by Adam Netland, Senior Asset Manager, Wealth Enhancement Group
The economy… it’s hard not to pick up a newspaper or watch the news without seeing a report on the struggling economy these days.
What is an economy? Webster’s Dictionary defines economy as: the system of production and distribution and consumption. Over time, our country’s economic growth per capita directly ties to our increased standard of living. Although we are in a current economic downturn, and many of us have pulled back our spending, just think about how much our standard of living has increased the last few decades! Items in past decades that were unheard of or considered luxuries are now almost considered necessities; air conditioning, mobile phones, cable TV, internet access, just to name a few. We’re living longer than ever and despite what the media may tell us on the nightly news, crime rates have been dropping for the last couple of decades.
What is necessary for economic growth and an ongoing improved standard of living? The most basic precondition for economic growth is an appropriate incentive system. It’s easier to motivate ourselves to study, stay healthy, and work if there is some reward or incentive for doing so. Three things are crucial for the creation of incentives.
- Markets – enable us to specialize and trade, as well as exchange goods.
- Property Rights – assure us that we get to lawfully keep what we earn and possess.
- Monetary Exchange – encourages us to save & invest our earnings.
Early human societies, based on hunting and gathering, did not experience economic growth because they lacked these 3 things. Economic growth was possible when societies evolved to include markets, property rights, and monetary exchange.
Throughout the last century there have been good and bad times, but over the long term, economic growth and our standard of living have improved many times over. Despite the current economic downturn and struggles that we all have to face, we will overcome them, and most likely our standard of living will be better 10 years from now than it is today. This is because all of us have incentive to do our part to ensure economic growth in the future. |
