up nominal levels of gross domestic product (GDP) and still cater to the needs of entrenched political classes.
Exports are an essential part of any viable national economy because a high level of exports represents a strong manufacturing base which provides greater efficiency and standards of living for a country’s citizens. (Imports are important, too, as long as there is more or less balance). As exports are one facet of GDP valuation, currency devaluation has been widely used as a means to boost exports and therefore achieve ‘prosperity.’ Based on this principle, selling becomes an end unto itself. The model gives no focus at all to the obvious negative consequences of currency debasement: diminished purchasing power and lowered living standards.
All the way back in the distant past (20th century), a nation’s currency was viewed much like a company’s stock price. The competitiveness, reliability and growth of a national economy usually meant a strong currency. Makes sense, right?
Countries whose policies encouraged manufacturing would often times produce a surplus of goods. This equated to waste, so the government was charged with finding a country that could take their surplus, sell it to another country and provide them with an equitable surplus from the other country (in goods or services) that could not be produced or produced as well domestically. Demand for the currency of these countries (which was needed to invest or buy local products) would eventually and inevitably drive the value of the currency up. Thus, like shareholders of profitable companies are rewarded by higher stock prices, citizens of prosperous countries were rewarded with stronger currencies. A stronger currency meant they could buy more goods or services, both domestically and internationally, and thereby raise their standard of living.
The tools of the government have changed in recent years. We have essentially been duped into thinking they are performing their duties when in reality they are allowing us to get swindled and in some cases may even be aware of the drastically negative effects of their policies. Governments now look to achieve competitive “advantages” simply by lowering the cost of their exports; simply because it is achieved not from greater efficiency, but from currency debasement. For a consumer economy, such a move may seem beneficial to those who buy products, but such policy burden to the country’s own workers force them to get by on bare minimum wages. Sometimes a product can achieve greater success and innovation by outsourcing its production to a low-cost provider, but this is rare and its not a niche that everyone can or should fill. While a few products can remain competitive based solely on price, the most successful projects and companies will compete on quality and innovation.