Edge of Chaos summary

If you’re managing a household budget, going into debt can be terrifying. But when it comes to national economies, the situation is quite different. Believe it or not, going into debt can actually stimulate economic growth.

Let’s look at the United States as an example. After the Second World War, the country took on a massive amount of debt to fund education, health care and infrastructure.

Economies are fragile things: one misstep and the whole edifice can come crumbling down. It may seem counterintuitive, but one of the biggest threats an economy faces is people, and specifically its workforce – that is to say, the people in an economy who actively contribute to its growth.

In the developed world, both the quantity and quality of workforces are in decline, and this poses a major problem.

Two events in 2016 seemed to indicate that the global economic consensus was turning a corner. First, the United Kingdom voted to leave the European Union in the Brexit referendum. Then, later in the year, Donald Trump was elected President of the United States. These indicate that the world is steering away from globalization and back to protectionism.

Unfortunately, protectionist trade policies damage the global and national economies alike. The global economy struggles because protectionist tariffs and quotas on imported goods and services end up limiting trade and thus squeezing the flow of cross-border capital.

Hundreds of millions of people in the developing world live on less than a dollar a day. When the biggest concern is whether there will be food on the table every night, it’s understandable that calls for political freedom become secondary. That’s why many people in the world prioritize economic growth over a flawless, transparent democracy.

China is an excellent example in this regard. It has developed a form of authoritarian state capitalism that has served the country well by fostering economic growth. It does this by prioritizing collectivism over individual rights and freedoms. Record economic growth there has resulted in a reduction in poverty that is historically unprecedented.

The last decade has seen the rise of populism and growing economic uncertainty; it has become increasingly clear that Western democracies have to adapt. Radical reforms are needed to ensure that good decision-making remains a key pillar in Western democracies.

What’s more, it’s us who need to force the issue.

Reforming the political system is no easy task, but it’s a necessary one. And there are three more aspects that need changing.

For starters, we should extend politicians’ terms in office, but simultaneously impose term limits. Longer terms in office allow leaders to focus on long-term solutions due to increased accountability.