Sunday, June 17, 2018

Monopsony: Why unemployment rises despite the inflation

Recently, many economists wonder why unemployment rises whilst the price is inflating and more jobs are available than immediately after the last financial crisis especially in the developed economies. Japanese labour market is the remarkable market by means of observing this problem.

According to the common sense of the mainstream economic pattern, employment should rise when the price is on trend toward the inflation and the labour. Furthermore, the number of job recruits has increased although not so many candidates apply for.

The answer about it came up after considering who still holds more power in the market. The matter is that the bargaining power is not symmetric in the labour market. On the top of the bargaining power, the involuntary unemployment caused by the wage lower than the efficient wage also influences this situation. This situation is where the purchaser holds more power than the supplier, and this is called monopsony.

Focusing on the graph above, the wage is considered as the cost for the employer (purchaser) who attempts to maximise the profit by lowering the wage s/he has to pay. Then, instead of purchasing labourers (supplier) at the equilibrium point where the wage labourers are willing to receive and the wage the employer is willing to pay meet, the employer sets the wage (the cost) lower than the equilibrium point.

Under this case scenario, the employer is able to set the wage where the marginal revenue and the marginal cost intercept each other so that s/he can enjoy maximising profit. Even though the price inflation takes place, as long as the employer holds the power of controlling the supply of labourers, the price inflation does not force this employer to increase the wage.

The labourers still have a weak bargaining power because the unemployment is still high so that the labourers still face an intensive competition when they are looking for a desirable job. The fundamental problem is that the wage rate reduced by the monopsonic power of the employers does not fulfil what many labourers want. Therefore, the involuntary unemployment emerges despite a rise of the employment opportunity.

The employers are still happy because there are still some employers willing to be hired at the rate lower than the equilibrium point. This is also caused by the discouraged labour mobility where individual labourers are reluctant or handicapped to change a job flexibly. Many individual labourers have become too precautious to come out from they have already secured a job. This situation occurs under the risky environment of finding an alternative desirable employment opportunity and the intensely regulated market discouraging employers from being flexible to hire new employees.

There are various ideas of solving this matter to increase the employment and the wage level. Imposing the minimum wage regulation pushes the wage meeting the equilibrium point the wage will rise and employment may rise when it reaches to just the equilibrium point. Deregulating the labour market may increase the labour mobility by motivating employers to flexibly hire employers without being worried about the regulation after hiring them and encouraging employers finding a better employment opportunity.

Someone may claim that it can be caused by the qualitative issue than the quantitative issue such as the wage and the quantity. The matter can be how enjoyable the job is for employers especially for the younger generation. In case of many developed countries, the work ethics differs across different generation groups of individuals. Enjoyability related to the working environment and the characteristics of colleagues may affect. In addition, the employers' mentality of choosing employees may restrict her/his preference of hiring new employees due to the misunderstanding of what the current labourers claim for nowadays.

Overall, although there are various potential solutions, the current problem of the monopsony does not seem to be solved yet. Many of those who are concerned with these aforementioned matter need to revise this asymmetric shape of the market to rationally tackle with it after understanding its mechanism.

Saturday, June 16, 2018

The World War III (WW3) Predicted (Mere simulation)

* This is a post archive "The 2014 New Year Forecast, and The World War III (WW3) Predicted"

*** The World War III (WW3) Predicted ***

* This is just a simulation, and I hope this world war will not happen in real.

1. The 2014 New Year Forecast:

As it has been mentioned in an article "Sunday, June 27, 2010: According to Kondratieff cycle, the Spring won't come until 2014 at the earliest", the year in the Spring will not come until 2014 at the earliest owing to the analysis based on the combination of Kondratieff 's economic cycle theory, the New Economic Geography theory, and Emile Durkheim 's sociological theory of Anomie. The economic downturn in this half decade was the severest in the world history due to its scale of the impact.

Fortunately, in the world average, the economic downturn seem to have hit the bottom, and some countries' economy seems to have started recovering little by little. America, Britain, and Japan seem to have rode on the track of the recovery according to the various numerical data sets shown by many institutions. The Eurozone is still stagnating due to their undetermined attitude of reforming their economy and the inflexibility caused by the current unstable fiscal policy management. But, the Eurozone seems to put more priority on the stability over the artificially stimulated recovery and strictly impose the austerity plan conducting them to rationally manage their fiscal policy. So, the Eurozone economy will neither rapidly recover nor dramatically fall down. The economy of both the emerging economies and the LDCs still keeps its steady economic growth, even though its speed became lower than it used to be, thanks to the abundant investment flow there in the globalised world economy.

Nevertheless, as the commonsense of economics tells, the effect of an economic downturn are usually lugging over the future time periods, and their scale is huge when the time of downturn is long and the scale is wide. For example, the unemployment created in the previous years will still remain to be high in the present and the near future time period.

The changing effect of the advanced economies over the emerging and LDC economies is also lugging. At the first step of the economic downturn of the advanced economies, the investors usually switch their investing countries from the advanced regions to the emerging or the LDC regions. However, when the marginal return from these investments starts declining, these investors stop investing especially when their income gain from their own home country keeps declining. In addition, when the advanced economies starts showing the sign of economic recovery after hitting the bottom of the recession, the money lenders in the emerging and the LDC economies severely suffer as shown in Asia in 1990s. Because the interest rate of the emerging and the LDC economies are dependent on the investment from the advanced economies, the interest rates of both regions are often highly positively correlated. Therefore, the sudden interest rate rise of any central banks of the advanced economies will increase the total costs of firms in these emerging and LDC economies.

All in all, the backlog effect of the past economic downturn of the advanced economies will hit the emerging economies and LDCs from this year onward. So, the tension caused by this backlog effect of the economic downturn might cause the world political havoc.

2. Potential Conflict between China and India over the fresh water resource:

Both China and India are the countries which are experiencing a rapid economic growth in a huge scale and have a huge population more than 1 billion. When the economic growth of both starts going down, the scale of the negative effects caused by the downturn will be enormous enough to increase the mass's frustration. Even though the economic growth speed goes down compared to the previous years, their government and corporations will inject their economic stimulus to keep their economy growing. They still aspire to encourage their further industrialisation process, and then the natural resource will be furthermore demanded increase their overall productivity.
The most fundamentally required natural resource for industrialisation is fresh water. The other kinds of natural resources are relatively more substitutable than fresh water. The interesting fact is that both China and India, two massive nations, share the same location of their fresh water supply source which is Himalayas. Because both economies are slowly but steadily grows and the population of these two nations are still rapidly growing, these countries will require to secure gaining the water supply. These two countries will want to obtain more territories in Himalayas than the counterpart. So, they may attempt to monopolise the fresh water supply even with force.

The wage growth may start to be lowered with comparison to the price inflation, and the involuntary unemployment may start increasing due to the real wage decline and the switch from the labour intensive to the capital intensive owing to the technological advancement. Because of this slow growth, the social mobility among people of these two nation also will be significantly lowered than the previous years. This economic aspect will cause the frustration among the majority people in these two nations.

On the top of economics, there is an interesting demographic situation of these two nations related to increasing frustration there which may cause the war. Both China and India have a proportionally very high male population as shown in the table below:

The amazing fact is that the male population minus the female population of the 0 - 54 years old is 43 millions in China, and 49 millions in India. The sexually active male population in the present and the near future is enormously high compared to the female counterpart. This indicates that more young males in these two nations will be sexually frustrated.

The majority mass start expecting their nation to expand their business opportunities and to obtain a bigger land mass and more natural resources. On the top of this material needs and wants, the tremendously high young frustrated male population will transform their personality to be more aggressive.
The combination of these frustrations often increases the tension provoking a big war even by causing a small friction between these two nations. Therefore, the friction caused by the competition to secure the potential conflict over the precious fresh water resource in Himalaya looks like a trigger of a war between them.

3. Russian assists India, and they form the India & Russia Alliance:

The geopolitical situation of this world from 20th century onward encourages the antagonism between China and Russia. They occasionally formed an unfriendly alliance, but have never been friendly to each other and often attempted to sabotage the other in the foreign diplomacy. Both China and Russia are the nations who have a strong feeling of pride in themselves. They always maintain their dominance to be a suzerain nation, and so have never approved to be fully controlled by any other nation. Therefore, China and Russia have been competing with each other as the rivals or even the potential enemies of each other. During the time when they formed the alliance, they looked for an enemy of their rival to create a friendly diplomatic tie with to sabotage their rival even though this act could abandoning their alliance.

The other reason why Russia will participate against China is the economically and militarily strong strategic bilateral relationship between India and Russia. Since the cold war, Russia has aided various LDCs to attract them to supporting the Russian side. Even though India kept its solid politically neutral stance in the Cold War, the diplomatic relation between India and Russia became friendlily attached to each other. India was the best alternative LDC to form an alliance with when China was not reliable. So, Russia was eager to establish a close friendly bilateral relation with India. Then, Russia acted as a foreign diplomatic mediator peacefully intervening between India and Pakistan, and helped Bangladesh to be independent from Pakistan. Even though Russia tried to keep this matter fair and peaceful, the contemporary Russian attitude in India continent looked India leaning doing more favour for India.

Furthermore, because China and India have been conflicting over the territories near their national boarder for a long time, China felt unpleasant about Russian friendship with India. This story has induced China and Pakistan to form the alliance as both recognised each other under the doctrine "An enemy of their enemy is their friend".

Even nowadays, this geopolitical situation has been kept as same as it was during the Cold War. This is because that their political alliance is not based on the shared political ideology: Their diplomatic relation is based on the materialistic interest in each other. India needs Russian technological aids and Russian assistance to fight against both China and Pakistan. Russia needs India as a trade partner who has the economic advantages which Russia does not have as well as to avoid China being monopolistic.

4. Reaction of the world:

Because China and Pakistan form a very close bilateral relationship, they will also form the strong friendly alliance together in the predicted war. By means of the size of a nation, their bilateral relationship will be based on an unequal relationship unlike the India&Russian alliance, and so Pakistan will be rather treated as a satellite nation of China. The interesting aspect of the international politics is that China has developed the remarkable trade relationship with the Middle East and Africa for over a millennium. Nowadays, China still retains this tradition so that China has been aggressively aiding and investing to these nations in the Middle East and Africa since China succeeded in its rapid industrialisation. Even while the USA encouraged all over the world to negatively sanction many of these nations, China did not stop its relationship with them.

The role of the developing countries with the emerging economy will be more significantly important in the new world political economic situation. Under this globalisation, the gap between the advanced economies and the LDCs will be furthermore minimised. The advanced countries will no longer experience the rapid economic growth meanwhile the rest of the world will still grow. So, attracting the support of the emerging market will be the key to hold the initiative in this predicted war as well. Therefore, both sides, the India&Russian alliance and China, will more focus on attracting the attention of these emerging market than the North America and Europe.

The key factors to forecast which countries in the world support which side, the India&Rusian alliance or China, are the historically long relationship, the proportion of the shared common ethnic group, how much China has invested to Africa, the Middle East, the Central Asia, and South America, and how different nations value China as

The majority of the European European countries will be Russian satellites due to the close ethnic and political characteristics. Even though these country have some citizens who wish to keep a distance from Russia, the political pressure groups there will be proactive to maintain their country to be loyal to Russia.

Myanmar and many central Asian countries will be China's satellites because of the massive investment from China. Malaysia and Singapore will be China leaning because of the high Chinese population. Indonesia will suffer from the dilemma between supporting the joint cause of China and Islamic countries and remaining the anti-China policy for its independent sovereignty.

Africa is the mixture of pro-China and anti-China nations. Even though majority of African countries will support China due to China's rampart investment there, there still sufficient number of countries which remain their diplomatic attitude as anti-China.

South America will be divided into the two side. Brazil's political attitude of anti-China and pro-Russia will encourage Brazil to be a remarkable satellite nation of the India&Russia alliance. Chilli also shows far away from the relationship with China. The totalitarian countries whose political tie with China is strong such as Cuba and Venezuela will become China's satellites. The other countries not politically but very economically close relationship will be China leaning.

The United States of America (The USA) will neither aggressively nor directly intervene this war between the India&Russia alliance and the alliance of China and its satellites. It does not fulfill the USA's national interest by leading either side to completely win over the others. The intervention of the USA will be indirect and implicit. The perpetuation of this war will benefit to the weapon factories in the USA so that these US war merchants will secretly sell their weapons to abroad. However, relatively speaking, the USA will be more supportive to the India&Russia alliance for the strategic reason. The USA will attempt to maintain Taiwan's independence and secure the existence of Israel, and this action will antagonise both China and Islamic nations in the Middle East.

Japan will keep its indecisive attitude in the foreign diplomatic relations, and let the others to determine how Japan should react. During the Cold War, while Russia was threatening Japan, China came close to establish a friendship with Japan. From the end of the Cold War to the current time period, China started threatening Japan. Then, since the USSR collapsed, Russia and Japan have no longer become a significant political enemies any more. So, Russia stated to attempt to approach to Japan for a friendly diplomacy in order to counter China's threat together. India also shows its interest in assisting Japan militarily threatened by China.

Europe will be divided into three groups, China-leaning, Russia-leaning, and neutral. Because Europe has no longer hold a strong initiative over the world economy and politics, European influence will be not significant compared to countries in Asia, Africa, and South America. The core member states of the EU such as France, Germany, and Benelux countries will be relatively more China leaning because of their conflicting relationship with Russia. Some EU nations which have a strong anti-China sentiment among their citizens will be relatively more Russian leaning. The deep Eastern Europe will be under control of Russia. The UK and Ireland will keep their neutrality, and attempt to keep the diplomatic tie with both sides. Overall, Europe's involvement into this predicted warfare is very minimal because they will be too preoccupied to solve their own ongoing economic and political problems.

The map below is drawn by the previously mentioned analyses:

5. Hot, Cold, or Mild War?

If it is to happen in real, this war will be the mild war. The number and the size of the total wars which will take place will not be big as much as the previous two world wars but will be bigger than the Cold War. There will be guerrilla warfare frequently as much as the Cold War. This war will be more intense and direct than the Cold War. The temperature of this predicted war will be mild, neither hot as much as the previous two WWs nor the Cold War.

This analysis is just a simulation to forecast what will happen if the aforementioned tensions become serious so that the war is not officially predicted to be provoked. Nonetheless, this analysis will help to forecast the economic and political dynamic changes in this world from 2014 onward.

Friday, June 15, 2018

Taria The Wizard June 2018

* Click here to show pictures.

Anime-kinda pic which I haven't drawn for a few years.

A model is Taria, the wizard, from a J-RPG - SaGa: Scarlet Grace.