Economics and Pain
This post presents a philosophical idea inspired by the text of today’s Daf. The Daf is one page in the Talmud that tens of thousands of people study each day. I explain the connection to the text in a comment below. My purpose is to show that there are underlying philosophical assumptions in the Talmud that can have great significance for anybody today trying to understand our complex reality.
There was a time when none of us needed a well-designed economic system to incentivize us to work hard. When humans were not yet capable of producing much more than what was needed for subsistence, everybody had to work all day, every day, in order to survive.
As we learned to produce more, economic inequality developed in order to grow the economy and give more power to certain members of the tribe. Some members were given only the resources they needed to survive, which incentivized them to work or starve, while others received specialized skills and military training, which allowed them to contribute to the growth of power, knowledge and technology. The rich and powerful found a new incentive for working hard–the drive to become even richer.
One of the most critical instruments for growing the economy was interest-bearing loans. Money was needed to fund short-term needs, such as surviving a bad harvest or pursuing a military adventure, but also for long-term investment in projects that would increase productivity in the future. Those with surplus capital were incentivized by the potential to earn even more money in the long run. Without interest, the economy cannot grow or advance.
The wonderful thing about interest is that its growth is compounded. The more money you have, the more it earns. Unfortunately, the reverse can also be true. If you borrow money and grow your productivity, then repaying the interest should be no problem. But if your investment fails or if you borrowed money just so you could survive a difficult winter, you may be left without the means to repay the loan. And then, your pain only increases because the debt will also compound as the amount you owe grows exponentially with time.
There is a tension between the needs of the economic system and the pain of its less fortunate participants. The economy cannot function if debts are canceled arbitrarily. In addition, output is objective and measurable. Pain, on the other hand, is subjective and difficult to quantify.
Economists have always wanted their field to look like a science, where mathematics and measurement dominate. However, this can drive economic planning away from human needs and emotions. We must find a way to integrate vague and difficult-to-measure concepts such as satisfaction and pain into our vision for the future.