Friday, September 13, 2013

High Incomes, High Prices, Growth & Distribution

Studying how the economy works is unfortunately not an easy task, as many factors enter to influence it and its impacts surfaces in almost all aspects of human and non-human life.

Economists learn to think in terms of trade-offs, as a simplifying mental tool to assess impacts. The pivot is the limiting factor - there must surely be one resource that is limited. Some think the resource is the natural environment (fresh air, clean water, tall trees), or knowledge (know what and know how), or simply human mortality (time). The basic economic purpose of a human being on earth is to accumulate sufficient "value" for use during one's lifetime, and for "greedy" ones, the lifetimes of one's entire family or clan or even dynasty. It is the extent or ferocity in the accumulation of value or wealth that drives the underlying economy and its impact on the rest of society or social life.

Growth for the economy is therefore the accumulation of capital and wealth from profits. With traditionally, wealth is held in the form of metals (gold or silver pieces), in the modern world of paper and electronic money, wealth is held in equities and real estate. So, those with money play the stock market and the property market - the rest of us work.

The rest of us work because we do not have the surplus to accumulate. We earn enough to buy shelter and transportation and probably some distractions in remove the drudgery of life (erhu, camera, guitar). We may even save very hard to pay for our children's education - because we want them to have a proper foundation to earn high incomes. The path to high incomes is the ability to solve problems or anticipate them, so that we can reach our objective in life by overcoming the obstacles along the way - and that objective is to earn enough money not having to work for the rest of our lives.

How much we need depends on the level of prices that we will face in the near and distant future. If we think that prices tomorrow will be higher than today, then we will not let up in our work because we feel our savings are insufficient. In the face of uncertainty, we rather suffer type I error (make a mistake in saving too much) than type II error (make a mistake in not saving enough). We are on a treadmill.

In the world of high incomes for everyone, we must accept high prices. Everyone will be us, earning the same pay - or we will be like them, earning the same pay. It is relative. Our maid will earn as much as us, and we will not be able to afford them, by definition. Everybody will be well paid, or paid almost similarly - possibly with a few minor discrepancy just to show some differentiation in order to encourage the capable and hard working to work even harder - just like in the civil service (or is it the other way round - to create an illusion that the gap there can be closed).

This situation will happen when there is equal opportunity to education, and education is the same everywhere. Education does not mean cleverness. Education means the ability to communicate our ideas to others clearly, and to understand others well, so that we can live in peaceful coexistence. Education means that we know how to give and take, and we see each other as equal, as mortal human beings who will die and become nothing. Education means we can identify a common area of interest and work together to solve that problem. Education means we can think.

Of course, in any society, there are the underprivileged. Those with handicaps - physically or mentally. They should be given assistance in order to reduce their sufferings or to encourage them to overcome their shortcomings. There are also the able bodied who are poor and they need education and the discipline to work hard to achieve a result, without stealing. Stealing is a concept derived from property rights. Property rights is a concept that comes from the fact that property is normally acquired after years of hard work or success in playing the game in town, and not consuming the whole fruit of the effort. It is that part that is saved that is held as one's rightful property and society will protect that right. Only then will efforts be sustained in society to the accumulation of wealth and the growth of that society - mostly in terms of concrete structures in a cluster and ample display of things which are not fit to be eaten but enjoyed in other senses.


walla said...

A: Shall we talk economics again?
B: Why?
A: Because it is central to our daily lives, no?
B: Really?
A: That sounds disturbingly deep. Why not?
B: Patience, my friend.
A: That sounds even more ominous.
B: Think for a moment. Does economics really matter in this country?
A: Of course, it does. It distorts the differential between cost and price.
B: Only in the absence of types 3 and 4 errors, no?
A: How so?
B: In this country, politics has superseded economics. And it is a certain brand of politics all along which has been committing those errors. Thinking it has the right answer but forgetting it is only interpreting everything twisted by its own personal agenda until it has become oblivious to the fact it has only been answering the wrong questions.

walla said...

A: I immediately see where you're coming from.
B: Miraculous.
A: What do you think will be the effect on the future from continuing those errors?
B: It don't matter no more.
A: How sad! Why?
B: Aren't we already sitting ducks soon to be roasted?
A: That's so deflating...
B: Useful under inflationary circumstances.
A: Wit aside, talk to me now about price. High income must mean high price, yes?
B: It depends.
A: (grates teeth). On what?
B: On where you're coming from. If, say, you're coming from a high-income country, then the prices here would be relatively low, innit?
A: Ah, i gitit. But what about us, working to no relative effect in an economy with escalating prices but static incomes?
B: Then the rich will become poorer and the poor will become poorest, relative to those who succeed to maintain income/expense parity.
A: Can we then be high income and relatively low price as well?
B: That will depend on our disposition index?
A: What is that?!
B: I haven't figured that out yet.
A: Let me help you. A disposition index is a personal state of mind in which a person prioritizes his expenses relative to the economic circumstances he finds himself.
B: Incomplete for the fact most are already doing so. Therefore there are some other elements at play as well.
A: Hmmm.

walla said...

B: A lack of education helps.
A: It does? I would have thought social deficits are all negatives.
B: Not being able to connect all the dots will leave one in a constant state of perplexity as balm for constant suffering.
A: That is so unlike you. Yet spying the sadness in your eyes when you said that, i can understand the bitterness and cynicism.
B: It's just one of those double-negative tradeoffs.
A: Can you give an example?

walla said...

B: Ok. Do two ADLs.
A: What's that?
B: Activities of daily living.
A: Errr..
B: Go on, wash your hands with soap and fry the fish with oil.
A: Hmm. Let's say i have done that.
B: Then you have just conducted a secondary tradeoff.
A: How so?
B: The secondary tradeoff is an indirect tradeoff resultant from a primary tradeoff. The basic question of our lives is this:

whether we shouldn't be really re-prioritising all our thoughts and actions so as to recognize we need to solve the situation of constantly consigning secondary tradeoffs to be below primary tradeoffs.

A: I'm lost.
B: I'm not far behind you, too.

walla said...

A: Ok, my hands are washed and the fish is fried.
B: And the secondary tradeoff from doing that is her bloodstream has accumulated another molecule of diuron besides fluroxypyr methyl ester.
A: Please explain yourself.
B: The first is to kill seedy grass with long roots and the second is to kill hardy grass and small shrubs.
A: (groans). But what have they to do with what we are trying to say here?
B: Everything.
A: (groans louder). Please be lucid.
B: How when i am already pellucid?
A: Sheer torture talking to you!
B: I have been so reminded not inconstantly.