Improving Our Standard of Living (Wattpad Edition)

Chapter 34: Uncorrelated Variables

This chapter is about variables that are commonly believed to impact standard of living but do not.

Country Size and Natural Resources

The Nordic countries and Switzerland have the best living standards in the world. When I tell people that, they often respond by saying that those nations are small and are therefore easier to govern.

Excluding tiny villages, a country's size and population density have little to do with its standard of living. The laws of economics work identically for all nations with a minimum population of a few million. To say the laws of economics are different for a country of 10 million versus one of 50 million is like saying the laws of physics work differently for the two nations.

Political and economic policies that are good for small countries will also be good for large ones. It would be dubious, for instance, to say that democracy and free markets work for small nations but not large ones. Or that slavery is ideal for big countries but bad for small ones. Or that free trade should be practiced by medium-sized nations only, while protectionism is optimal for states with a large population and ethnic diversity.

Democracy is good for countries of any size because it's a good policy. Free trade is good for nations of all sizes because it too is a good policy. Slavery is bad for countries of all sizes because slavery is a bad policy. So is despotism. And so on.

In most instances, size, population density, ethnic diversity, and prevalence of natural resources are irrelevant when it comes to which laws should be decided on for improving national living standards. Policies that are good for humanity in general will be good for nations regardless of their soil, size, and demographic composition.

Saying that fundamentally good policies and basic economic laws apply only to countries of specific sizes and population densities makes as much sense as saying that smoking benefits people of a certain size but harms individuals of a different dimension.

Countries large and small, homogeneous and ethnically varied, are subject to the same macroeconomic and microeconomic laws. They include things like supply and demand, market equilibrium, time and energy cost of production, marginal cost, average cost, opportunity cost, the price system, medium of exchange, surplus value, debt, comparative advantage, absolute advantage, economy of scale, minimum efficient scale, mass production efficiency, incentive, market power, externalities, internalities, production–possibility frontier, marginal rate of transformation, Pareto efficiency, game theory (and its many laws), deadweight loss, potential output, division of labor, gains from trade, imperfect competition, perfect competition, distribution of purchasing power, inflation, real value, nominal value, budget constraint, utility, marginalism, rational expectation, cooperation, rent-seeking, and so on.

It doesn't matter if a nation is big or small. If it relies on barter or money. If it's capitalist or communist. If it's impoverished or has achieved a science fiction level of abundance. If it has a population of a few million or hundreds of trillions spread across the galaxy. The core laws of economics don't change. (Including the undiscovered ones.) That's because economics is based on the laws of nature as described by mathematics, physics, and psychology.

Of course, not everything about economics is understood, as with the other laws of nature and the mathematics that describe them. Like the theories of relativity, gravity, and evolution, economics is an incomplete science. But what we do know is still very useful. To throw away everything about economics that we've discovered—as many people want to do—would be asinine.

For example, economists have made several scientific discoveries on the benefits of free trade. And they've won Nobel Prizes. Yet it's mindboggling how many people are against free trade. It's like being against gravity or evolution.