My dog, like many, enjoys fetching sticks. She is not interested in balls, or frisbees, but will chase a stick all day long. For her (or possibly me) the ideal stick is straight, 2-3 feet (60-90 cm) long and about an inch (3 cm) thick; the sort of stick I can throw the furthest.
The Canine Economist, with a stick.
She clearly places value on appropriately sized sticks, since she will go to some lengths to find one, and if she cannot find a suitable stick for me to throw, will sometimes chew larger sticks to the correct size (yes, tool use in dogs, you read the unsubstantiated claim here first folks). Yet she quickly learnt that if she does not bring the stick back to me then I will not throw it for her again, so while she might play with a stick for a bit after each throw, she will always return it. Similarly she understands that once it is time to stop playing then the stick has no further value, so once I take her lead out of my pocket she loses all further interest in the stick, drops it and returns to my side.
That's about as far as economics goes for dogs. The stick has value only while it is in the game. If I stop throwing it or she stops brining it back, then it loses its value and becomes just another piece of wood. Humans use a slightly more sophisticated system than sticks, called 'money'. Unlike sticks, money can be exchanged for other items, such as tins of food or rubber bones, and can be saved for a while before it is used; but, like sticks, it has no value in itself, it must be passed backwards and forwards to gain value.
Money is quite important to governments, as they are the ones who issue it. The ability to issue money gives governments a lot of their authority, they cover it in things that are important to them, such as reigning monarchs or dead presidents; we judge how important governments are by how much we trust their money. A government which cannot issue money is just a bunch of people making up rules for other people to live by. Such governments tend not to survive long.
This being the case, we would expect governments to be keen to keep money in circulation, but a strange thing has been happening in western countries in the last few years. Governments have come to accept that economics can have winners and losers, that it is reasonable for some people to collect all the money and keep it, and wrong for them to intervene and stop this happening. Thus we have seen a situation develop where a few people come to own more and more of countries assets, while at the same time paying less and less tax, while the rest of the population own less and less of the countries assets, and pay more tax or face cuts in public service because the government can no longer 'afford' them; governments who do not tax the rich end up having to borrow money from them to run services, then having to pay this money back with interest.
Many people feel that this is morally wrong, that there is something inherently wrong about a tiny minority of people living in immense wealth while many other people live in terrible poverty. Other people (usually rich ones, or ones who work for rich ones) argue that this is wrong, that the rich deserve their money as they have in some way earned it, and that it would be morally wrong for governments to take money away from them.
All this rather misses the point. Money, like sticks, only has a value because it moves back and forth. If this stops happening then people lose faith in money, and the governments that issue it. The assumption currently being made is that if money is taken away from ordinary people, then since they need it they will work hard to get more. This might work for a bit, just as when I take a stick from my dog she will find another one, but it can't work for ever, if I keep taking sticks from my dog she will lose interest and do something else.
Because money only represents other things, new wealth can only really be made in a limited number of ways. Either we can harvest things, through farming, mining, fishing, forestry etc., or we make things, such as cars, houses, software or music, we then trade those things for money, and the money for other things. If you take the money away people don't keep trying to get money for ever, they eventually give up and trade without it (or in another country's money that they can get hold of). When this happens they lose they stop paying taxes, which tends to bring them into conflict with governments.
Twenty years ago, when I worked in mineral exploration in West Africa, I got to see this first hand for myself.
Most African countries had very weak economies, so they either had weak currencies (most former British and Portuguese countries), relied on another country to support their currency (most former French colonies, where the CFA Franc was tied to the French Franc, and had a value dependent on the French, rather than the African, economy) or simply didn't bother having a currency at all (Liberia, where US dollars were legal tender. and the only money issued by the government was commemorative coins aimed at collectors).
Most African countries were also heavily in debt. Western (and Soviet) banks had leant large sums of money to African leaders (who were seldom chosen by their own people) who either spent the money on ill-conceived development projects (often on the advice of the banks) or just on plain high living. Now the banks were demanding repayment that governments could not afford. Much of the money in many countries was hoovered up for debt re-payments, which often didn't cover the interest on the loans. Many governments were pressured into selling off national assets on the cheap just to keep up with payments. Governments became agencies of overseas creditors, unable to provide services for their people, but expected to rule their countries for the benefit of outsiders.
According to economic theory the people of these countries should have worked harder to raise the money to pay off the debt. In practice they simply had no means of doing so. Unlike in the West most people in Africa have access to land on which to grow their own crops, so lack of money does not spell immediate starvation. Similarly most locally made products come from craftsmen's workshops rather than large scale factories. So when the money dried up (or lost its value), they simply returned to a system of barter, or used foreign currencies or contraband goods (the black market). But it is not possible to found new industries on any scale in a barter economy, and when things go wrong the safety net we expect in the West does not exist. Thus if you got sick there was no hospital, when you were a victim of crime the police could not be trusted because they earned too little to live, and when crops failed, people starved.
This eventually lead to some countries completely collapsing. In the absence of any meaningful government civil wars were fought between factions who were little more than criminal gangs. Wars in Liberia, Sierra Leone and Somalia were financed by smuggled gold and diamonds, illegally exported timber, piracy on the high seas, even exporting videos of prisoners being tortured.
Fortunately for Africa many people saw this for the madness it was. The Jubilee 2000 Campaign, a loose alliance of charities, churches, rock stars and academics, founded by Martin Dent, a former lecturer in politics at the University of Keel in the UK campaigned for African debt to be cancelled, and, unusually, politicians listened. Debts owed by African nations to developed nations were cancelled, those to private institutions quietly paid off (this may have been a mistake; many organizations came to the conclusion that if African nations could be pushed back into debt Western governments would pay it again).
Rather than learning from this, a new generation of politicians has emerged in many Western nations that seems keen to import the problems formerly faced by Africa to Europe and North America. Taxes paid by wealthy individuals and corporations (which were getting dangerously low twenty years ago) have been cut to the bone, and nations have gone into debt as a consequence. The ordinary population, having faced years of pay-freezes or even cuts, are being told they must pay more tax and accept less services from their governments. Like Africans of an earlier generation Westerners are told they must work harder for less in order to pay off the debts, but have no realistic chance of doing so without the political will. In fact the countries slashing services the hardest, such as the UK and Ireland, are heading further into debt more rapidly.
Of course the West is not Africa, and things cannot be expected to play out the same way. Few people have access to enough land to feed their families, and few goods used by Westerners are made by local craftsmen. This reduces people's ability to fall back on barter as a means of coping without money; i.e. things can potentially get worse much more rapidly in the West than in Africa. Many Western countries have developed strong parallel economies based around our favored form of contraband (narcotics). Mexico is close to a state of civil war, not over any political issues, but due to violence between narcotics gangs; gangs which do not even supply the Mexican market, but that of the US. America itself is greatly troubled by narcotics related violent crime, as are many other Western nations.
Ultimately Western nations are mature democracies. People expect their governments to be accountable, and if they are not, to be able to get rid of them. There is every possibility that the next few years could be rather bumpy, but ultimately we should get through this. But every time I hear a politician claiming that everything else must be cut to pay off debts, or that its OK for the wealthy to avoid taxes the rest of us have to pay, I can't help but think 'My dog knows more about economics than that!'.