Friday, June 06, 2008

Economic Political Spectrum Part 1: Big/Small Government no longer matters




Some people have found the result of the Political Compass Test (Prof. Nolan) tends not to be plausible to denote their actual political ideology. Some Conservatists tend to be judged as libertarian, majority of economists do not approve the questions about economic theory, people from outside Europe have found questions about social policy seem quite stereotypical, etc. The foudamental reason is that Prof. Nolan composed the spectrum by European liberal socialists' point of view. Furthermore, Nolan's spectrum contains little knowledge about economics. All in all, Nolan's spectrum ignores the fact sometimes individual liberty and egalitarianism need to be restricted for social and economic development, and the fact government responsibility on economic cycle is highly important measure to distinguish the scale of social and economic development. The most important aspect concerning critic of the political compass is the world is NOT homogeneous unlike Prof. Nolan inferred.



Having tried the Political Compass Test, I have realised Prof. Noral the author of this spectrum has little knowledge about "economics". The economic side of political compass test explains only classical philosophy of "economic ideology" and does not clearly indicate about "economic policy". This contradicts the fact that size of government, Big/Small government, does not in fact imply the level of egalitarianism provided by the government interaction. Then, Prof. Nolan interprets that the difference between two big governments, egalitarian one and oppressive one, is the matter of the "Social Scale" of spectrum, which means whether this government is authoritarian or liberal one. He emphasises that the reason why Union of Sovient Socialist Republic (USSR) was so oppressive that repealed egalitarianism is because of the authoritarian based political structure. Therefore, he insists if a communist state had more permissive social policy it would provide highly egalitarian society. However, this idea can be only accomplished only if social and economic structure is mature, peaceful, and stable. Some government and people in fact may need an oppressive authoritarianism with a strong law enforcement and a highly structured political system in order to provide stability and economic development although people inevitably need to abandon egalitarianism. Also, majority of people may not be well educated to bear responsibility on their political system.


In addition, Prof. Nolan does not mention about "development dictatorship" at all. Prof. Nolan might include "development dictatorship" in the economic right-wing scheme as same as western capitalist nations due to the strong aim to achieve capital development. However, this contradicts the factor some countries provide a huge public sector, strong government intervention into market, and a marginal level of protesctionism on foreign trade in order to accomplish an economic development. As a matter of fact, even USSR attempted the "economic development" to compete with capitalist nations and acheived quite notably high capital development even though it regarded of a communist ideology. The big difference between USSR and other totalitarian states aiming a development dictatorship is whether or not government interaction into economy is rationally and positively planned. According to an article on cyclicality of fiscal policy in "The Fiscal Study", rationality and positive planning are the fundamental key to distinguish emerging countries and undeveloped countries. The article affirmed that more sophisticated fiscal planning provides higher growth. In terms of Nolan's political compass spectrum, these two different kinds of totalitarian countries tend to represent the same position in the political spectrum. However, Nolan's spectrum does not account rationality of fiscal planning. Rationality of fiscal planning is beyond the size of government. I am going to explain further about rationality in the next chapter.


On the other hand, Prof. Nolan separated liberalists into two different categolires, Libertarian-left (Liberal Socialist) and Libertarian-Right (Libertarian). By observing statistics of political surveys, not so many people and politicians categolise themselves as libertarian (Libertarian-right), and many Conservatists tend to be categolised into libertarian or closer by "the Political Compass test". Libertarian and Conservatists (not conservatists) are quite homogeneous, and the difference in political ideology is slight. The reason is that Conservatists in fact consider social liberty is a vital factor to promote market competition based on meritocracy, and moral entrepreneurs are important as institutes to voluntary and spontaneously preserve traditional moral values. Libertarians also consider moral entrepreneurs should exist as parts of pluralist society. At the same time, both modern Conservatists (which does not include traditional cultural conservatists) and libertarians regard highly of rationalism and secularism in government and education policy, where the interaction by moral entrepreneurs takes place by each individuals' voluntary action under democratic society. Some cultrual conservatists in outside Christian society put emphasis on "unity of state and religion" are more likely to support dictatorship government unlike modern Conservatists. Majority of Conservatists tend to consider indirect democracy or even relatively transient form of democracy are sufficient in order to maintain political "stablity". So notable difference between Conservatists and Libertarians is Conservatists can be slightly more simpathetic to dictatorship than libertarian.


On the other hand, if someone puts emphasis on "social-liberty", s/he tends to be more economic leftist than other libertarians simultaneously. The reason is that in order to secure social-liberty a political system inevitably requires a regulation in economic activity through regulations or market insentives. Remember the world President Johnson's word "It is not enough to open the gates of opportunity; all our citizens must have the ability to walk through those gates." If we expect to accomplish strong equality in opportunity in society it also eventually requires a higher equality in outcome. This certainly require a responsive government planning to economy. However, the level of government responsibility should be limited in order to avoid people in governmental authority gain too much power and turning to be totalitarian. In order to form an egalitarian economic system and social value, the system naturally requires to remain a certain degree of spontaneousity to enable people in common have the floor. Prof. Nolan seemed to claim stronger government control implies more egalitarian by observing his political compass. However, Scandinavian social democracy can be the most achievable egalitarian system. Communist or traditional socialist ideology will not be able to create a further egalitarian economic distribution and social value because these ideologies may repeal individual liberty, such as property right, to keep the collective distribution system. The bigger government authority may consequence to create a social inequality based on bureaucracy and social value may reactionally becomes authoritarian. The best alternative option for adopting liberal social value is a spontaneous wage collective bargaining through democratic government and stronger trade unions' wage bargaining power.


Nevertheless, this social democracy does not always mean the best economic and social system because democracy, pluralism, and stronger trade unions cause inefficiency in economic development. Social democratic system can be sustainable in stable and peaceful society with well-developed economy. Social democracy is economically highly costly without doubt escpecially for both emerging economies and countries under development. Strong wage bargaining power of employees can be distuptive for market flexiblity which enables economy to create a sufficient amount of profit. I do not criticise the fact employees must have right to obtain sufficient amount of wage in order to not only sustain their daily life but also enjoy a good cultural standard. However, excessively strong trade union power and unstable decision of economic policy under democratic system tend to stagnate stable economic development in countries under development. Under this step of economic development, rise in average wage level should be expected by economic growth, and it should enable entrepreneurs and government to hire employees in flexible conditions. Social democracy also implies society with high self-expression value, which is so-called pluralist society or liberal society. In order to form this kind of society, it requires high level of average modern and secular education level enough to enable individuals in society to be permissive toward different beliefs and moral values. Under a never-ending conflict among moral values and/or in deplomacy with inside and/or outside its governance, it may need a strong enforcement to secure social stability which enables people to develop their living standard through stable economic growth and level of intelligience through education.



All in all, I have decided to use one dimensional spectrum where social democracy is on the far left side and the dictatorship, both development dictatorship and USSR styled communism, on the far right side. On this spectrum, Conservative and libertarian are regarded to be allocated on between center left or center right. The reason I symplified the spectrum into one dimension is that it is matter of the "trade -off" between efficient productivity and egalitarianism. Dictatorship, regardless of the ideology, is more likely to be efficient in productivity as it regards highly of the factor "a significant advantage of a one-party state is that it avoids all the arguments that delay progress in a democratic political system (Political Compass)", whereas social-democracy put priority on self-expression value and equality in income distribution rather than social stability and economic growth.

Sunday, February 17, 2008

2006/2/16 (Thu) Evil ID-Card!

* The document is quoted from the old geocities based diary.

2006/2/16 (Thu) Evil ID-Card!


The British Labour government is planning to adopt ID-card for anti-terrorism and well-organised "Welfare-state". Our honourable David Cameron the new leader of the British conservatives is strongly against this ID-card issue! We have been very scared of the fact the post-modern country is going to establish such a censorship. This is the "welfare-state" which says hypocrisis like "free education", "free-healthcare" "democracy"and "protecting minority"! They say they are wishing to create a liberal society but this is just a contradiction! Do not fall into their trap! There is only little evidence we can prevent the fear from terrorism by adopting ID-card! Is the "Welfare-state" good? I don t think so. I highly recommend everyone to read through a book named "Free to choose" written by Milton Friedman the winner of Nobel Memorial Prize in Economic Sciences from Chicago University in the USA. He is also famous for the inventor of Monetarism and "Radical-Libertarian". Prof. Friedman critically indicates the false of Welfare-state and myth of socialism.

We are one individual living in society, so not the state-own product! Until we realise such an evil myth, we are under the control...

Tuesday, January 15, 2008

abolish consumption tax

This doccument proposes that consumption tax is relatively inefficient for the tax collection method and harmonising business cycles so then offers to abolish the consumption tax in Japanese case.

Speaking of consumption tax in general, which includes the turn-over tax introduced former West Germany, sales tax used in Japan, and the Value-Added Tax (VAT) which is used the European Union (EU) member states, this kind of indirect tax system tends to be inefficient to gather a stable amount of tax revenue. The reason is that the demand of comodity itself is quite fluctuant so that the revenue changes overtime inevitably. The tax on consumption, especially the sales tax, symply increases the price of necessities so than individuals' utility goes down. This causes to the moral hazard which denotes that although economy is supposed to create the individuals' well-being the consumption tax discourages the well-being of those. Even the turn-over tax and the VAT, which are regarded as less regressive than the sales tax, not only to cause the moral hazard but also is still regressive. These two kinds of consumption tax cause the disturbance to account how the value in accumulated and to judge if some goods or services need to be taxed more than others.

Furthermore, the accountancy can be easily biased by firms selling consumptions. The sales tax is the most notorious because it does not clarifies whether one comodity is on the final good or the intermediate good. The turn over tax encourages the merging firms and creates more monopolised market so then results in inefficient market pricing. The VAT which is popular and has a good reputation among the world is high controversial. The VAT is successful to prevent encouraging merging and less regressive than the previously mentioned two types of consuption tax. However, the VAT merely taxes on consumptions with the number of sales among intermediate market. Therefore, the VAT does not precisely judge whether consumptions are necessities or luxuries and need or need not to be taxed.

On the other hand, in terms of the macroeconomics perspective, consumption tax tend to stagnate the aggregate demand level. The consumption level correlated to the income level is quite hetero-scedastic, which implies the variance varies across different level of variables. The consumption level of individuals with the higher income is varied where as those with the lower income level spend most of their income for their consumption. This clarifies that the average level of merginal propensity to consume does not change across the income level. Therefore, the tax on the consumption reduces the level of disposable income of individuals with the lower income level meanwhile those with the higher income level may substitute their expensive consumptions or their saving income into inexpensive consumptions.


Neoclasscal economists may claim indirect taxation in general including consumption tax is less likely to disturb equity than direct taxation as this is relatively burdened by means of the right to spend. Neoclassical economists tend to put priority on equity of individuals' income, therefore encouraging saving, and the right to spend (the other word is "pay as spend") rather than the ability to pay. This is agreed as long as the indirect tax is not the consumption tax because this essay is going to explain about the necessity of introducing the emission tax due to reduce the negative externality. However, the consumption tax increases the negative externality unlike other forms of indirect taxation. Furthermore, although the majority of neoclassical economists support small government with little bureaucracy the consumption tax which they support, as a matter of fact consumption tax requires a high government expenditure on the sophsticated bureaucratic system to account the tax collection and increases the cost due to the risk of assymetric shick of aggregate demand level among regions.




Focusing on the microeconomic aspect, consumption tax distorts equity despite the supporters of consumption tax put priority on equity. In particular, a nation exporting a large number of commodities produced in monopolistic or oligopolistic firms has to transfer the revenue from the consumption tax burdened on these commodities back to these firms in order to avoid the tax export. In this situation, these firms gain an extra amount of revenue from this tax revenue transfer as much as they export more than or as much as they sell domestically. This results in transfering revenues from medium and small firms exporting little to those exporting a lot. On top of it, a nation having a huge tourist industry openned up to the global market has a large proportion of tax exportation or needs a bureaucracy to enable foreign customers to refound their consumption tax. As a consumption tax becomes a huge proportion and/or complicated like the VAT, it eventually requires much more complicated bureaucracy to account the process of consumption tax and the right amount of tax refound. If the refound does not take place, it might simply create the distortion of equity across nations because foreign comers bear an extra duty which may not contribute for their public service. All in all, consumption tax tends to exploit the revenues from medium or small sized firms and encourage a monopoly and distortion of equity among firms as long as these two factors are notable. In particular, Japanese major car making entreprises and IT corporations are notorious to take an extra revenue from the tax transfer because of their enourmous scale of exportation level.

From the macroeconomics point of view, the consumption tax disharmonises the business cycle among regions in a nation. Unlike direct taxes, indirect taxes cannot vary their level of taxation across different regions. Indirect taxes are collected by refering tp the total revenue of each individual firm and extremely difficult to settle a bureaucracy varying the different level of indirect taxes across regions depending on their own business cycle. If an indirect tax is inelastic, for example the tax on habit formings, this has little influence on the business cycle. The indirect taxes burdened on roads used across different regions, and petrol and electricity used for transportations going across regions have to be equall across regions. However, consumption tax is an elastic indirect tax, its level of tax burden does not have to be same across regions unlike taxes on roads, petrol, and electricity, although it is extremely diffcult to vary the level, and has an influence on the local business cycles.

Wednesday, January 02, 2008

2008, Happy New Year!




New Year Firework Scotland
from "www.scotland.org.uk/hogmanay/"



Hi there! Happy New Year for 2008!! I wish all the great success for you!

In 2008, I will be quite busy. I will complete my university life after the semester coming. As my course is the joint degree in economics and mathematics I am not going to take modules instead of the desertation, however, it is still busy because the 2 mathematics modules I am going to take are quite tough course... Also I will take an eonomics module so all in all my schedule is so packed that I might be a bit difficult to update my web-sites very often!

I am applying for postgraduate courses. I am willing to study a master degree in some university offering me. I will be quite occupied to manage all course materials therefore this will make my year 2008 so busy that I might not be able to update this website that regularly ... I really hope to be busy in 2008. However, this implies that contents of this website I will publish more academic and sophisticated articules.

Monday, December 24, 2007

Joyeux Noel!




Bonjour buddies! Hola! The christmas days have come! How have you been doing?

Well... I am enjoying quite quiet times over Scotland. The region I am staying is pretty quiet and most of my university mates have gone back their home! Very very quiety and chilling out but very very very lonely christmas days! Today and tomorrow, I am gonna spend time at my good friend's flat to have christmas meals over 2 days.

The last semester has required me a load of works. The economic policy in Britain is a quite comprehensive course which enables me to analyse current econommic issues with using macroeconomic knowledges we have learned already. The economic policy in EU is a very interesting and beneficial subject as it indicates a lot of key issues involved in European Intergration in terms of both micro and macro economics point of view.


During the 4th year, I have to take 2 mathematics modules so I have attended so many lectures and seminars much more than not only majorities of the art-degree students but also other economics students taking economics as just a major or combining with accounting&finance or business management. I mean I have had a ton of works to do in my accademic life in this university, I wanted to say!

Any way, I hope all of you enjoy your rest of this year whatever you can deserve yourself! Cheerio!!

Monday, December 10, 2007

Economic Rationale --- Inflation rate should be refered/targeted?

The European Central Bank (ECB) is well known as a conservative central bank which adapts German model of monetary policy. The ECB is independent from government body and not allowed to have a contact with any community to determine their policy. Also the ECB has a little accountablity on economic situation as it is only interested in the inflation control. The ECN settle the reference inflation rate as 2%. This is different from the target inflation rate used by the Bank of England (BoE).


Focusing on the ECB monetary policy, it has been respected as the most stable inflation controlling one among all European Union (EU) members. According to the Barro-Gordom model, as the central bank with the lowest and stable inflation cotrol leads the monetary unions, all the member country of monetary union are benefited from the central bank. Barro-Gordom model indicates that the unemployment is structural and always the natural rate in the long-run so if the central bank sets the prefrence of the inflation rate lower, it enables the inflation rate stable over time. Also the country prefering higher inflation rate and lower unemployment does not success their policy to reduce the unemployment rate in the long run and the inflation rate eventually goes up in the long run. Therefure, Barro-Gordon model clarifies that countries would be better to follow the policy with lower inflation rate preference.

The ECB manages to control the inflaiton rate by means of the nominal interest rate. The ECB has a parliament constituted of representatives from all European Monetary Union (EMU) member nations. These representatives vote for the changing nominal interest rate. The decision is based on the majority voting system and all country have an equal power of vote.


On the other hand, there is a counter argument against determining the nominal interest rate by means of the inflation rate. Taylor argued that the output gap should be referred to settle the interest rate. Taylor indicated the importance of the output gap which is the gap between the potential economic activity level and the current economic acitivity level. This implies that the nominal interest should be changed not to target the inflation rate but to fill the output gap. In order to fill the output gap, if the real interest rate is lower the nominal interest rate should be increased and if the real interest rate is higher then the nominal interest rate should be declined regardless of the inflation rate.