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Witness the mass demonstrations that erupt whenever governments try to slash expenditures, privatize, and eliminate their gaping deficits. This is one reason the IMF with its austerity measures is universally unpopular. Employers and employees, producers and consumers these are all instances of the Principal-Agent Problem. Economists would do well to discard their models and go back to basics.
Investment horizons are limited. Should the state refrain from stepping in to fill up the gap these countries are doomed to inexorable decline. The Distributive Justice of the Market By: Dr. Sam Vaknin Also Read The Principal-Agent Conundrum The Green-Eyed Capitalist The Misconception of Scarcity
The Principal-Agent Problem arises in other social interactions and is equally misunderstood there. Consider taxpayers and their government. Contrary to conservative lore, the former want the government to tax them providing they share in the spoils.
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