Cost and Benefit Analysis - Basic simulation with SymPy - Econometrics with Python Programming

Cost and Benefit Analysis - Basic simulation with SymPy - Econometrics with Python Programming

 

Anxiety

 Anxiety is haunting me, and also many others, nowadays. In particular, anxieties about the future prospect such as financial anxiety are the crucial problems. Unfortunately, it is certain that the material well-beings of majority individuals will continue declining. In terms of the economic analysis as well as the astrological analysis, the near future outlook looks very gloomy for certain. Thus, the world society will furthermore require us to be stoic rather than being optimistic.

Focusing on the economic analysis, the market multiplier is slowing down despite the continuous remarkably rapid technological growth especially for the information technology. There is a strange dilemma in the labour market: There is a skilled labour shortage while misemployment and unemployment are considered to be high in the labour market. This labour market mismatch combined with the stagnating income and investment distribution flow discourages the social mobility as well as the income gaining opportunity of individuals wishing to improve their lifestyle.

Focusing on the astrological analysis, the world will be in the recession by 2024. Currently, Uranus is crossing the ascendant of Taurus, the detrimental sign of Uranus, until 2024 as well as forming the square aspect with Saturn crossing Aquarius, the own sign of Saturn for these years. This infers that the socioeconomic stagnation is really severe at least until 2025. Furthermore, Pluto is going to start crossing the ascendant of Aquarius for 18 years from 2023 onward. Aquarius represents equality of outcome and justice as well as individual freedom under restriction and some degree of traditionalism. Aquarius is forming the hard aspect with Taurus (Economy), Leo (Political Power), and Scorpio (Intimate relationship) so that the socio-economy will shift from the centralised active globalist form to the decentralised less active form.

Considering these two analyses, it will be wise to become stoic to keep our lifestyle as humble and cost-efficient as much as possible than aspiring to expect for a lucrative lifestyle in the coming age. Stoic ethics may become worth off to refer to as our life instruction guidance then. The modernity characterised with the intensive Yang (bright) element is ending so that the Ying (shadow) element is being intensified as the reaction. Instead of wanting more, we are more required to wanting less from now on. We must accept various pains as they are instead of regretting for them. We also must accept the fact that the capability of solving problems for all of us are limited by means of our physical strength, social status, and external environments. Therefore, there are various things outside our own responsibility so that it is important to excuse for our inability.

Sum up, the anxiety will never seem to disappear because the drastic lifestyle change will certainly take place in the near future. The antidote against this anxiety may be being stoic enough to keep our lifestyle humble and cost efficient as well as not bearing the full responsibility so that it is important to rely on the public support. Hence, we had better simply accept that it cannot be helped so much.

Let's be sceptical about Corporate Capitalism!

 

The current world socio-economic situation can be expressed by the quote of Friedrich Nietzsche "God is dead." as the invisible hand of God explained by Adam Smith no longer corrects the distribution flow of labour and capital in the spontaneous order of the laissez-faire market. The gravestone of its death is created out of the current gigantic economies of scale for the majority of existing industries. Moreover, the courage of individual economic agents is undermined in front of the staunch fortress fortified with allows and spikes of high skill-set requirements and the massive wall of the barriers to the market entrant imposed by bureaucracy and regulations protecting the corporate tycoons dominating their strong hold. 

The current form of the market economy is oligopolistic where a few numbers of elite oligarchies secure their dominance. This is because that they can take an advantage of their huge economies of scale basing their factors of production which enables them to drastically expand their quantity and brand name of their products superior to those smaller rivals. Although their offering goods and services with their high quality and fast speed are beneficial for the majority individuals to enjoy, the market entry for any new entrant to compete with these already established corporations has become significantly more discouraged than the past. In another word, the world socio-economy basing these individuals' life is then more dependent on these corporate oligarchies staying in the market for a long term. 

The social mobility of individuals nowadays is more discouraged than a few decades ago because there is a huge gap between those who are fortunate enough to obtain the skill-sets required by the market and the others not fortunate enough. Each individual's own competence, effort, and motivation are no longer enough to outperform in the current market competition because it requires the significantly higher financial and time costs to secure their competitive advantage than the past. It is not only the matter of material well-beings but also the accessible information available in their living community determine their fortune of acquiring their initiative. Therefore, it requires the public management to offer a certain degree of the equality in outcome to accomplish the equality in opportunity. 

The good old days of the laissez-faire free market capitalism are gone. Instead, the more static socioeconomic political form of the corporate capitalism has come. Rather than the free-minded courageous individual economic agents, the already established aristocrats called corporate shareholders and government bureaucrats secure their dominance. Majority individuals now belong to one big institute of either corporation or government. Even small/medium sized business owners are working under the subcontract with either a bigger corporation or government. The profit share of these corporations is heavily distributed to major shareholders and corporate executives instead of rewarding majority individual workforce members propping up the daily business activities. Therefore, the priority on rewording the merit of individual workforces tends to be undermined under the current socio-economic structure.

It sounds like being a big government advocate by claiming for more positive public interventions. However, its attempt is to avoid the excess centralisation of the capital flows monopolised by corporatist oligarchies and the unfair heavy regulations imposed by government bureaucrats protecting their interest. Without this intervention, the government will become even bigger under the influence of these corporate oligarchies as their political influence is overwhelming the others with relatively less advantages. This should be the intervention to decentralise the whole socio-economic structure to encourage more healthy and fair competitions which the laissez-faire capitalism of the good old days used to promote. 

What the big government advocates such as the orthodox Marxists should be criticised is their excess centralisation of the means of production. Even though they have an originally good will of deserving the majority, it often fails to deserve the majority because this centralised political system put higher priority on deserving those elite bureaucrats at first. This failure of the centralised means of production takes place under the current corporatist capitalism due to its excessively centralised flow of the capital. 

As John Maynard Keynes affirmed, the reform of optimising the balance of private and public sector with the positive intervention to the market with a right harmony is the key to enable the free as well as the fair market economy to survive. Yet, the Keynesian policy also contains the risk of failing into the paternalism by the central government conducting the intervention. Then, it will be necessary to spread the policy decision makings out to much smaller scale such as local authorities and cooperatives. 

The power weight of the public corporations over the private corporation is way more excess than the past. The dominance of the investors/shareholders of these public corporations induces the asymmetric distribution of their profit share which undermines the contribution by the majority individual workforces. The initiative attracting these investors is necessary whilst the distribution weight of the profit share provision is overweighted onto them nowadays. In order to appreciate the contribution by these majority individuals providing the actual workforces, their reward should be derived from not only the labour costs but also some pies from the profit share.

It should also take reviving small and medium sized enterprises into consideration. The oligopoly of the major private banks perpetuates the public corporations' dominance over the private corporations of small and medium sized businesses. This is another reason to shift the economic and political power to the local authority and cooperative which are able to monitor the business performance of their local enterprises as they are located close to each other. Instead of merely relying on the major private banks, rending and legal support from the local authority and cooperative should be more available. The initiative of expanding the decentralised public sector is to encourage more private businesses of not only the big public corporations but also the multiple numbers of the private corporations. 

All in all, it is the time to be sceptical about the big government of the market monopoly! Majority individuals need to capture the power by empowering the decentralised public managements to counter the centralised public body by the puppet government of these corporatist aristocrats. The grass-root political lobbying must take place to capture the socio-economic freedom of majority individuals!!

Manifesto Spiritual Libertarian - the Libertarian for the coming age of Ying 陰

 

The previously posted article describes how Libertarianism regards highly of the free will of individuals without being restrained by the pre-determined fate and sounds very spiritualist despite its emphasis on the strong secular moral and social policies. By combining with the astrological analysis and the Taoist teaching of 陰陽 (Ying & Yang), Libertarianism especially by means of its spiritualist element seems to provide human individuals with the antidote agains the declining materialist prosperity represented as the Yang element in the coming age of Ying. 

A retrospective astrological analysis in this blog forecasts that, when Pluto starts crossing the ascendant of Aquarius, the age of revolution as well as stagnation will come. As the world economic activities will be more decentralised than the current globalist order, the macroeconomic business cycle will be more stagnant meanwhile the further technological advancement encouraging the microeconomic development will be expected. This means that the world socio-economy will induce individuals to be more individualistic to look after themselves while providing the intellectually enlightened individuals with some significant advantage over the others. 

The theory of Gaia, which is well-known among spiritualists, also inters that the world elements are shifting toward relatively more Ying (the shadow), implying spirituality and feminity, as the reaction against the world whose Yang (the light) elements, implying materialistic and masculinity, have been too intense. The number of wars and excess industrial activities polluting environments may decline while the social atmosphere will turn to be more anomic and melancholic. Then, the world is shifting from expansionist to isolationist (inner focusing) so that human individuals' life purpose will be hardly instructed externally so that they will need to think of their own life plans themselves more than ever. 

As the external surroundings of individuals will no longer enable them to materially expand their living standard as much as it used to, it is the time for them to expand their inner spiritual universe backed up by increasing their intellectual potential. The technological advancement offers more opportunities for individuals to access the abundant knowledge. However, this opportunity can only be maximised by those who are spiritually enlightened enough to be interested in growing their intellect by proactively accessing the knowledge base. 

The Libertarian metaphysical perspective may provide individuals with some useful hints to survive and thrive in the coming age of Ying. Each unique universe exists per each autonomous individual so that the number of the existing parallel worlds is unlimited. As autonomous free independent individual can challenge against the fate to change their destiny and influence the world structure with the power of their own mind with their free will. This metaphysical thought enables them to realise they are endowed with the power of their own free will which is strong enough to design their own universe. Thus, it must encourage individuals to be enlightened to be intellectually and spiritually proactive to survive and thrive in the coming age of Ying.

Explaining how expensive electricity is in Japan: Explained with the case of paper business

Especially after having turned nuclear power plants in Japan off since the last nuclear accident in Fukushina in March 2011, electricity in Japan is considerably expensive.  Even before then, it was expensive compared to the other countries because of its relatively heavier reliance on the thermal power plant fuelled with fossil fuels imported from abroad. 

It is difficult to explicitly display how expensive it is in Japan because there are so many variables to be compared with the significance of the electric power price influencing an economy there. So, one industrial case is introduced here to explain how significant Japanese electric price is as a significant variable cost incurred upon this industry.  This is paper manufacturing introduced here as an explicit example

Pulp is the base raw material of papers manufactured by a paper machine. Paper manufacturing needs cellulose fibres obtained most notably from woods. The more expensive finer alternative material can be cotton.

There are mainly two methods of producing pulp: chemically processed one and mechanically processed one.  The chemical pulping process uses chemicals and heat to convert woods into pulp meanwhile the mechanical pulping process grinds woods by mechanically defibrating wooden fibres into pulp.

The price of chemical components tends to influence the chemical pulp price whereas the usage volume of machinery consuming the high-volume electricity affects the mechanical pulp price. Supply of the chemical materials is often volatile and requires their characteristics of quality to match a particular level for pulping.

The mechanical pulping is not so prone to the conditioning as much as the chemical counterpart. Electricity is electricity whatever and whenever it is produced. The general specification of these pulping machines is not extensively dissimilar to each other in this world. 

In terms of the ordinary world situation, the former is more expensive than the latter, so the proportion of which pulp content to use determines the quality of papers as follows:

• 上質 (directly translated as "high quality") : "Fine" paper/pulp: Chemical pulp 100%
• 中質 : Medium quality": Mix of chemical pulp and mechanical pulp.

However, this is the way around in terms of Japanese paper & pulp business. The latter can be more expensive than the former despite their naming. This is because the latter requires to consume higher-volume electricity while their pulping processes. This factor indicates how expensive electricity generated in Japan even while taking the volatile chemical supply and price into consideration.

Having observed this paper business case, Japan is indeed urged to increase a far more efficient method of generating electricity overall. This current high electric bill price suppresses both business growth and individuals' utility by squeezing their household budget as an unavoidable cost for these activities. 

Nuclear power generation should be reactivated at least to repress the currently already intolerable cost inflation.  Perhaps, the research and development (R&D) inventing a new technology allowing Japan to fundamentally overcome from the high electricity generation cost is worthwhile to implement even its feasibility is questionable for the time being. 

The imaginable example is the nuclear fusion possibly enabling to supply the electricity satisfying the total demand of the entire Japan maybe even by replacing all the other existing electric power plants. It can be rather more productive to invest into efforts and time into increasing this feasibility to accomplish building this functional nuclear fusion power plant. 

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I consider that the nuclear power technology should be considered as a public good so I claim for the integration to a good government management or at least the civic-cooperative management looked after by several private individuals (The Classical Economics) rather than the current administration by one single private gigantic corporation detached from the fair market competition!

Well, this nuclear management industry has such a humongous economic of scale whose competition is nearly infeasible. So, I recommend either the full integration (the cohesive monopoly under a single public body such as government) or a cooperative management (classical economics example: democratically managed by several individuals living in this community)

Foreign Exchange Rate, Purchasing Power Parity, Real Foreign Exchange Rate, and the desired global economic transformation

The nominal foreign exchange rate of a fiat money tends to converge the purchasing power parity (PPP) of this country or region.  

The PPP is regularly scaled by means of some commonly traded goods across the borders in the world.  

Either the classical economics case or the modern economics case applies to the foreign exchange rate change depending on time, place, and occasion.

- The case base on the Classical Economics

According to the classical economics, the aggregate demand (AD) is fluctuant while the aggregate supply (AS) is rigid in the short run so that the output level of an economy is rigid.  

The classical economics regards highly of repressing the price inflation rate and maintaining the prudent demand management.

In terms of the macroeconomic management, the high AD means the overheat of the economic activities which should be repressed whereas the suppressed AD implies the prudence. 

The price inflation is considered as the excess money supply circulated into the economy which reduces the nominal FX rate relative to the other currencies.

The price of the commonly traded goods therefore becomes more expensive so their PPP goes down. 

- The case base on the Modern Economics

By contrast, the modern economics regards that the output level can be fluctuant at least in the short run because the higher price encourages the suppliers to produce more.

The macroeconomic policy of the modern economics indicates that the price and the output may rise together enough to increase their productivity level competing against the other economies i.e. the PPP.  

Then, the price of the commonly traded goods tends to be negatively correlated to the PPP often derived from multiplying the price level and the output level.

The correlation of the price level and the PPP depends on whether it is caused by the AD (the positive correlation) or the AS (the negative correlation).

This factor induces the nominal FX rate because the traders then always speculate which correlation is dominant over the counterpart. 

Furthermore, the central bank often intervene into the FX market with their money supply control to control their AD and SRAS: The FX rate change tends to negatively affect on the good market but positively affect on the financial market. 

The effect of this intervention to the FX depends which market factor, goods or finance, is more dominant over the counterpart so this causes the FX market all the more speculative.

- Marxist perspective against the global capitalism

Judging from Marxian economics, this whole theory is nonsense because the capitalist system including this FX market function favours the bourgeoisie, the capitalist class, to exploit the proletariat, the rest majority.  

The bourgeoisie take an advantage of owning various means of productions increasing their purchasing power in the trade meanwhile the proletariat do not capital but their own physical labour (including the white collar works using their brain) and time.  

The socioeconomic conflict of these two classes, the bourgeoisie and the proletariat, also applies to the relationship between the already developed countries and the developing countries including the emerging countries and the least developed countries: The former ones own the higher level of capital whilst the latter ones own only few resources such as labour and natural resource.  

In addition, Marxian theory claims that the market mechanism often neglects taking some external factors hardly shown in account books such as the exploited labour value and the ecological footprints such as excess extraction and pollution. 

All in all, the power balance of the foreign exchange market is asymmetrically distributed among countries, which perpetuate the exploitation of the poorer countries by the richer countries.

According to Marxian socio-economics, these goods and services in the world should be collectively distributed across the borders purely by means of their needs so this over-fluctuant speculative FX market is nonsense to take into consideration.

Perhaps, Marxian scepticism can be true after having observed the wealth and educational gap between countries and the ongoing environmental damages in the developing countries. 

However, the collective distribution planning requires an unfeasibly gigantic bureaucracy administrated by a single world government body managing as well ass monopolising the entire world economy.

 

- The alternative transformation 

As having learned from the last Marxian economic experiment by the USSR, the collectivist economic policy is risky due to its inefficiency of distribution and decision making processes as well as the excess centralisation of the political power. 

The feasible way to take this Marxian claim is to establish some positive intervention mechanism into the current market economy.

For instance, the foreign direct investment programmes with a fixed FX rate contract for a certain contract period should be implemented to aid these relatively less developed countries.

In particular the LDCs, they tend to lack their own physical and human resources available to split to their research and development (R&D) so the foreign aid is crucial to grow enough to participate to the international trade in a fair competition. 

Enriching the LDCs is actually beneficial for the developed countries providing the aids because it means to increase both customers of their products produced by the developed countries and suppliers of products with higher values added for the developed countries. 

The FX mechanism of the market economy should remain as the automatic adjustor corresponding to the spontaneous market changes while introducing some positive intervention encouraging the fair trade and the product variety which will expand the market potential of the entire global economy.

Marx and Keynes

 

There tends to be a confusing fusion between political philosophy and economics. Both can be combined to create one solidified social scientific theory although they are meant to be distinguished from each other as an independent academic subject. The former is a general art subject which is frequently based on normative statements including individuals' belief and subjective expectations on what they desire and hope. By contrast, the latter is a more scientific subject based on positive statements which are objective and fact-based as well as precise, descriptive, and clearly measurable.

the subject of economics itself has its own unique political/ethical principle, which is to increase the wealth of individuals which can be accomplished by maximising the physical productivity level of individuals and their communities. This objective of increasing the wealth through the productivity maximisation aims at making individuals living in the world happy while keeping their living environment sustainable.

This implies maximising the sum of individuals' pleasures while minimising the sum of individuals' pains while securing the cultural and humane living standard of all individuals including the least fortunate member of their communities. By means of this regard, the true successors of (the classical/mainstream) economics ought to be only the two streams, Marxian economics and Keynesian economics (The modern mainstream economics).

The basis of logic of Marxian economics purely refers to the classical economics while attempting to diversify the income distribution by altering the whole economic and political infrastructure to retrieve the power monopolised by the minority ruling class to deserve the majority class of individuals. In addition, Marxian theory condemns the market economy where individuals trade their goods and services with their free will with little or no cohesive political control because the powerful ruling class elites easily leverages to exploit the rest majority. Then, it also puts emphasis on the intense political philosophical theory of the majority individuals' revolution against the powerful ruling class as the complementary to this economic theory.

On the other hand, Keynesian economics added macro economic perspectives of economics on the top of the micro perspectives of economics covered by the classical economics. Rather than altering the infrastructure claimed by Marxian theory, Keynesian theory suggests reforming the existing system while remaining the market economy which enables individuals to voluntarily optimise their distribution and desire. It attempts to gradually adjust the flow by providing the market participants with incentives of diversifying their income distribution without suppressing free will of all individuals.



When it deviates from this fundamental ethical principle of economics, it does not fulfil the condition to be an appropriate subject of economics. Of course, economics involves processes on the way to achieve its principle. It needs to research to maximise the financial profit of a particular individual or corporation. It should be considered as a means of the process inside the whole system of economics rather than the end itself.

Hayekian theory attractive as well as useful as a political philosophy using economic policies for those small government adovocates against any tendency inducing a totalitarian state. However, the statement used in Hayek' publications is often normative unlike mainstream economics. It also ignores macroeconomics rather than offering a substituting theory. The example is that the business cycle is believed to be stabilised without any intervention in a modern economy by ignoring the phenomenon that the business cycle instability is perpetuated by neglecting an implementation of a macroeconomic policy.

The monetarists such as Friedman and Fisher is not so different from Keynesian economics that both Monetarists and Keynesians agree with each other for needing macroeconomic policy interventions according to the business cycle condition. They frequently disagree with each other for the degree of this intervention and which macroeconomic policy tools are more effective than the others. Perhaps, the notable difference between them is their view on individuals' rationality: Keynesians are more sceptical about the rationality of individuals who are often prone to various irrational exuberance whereas Monetarists claim for rational expectation in individuals' economic activities. All in all, Monetarist theory can be seen as a derivation of Keynesian rather than a detached one.

At the time of Adam Smith establishing the new academic subject called economics, the market liberalisation inducing the intervention into the market was meaningful to fulfil the aforementioned ethical objective. The contemporary United Kingdom was dominated by mercantilism holding an excess market control by a limited number of oligarchy, which disrupted the economic growth as a whole and suppressed majority individuals' income gain and happiness. Therefore, the free market movement was considered as the reasonable weapon to fight against this negative intervention policy to the aforementioned ethical principle.

Moreover, that contemporary world economy was less complex than nowadays so that the contingent effect of the business cycle instability among regions was insignificant compared to the world economy from the 20th century onward. At contemporary market, the competition level was so high that there were enough rooms for potential developments in all over the fields. Then, freer market induced the freer individuals and more opportunities for economic agents to compete so that both the economic stagnation and the price inflation could be mitigated just by freeing the market.

By contrast, since the 20th century, both the power influence of big corporations and the contingency effects of regional economies to the world economy have expanded. The monopolistic power of these corporate tycoons take advantage of their economy of scale which only a handful of economic agents may duplicate to compete against.. Almost all the economic activities of individuals and their communities are furthermore interrelated to each other nowadays than the past, and the scale of economic activities have come too big to be self-corrected to stabilise their business cycles. 

 

There is a severe obstacle for unifying these two big schools of economics Marxian and Keynesian into one. Some Keynesians from the political left wing have approached Marxists to integrate together to establish a new economic theory deserving the majority of individuals in this world. However, Marxists have staunchly rejected Keynesians' offer because of their resistance against the modern mainstream economics which is still based on the market oriented theoretical principle.

These is a strong fundamental dogma which Marxists have never compromised in. This is their belief in the invincible value of labour. Marxism condemns the market economy because they insist that it will never be able to scale the appropriate reward for the value of labour of the majority working class individuals because the market economy is manipulated by those owning the means of production, the elite capitalist class individuals. Because of the asymmetric power balance of these two classes, there is no fair equilibrium state derived from the market economy according to Marxism.

Therefore, Marxism insists on the alternative economic model which positively plans to provide all the individuals with their fair rewards according to their value of existence. In history, one big experiment of Marxism established the central governmental planning by the working class representatives. These old Marxists believed that the command economy centrally planned by the autocratic government functions to deserve for all individuals when the guardians representing the hope of the majority individuals take over instead of the old ruling class oppressors.

Nevertheless, these guardians became the new ruling class exploiting the rest others with a higher oppressive intensity than the capitalist class regime. The critical failure of this old Marxism is the lack of free spontaneous interactions of individuals' trades, other activities, and freedom of speech and will. Even though there is an asymmetric power balance of individuals' bargaining power, the majority of individuals still hold some freedom to protest in the market economy. By contrast, the old Marxism underestimates the changing mid of individuals once starting to hold the control power of the autocratic government commanding a centrally planned economy.

New factions of Marxism propose some other alternative without a forcible command-ship of both economy and politics for redistributing resources. At the same time, the problem of Marxian claim for radical redistribution is not only about their command planning but also the nature of resource scarcity with the infinite human desires in the real world. Marxian aspiration of redistribution might be feasible to accomplish in the post scarcity world enabling all individuals to be satisfied with what they have already obtained and are able to access. By contrast, the problem of scarcity is still extremely hard to solve nowadays.

 

 

There is a phenomenon called the prisoner's dilemma, theorised by a mathematical economist John Nash, which indicates that the best equilibrium point can be the least achievable state while the point deriving an undesirable outcome is far more likely to occur when more than one of individuals interact. For example, if there are two individuals and two resources existing where these two individuals cannot communicate to cooperate together and both individuals are rational in the sense of maximising their own gain.

The best case scenario is that both individuals cooperate together to share the resources. At the same time, if one betrays the others, this individual betraying the other maximises the gains while the other loses out. This converse situation happens when the other betrays this individual instead. Due to the fear of the possibility of losing out, they are likely to betray the others for not only their own gain but also their fear of losing out. In consequence, both betray each other despite not only their consequential aggregate loss but also their haunting resentment against each other.

In the natural human world, when someone takes a control over their political and social structure for the sake of diversifying the economy, it ends up with betraying the other due to both their own short term selfish desire and fear and distrust of the others. This is something many Marxists repent for the failure of the old Marxism in practice based on the command economy conducted by the autocracy ruled by the guardians. Perhaps, Marxian economics should be applied without relying on the command economics, and should not be implemented as only one dogma like a religion. Marxian theory may prevail after transforming it to be more flexibly adapted to the real life analysis without worshipping it as the religious dogma like many Marxist believers tend to do.


At the same time, the prisoner's dilemma is a non-negligible phenomenon in not only the command economy fully controlling the distribution but also the market economy without any positive correction for sake of ethics and sustainability. Both John Maynard Keynes and John Nash realised this problem of the market economy without a positive planning. In particular, when the economy of scale for each industry grows and the system interference becomes more complex, the market becomes less trustable to self-correct its own business cycle.

When an economy is in a bubble (economic growth overheat inducing a sudden economic burst at some point), all economic agents should start restricting both consumption and investment to calm the excess growth to maintain the sustainability. At the same time, there is a chance of gaining a substantially high profit by not restricting their activities while the others lose out for not doing it. This factor discourages the others to calm their market activities down due to both their fear of losing out and desire of securing their profit. This eventually perpetuates this economic bubble of the market which eventually induces both the environmental catastrophe and the sudden market collapse.

When an economy is in a recession, at least more than a half of economic agents in this market should become more confident to reactivate their spending and investment activities in order to stimulate the economy. At the same time, most of them are unsure that how many of the others are confident enough to reactivate their activities and nobody knows exactly when and how their economy can recover. At the time of recession, many of individuals from privileged, average, relatively mediocre, and unfortunate backgrounds are unconfident and in despair because the whole macro level atmosphere is in a downturn mode. If only less than a half of individuals in the market become active in consumption and investment more than the others, they unfortunately lose out more than the others because of the stagnated market multiplier. Then, most of economic agents postpone reactivating them despite their reluctance perpetuates the recession which will eventually leads to the depression.


Marx and Keynes came to the different theoretical conclusion while both seemed to aspire for an identical goal. Marx accused the market base economy which he called capitalism and claimed for the revolution completely altering the economic system as the infrastructure of politics and social orders. Keynes also accused the market base economy but not willing to replace it with another while claiming for the reformation of it.

Even Marx admitted that the transformation to capitalism from an older social structure such as feudalism was a necessary process of the evolution of humans and the world in the past. The mistake of Marx was describing the historical evolutional step is discrete (not gradual) with a conduct of radical and often violent revolutionary transformation. By contrast, the transformation of human' life and their surrounding environment seems to be more gradually evolving than what Marx described. Keynes admitted that what Marx called capitalism has advantages for not only the ruling elites but also the rest majority despite the aforementioned disadvantage.

Up to several centuries ago, Marx's view of the world and societal evolution which were discrete, sudden, and often violent was true. By contrast, the pace of the world and societal evolution nowadays are so fast and diverse that there is no longer a discrete historical point of change across times, places, and human-individuals. This is not saying what Marx aspired was wrong. Even Jean Paul Sartre, being converted to a self-proclaimed Marxist in his later carrier, pointed out that Marx's theoretical work of economics was incomplete meanwhile he was attracted to what Marx attempted to establish.

The most remarkable success of Keynes is providing economics with the flexibility. Instead of sticking to a dogma, economic theories can be flexibly modified to gradually reform it fitting in with the most feasible and optimum state at each time period with various experiments without a risky drastic alteration. Those who accuse Keynes often ignore how much Keynes thought highly of the flexibility because these accusers tend to falsely equate Keynesian theory to a dogmatic one as the old Marxism. Keynes himself actually said "When the facts change, I change my mind. What do you do, sir?”".

 

 

 

 

GBP/USD is now 1.40 on 22nd February, 2021!!!

Hey! Cannae believe that GBP/USD is soaring as such!! 😮 Many investment banks indicated this is because of the effect of the newly distributed vaccine. ... I am still sceptical about the improvement of economic activity because it is really difficult to think that Brexit has induced such a rapid short term recovery (though it might be plausible to say Brexit does in the relatively longer term)! Well, this is a really tricky moment to forecast. Although some investment banks have predicted GBP/USD to be around 1.42, Bank of England still alludes possibly implementing a negative interest rate causing to depreciate GBP value at least for a short run.

Minimum wage is necessary to maintain free market economy (Monopsony)

When someone claims for imposing minimum wage, many may still tend to call this person a socialist. However, imposing minimum wage seems to be less socialistic than allowing politicised trade unions (labour unions) to hold their wage bargaining power. In order to preserve capitalist model based on free market market economy requires the reasonable level of regulation in order to sustain the fair rule of market competition, stable risk management of investment (attracting investment), symmetric information (mitigating information bias), and motivation of both employers and employees participating economy without being feared of mismatch (Rationally forming their contact with each other). Minimum wage can be considered as a form of regulation, and it provides a reason to say there is no need for a trade union intervening for avoiding exploitation of labourers.

Nowadays, involuntary unemployment and stagnating aggregate demand are still the significant socioeconomic problem. The root cause of the current economic structure seems to be the shrinking market competition due to growing power of major corporations. Unlike the earlier stage of capitalism, the current capitalistic model is more centralised and specialised in the hand of minority elite corporate executives and public bureaucrats working for the favour of these corporate elites. The market has become less competitive and less free due to this phenomenon, and the market is becoming less liquid than it used to be. Under this circumstance, it reduces the liberal wage/income bargaining of majority individuals owing to this asymmetric power balance.

In the free competitive market, the demand and the supply are more likely to meet at the equilibrium point, and the error from this equilibrium point is corrected by converging the price and the quantity to the equilibrium point. By contrast, due to the asymmetric balance of power mentioned in the aforementioned paragraphs, it is now diverging from the equilibrium point as the market becomes less competitive and the freedom of entering market is suppressed.




This graph shows how monopsony (Buyer holds power over seller). The labour market of the current capitalist economy is in this situation where the labourers (Selling their labour in the market) hold less power over their wage bargaining power whilst the employers (Buying the labour resource in the market) hold excess power.

The demand for labour can be also described as the average revenue from employing labour, and the average labour supply can be the average cost for employers for employing labour. The equilibrium point (Demand meets supply) is where the average revenue becomes equal to the average cost in the labour market. Then, the wage is set at both employers and employees (labourers) agree at the market competitive level, and the labour is employed where involuntary unemployment is reduced.

On the other hand, the most desirable point for the employer is not the equilibrium point because it does not maximise their profit for their business. Their desiring point is the level of the labour employed where the marginal revenue of hiring labour meets the marginal cost of hiring labour. At this point, employers use their influential power over the market to set the wage (their cost) lower than the equilibrium point so that they can maximise their profit. Only the labourers who are still willing to participate by using their labour in the market can be employed.

This situation pretty much explains why some labourers work way too long hours with unsatisfactory wage whereas there are many citizens unhappy to be employed. These unemployed citizens tend to be blamed for not willing to keep applying for a job. But, this is fault of not only them but also the market situation not able to afford the wage motivating them to work. In addition, already employed citizens suffer from the income shortage for propping up their cultural standard of living and for compensating their exhaustion from working.

The depreciated wage level caused by monopsony in the labour market induces the stagnation of the aggregate demand which represses the market multiplier, and this leads to the economic downturn. The aggregate supply level also eventually falls because the revenue from providing the supply declines due to the falling demand. Therefore, this monopsony has to be discouraged not only for majority citizens being employed in the labour market but also the capitalist citizens employing labourers. Some of these capitalist citizens will also start suffering from declining their activities.




Imposing minimum wage may overcome this situation of monopsony by raising the wage standard to the market equilibrium point. This will reduce the involuntary unemployment as well as stimulate the market multiplier. Reduced involuntary unemployment reduces the cost for public spending. It also increases the income of already employed citizens and reduces their frustration, and then this reduces the risk of suffering from mental disease so this also reduces the public spending cost. It will increase the aggregate demand induced by increasing the income level of majority citizens.

The typical counter-argument against minimum wage is that it sets the wage higher than the equilibrium point so it decreases the labour demand. However, the fundamental problem of the current situation is that wage is set at the considerably low enough to increase unemployment and repress the market multiplier.

At the same time, employers cannot be blamed for this situation because of the following reason. The current market economy is based on the specialisation in the global level and it requires the huge economic scale of production, and the model based on the competition among traditional small-medium sized enterprises is already an old fashioned way not able to survive in this current economic model. Therefore, it is inevitable that more selected numbers of corporations with stable fiscal situation and abundant experience, productivity, and net working survive to thrive whereas traditional small-medium sized firms suffer from their staggering business performance.

Instead of cracking down against these major corporations to revive the good old competitive market based on traditional small-medium sized firms, simply imposing the minimum wage is easier and more productive. The government intervention of reducing the power of major corporations will be costly, and will slow down the economy by sacrificing all the wisdom and virtues of major corporations. Therefore, it would be better to allow the current capitalist economic model to grow while reforming it for some optimisation.

This policy will improve the corporate structure of already existing firms. Successful corporations with good managements have enough revenue to cover the cost for minimum wage as long as it is set at the market equilibrium balancing the happiness of employers and labourers. This is also an effective tool to expel ethically misbehaving corporations which usually suffer from bad management with unstable fiscal situation. Then, unnecessary exploitation will be prevented.

This policy will also encourage work sharing among citizens. In the current economy, there are citizens working for excessively long hours. When this policy is implemented, works will be shared among more individuals, and their work and life balance will be optimised. Furthermore, it will encourage to replace some tasks relying on cheap labour with newly invented technologies such as automation by artificial intelligence (AI). There are still many firms hesitate to introduce the new technology optimising their business performances because clinging to relying on their cheap labour is still economical in the short run. All in all, this will be an opportunity to accelerate the innovation.


Having considered about monopsony in labour market, imposing reasonably high minimum wage bring aforementioned benefits. It is still questionable whether it can be ideally adjusted to the equilibrium point or it exceeds more than the equilibrium point. Nevertheless, this policy still seems to be worth off to try to implement in order to tackle with reducing involuntary unemployment and stimulating the market multiplier with relatively lower cost than the other government intervention.

Better Economy, Better Environment! Environmental Protection needs Growing Capitalism!

Brazilian space agency reported the 3,069k㎡ Amazon deforestation in the first half of this year. Not only environmentalist activists but also major firms of international finance are furious at this immense lose. This immense deforestation was caused by the rise of various illegal economic activities due to this year's severe economic downturn. These criminals extract their resources for illegal trades from those places where economic regulations discussed through the discussion of politicians, financial brokers, and various private industries.

The economic regulations are established by means of the equilibrium point of the short term gains and the long term sustainability which majority capitalist politicians and private agents agree with. Nowadays, many of these politicians and private agents are aware of the external costs of their economic activities, and they cannot live without a social tie with the local community. As Aristotle said "Human-beings are naturally social: The one who is not social at all is either a beast or God". None can live without a mutual agreement with the others living in the community.

What those who are from these major international funds are disappointed with the current situation is that they have lost their massive financial benefit from that deforestation. These forestry resource as the commodity which requires to be managed carefully so the price of these commodities are priced carefully enough to mitigate the future loss of our living environment sustainability. In addition, people in the world are now aware of environmental carefulness of private firms extracting this resource so that the excess extraction of resource induces the substantial loss in the stock value, which those funds investing to these private firms incurs an immense financial loss.

Furthermore, this matter is also related to the emission tax trade. The current capitalist economy encourages the emission trade between countries and regions in order to balance the ecological footprints in the world environment. This taxation system attempts to restrict wasting environmental resources by not slowing down the economic development. The current illegal businesses causing the massive deforestation disturb the calculus of balancing the permission for extraction and the prohibition of forestry. The emission tax trade scheme is prepared for rewarding those who are ethically performing the extraction and looking after the sustainability at the same time.

It is permitted to extract a huge amount as long as they are obliged to pay for an equivalent immense tax compensating the loss. However, this obliged tax payment is ignored by these illegal businesses. It is about not only losing the tax revenue but also it derivatively means to penalise those who are ethically performing well. The reward for their ethical performance is relatively devalued against those who unfairly gain the resource by paying no penalty for it. This is why capitalist politicians, fund managers, and private manufacturing firms are furious at these criminals.

At the same time, these criminal have some reason d'etre to operate this illegal business. The root of all evil comes from the current economic downturn caused by COVID-19 pandemic. Because some firms have lost their business due to the temporarily but significant aggregate demand downturn, those who have technologies and labour resources start shifting from legal market to illegal or unethical (or often both) market which demand these production quality. This is why the aggregate demand management is crucial for not only supporting businesses but also preventing the aggregate supply materials switching from the ethical legal market to the unethical illegal counterpart.


On the other hand, the economic growth is important not only for the resource management purpose but also the environmentally friendly technology development. The lack of the aggregate demand decreases the revenue covering the cost for the innovation. When the aggregate demand level is enough, the disposable income is fulfilled enough to spend something a little bit more costly than the regular products so there is an enough opportunity for innovative products to be consumed. By contrast, when the aggregate demand is depreciated, consumers become reluctant to spend something authentic or innovative products whose price is higher than the other even though the price difference is a little bit.

For example, the plastic waste problem is highly emphasised in the global level so that the invention of the substitutes is highly urged. The severe ecological problem of plastic is that plastic is not biodegradable when it is disposed. When plastic is landfilled or sinks into the sea, it remains without being naturally rotten to cease. This is why there is a movement of banning or at least restricting the single use of plastic for disposable products.

Then, paper for various many substitute products is adopted because of paper's biodegradability as well as its processability. Nevertheless, the processability of plastic surpasses paper so that the disposable items made of plastic such as plastic straws used for drinking beverage is still cheaper and more comfortable to use than paper counterparts such as paper straws.

There is a paper product but yet it is difficult to be recognised as being made of paper. This kind of product is based on chemically processing papers. For example, there is a material which was used even before plastic was initially introduced in the world, and this material is manufactured by laminating papers dipped into chemical liquid to solidify its hardness and durability. This example material represents as one of substitute materials of plastic after its various usages were replaced by plastic. This movement is a typical example of "visiting old、learn new".

The fundamental issue of this alternative product made of chemically processed papers is that its unit marginal cost is significantly higher than plastic even with some public subsidies provided for this manufacturing process. This product is critically time consuming for its lamination process in the chemical liquid. Furthermore, the processability of this product is critically lower than plastic despite its higher hardiness than plastic. The sales of this processed material has been relatively higher during economically stable period meanwhile the sales substantially dropped after the business cycle falls into the current downturn due to COVID-19 pandemic.

All in all, sales of the environmentally friendly items is pro-cyclical to the (legal) business cycle and counter-cyclical to the illegal (Which is often unethical) market business cycle . Unlike many anti-capitalist socialist environmental activists rant, capitalism has evolved to take an external factors of economic activities such as emission of pollution and environmental impacts as seen in the aforementioned stories. This is why the aggregate demand stimulus and its management are non-negligible, and environmental protection requires a constant economic growth.

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.

What Marxist economics misses out

○ Marxian economic theory is actually considerably conservative because it is excessively biased on the supply side (productivity etc.).

○ Because Marx's economic theory is based on Say's Law which assumes that the demand always meets the supply where all supplied goods, services, and labours are consumed or utilised.

○ Maintaining the surplus value by exploiting the cheap labour force might be profitable for the capitalist class in the short term. However, Marxian economics ignores that the capitalist class will soon needs to look after those unemployed labour force after the aggregate demand slows down in the medium-long run.

○ Since the theory in Marx's The Capital entirely follows the theorem of Ricardo's economics, it assumes the market is always in a perfect competitive and the comparative advantage always prevails. This is a pretty much same assumption as the majority Neoliberalists whom Marxists antagonise.

○ Therefore, Marxian explanation is insufficient to explain the monopolistic force in any market.

○ The biggest defect of Marx's theory is that it is critically insufficient to explain "unemployment". Since Marx's economic theory assumes the labor market operate by means of Say's law, all the workers supplied will be hired so that the only existing unemployment is the natural unemployment i.e. everyone is voluntarily employed as well as voluntarily unemployed so there is no involuntary unemployment in his theory. This is also a pretty much same assumption as the majority Neoliberalists whom Marxists antagonise.

○ Marx successfully pointed out the cruel misery of those employees in a fate of keep being loyal to their employer and their institute. However, his theory hardly pays enough attention to the problem of those who cannot find any means of life like these unemployed individuals, which rather seems to be the underling problem of the modern developed world's social problem.

○ Marxian theory does not indicate the social problem of anomie where neither aristocrats nor capitalist provides the majority individuals with any means of living.

Domination by Corporatism,The New Totalitarian

1. The rise of the new form of totalitarianism

In the past, reducing the power of nation states' government would lead to liberating individuals from the oppression, and encouraging the growth of capitalism was believed to be correlated with freeing individuals. By contrast, when the national borders became less significant for both capital movement and securing political interests after the Cold War, the power of big multinational corporations has become stronger and more influencing individuals' life than nation states' government.

Furthermore, as the power of these multinational corporations have become stronger and influential as such, nation-states' government have become obedient to the interests of these big multinational corporations in exchange for their immense productivity and their capacity of employing their national population. There is a symbolic quote "Being expelled from using an Apple product and service is more painful than being expelled from a national citizenship nowadays."

Many claim that our current world is dominated by utilitarianism. However, the current world of corporatist capitalism does not fulfil the fundamental principle of utilitarianism the greatest sum of pleasure and the lowest sum of pains. The majority are tricked to falsely believe these totalitarian corporatists are maximising the utility. The consequence of what they plot to maximise is the utility of the minority corporatists' utility. Then, this project attempts to indicate how the corporatism (Corporatistic capitalism) diverges from the happiness of majority individuals.


2. How Corporatism seizes the power of the gigantic corporations and suppresses both free market competition and individual liberty.

We have believed that the road to serfdom was evaded since the end of the cold war with a victory of capitalism over the socialist-empire, the excess form of socialism which was considered as the serfdom. Nevertheless, we are still in danger of being unintentionally guided to a serfdom. The modern industrial world has increased the material productivity and the political stability under the common interest in pursuing a material prosperity. At the same time, this has also produced the cost for individuals to live in an intensively cohesive structure.

These individuals and their corporations are actually not free to act and compete because some of them are privileged more than the others. The nation state's government and judicature set their roles suitable for their peer groups which are loyal to the authority or their nation-state. So, their freedom of action is still restricted by the roles and their competition is based on the authoritarian interests of a nation-state's autocracy and its fellow peer corporate elites.

This structure is a resemblance to the oligarchy dominated by the combination of monarchy and this monarchy's peer oligarchs explained in Fragment on Government. Even though their authority is merely a constitutional, the status-quo having been maintained so long time has already established the unbreakable hierarchy of power and wealth. These autocratic peers have already monopolised their power and wealth as much as they are able to prevent their potential competitors away from gaining more power than the already existing status-quo even under a free market competition.

Both capitalism and socialism frequently put emphasis on excess-conformity and staunchly regulate individuals and their freedom of action, life, and thought by condemning egoism as vice. Socialism forcibly integrates individuals into its autocratic cohesion meanwhile capitalism simply spontaneously excludes individuals, who are disloyal and/or useless for their interests, from the means of acquiring material well-being and status honour. Both are the homogenous political ideologies discriminating and ostracising who are too unique and eccentric.

Whenever individuals are employed by a corporation to spend their time and efforts for it, they must have realised that many of corporations do not base their business management on the rational market mechanism. The management of these corporations is influenced by the irrational preferences of both the high class members, the minority but powerful executive committees, and the peer-groups of the majority employees. The executives often tend to put priority on their personal favour and their biased view on unique individuals over individuals' competence and merit. The majority workers form their peer group to purge the other individuals hardly integrated into their peer group due to their jealousy and discrimination.

Because of this employment scheme biased by these irrational causes, the market equilibrium of demand and supply of the human-capital is hardly accomplish-able, and the mobility of human capital is far more rigid than the market structure explained by the free market principle, the classical economic theory of capitalism. There is then the political influence on the corporate structure. The modern corporate structure is unnecessarily big and complexly stratified as same as the bureaucracy of a nation state, and this does not look like how the private sector structural model is supposed to be by the free market principle.

The existence and the prosperity of these corporations are secured by the law enforcement and regulations designed and imposed by the single nation-state's authority, and these corporations aid the nation state authority by doing its favour. Unlike a pure form of socialism, how both various private corporations are incorporated into one unified nation-state bureaucracy. But, this capitalist structure is identical to the state-socialist counterpart seen in the USSR. Lenin had actually embraced the growth of state capitalism in The State and Revolution as the modern capitalism becomes more bureaucratic and incorporate into the nation-state's bureaucracy.


3. Economic growth = Inevitable Centralisation



Adam Smith, the father of economics, thought highly of the division of labour. When one smith can manufacture 100 pins a day, 10 smiths with the same skill can join together to produce more than 10,000 pins when the labour is divided to each smith. The scale of this institutional integration of labour force to produce a particular product is called the economic scale. The economic scale expands when the higher production capacity becomes more available and demanded.

Smith put emphasis on the market competition which should be encouraged to increase the motivation of individuals and their firms to produce more efficiently and effectively. These individuals are motivated by a higher reward i.e. their higher profit than others when they can produce better than the others. He also claimed for not only the competition of production but also the competition of ideas among individuals. Then, free open trades in a wider area provide them with more opportunity to compete and gain more productive ideas.

David Ricardo claimed for the specialisation of industries in a wider scale than Adam Smith. He argued that each different country should be specialised in producing what they are good at producing so that the aggregate productivity. In an international trade, the productivity can be maximised due to the division of labour available to be concentrated on producing higher quantity. This idea has provided an opportunity for countries with a relatively lower aggregate productivity to join the international trade.

The size of private sector industries has swelled by taking an advantage of the trade route expansion and the division of labour applied to their production methods as a new management tool. Firms have enlarged their production and management scale, and their business have branched out over the nation-wide and even the world. Then, they have started employing more labourers and their management structure has become more complex and structured. Then, their organisational structure has become more centralised under an authority of one opinion lead with a technocratically selected elites, called the executives, in order to maintain the decision making process consistent and efficient. The executives are usually selected by their merit and responsibility for their company management so that it is a technocracy. When their business management scale expands and centralised, the number of technocratically selected executive per head of the entire population of not only the company members but also all the civilians living in this economic region becomes significantly smaller. So, the entire community structure is considered to be more centralised.


Alexander Hamilton, one of American founding fathers and the first minister of finance in the independent United States of America (USA), insisted on the need of the sufficient degree of the intervention of government authority to economy. He supported the open free market trade among individuals and countries. But, he argued that, unlike the United Kingdom (UK) where the government and the royal intervention and regulation were already intense, the newly born USA needs more regulation and intervention were required. He mentioned that the shared public infrastructure and the public safety network are required to enable individuals and their firms to freely as well as fairly compete and cooperate together.

For instance, Hamilton put high emphasis on need of the central bank and the unified currency supplied by it. Establishing the consistent and legitimate intermediary of exchange is essential for the wide open active free trade. The currency ought to have its credibility enough to encourage saving to increase the aggregate wealth and stimulate the investment flow, and also motivate labourers to feel happy to exchange it with their labour. Furthermore, the unified public sector authority is required for establish a strong defence force and the consistent and fair legal system conducted by the rational authority. These two institutes function for protecting the public safety where individuals are enabled to peacefully trade, thrive, and live happily in their daily life.

Rational authorities, who are in charge of planning the defence strategy and the law enforcement, and interpreting the legal codes, are generally technocratically appointed by means of their qualification measuring their merit such as ability, competence, and knowledge so they are not generally directly elected by the popularity of the general public. Even under the majority modern democracy, these technocratic rational authorities are responsible for administrating these defence and legal process. The candidates directly elected by means of their personal favour of the general public can influence the decisions and the actions of these rational authorities to restrict the excessive centralisation of political decision making. But, the processes in a wide scale modern developed politics require the sufficient skill set gained in a long term training so that it is inevitable that these rational authorities are more likely to be demanded for the core executors of the political administration.


When the economic scale is enlarged and the population of economic agents there increases, the business cycle becomes more dynamic and fluctuating. At the level of the technology available in 19th and 20th century, it became difficult to leave the free market alone to grow itself because of the turmoil of its business cycle fluctuation. As an entire economy of one nation is easily affected by the sudden spontaneous shock, which can be either overheat or downfall, which starts taking place in one part of this national economy. The shock became more contingent than used to be. Therefore, the government's positive intervention reacting against this turmoil started to be required at that time period.

John Maynard Keynes reformed the concept of the market economy. He argued that it is important to keep the basic concept and the nature of the free market economy while he also affirmed that some form of the error correction of this wide fluctuating business cycle to stabilise the economy to enable the market economy overcome from the catastrophic turmoil. The self-proclaimed Keynesian economists support increasing the active role of government. They support increasing the public sector share of economy to the certain extent and the frequent discrete fiscal policy intervention by using the flexible tax rate and the national debt issuing. Milton Friedman and his followers called Monetarists support the monetary policy conducted by the central bank without relying on the government role.

The reason why this kind of the positive intervention toward business cycle is often required is that one shock in one area of a national economy is so high contingent in the modern developed economic structure. When some area economically stagnates, the national economy should deal with stimulating this stagnating area by splitting the resource from better-off areas and/or with the national-wide level stimulus package stimulating the hole national economy together. By contrast, the economy of an overheated area should be tightened by the monetary, fiscal, and supply-side policy. Regulations of labour and capital mobility also plays a big role in controlling the business cycle to either restrict or open their flow to adjust the business cycle. All in all, the rational authorities who are selected by their knowledge and merit of conducting economy, not by the popularity of the majority mass, are desired to be in the government position in order to manage this economic policy. Thus, the community structure is more centralised when the scale of economy at the current level of technology and ideas available.


When the entire economy is still immature and struggles to achieve in a stable growth and suffer from a considerable deprivation without any positive planning, one centralised opinion leader-like institution may need to emerge. In order to achieve in the rapid economic growth to overcome from such under-development and the goal is clear and achievable as long as the resource and the motivation are available, only limited number of authorised individuals of one ideologically unified institutional body ought to conduct the entire economy and politics. A selected cohort of intelligent individuals should directly command economy and private citizens to allocate their resources optimally for the development purpose. The conflict of opinions should be prevented because democracy, promoting freedom of choice and opinions, can be conditionally hindering especially under such an unstable immature state.

This is called the Development-Dictatorship which maintains the decision-making process efficient and unified until this nation is materially developed. When economy is developed at the certain level enough to require more flexibility encouraging freedom of thought and new innovations, any political dictatorship stagnates or even depreciates the growth. However, when economy is critically deprived by means of the material development, the priority is copying and adapting the already existing ideas and the resource concentration. Therefore, in this case scenario, the Development-Dictatorship is conditionally often functional for increasing the aggregate productivity.


Nowadays, it has come to the new era of the new economic paradigm. The world economy has become rapidly globalised so that regions in this world has become economically and politically interconnected with each other. Then, the national governments to struggle with stabilising their business cycle themselves. The transnational monetary institution has become necessary to intervene into the world economy by conducting each state economy because burdening responsibility on each nation state has become beyond the capacity of one nation state. The World War 2 (WW2) taught the lesson about the consequence of burdening full-responsibility on one nation state for its economic depression induces a world wide catastrophe. Then, the more centralised public institutes like the World Bank and the International Monetary Fund (IMF) have emerged as the intermediary of negotiation, policy-making, and transnational direct investment programmes. The authority and the role of these transnational public institutes are still relatively insignificant at the current situation. Nonetheless, as the speed of the globalisation has much faster since the end of the Cold War, and its speed acceleration has been more remarkably high since the last information technological innovation. Therefore, the role of the transnational institutes will become more active, and economic agents of this world might expect for the higher responsibility of them for the world-wide level economic intervention.

There has also been a radical attempt in a shifting paradigm from the age of nation states to the new age. Some member states of the European Union (EU) have adapted their shared common monetary policy and its currency called Euro, and the European Monetary Union (EMU) member states form the Eurozone. They attempted to reduce the menu cost incurred due to the fluctuation of the currency exchange when the international trade between two or more states have increased dramatically.

The currently ongoing economic crisis in the Eurozone occurs due to the systemic shock shown in the picture below:

As each Eurozone member state no longer has its own monetary policy controlling the interest rate and the money supply volume, they struggle in the positive intervention adjusting to stabilise the business cycles. Many economists claim that something like the US federal government conducting the fiscal policy to harmonise the business cycles of states in the USA should be establish to solve the ongoing crisis caused by the dis-harmonisation. Otherwise, it requires to whether bringing back to the system before the EMU was established or ostracise one or few remarkably troublesome members disturbing the harmony. Sum up, the stable solution will be either not only monetary but also fiscally integrating the Eurozone under a more centralised system or decentralise it to minimise the EMU scale enough to be stabilised without a fiscal unification.

There is my econometric analysis assessing the business cycle harmony among the Eurozone states.
The European Monetary Union is inevitable, but has to be fundamentally revised
Published on 23/07/2011 09:18 British Summer Time

The result indicates that all the members except for Ireland are harmonised (The business cycle shock is contingent to each other and the inter-border trade frequency among them is high) enough to cause any of their productivity decline after leaving the EMU except for Ireland. Greek cycle is strongly harmonised with the majority of the Eurozone members, and the significant difference of Greek economy from them is that Greek cycle tends to be exaggerated. This means that Greek economy may become overheated when the entire Eurozone is in boom meanwhile Greek economy falls into the severe economic depression when the entire Eurozone economy experiences the economic recession.


Overall, it seems to be able to affirm that the centralisation of institutes is an inevitable process to increase the aggregate productivity, and majority of the mainstream economists nowadays tends to agree with it. The productivity, representing the material well-being, is essential for individuals to become happy because they need material-resource to survive, live well, work in a productive and creative industry, and enjoy leisure. Nevertheless, this is questionable to regard that increasing the productivity is only the essence of being happy for individuals.


4. Happiness

From the ancient era, the objectivity of philosophy is to discover ways and ideas for individuals to become happy. In Ancient-Greece, all the remarkable philosophers after Socrates agree that the ultimate goal of philosophy is happiness even though they disagree with each other regarding to the process and the tool to induce this goal. Originally, all academic disciplines used to be more synthetic and based on philosophy before the modern era so that their objective of learning and developing used to be unified as pursuit of happiness. The spiritual aspect of individuals is never negligible. When they are used to the reasonable level of material sufficiency in their life, they may take their material well-being for granted, and be more likely to seek their own philosophical reason, which is not provided by the others, and their spiritual means of living. Then, the freedom of their own expression seems to be essential to achieve in happiness.

The centralisation stratifies individuals and their living community, and distinguish them between those who are authorised to conduct and the rest who obey more than the formers. This is suspected to increase the frustration of individuals who are discouraged from being free from the central authority to keep an autonomy. The excess focus on the centralisation for the productivity development purpose, and this might lead to the unrest caused by the frustration of the general public or the annoy-syndrome caused by the loss of meaning of life for majority individuals.



Jeremy Bentham, the father of Utilitarianism as well as a strong advocate of direct-democracy in the modern era, could be the pioneer having quantified the level of individuals' happiness. He generalised happiness to be equal to pleasure minus pain, which he called utility. It could be oversimplified as happiness can be more complex than being expressed by only pleasure and pain. Nevertheless, his assumptions has provided a strong insight to quantify and measure the variables influencing happiness.

* The following part is based on my econometric analysis about the happiness/utility correlated to both the climate and the political effects:


Bentham attempted to explain how the sum of utility is affected by the political structure with the following algebra.

He broke down the modern political structure into these main three elements, monarchy as the rule by one, aristocracy (It was referred as the synonym of oligarchy) as the rule by a few, and democracy as the rule by majority. Each element has its own advantage to provide individuals with their utility such as that monarchy is powerful with the charismatic authority, aristocracy enables elites to use their wisdom in politics, and democracy permits majority individuals to represent their wills in politics. He also affirmed that the element of democracy offers the greatest sum of utility due to its availability of allowing the greatest number of individuals to participate in politics to represent themselves.

At the contemporary time period when Bentham was alive, there was little objective ways to measure the sum of individuals' happiness in each nation in the world. By contrast, due to the development of the information technology, we have become able to collect some peer assessed numerical indices of various social scientific data sets. This happiness index is also collected by objective view points and survey methods under an academic peer assessment. Thus, it is interesting to assess Benthamite calculus owing to this world happiness index.

The econometric analysis based on the Happy Planet Index (HPI) regressed on the climate effect, represented by the altitude of countries and its square, the binary variables, monarchy, aristocracy/oligarchy, and democracy, and their interaction effects, and the algebraic equation below is used.



The coefficients and their significance is as follows:



The coefficients of the variables showing the climate effect are 0.02256 for the coefficient of the absolute value of Latitude and -0.0004 for the squared variable of the latitude. Then, the formula shapes an upward parabola shown in the picture below.



Therefore, the place where the latitude is either +31 or -31 maximises the happiness of people living.


All the three binary variables denoting the single effect have a significant and positive coefficient. Both the interaction of Monarchy and Aristocracy and the interaction of Aristocracy and Democracy have a significant and negative coefficient. The coefficient of the interaction of all three variables is non-significant, so that the half of the coefficient value is used. The HPI derived from each different political structure is as follows:



This is a bar graph showing the policy effect on the H.P.I.:




These trends can be roughly visualised in a picture graph like this:



A nation with the direct democracy (Monarchy = 0, Aristocracy = 0, Democracy = 1 ) produces the highest HIP. But, Switzerland is the only nation with such a system in the world. So, it is not sure if it is still significant number of the sample to prove its superiority.


By only means of political structure, this seems to be plausible to conclude that a more decentralised political system provides individuals with the higher sum of happiness than the centralised counterparts. As shown in the previous chapter as well as the algebra introduced in this chapter, the centralised political structures have their unavoidable advantages such as the charismatic power of stabilising individuals and their community and the wisdom rationally conducting a positive planning of economy and judicature organised by the elite rational authorities. Nevertheless, this econometric analysis of happiness indicates that the centralisation seems to induce the frustration caused by the repression of majority's representation in politics. This analysis claims that individuals seek the satisfaction from directly representing their needs and desires in politics, and its availability of the representation is beneficial to increasing individuals' happiness overall.

John Dewey also argued that democracy (if possible, more direct for is more desirable) is pragmatically the best political system for both the material and the psychological/spiritual aspects. The reason why American democracy has been successful is that her decentralised political structure does not limit the opportunity of representing new innovative ideas to only few individuals. The decentralised system has enabled various obscure but talented individuals to represent their opinions and inventions into practice. Perhaps, the upward curve denoting the aggregate productivity curve, positively correlated to the rational centralisation, can be more flexible than it is assumed in the previous chapter. So, in the longer run than it is assumed in the previous chapter, the upward aggregate productivity curve may shift rightward as more technological innovations will become available in a decentralised politics.



On the other hand, the concern is that the excess decentralisation can be not optimum as the centralisation seems to be still partially beneficial. Therefore, the optimum equilibrium point which maximises the benefit of both the centralisation and the decentralisation. The next chapter explains about the equilibrium point.


5. The Disequilibrium of the Material-Productivity and the Happiness: Going back to the origin of economics.


he distressful actions and mental sickness do not seem to decrease, and they seem to be even increasing, in various materially developed countries. Despite the high material well-beings available in these developed countries, not all of the majority individuals living in a materially developed country do not seem to be happy. The suspected reason can be the gap between the material well-beings pooled in their economy the happiness these individuals acquire.

The modern world still excessively focuses on increasing the aggregate material productivity rate so that they furthermore encourages the centralisation of authority for propping up the material productivity growth. This centralisation has already become excess although the centralisation only fulfils the well-being of the minority elites owing the means of production. So, the centralisation of the political and societal structure of this world sacrifices the happiness of majority individuals.

This phenomenon occurs due to the negligence of the happiness taken into the account while researching economics and politics. It may be the time to remember that the thoughts of Adam Smith, the father of economics, was influenced by Jean Jack Rousseau who derived the answer of increasing happiness from being sceptical about the increasing power of centralised authorities in the modern world.

When Adam Smith was alive, the UK economy was already in a rapid growth so that he did not need to put an only emphasis on increasing the aggregate material productivity. Both Rousseau and Smith affirmed that economic growth should be limited to the sustainable level enough to prevent only a few minority elites gaining the benefit from this growth. The sustainable growth implies providing time and energy to distribute the resources gained from this economic growth needed for majority individuals' happy life style.

As the regression analysis based on the H.P.I. in this project has shown, the degree of the opportunity of representing their opinion, not suppressed by the centralised autocracy, is significantly correlated with the happiness. This trend infers that the representation of majority individuals' will was critical for improving the well-being of their life enough to reflect their opinion. Hence, there seems to be the optimum level of the economic growth and the distribution of resources depending on their geographic and cultural characteristics of where they live.