I used to have a professor in college who was about 175cm tall and 45 kg. Isaac Katz is a renowned academic in Mexico for his contributions to economics.

He has an interesting book in macroeconomics called La constitución y el desarrollo económico de México. He was my teacher in one course, and the whole course was about this book. It’s about how the Mexican Constitution is a piece of garbage and it does not establish the proper foundations for optimized economic growth.

The guy is pretty smart, controversial and, kind of, gets pissed a lot. I cherish him as a fun and insightful professor. Often, he gave angry monologues about the president at the time, Lopez Obrador, and his policies and political discourse, all based on the aforementioned book. He used to say “y el idiota de Lopez…” and then go on a 55 minute rant about the latest thing he disagreed with while we just stared and listened. One time, he ranted so hard he passed out from raw anger (and he also has some kind of nutritional deficiency or something like that), we had to call the nurse and everything. I love those old guys who will just inconvenience people to the death out of pure spite.

Anyways, digressing… I used to sit there, and everything he said made sense to me as a 3-year economics student, somewhat bought into neo-liberalism, thinking “if only the politicians would have listened to him when he was advising for them, or at least they should listen to him now, they must be such idiots”. Nowadays, as an elder and a pillar of the community, I have come to understand the nuances that he refused to accept. It’s not always about how or what; a lot of times is about who. People make things happen, based on incentives, convictions, and ideology, of course. But, ideas by themselves can’t do much without actors as vessels of the message.

He, allegedly (by me), refused to understand that:

• Information is not perfect in reality as it is in economic models (Duh), in fact it is so imperfect that most people would be surprised.

• People are not truth-seeking and utility-optimizing machines, they are comfort-seeking machines, avoiding death and discomfort. Meaning, not only is info. not complete or perfect, cognitive biases distort its proliferation and interpretation.

• Even with perfect information and interpretation, people will still fail to act with the answer dictated by the best response function. In common words, they fail to optimize behavior even with perfect information, because that is humanity.

Neoliberalism talks about deregulation, minimal government intervention, free flows of people and capital, etc. In a simple phrase, wealth and prosperity are greatest when the market regulates itself through incentives. And Katz, same as Friedman, chose to see the world that way, as a utility function that must be solved for maximization. I think this view is cool for theoretical economics, but it falls incredibly short of the complexities of our world. But what I think doesn’t matter, what works matters…

Politics

Neo-Liberal Capitalists take the failures of Socialists as proof that their model is best, Communists (Trotskyists really…) do the same, but the other way around. Ultra Conservatives justify their stance by pointing to the “degeneracy” of Ultra Progressives, and Ultra Progressives take refuge in their ideology by pointing out the regressive and callous beliefs of Ultra Conservatives. Inevitably, we have to bring politics into the equation. Even though I don’t have a great political mind or training, I do understand that you cannot separate Economics from Politics, mainly because economic models are implemented and observed through policy to maximize well-being (in a perfect world).

We know that unchecked capitalist neo-liberalism ends up in humanitarian disaster. Oligarchies, violations of human rights, and overall poverty. [PINOCHET & CHICAGO BOYS] [THATCHER]. We also know that centralized communism (Trotskyism) ends up in, you guessed it… Oligarchy, violations of human rights, and overall poverty. [STALIN, LENIN][CASTRO]. The alternative of fully centralized power with capitalist tendencies [PORFIRIATO] [CHINA] doesn’t work either from a quality of life standpoint, as oppression is insane in these cases. I’m not sure if there has ever been, or ever could be, decentralized socialism on a large scale, given basic human incentives on game theory (libertarian socialism, probably not possible beyond a cooperative company or something).

Expected Value

So here is my thesis on these models:

1. Given human variety, we have asymmetric opportunities, resources, possibilities, and ambitions. → Because of the nature of scarcity in the world, people who have the best hands dealt will not just yield their resources because it would threaten their survival (here is where libertarian socialism falls appart as well) → So, a state of equality is virtually impossible without a central agent regulating all facets of life and redistributing resources amongst the population with the threat of force → a central agent regulating all facets of life is extremely powerful, given it is ultimately run by people, this agent is prone to error and corruption → Communism requires centralized power and centralized power ends up becoming authoritarian → Authoritarianism, at a point, becomes so oppessive people discard it through revolution.

1. Given human variety, we have asymmetric opportunity, resources, possibilities, and ambition. → Because of the nature of scarcity in the world, people who have the best hands dealt will not just yield their resources because it would threaten their survival → When allowed to achieve unchecked accumulation of resources, people will accumulate them at the expense of others → The marginalized get to a critical point where they want to, also, discard the current status quo because the expected value of a massive power struggle seems higher than their current living.

Now, ask the neo-liberals… how many models are there in which have you inserted a variable called “Revolution” that integrates the possibility of income inequality growing so large that it causes enough discontent to encourage a coup? Never seen one. (Actually, some integrate political instability variables, but I just wanted to say that)

If my bro Aristoteles were here, he would tell everyone to chill out and meet in the middle.

And I know, I can look cool by telling people to meet in the middle. I do think the middle is Liberalism, different from libertarianism or leftism. Liberalism recognizes that individual liberties are fundamental, but at some point, these liberties can infringe on others. Therefore, liberalism attempts to understand the complex relationship between individuals and society, and it seeks to mediate rules and customs that most people are willing to accept regarding their rights, income, opportunities, and overall life. In my mind, this is a great way to think, and I can give my argument why concisely: The world is too complex to bet all the eggs on one side of the isle. Pragmatic liberalism that is not too unstable but can adapt will show hints of all kinds of political ideologies, but the average can be great. I suggest Ezra Klein as an ideological frame of reference on how policy should be looked at from the outside.

Conclusion

It is great to have models that give us a modular understanding of the economy. When talking about what to implement in practice, most people would agree that some level of wealth redistribution is fine and that more inequality = bad for most people in most cases, but too much redistribution stagnates growth and can lead to oligarchical rule.

There is this cool game called Cities: Skylines, I would suggest people play it, because it is a great lesson on politics and economics that people will intuitively grasp at first go.

Very quickly, you will understand how managing a whole city, state, or country is a mess. It’s a delicate play where you have to lightly nudge people through incentives, and you are always acting on your back foot to sudden pressing issues that need to be addressed.

With that said, it is very clear that the Western World, for the last 50 or 60 years, has had unparalleled levels of living standards achieved by populations of that size in human history.