Economic Applications

Causal Economics and its core concept of Causal Coupling reinforce the Pareto Optimality of scenarios that  prioritize individual freedom of choice with responsibility to society. Here we really only scratch the surface with potential applications to stimulate new ideas.

In practice, Causal Economics broadly makes its strongest case against the economic policies of the left side of the political spectrum. This is because Causal Coupling is seriously undermined where there are large governments made up of career politicians that cater to lobbies and sustain themselves on persistent redistributive tax collection. As an example, Causal Economics does not support income, consumption or wealth taxes. In their place it supports specific and transparent flat tax allocations and user fees to maximize causal coupling of benefits (B) and costs (C).

Income, consumption and wealth taxes break causal coupling because they fill the coffers of government automatically (B without explicit C). The government receives funding and compensation that is not tied to results. It becomes reliant on money just coming in, and doesn’t have to raise funds for each spending program. Even worse, these taxes break causal coupling because they introduce a distortionary cost on income-producing transactions in the economy, lowering output. User fees causally couple the cost of the fee to the benefit the user obtains as directly as possible. Flat taxes spread the cost of a program across all members of society that benefit. As a result, flat taxes and user fees maintain casual coupling as much as possible for services that apply to the vast majority of citizens (determined by democratic vote) and specific users of services respectively.

The lens of Causal Coupling also provides clear and refreshing insight into the proper foundations of important social programs provided by government. It shows us that Causal Coupling is only maintained when social programs provide direct critical support without obstacle, and then tie opportunities for greater benefits to additional contributions to society. This is why workfare programs can work and welfare programs without improvement incentives built in will only create long-term poverty and dependence. This reflects basic human incentives that apply to all people. Unfortunately the politics around such an issue often cloud the reality necessary to improve conditions. Causal Economics opens our eyes to innovative new ideas for social assistance, such as allowing citizens to work as many hours as they want for an hourly workfare wage (Valuefare). They can be given some direct tasks that would normally be done by unskilled career government employees (another saving) and/or be directly compensated for re-training. Overall tax payers will pay less, low-income citizens willing to contribute get ahead and those that are not interested in contributing will self-select to stay unproductive and lower-income without higher cost to society. This example shows the power of restructuring a system to align to Causally Coupled incentives.

The areas of risk sharing and insurance also benefit from the approach of Causal Economics. Like goods and services, free markets for insurance will take care of the vast majority of needs. However, there is still a role for societal risk sharing, especially where individuals face limited access to private insurance. Where certain identifiable citizens face higher than average risk, their associated costs can be pooled to reduce potential spikes for all members of the group. Some risk situations, like car insurance, face adverse selection. This means that the people who don’t need insurance as much still buy it and those that should buy it, due to high risk profiles, decide not to buy it. Mandatory insurance can be required in such situations because the costs of an accident to others in society can be prohibitive.  When a risk scenario impacts virtually every citizen, the cost of pooling the risk and the benefit of spreading out that risk are allocated evenly across citizens and causal coupling is achieved.

Even though Causal Coupling asserts that freedom and free markets must be at the core of all effective policies and institutions, the theory still highlights necessary accountabilities for citizens that put some limits on the arguments of the right side of the political spectrum. Specifically, free market interactions often don’t address important externalities that affect citizens beyond a transaction. In such cases, like damage to the environment, there will need to be corrective measures such as an environmental cleanup user fee.

An unfettered free market profit motive also isn’t feasible for large societal infrastructure projects, because it would also severely breach Causal Coupling. These things do require government, but by no means large, self-rewarding, automatically-funded, unaccountable government. Government can be small, transparent and accountable (through compensation tied to performance, not just elections). The same issue of large and powerful self-rewarding government applies to capitalist business. At massive scale, businesses can often talk a great free market story at the same time as they coerce government for preferential treatment and rewrite rules to squash competitors.

In practice, intermediaries across the spectrum—government, big business, big labour and big interest groups—all find ways to self-sustain and prosper in a system that the everyday citizen funds. Large intermediaries and concentrated power at the top are truly what citizens must be vigilant toward. The fundamental takeaway of Causal Economics in the real world is that effective solutions center on freedom for the individual first and foremost, with appropriate accountability to society. The theory predicts that societies with pervasive de-coupling are inherently unstable, which provides for an interesting line of research into potential stability/instability metrics.

Review the foundational academic research on Heliyon here.