Have you ever heard about an economic formula that is the foundation of your success in life? Yes, your personal success in life. It is called the Aggregate Demand formula. As this formula goes, so goes your personal wealth. Paradoxically it is also formula that, if unchecked, leads to humanity's demise.
Today we explore the merits of one question: is altruism a sine qua non for sustainability of economic progress, egalitarian purchasing power and economic happiness?
You see, aggregate demand is the total amount of goods and services people want to buy (and consume) in an economy at a certain price level and over a specific time. It's like the overall shopping list of a country: things like how much all people spend, all the spending of all governments, all the investment spending of all businesses, and all the international trade between all economies. They all affect this demand. Keeping it strong is key to a healthy economy. Choke any one of these factors, and you have choked the overall economy from achieving its full potential. It's as simple as that.
Therefore, think about this for a moment without dismissing it outright: Is altruism not the foundation, the raw material, the seed, the initial condition, the starting point, and the most potent enabler of aggregate demand management? This statement suggests a philosophical perspective that connects altruism to aggregate demand management. We advance the hypothesis that altruism, simply meaning "concern for others," directly and indirectly contributes to aggregate demand management through mechanisms that enable greater good for all participants within an economy. Inclusive policies like social safety nets and progressive taxation often stem from altruistic values. It aligns with a vision of humanity where economic policies are rooted in concern for the collective well-being of all.
Can you imagine for a moment how altruism contributes to aggregate demand management through various mechanisms? Take public welfare systems, for example. Altruistic concern for the well-being of others often leads governments to establish welfare systems, such as unemployment benefits, healthcare, or food assistance. These systems ensure that individuals facing financial hardship still have purchasing power. During an economic downturn, government-provided unemployment benefits enable recipients to continue buying essential goods and services, thereby stabilizing demand and reducing the depth of recessions... making shop owners, delivery drivers, shelf-stocking clerks, sales clerks, store managers, manufacturers, employees of manufacturers, and so on,
happy that the altruistic values of government fiscal policies exist.
How about philanthropic activities in an economy? Altruistic motives drive individuals and organizations to donate to charitable causes, supporting social programs and economic activities that might otherwise be underfunded. This philanthropic spending circulates money back into the economy, fostering aggregate demand. A billionaire donating to a food bank not only feeds vulnerable populations but also supports the agricultural and retail sectors involved in food production and distribution. It's as simple as that.
What about policies that advance egalitarian wealth distribution? Altruistic policies aimed at reducing wealth inequality, such as progressive taxation and income redistribution, enhance the purchasing power of lower-income groups. These groups tend to have a higher marginal propensity to consume compared to wealthier individuals, thereby boosting aggregate demand. A tax credit for low-income families enables them to spend more on necessities like housing, clothing, and education, directly fueling economic growth. It's as simple as that.
Social safety nets serve as automatic stabilizers. Altruistically designed safety nets, such as pensions, universal basic income, Medicare, Medicaid, and unemployment benefits, act as stabilizers by maintaining consistent demand levels, even during economic shocks. For example, a retiree receiving a stable pension continues spending on goods and services, ensuring a steady contribution to aggregate demand across various sectors, regardless of broader economic conditions. Holy cow! Even those receiving "food stamps" contribute to aggregate demand. It's as simple as that.
Ever wondered about a highly innovative concept in global economics called Corporate Social Responsibility (CSR)? Companies often adopt altruistic principles by investing in local communities, green technologies, or fair labor practices, which lead to job creation and stimulate economic activity. A corporation funding local infrastructure projects, such as roads or schools, boosts employment in the construction and education sectors, indirectly stimulating aggregate demand. It's as simple as that.
Even volunteerism in local communities contributes to aggregate demand. Altruistic acts at the grassroots level often substitute for or complement formal economic activities. These efforts can indirectly support demand by enabling recipients to redirect saved resources toward consumption. A local food pantry staffed by volunteers helps struggling families meet basic needs, allowing them to allocate their limited funds toward other essential expenses like transportation, housing, or utilities. Imagine a struggling family stopping to buy gasoline for their car at the locally owned gas station. How can that economic transaction not contribute to aggregate demand locally? It does. It's as simple as that.
How many people domestically actually consider that helping other countries contributes to the wealth of domestic households? International aid and development assistance build the capacity and capabilities of other economies. Altruistic foreign aid provided by wealthier nations to developing countries stimulates economic activity globally. These funds are often used to develop infrastructure, education, or healthcare systems, boosting aggregate demand both locally and internationally. For example, a country donating vaccines to developing nations improves public health, enabling a more robust and productive workforce, which in turn contributes to global trade and demand. What about agricultural aid to foreign nations? You see, a foreign household's ability to buy U.S. agricultural products can contribute to aggregate demand and potentially increase income for U.S. farming households. Do you actually believe that a household having the ability to buy flour locally from wheat grown in Iowa does not contribute to aggregate demand and the income for a farming household in Iowa? It does. It's as simple as that.
Altruistic efforts underpinning all sectors of an economy lead to investments in areas like education, healthcare, jobs, housing, nutrition, and even disaster relief, all of which generate economic activity. Altruistically motivated funding for scholarship programs not only helps students but also channels funds into educational institutions, creating jobs and fostering local economic development. By embedding altruism into economic structures and individual behaviors, societies can achieve more robust and equitable aggregate demand management, promoting overall economic stability and growth. Think about your personal wealth creation.
This thesis could be thought-provoking for some among us, particularly those who advocate zero-sum values such as "what's in it for me versus what's in it for us." And yet, there can be no counterarguments against the role of the one formula that drives global wealth creation for all humans on this planet. It is called aggregate demand.
Putting semantics aside, let's consider an institution often seen as purely objective: the Federal Reserve Bank of the United States (or any central bank of any country, for that matter). This argument asserts that the Federal Reserve's monetary policies are never intended to cause maximum harm to the maximum number of households for the maximum period of time. Instead, the Fed's monetary policies indirectly affect the cost of capital (e.g., through interest rate changes that impact borrowing and lending) and the cost of living (e.g., by managing inflation). Each element is crafted to achieve one goal: to maximize the greater good. In other words, the Federal Reserve's policies are not motivated by a desire to "maximize harm." Hence, the underlying motivation can only be altruism.
The Fed's dual mandate, as legislated by Congress, is to promote maximum employment and stable prices, with a secondary focus on moderate long-term interest rates. Furthermore, the Federal Reserve explicitly aims to promote maximum sustainable employment as part of its dual mandate. It does so by adjusting monetary policy to balance labor market conditions with inflationary pressures. In other words, the democratization of purchasing power is the real objective. These objectives are intended to serve the broader public good.
So...
Why Does Purchasing Power Matter? You see, purchasing power is how much people can afford to buy things. When more people, no matter their income or background, have enough money to buy what they need and want, it boosts the economy. This is because more people spending means more demand for goods and services. It’s not just about making the economy work—it’s about doing what’s logical for everyone, from business owners to workers to consumers. It is as simple as that.
There are some among us who believe that more money in the hands of the wealthy means more consumption in the economy. Sorry, it ain't so!!! If only the wealthy could consume a lot, the world would be less poor. Unfortunately, their money usually goes toward luxury items, which represent a small portion of the overall economy, or investments that don’t help most people. Technically, economists call this the Marginal Propensity to Consume. Check it out. But when middle- and lower-income families have money to spend, they buy everyday essentials, creating a ripple effect that strengthens the economy more broadly and more sustainably. Discrimination is costly. Technically, economists call this the Multiplier Effect. Check it out.
Intolerance of others is never good for your personal wealth. It is as simple as that. In case you are curious, in economics it is called maximization of purchasing power.
Imagine you are a shoemaker. What good is it for your business if only a few can afford your shoes? It is in every business owner's interest to maximize the purchasing power of the maximum number of potential consumers in the local economy. It is as simple as that.
Organizations that advance policies that promote equal economic opportunities for all—like affordable education, job training programs, and support for small businesses—help all consumers thrive. Advocating the opposite is the classic example of zero-sum bias.
Why do “Smart” Public Policies matter? Good public policies create fairness and opportunity for everyone. Here’s how: Providing affordable or free healthcare, education, and reliable infrastructure ensures everyone has a chance to succeed. Investments in preventive healthcare make people far more productive producers and consumers. After all, every business needs more healthy workers and consumers. It's as simple as that.
Giving everyone the chance to participate in the economy isn’t just the right thing to do—it’s the smart thing to do. By making sure people have enough money to spend and breaking down barriers to success, we create a stronger, more robust economy where everyone benefits. Smart, robust policies make aggregate demand not just a measure of economic activity but a symbol of shared prosperity. Shared prosperity means financial security for all. Is it as simple as that?
Let's repeat an obvious fact. "Choke any one of these factors in the aggregate demand formula and you have choked the overall economy from achieving its full potential. It is as simple as that." Yet, some people on this planet are guided by the concept of zero-sum bias, the foundation of which is a belief system that maintains "they will take away what I am entitled to" or "if they get it then I miss out." In economics, nothing could be further from the truth. The reality is that if any segment of the global population is denied their full purchasing power, it creates "speed brakes" in aggregate demand and economic growth for all, thus hurting everyone.
The assertion that restricting one factor in the aggregate demand equation (C + I + G + (X - M)) can hinder overall economic performance should be obvious. Aggregate demand represents the total spending in an economy, and a significant choke on consumption (C), investment (I), government spending (G), or net exports (X - M) can indeed prevent an economy from reaching its full potential.
The critique of the zero-sum bias aligns with mainstream economic thought. Many economists argue that economic interactions are often non-zero-sum, i.e., one person benefiting economically doesn’t inherently mean another person loses. Market expansions, technological progress, and productivity growth often create profit opportunities and more investment opportunities that benefit everyone.
The interconnected nature of modern economies means that limiting economic participation or growth for any group can harm the global economy. Inequalities or barriers to full participation reduce overall efficiency and growth, affecting everyone. Prioritizing the maximization of purchasing power for the largest number of consumers over the longest period aligns with sustainable economic principles and highlights the importance of inclusive economic policies.
The idea that limiting economic participation or growth for one group harms the global economy reflects the interconnected and interdependent nature of modern economies. It is exactly this aspect of modern-day economic activities globally that renders the notion of isolationism obsolete. Barriers to full participation reduce overall economic efficiency and growth, negatively impacting everyone. Advocating anything other than the maximization of purchasing power for the maximum number of consumers for the maximum length of time is nothing short of willful ignorance, unless one's real objective is "misguided hoodwinking."
Which then raises the big “elephant in the room” question: when scarcity becomes a global reality, and the epoch of abundance becomes a faint silhouette in our rearview mirrors, and inflation runs amok beyond the controls of the "wise" policymakers, and catastrophic system failures proliferate in "cascades" and empathy morphs into apathy, will altruism prevail among humans?
Think about it!