Economic Growth through Societal Motivation

Economic engines are fostered through the patterns of human development and the creation of an environment that allows them to realize their fullest potential on the market. The economic system should encourage exploratory entrepreneurial behavior that leads to tangible rewards for societal members to ensure momentum continues to thrust forward. The same mechanics that apply to organizational motivation also apply to national motivation as each member determines whether or not they will engage the market with their skills and abilities. 

The book Capital in the Twenty-First Century by Thomas Piketty outlines how wealth is increasingly accumulating into fewer and fewer hands thereby retarding the financial growth of the middle class. Wealth distribution tied directly to performance helps to encourage greater levels of motivation and innovative ideation.  Higher performance should be encouraged throughout the layers of society to have the highest development of the economic system. 

Expectancy-Value Theory:  People will determine how much effort they are going to put forward to obtain goals. If the system doesn’t offer these rewards or if people are effectively blocked due to issues such as racism, religious bigotry, sexism, nepotism, corruption, or improper wealth allocation national motivation will decline. 

Path-Goal Theory: It is not enough to offer the rewards without offering the right rewards for the right kinds of activities. Employees that work hard, develop new products, and create better ways of conducting business have a right to increased income. The rewards must match the path to ensure the highest amount of effort.

Cultural Reward Systems: Each culture has their own embedded reward systems that encourages higher levels of motivation within that particular cultural context (Rosenblatt, 2010). Once the culture is set it will change the vantage points of societal members and influence what actions will lead to effective rewards that adjusts social intelligence and thinking. 

Skill Set Creation: To think, build, and produce requires the motivation to learn and develop. The system must reward employees who successfully complete training, obtain certificates, graduate with degrees, and improve their earning potential in some way. The closer learning is associated to current societal needs the higher the alignment of effort and skill. 

Ideation to Production: When good ideas are ignored only because they didn’t come from the “right” person with the “right” social connections the system suffers as less people learn to open their ideas to unjust criticism. Development of a nation requires the ability to explore various types of ideas from multiple sectors of society. 

Treaties and Agreements: Opportunities are based on the ability to sell products on the global market that obtain rewards for societal members. The types of agreements developed for trade and information sharing will determine the potential opportunities generated. The agreements influence the productive structure of a nation.

Wealth allocation should impact all segments of society to be effective. Developing a stronger society requires all-hands-on-deck through offering appropriate rewards, effective paths that help the greatest amount of people, the skill-set to produce, open-minded enough to accept new ideas, and having the international agreements in place to develop new opportunities.

The way the system operates and develops has a natural impact on the methodologies people use to make decisions. Every person uses judgments to determine whether or not additional effort will lead to increased rewards or other valued benefits. A lifetime of rewards, punishments, successes, and failures will determine the overall way in which a people think and becomes embedded into a nation’s culture. 

It is the entire system and its impact on the population that will determine whether or not a nation will succeed or decline or suffer the fate of history. Each member is surrounded by the factors of their environment and the way in which other people think that creates social perception as encased in culture. It is this cultural perception matched with appropriately pathways to success and tangible rewards that will determine if the system has the capacity to continue to grow in the future. 

Piketty, T. (2014). Capital in the Twenty-First Century. Harvard University Press: Cambridge, MA. ISBN 9780674430006

Rosenblatt, V. (2010). Social axioms, values and reward allocation across cultures. Academy of Management Annual Meeting Proceedings.

Book Review: The Theory of Economic Development by Joseph Schumpeter

Joseph Schumpeter is known as the “Prophet of Innovation” and published his work The Theory of Economic Development at 28 years of age (1). As an economist he didn’t receive much attention because he wasn’t in alignment with the popular Keynesian Economics of the time (2).  His greatest achievement being the meshing of sociology with economics to make a system of development.

The chapters of the book are:

(I) The Circular Flow of Economic Life as Conditioned by Given Circumstances;

(II) The Fundamental Phenomenon of Economic Development;

(III) Credit and Capital;

(IV) Entrepreneurial Profit;

(V) Interest on Capital;

(IV) The Business Cycle.

Schumpeter believed in a perfect equilibrium where there are no profits, no savings, no new products, no voluntary unemployment, or need. It is a system of economic flow where there is no need to adapt, adjust, or change because everything is running smoothly. This perfect equilibrium either never existed or only exists for a short time before the system changes again.

The economic system is forever in constant flux. It is being destroyed and rebuilt to adapt to new situations. Combinations occur to help solve economic problems through the use of innovation. As a system adjusts it must then readjust through innovation. This innovation pushes the system to new heights.

Entrepreneurs are the catalyst to change. When they innovate a new product or service it forces the system to adjust again. Entrepreneurs rely on credit and must be productive to pay that credit effectively. Their production encourages copycat adaptations not only in the field in which the product was produced but also in other fields as well leading to wider innovations that further the system.

As products become adapted they will naturally experience a reduction of value as the market becomes saturated. This saturation offers a lower return on investment and in turn forces companies to innovate the product again. Failure to innovate the product means that companies cannot pay their loans or earn profits. Capital must be available to start anew.

In this book I find three main concepts of significant importance 1.) Sociology as part of the economic system, 2.) A flow of interconnected elements and 3.) Combinations. To me economics is about fulfillment of human need and when it fails to fulfill human need the economic system collapses and changes. Schumpeter touched upon the wider impact of disruptive technology that forces related components to adjust and reshape themselves within the market. Finally, combinations is literally the combination of one idea to the next even though it is seen in the Schumpeterian model as the combination of physical elements to create new products.

Beyond Schumpeter we find that societies are contracts between the governed and those doing the governing. All systems must allow for the manifestation of knowledge and motivation for maximum growth. When political, economic, or legal systems block that effort the system starts a slow decline. That system should encourage effort among the masses to speed up the economic elements and allow for the combinations of thought to be realized as the combinations of physical elements in the creation of new products and services. Maximum freedom in human effort should be encouraged beyond that which is necessary to protect the system, the people within the system or the environment in which they live.

Keynesian Theory: Benefits and Detractors

Keynesian economic theory has been under increased scrutiny as the U.S. national debt load increases and the economy suffers from a long period of recession. The theoretical standpoint of the Keynesian model is one of a mixed bag where those elements that would have a positive impact are often drowned out by inefficient governmental waste, political favoritism, and the cost of servicing the debt. Under certain circumstances the policies can help stave off economic collapse but fail to bring about positive benefits the longer it is used.

According to the U.S. Census Bureau an era between 1790's to 1930's only saw deficits in government spending in approximately 38 years. Most of this debt was short-term and a direct result of increased costs of war or economic downturns (Lee, 2012). Total federal budgets ran at approximately 3.2% of GNP when compared to nearly 70% of GNP today (The 2012 Long-Term, 2012). At such a high debt-to-earnings scenario the Keynesian approach loses its power to encourage future economic benefits.

To Dr. Dwight Lee, from the University of Georgia, most recessions were relatively small before the Great Depression of the 1930's (2012). They were small because market forces moved in to clear up slack in the economic system and create more productivity. He further makes the argument that Keynesian economics work best when running a surplus for many years and then used to spur economic growth in a quick paced fashion. However, running a long-term deficit and then applying additional debt on top of old debt creates higher levels of inefficiencies and costs. It dilutes the potential positive power of each dollar spent and increases its costs. 

One problem with Keynesian economics result from the political process that filters effective action through multiple competing interests and short-term results that create fiscal irresponsibility (Lee, 2012). What could have been considered effective government spending is often wasted in unrelated expenditures that do little to solve economic problems. This often occurs as decisions are filtered through the political process and sifted to those who support that process. It is always easier to spend then it is to save or ask for a tax increase.

It can be beneficial to see how poorly designed spending matched with political favoritism can impact the effectiveness of taxpayer liabilities. Accordingly, natural disaster legislation has shown that in the past nearly half of the funds were allocated based upon political interests versus that which actually aligns with the needs of victims (Garrett and Sobel, 2003). Such wasteful activities dilute much of the potential benefits of a stimulus that encourages recovery and growth by inappropriately allocating resources to the least effective entities and pinning them to taxpayer debt. 

It is this political favoritism that has made economic policy more dangerous. For example, the multiplier effect is based upon the concept of Keynes statements, “to dig holes in the ground" can benefit society (Keynes, 1936). In this concept, as money is paid for employment purposes it impacts secondary services through the economic chain passing resources to small businesses, companies, and other entities. However, if only a percentage of that money makes it through to these secondary entities its overall impact is diminished.

The end result of misguided economic applications of Keynes theory will result in higher taxes and greater expenses on debt (Barro, 1974). Someone will need to pay back the money. In most cases it will be the next generation and the one thereafter. The costs associated with debt servicing rises above the original costs creating ever increasing problems for the future. It is this future that is short changed for current needs.

The concepts of Keynesian economics works well under certain circumstances but can be disastrous if inappropriately applied in the long term. Positive applications of Keynesian economics occurs when the nation has been running a surplus for a number of years and uses this surplus to spur economic growth through liquidity that fosters cash flow and lending. Such monies will need to be effectively and efficiently allocated only to those areas where it is likely to have the most beneficial and long-term impact. As political favoritism, debt servicing costs, and inefficiencies rise the effectiveness of the financial economic injection diminishes.When used appropriately with assurances of proper expenditures in strategic entities it has the ability to increase economic activity in the short run.

Key Points:
-Keynesian Economics comes with benefits and risks.
-Money spent should have an immediate impact with long-term potential.
-The economic chain and spending decisions should avoid all waste.
-The cost of debt rises over time.

-Keynesian policies work in the short-run to counter quick shocks to the market.
-Political favoritism diminishes its impact.

-Economic activity would need to pick up much more than the costs associated with debt and misspending when compared to low debt and efficient spending in order to justify such policies. 
-The risks and benefits of using such policies should be carefully analyzed and calculated. 

Garrett, T., and Sobel, R. (2003) The Political Economy of FEMA Disaster Payments. Economic Inquiry 41 (3): 496–509.

Lee, G. (2012).  The Keynesian Path to Fiscal Irresponsibility. Kato Journal, 32 (3).

Keynes, J. M. (1936) The General Theory of Employment, Interest and Money. New York: Harcourt, Brace and Co.

The 2012 Long-Term Budget Outlook. (June 5th, 2012). Congressional Budget Office. Retrieved January 14th, 2013 from http://www.cbo.gov/publication/43288

The Concept of Business Cycles and Recession in Economics

Economic cycles are a natural part of business life and have occurred in one form or another for nearly every generation. These boom and bust cycles exist in everything from the biological organisms to stock market investing. It is often beneficial to view economic theories of business cycles to understand how imperfect information impacts the national economy as it moves through these growth patterns. Such cycles are many years in the making and can have a devastating impact on the economy if recovery is not forthcoming.

Bob Lucas, a Nobel  Prize Laureate, developed a monetary theory of business cycles that helps explain economic growth spurts and decline (1972). To him, inaccurate perceptions of economic factors contribute to these cycles that push the system out of homeostasis. Firms, and their management, only have limited time and resources for understanding their environment and typically focus on only that information which is needed for their immediate purposes. It takes considerable amount of effort for firms to figure out what changes in the environment are temporary and what changes are more permanent. It is this inaccuracy that leads to market overreaction that veers the system off of course.

It is beneficial to see how this works in a smaller market. Organizations working within a localized market determine the prices they can reasonably sell their products (Lucas Jr., 1972). Price is impacted by the amount of purchases and the supply of  products. With perfect information quantities adjust to supply while prices respond to aggregate spending shocks. Accordingly, with imperfect information firms respond to aggregate spending shocks in the short-run but not the supply quantities in the long run. This can create overproduction which impacts the economic chain throughout a business cycle and even into the next generation.

A model developed by Paul Samuelson (1958) helps to further explain the concept of a generational contract. Two generations, one young and one old, are engaged in the market. The young sell part of their production to the old who give the young financial compensation. The young hope to save some of the money in the anticipation of purchasing products from the next generation. The entire process works off of anticipation and an implied social contract. It is believed that by producing today the young will reap the rewards of their work tomorrow.

The wider impact of this veering off of course can impact generational growth potentially breaking the generational economic cycle. Artificially adjusting the market in one generation could have an impact on the economic viability of the next. Using the above example it is possible to see how an economic problem is created if one generation cannot produce and save in order to purchase from the next generation. As the money supply dries up, underutilized human capital, and contraction limits employment opportunities it will effectively leave one generation worse off than preceding generations. To fix this problem may lay in expanding the market to other nations (i.e. selling of products and services) to use excess labor capital, improve investment returns, and create natural liquidity in cash flow.

According to Dobrescu and Paicu (2012), when additional monies are injected into the system the prices of products increases which causes inflationary pressure. In essence, the products are rising in monetary terms but not in their real earthly value. An injection of money from a large generation of people with easy credit will impact the amount of money available for the next and smaller generation who are selling their production. A large market expansion could cause a comparatively large contraction later. The excessive use of credit and debt artificially inflates the system while ignoring underlining market principles. A contraction in such a situation is likely to be more devastating when a products "real worth" becomes realized (i.e. housing crisis).

We learn that as economic firms overact to market increases they will increase production based upon price increases. If credit markets are artificially expanded to increase purchases it hedges out the next generations purchasing power and money supply. One of the generations will need to pay the debt back or default on the debt. There will be a large contraction, or market flux, when this money is not available for purchases of products that keep the generational exchange of money and labor in full growth. As the market contracts the GNP and economic system slows down. The cost of debt becomes over-burdensome in an economic recession creating additional difficulties in market clearance.

Boom and bust cycles are common in normal economic activity. Such boom and bust cycles often follow an increase in production and then a quick contraction as resources are used up (Sherman & Hunt, 2008). The same cycle can occur in credit markets, production of goods, housing prices, or even entire economies. When boom and bust cycles are large it can impact generational growth patterns as seen in a long-term economic recession. Before an economic system can move back into homeostasis it must complete a market clearing of excess supply and demand. However, excessive periods of market clearing mechanisms may change the underlining assumptions of the entire economic system.


Dobrescu, M. & Paicu, C. (2012). New approaches to business cycle theory in current economic science. Theoretical & Applied Economics, 19 (7).

Lucas, R. (1972). Expectations and the Neutrality of Money. Journal of Economic Theory, 4, pp. 103-124.

Sherman, H. & Hunt, E. (2008). Spread of the business cycle. Economics: An introduction and progressive views (6th Edition). Armonk, NY: ME. Sharp.

Book Review: Alan Grenspan-The Age of Turbulence

Alan Greenspan's book The Age of Turbulence: Adventures in a New World reached no.1 on the New York Times best seller list in 2007. The book appears to be one part autobiography and economic theory. His philosophical and economic approaches are spelled out between the pages. Through the work a reader should understand the nature and life of an important intellectual theorist within American culture.

The New York Times states, "For a memoir from such a high-profile figure, it is surprisingly frank. Large parts of the book are downright entertaining. Its biggest failing — the reason it isn’t a great memoir — is Mr. Greenspan’s reluctance to be as forthright and penetrating about himself as he is about others" (Leonhardt, 2007).

The first part of the book outlines his life from high school clarinet player, professional service, philosophical discussions, and through various employment positions leading to the Federal Reserve Chairman. He provides some wisdom for how markets act and interact with each and touch upon the various economic principles used to important make decisions. "There are no moral absolutes: values and ethics and the way people behave are reflections of culture and are not subject to logic (Greenspan, 2007).

To him culture and values are relative and the markets can be chaotic. Through analyzing data within his industry work he was able to expand his concepts to a larger society. This gives the readers some indication of how his self-perception and method of learning eventually led him to setting global financial policy. "My early training was to immerse myself in extensive detail in the workings of some small part of the world and to infer from that detail the way that segment of the world behaves. That is the process I have applied throughout my career." Greenspan, 2007).

Throughout the work he discussed various politicians and social elites he has met. Bill Clinton, Rush Limbaugh, Ronald Reagan, Newt Gingrich, George Bush, and other important figures. The book provides some understanding on how he saw each person and the approaches they used to make important decisions. At the very least, it provides some level of insight on how Washington works and the decisions that make up policy.

It is suggested that anyone who has some interest in politics, economic theory, or government administration should pick up a copy. The book provides insight into the nature of the Federal Reserve Chairman and the policies he enacted. Furthermore, it moves into the basic economic principles that are used as the vantage point in understanding and managing a larger societal economic structure.

Price: $12

Blog Ranking: 4.5


 Greenspan, A. (2007). The age of turbulence: adventures in a new world. NY: Penguin Books. ISB 978-0-14-311416-1

 Leonhardt, D. (Sept. 18th, 2007). Economist's life, scored with jazz theme. The New York Times. Retrieved January 5th, 2013.

The Bounded Rationality of Stakeholder Theory

Stakeholder Theory is an organizational management perspective that attempts to defined the nature and purpose of firms/corporations within society. According to its founder Milton Friedman, the purpose of a firm is embedded almost exclusively in the production of wealth for shareholders (Friedman, 1970). Since this time, the concept of stakeholder has been expanded to include the idea that other entities have a particular stake, or interest, in the organization and can influence its success or failure.

The theory defines who are the stakeholders in an organization and their rights and obligations to the shareholders as well as society in general. The root of the theory is based off of the premise that its purpose is the, "identification of moral or philosophical guidelines for the operation and management of the corporation" (Donaldson & Preston, 1995). The theory helps to foster the understanding that the needs of the owners should be realized first before other considerations. However, other ethical aspects of managing an organization in society are important considerations of how companies should operate; the definition of stakeholder has been expanded to include them.

This management perspective helps bridge a gap with classical economic theorists who see the system as separate economic components competing against each other while ignoring the perspective of the management of the firm. The classical approach makes the assumption that all participants in the system are rational and independent (unbounded rationality) while management theorists believe that  the imperfect information and lack of participant's mental abilities would bind them together for decision making into firms and organizations (bounded rationality) (Simon, 1955).

Thus the firm became a resource entity where operational abilities and knowledgecan minimize costs and improve upon market influence (Amit and Schoemaker, 1993). It is believed that organizations have the capacity to create market efficiencies through tying together the skills of labor and management into a social function that furthers the interest of its members. In essence, a person joins the firm for resource attainment and hedges their skills which creates more productivity than working alone.

In order for the firm to be effective it must hedge the skills and development of employees to create efficiencies. When these efficiencies are difficult to obtain and employees/managers are capable of a "free ride" the collective benefits will be lessened (Hardin, 1982). The same risks apply when an organization's culture detracts from employee development, unions become obstructionists, or political corruption encourage "free rider" approaches. Adding enough free riders, and inefficient operators to an organization, will detract from the firms missions, purpose, and economic strength.

Coordinators of human capital are combined into what we consider the board of directors. This board should have the skill to develop and create synergy within the organization by hedging human capital to create innovative powers (Mohrman et al., 1995). Thus, the very purpose of the board of directors lies in their ability to increase the efficiency of transactions as well as the innovative potential of the organization.

When a group of skills and abilities come together into an in-group paradigm with productive core values, the stakeholders are able to capitalize on employee's abilities and reap higher market rewards. The firm becomes the psycho-social group with a bundle of rights and obligations (Donaldson and Dunfee, 1999). Each member of the organization must be fully integrated into these groups, rights and obligations if true success of the organization will be found.

Stakeholder theory helps put within perspective the nature and purpose of an organization. At present these two purposes are 1.) shareholder wealth and 2.) other interested parties that have influence over the firm. Even though the theory doesn't specifically state this concept, one could take a very large view that firms are also societal socialization tools and can collectively change the very nature of American values and beliefs. Thus a stakeholder can be any person, group or entity that has a vested interest in the development of the organization and the people that pass through it.

Amit, R. and Schoemaker, P. (1993)Strategic Assets and Organizational Rent. Strategic Management Journal 14, 33–46.

Donaldson, T. & Preston, L. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. Academy of Management Review 20 (1), 65–91.

Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." New York Times Magazine, 13 September 1970.

Hardin, R. (1995). Efficiency, in R. E. Goodin and P. Pettit (eds.), A Companion to Contemporary Political Philosophy (Blackwell, Oxford), pp. 462–470.

Mohrman, S., Cohen, S. and Mohrman Jr, A. (1995).  Designing Team-Based Organizations: New Forms for Knowledge Work. (Jossey-Bass, San Francisco).

Simon, H. (1955), A Behavioral Model of Rational Choice.  Quarterly Journal of Economics 69, 99–118.

The Economic Theory of Chaos: Controlling the Uncontrollable

Chaos is a natural part of our lives and is prevalent in anything from weather patterns to economics. In order to understand the unpredictable nature of life and fluctuations in normal development through time Chaos Theory came into being. "Discoveries in quantum physics, biology, and chaos theory enable us to deal successfully with change and uncertainty in our organizations and our lives....the new science radically alters our understanding of the world, and it can teach us to live and work well together in these chaotic times" (Wheatley, 2009). Originally used in weather patterns and physics the theory has been applied to understanding and minimizing economic crisis.

Before understanding the theory it is important to first have a grasp of the field of economics. "Economics, if it is to be a science at all, must be a mathematical science … mechanics of utility and self-interest"(Jevons, 1924). The very purpose of economic models is to predict, explain and potentially forecast economic conditions. As a science it is subject to the same scrutiny of validity, relevance, and significance as other fields of study. Economics is used to explain everything from individual transactions to the cost of your student loans.

In most economic theories the individual agent is the central component. The economy can be seen as an analysis of how these agents influence each other through evaluations of worth.  When the agents continually evaluate each other they create what is called "the market". Analysis often focuses on the similarities and patterns of society as they relate to the price of commodities and goods. The French mathematician Henri Poincaré believed that people do not act alone but constantly watch each other to make decisions (Colander, 2011).

Economics is also often seen in terms of equilibrium in efficiency of functioning. “A characteristic feature that distinguishes economics from other scientific fields is that, for us, the equations of equilibrium constitute the center of our discipline. Other sciences, such as physics or even ecology, put comparatively more emphasis on the determination of dynamic laws of change” (Mas-Colell, Whinston & Green, 1995). Equilibrium can be seen as homeostasis where prices, supply, demand, activity, unemployment and other factors are accurate and on autopilot. This is where the market can self-regulate and the forces are in balance. Yet such equilibrium doesn't necessarily indicate stability of a system so Chaos Theory can help further explanations of systematic behavior.

When the system is out of balance a concept called Chaos Theory may be more accurate in predicting and controlling the outcome. According to Faggini and Parziale (2011) Chaos Theory represents, "a shift in thinking about methods to study economic activity and in the explanation of economic phenomena such as fluctuations, instability, crisis, and depressions."  The theory attempts to explain and understand market fluctuations ranging from hiccups to depressions in order to lessen their impact.

Through Chaos Theory it has been postulated by Ott, Grebogi and Yorke that small adjustments in the market can change the course of a natural economic system without having to change the fundamental principles (1990). In essence, as fluctuations occur it takes much less effort to adjust the system than attempting to control the whole system throughout its movement. Think of how thrusters on a spaceship can adjust the path of the flight with minimal energy by doing so when the ship first moves off course. Thus controlling chaotic fluctuations within the economic system relies in part on a number of principles (Faggini & Parziale, 2011):

1.) The fluctuations in chaos can be exploited for greater growth that would not be possible in less chaotic systems.

2.) Control based upon the sensitivities of initial conditions can create higher levels of efficiency.

3.) The amount of government adjustment in policy would be lessor than under traditional models that require an abundance of resources.

Chaos Theory includes the concept that pure control of an economic system is difficult, unrealistic, or impossible. Thus trying to obtain a perfectly controlled outcome would be costly and expensive in the long run. Under this theory it is wiser for a government to make small and incremental changes during times of fluctuation and chaos that help use attraction to obtain desired outcomes versus more common highly engaged adjustments.

One of the most difficult aspects of predicting and adjusting the economy is that such systems are large and complex. They are not rational human beings even if rational human beings are behind its face plate. Furthermore, in order to determine when a system is going into chaos it is necessary to have a reasonable benchmark of its homeostatic course of development. This can be difficult due to inadequate tools used to measure current economic systems full of fluctuating noise.




Colander, D. (2011). The economics profession, the financial crisis, and method. Journal of Economic Methodology, 17 (4).

Faggini, M. & Parziale, A. (2012). The failure of economic theory. Lessons from chaos theory. Modern Economy, 3. 

Jevons, W. (1924). The theory of political economy. London Journal, 57 (2).

Mas-Colell, M., Whinston, M. & Green. Microeconomic Theory. Oxford University Press; Oxford

Ott, E., Grebogi, C. & Yorke, J. (1990). "Controlling Chaos," physical review letters, 64 (11).


Wheatley, M. (2009). Leadership and the new science: discovering order in a chaotic world (Third Edition). San Francisco: Berrett-Koehler Publishers.