According to Encyclopædia Britannica, economics is a social science that seeks to analyze and describe the production, distribution and consumption of wealth. But, as the very explanation of economics mentions, it is a social science, which means that people are responsible for influencing how it will take place and how it will evolve. To understand it correctly, we must also analyze the psychology of people, basically evaluate the reasons for the actions each individual person takes in relation to other individuals and with the society. The first thing to know about human psychology is that individuals will always naturally seek their best interest and the interest of the family first, before seeking or helping anyone else, and that is due to our survival instinct. In some cases, these acts could be seen as greedy but in truth that is our nature as human beings and any social or economic system that does not take this into consideration, ultimately is not taking into consideration one of the basic habits of how individuals interact with each other, as well as how wealth is created and distributed by the population, in the case of economics. Any social and economic system that concentrates on a strong centralized government it does not fully take into consideration the previous facts of self-interest and especially the needs of the individual. A good example is the “socialism” in the Republic of Macedonia which was built with the wrong notion that people should not fight and push for their self-interests and needs, but they should only work for overall good. At the end of all this, we got a situation where only a few enjoy the “good things” that ultimately came from the work of others, and the continuation to all this, we now get politicians that unceasingly act only in their self-interest politically and economically while being paid by tax money. On the other hand, when the citizen tries to pursue his or her interests in the same way, they encounter condemnation, even though they are using their own money and resources. It is a paradox.
The most suitable economic system for a country is always the one that provides the optimal use of the available resources, being either human or natural resources. A country is always able to use and obtain resources it does not have in its territory using international trade and that is why this is greatly beneficial and should be empowered everywhere in the world. The downside to international trade in comparison to using the country’s own resources is that usually, must be mentioned that not always though, it comes at a greater cost in comparison to the resources you already have at home. Ideal utilization of the country’s own resources is crucial for the economy as it provides the most value to the population for the lowest cost possible, with no transportation or any other related costs which pump up the price to the consumer, while international trade can complement the economy bringing raw materials or finished goods or even skilled labor in order to produce goods and services for which we do not have the resources, helping the overall economy. We must always have in mind that the two most important performance indicators in the economy should be utilization of resources and value creation. Proper utilization of resources has a direct effect on value creation, since the ultimate customer, business owner and the nation overall, can obtain higher quality products and services at a lower cost. Wrong utilization of resources is directly linked to a lower standard of living. Our reality in the Republic of Macedonia is that we have a terrible utilization of both the country’s natural resources as well as the individual potential of the workforce. Youth emigration to other “western” countries is staggering in comparison with the overall population in the country, and one of the reasons for this is that our government is the one creating the jobs which also in turn is mainly used to increase in parliamentary votes during elections, and avoids to understand that economic growth cannot happen merely from creating job openings but from the creation of additional value in the economy.
But let's look at the needs of the individual and his place in the social community. As previously mentioned, the interest of each individual person might differ but one thing is the same for all, they all want what is best for themselves. If a person can not correctly judge and decide what is good for another person, why then do we think that the government can successfully decide what is good for every citizen? Throughout the world, governments decide on economic issues based on what they think is best for the nation, built on the opinion of the majority, grounded on some research carried out or created based on certain economic theories. This creates a big problem, because what is in the interest of one or several people does not mean that it is in the vanity of others, i.e. in such a way it is impossible to advance the economy and to reach the highest value.
An interesting theory related to this subject, called "wisdom of the crowd," argues that a large group of people is collectively smarter (even when they do not have enough knowledge in an area) than a single expert in that area, whenever it comes to problem solving, decision making, innovation or statistical prediction. This concept was presented to the public by James Surowiecki in his book "The Wisdom of the Crowd" in 2004, but we have also met this concept a long time ago when Aristotle set up the theory of collective judgement. According to Surowiecki, to apply this theory successfully, everyone should make decisions individually, without the influence of others, because only in this way the individual can create his own opinion, and then we can successfully sum up all ideas from each individual and in accordance with those ideas make a final decision. This theory also finds its application in the economy, because it shows that only when the individual interest is considered, we are then able to create an efficient economy that increases the value for all citizens and the nation equally.
Now that we have an idea of how psychology affects the overall economy of the country and how efficient utilization of resources create the most value through individual decision making, we can look at some practical examples that will prove what has been previously discussed.
Additionally, the so-called "state" products and services are chase away the healthy competition from the domestic market, thereby reducing the ability to offer products and services that would be different so that everyone can buy and use what is of their interest, as seen by the above example. Competition is of crucial importance for value creation, because it alone significantly contributes to the existence of a variety of goods and services on the market. History has shown that if the government decides to penetrate the market, it immediately casts out the opportunity to create a healthy competition and automatically starts the reduction in value within the market. The government is also the main culprit for the creation of monopolies in the market, not only in the event when it produces goods or offers services (as in the example mentioned above with public transport), but also in the case when it decides to protect large corporations, creating barriers to entry for other enterprises using the increase of laws and regulations (which can be seen by analyzing the electricity generation and distribution market).
Another economic misconception is the conviction that spending money creates wealth in the state, and it also improves the overall value of society. Yes, circulation of money is more than necessary for the economy, but what needs to be determined is where this money comes from! Does, for example, the expenditure of people’s salaries which do not create any value through their trades, also help in the creation of overall wealth?
There is good in every evil, and so we should have in mind that there are activities that are better carried out by the government and predominantly the reason why it exists. The army is an obvious example. Another one would be government intervention in the construction of infrastructure since there are not many individuals who are willing to risk the high costs and the possibility to have no returns on their invested funds to build roads or tram lines. However, the whole nation can feel the advantage of good infrastructure, and from an economic point of view, everywhere in the world, it helps many individuals and businesses perform better. Therefore, governments should focus on using the taxes paid by their citizens and businesses for projects that will again benefit the taxpayers themselves, that is, into things that help improve and develop what is in the interest of everyone. Additionally, the best way to check if the money is properly spent in this case is to insist on stratifying the government at the local level, as much as possible.
Even though you might agree with me on the economic benefits of the previously mentioned, you might argue that even though self-interest has a positive effect on the economy, it has negative social effects on the population as it promotes selfishness. One of the things that people in our country and in the world fail to realize is the effect that capitalism has had on a specific traditional value, important throughout history to our country, and that is the family. As the respected economist and Nobel prize winner in economics, Milton Friedman, once explained, the market system (capitalism) has enabled people to work hard not for them but for the next generations – their children. “Almost all people value more the utility their children will get from consumption than they value their own.” This shows that when we see the free market for what it actually is, it does not only bring monetary value or greater wealth to our economy but also helps to plan for the future of the nation. Certainly, there are values on which the market system does not affect at all or does not affect so positively, but in that case, we need to determine what are the necessary values that need to be protected and strategically nurture and invest in them for the benefit of the nation and the world.