Sunday, 14 August 2011

Growth and prosperity - social justice in economics

Growth is based on increased consumption and is created by increased productivity, however increased productivity is reliant on increased demand!

Increased demand is based on either:-

1. Consumer confidence;
2. A rise in the number of the population; or
3. More individual wealth

The economy is driven by consumer confidence which is based on innate sense; genius. Consumer confidence goes amiss when people take improper advantage of others and the system at large.

Material wealth is created through either improved quality in the supply or increased supply and sufficient demand in:-

1. Food (including high end produce);
2. Clothing (inc. high end);
3. Accessories (inc. high end);
4. Cars and the like (inc. high end);
5. Home (and office) appliances;
6. Luxury goods not previously specified

There is only so much wealth required for one to live as one would like and ultimately it will get to the stage where "growth" (not per capita) is contingent on population expansion, when there is not growth in an economy at the expense of other economies. Even "the next frontier", space, will ultimately have such 'limitations'. A population may not always grow in number in which case, theoretically at least, there will come a time when G.D.P. will stagnate and reverse; the economy will go into a so called recession. Fortunes will be rolled over in part to the next generation there will be greater monetary wealth per capita but less demand with a greater capacity for supply. In general people will be wealthier. On this score it would appear that G.D.P. in the economy is not a true reflection of prosperity G.D.P. per capita should be relied on as a more appropriate state of affairs.

If supply is increased and demand does not increase prices fall and profit margins diminish but overall prosperity in the nation is increased. This is an unlikely scenario however because people are notoriously greedy for more wealth security and comfort. One way to get around this problem in supply however is to increase competition the markets.

Capitalism is based primarily on the capitalisation or exploitation of ideas. Without genuine entrepreneurship capitalism fails in its objective, which is to create wealth. Ideas however are abundant in antiquity and will continue to be so into the distant future, until such a time as people have everything they could possibly want for in material terms. In the modern day it should be a fundamental requirement that enterprise (especially in the form of small and medium size businesses) is properly supported either through government finance, or private initiative (bank loans).

There is no growth value in re-investment of wealth only because, to put it in simple terms, if everyone re-invested their wealth there would be increased supply with no increase in demand therefore no return on such investment; there would be no new money in circulation. Money actually needs to be created year on year and the only people with the means to do this are banks (such is known in this instance as fractional reserve banking), the central government banks and nationalised banks. More money in the economy generally means more demand. Inflation is kept in check by increased supply and/or relatively higher interest rates. Increased demand and supply means growth in G.D.P. Of course the money that was created in loans needs to be paid back (with interest!) at some point and this will come from future profits in enterprise. Essentially in such a case there will be a redistribution in future earned wealth, with the old money earning a smaller percentage share in G.D.P than it otherwise would. Growth is guaranteed through the money earned by the banks on the money that was created (out of thin air!) for finance. That money filters down through the economy in the purchase of goods and services.

It's not a likely situation where there are too many banks and not enough 'other' businesses. Money means nothing in itself its only worth lays in the goods and services it is exchanged for: no goods and services no money! It should however be the moral and ethical duty on the banks to lend responsibly and not be charlatans offering services which appear to be highly creative and profitable but are in actual fact a disproportionate risk to stability and real growth in the economy. If banks are not responsible in their work then capitalism collapses, which is what almost happened in the financial crash of 2008.

Innovation and finance are indeed a way forward but never in forgetting about the little people in society. If there is to be proper investment into ideas and small to medium size businesses then the circuit becomes complete and riches and prosperity will flow. If the old money is re-invested into speculative entrepreneurship ("venture capitalism") rather than static investments (property etc.) capitalism would be all the better because such investment would necessarily increase the quality of goods and services thus increase peoples quality of life, even when the consumer has no more money in their disposable income. Re-investment of wealth and creation of jobs also increases growth (G.D.P.) if it is the case that the economy is being supported from the bottom in financing ideas with new money.

Monday, 11 July 2011

Policing and Security interests

Moving away from social issues in a financial prosperity sense to social issues in the sense of security; national security mainly, which infers a degree of international security where international security is distinct. The mainstay of a nations internal security comes in the form of a Police force and their network of intelligence gatherers so called informants and under-cover officers. Whilst it is apparent that some nations have less of a problem with crime than others (and those countries are of a socialist inclination as opposed to capitalist!), it no less apparent that all nations have to some extent a degree of criminality in their population. Sometimes more white collar crime than blue collar but in most instances, especially with the rise of illicit drugs, blue collar crime predominates.

How a Police force goes about dealing with the menace of blue collar crime and illicit drug distribution is going to be the mainstay of this argument and where such crime enters into terrorism i.e. drug cartels funding terrorism, a brief synopses is given.

Narcotics have been a menace to society since at least the 1980's and the mass import of cocaine which gave incentive to criminals who were otherwise subsidising their incomes with marijuana distribution to become focussed on the highly lucrative Class A market (cocaine, heroin and ecstasy). The profits from such endeavours have made not a few criminals very influential not least in the underworld but also in the straight as a lace general population. This is most evident in America where crime families have taken a major interest in the corporate lifestyle.

Although it is evident that much is being done by the authorities to counter and eliminate the criminal element in society since the mass import of cocaine and the proliferation of Class A across the world, it seems to me that the tactics that have been deployed are obtuse and counter intuitive. Intelligence led Policing is obviously the only way in which there is going to be any success however it does not appear to me to be a truth that is self-evident that capitalism without rules to promote order is realistic, or indeed advisable. By this I mean to say that allowing criminals to become informers whilst turning a blind eye to their criminal activities whilst being productive in one sense i.e. the prosecution for criminal offences, it is extremely counter productive as well in that the mentality of such criminals, a Judas mentality in actual fact (note: such is not identical to a devil mentality, which would be an improvement), spreads like wildfire in the lower echelons of society where such people can be the alpha males and role models of the populace, right up into the establishment, where such a Judas mentality is at first viewed mockingly in humour then, once constructs are added to the psyche, becomes a prejudice that tears the fabric of good governance asunder albeit piece by piece and apparently by stealth - surely it is in the interests of the establishment to keep such improprieties secret (even from themselves!). What happens in all eventuality is that society ends up being run "from the bottom up" and because of moral and materiel corruption a nation, and then nations, become bankrupt and dissociated, that is to say pathologically insane on one count, capable of the most shocking and murderous activities.

To add further weight to my contention that there is an ill in the way security is being addressed I want to make reference to a conclusion drawn by ecologist, biologist and author Lyall Watson who suggests in regards to natures habitat that:-

"1. Good things get to be bad if they are displaced, taken out of context or removed from their locus".

Clearly this has relevance to the modern phenomenon of mass migration in the world and globalisation. Terrorism in the UK being a prime example.

"2. Good things get to be very bad if there are too few or too many of them."

Clearly this has relevance to a 'Police state' or at least a state where Police informers out number criminals in the classical sense.

"3. Good things get really rotten if they cannot relate to each other properly and their degree of association is impoverished."

This is what happens in a society that identifies with its shadow. What is good is forsaken illness follows and people then become at a loss to understand each other.

Lyall Watson goes on to make another valid point to my argument which is as follows, "Lying is merely the most obvious way of cheating in a social situation, and so common that it must be seen as universal.... Yet it only exists because 'honesty' already forms part of the same system. Deception cannot work unless it is a rare variant of an honest response". We can adapt this sentiment to reflect on our Police informant paradime the inference that can and should be taken being that if informants are not a rarity, the game is up, and the flow of information is compromised as to good outcomes. What can happen in consequence is that crime becomes the norm amongst those charged with fighting crime!

Whilst it may appear to be ridiculous what needs to be done in the capitalist domain in actual fact is to accept that criminality will occur and indeed allow it to occur to some extent. If life is a conundrum of circumstance and opportunity (if life gives you melons make lemonade!!) and more to the point life is far from perfect (at least for now), surely it is only too apparent that not all citizens will be leading "the good life" but of course that is the objective - for most criminals as well. Whilst allowing criminality to some extent terrorism is in some part excluded because no one likes a Judas and in today's climate of state sponsored terrorism this is all the most prolific terrorists amount to; Judas's. Besides moral exclusion and as unfortunate as it may sound one must also take into account that terrorists do not have a monopoly on violence.

There is then the issue of how does one prevent the criminal underworld from becoming so powerful that society is influenced in another way - not by corruption of public morals caused by the Police informant paradime, but by a nation led by the temptation of the devil! It seems to me that in answer one should propose that crime is still policed (but not run!) with informants and undercover operatives however informants should be kept on a tight leash and moreover punitively pursued for the crimes that they commit, on a periodic basis. Major criminals should be harassed and pursued in the normal manner only with an eye on the bigger picture. There should be a shelf life for such major criminals before the full weight of the law is sent in to close them down, in such a way is one able to prevent an explosion of the underbelly in society into mainstream society.

Respect is the name of the game is these difficult times, and certainly never corruption.

Thursday, 7 July 2011

Social mobility (2) - Taxation

Following on from my short thesis on a minimum wage allowance I want to devote some time to taxation. Again, these figures are based on the UK budget (2011/2012); GDP and government expenditure including welfare and pension, defence, local government, education, administration and health.

In total, government expenditure in 2012 is forecast to be £702 billion from a GDP of £1,547,624,656,480 which accounts for 45 percent of GDP. £702 billion pounds therefore needs to be generated from tax revenues including V.A.T. and other tax sources where there is a shortfall government borrowing must needs to be offset against future GDP. Whilst it is evident that a limit cannot reasonably be put on government borrowing because of events like war, recession and depression where government spending may need to increase nonetheless a ceiling is advisable so as not to bankrupt the economy. Government spending cuts should therefore be implemented so in order to offset fiscal stimulation in an economic downturn and increased military spending in times of war (most likely only in the time of a very substantial military commitment). Government borrowing in the UK is currently paid down at £40 billion per annum (as of 2012) which is 2.6 percent of GDP and this is an admirable rate at which to pay down debt although it is noted that there will be much grumbling about paying paying back so much debt so quickly if it is the case that the debt burden is heavy to GDP and/or growth is slow or retarded. In austere times given spending cuts in all reasonableness it appears to me that borrowing should never exceed 10 percent of GDP in any given year and in such a case should not be sustained for a period of more than 24 months. In times of normal economic growth government borrowing should be no greater 2.5 percent of GDP I am taking into account the fact that as an economy grows the debt payment shrinks in real terms which means in essence money for nothing if only a small amount of money is borrowed in comparison to GDP and growth. I am also taking into consideration what is known in economics as 'the paradox of thrift' which suggests that borrowing for expenditure is advisable in the event of good times as well as bad because in good times people are able to accumulate wealth and hold on to some of that wealth in savings, which is counter productive to growth.

The number of people in employment in the UK is 29.6 million, which is 49.6 percent of the total number of citizens. £1.5 trillion pounds worth of wealth created divided by 29.6 million people with a government spending burden of £702 billion per annum equals a £23,716 per person per annum tax burden. Offset the revenue generated through V.A.T, corporation tax, inheritance tax,capital gains tax, national insurance and other duty taxes, the amount that needs to be collected in income tax amounts to something like £4,747 per person per annum. In reality the tax burden is spread widely and fairly across the spectrum of earners with higher earners contributing more tax.

So in order to promote industry and reduce unemployment the minimum wage should be set at £7.28 per hour, however in addition to this and so in order to promote work and growth there should be a tax allowance of £10,000 per person per annum before one pays any tax. The lost income to the government can be compensated for by raising an additional capital gains tax of 40% on inherited estates from the deceased worth £1 million or more. Such a tax should be enforced without exception.

Existing income tax bands should be thus:

£10,001 - £35,000 = 22 percent tax
£35,001 and over = 40 percent tax

This will leave a small surplus in the requisite amount of income tax required to furnish government spending. This should be reinvested into apprenticeships and other training facilities for the unemployed. To take the sting out of consumer item price inflation or open market currency inflation resultant from the likely price increase in consumer goods and services caused by a rise in the minimum wage I presume that it would be advisable to pursue a less aggressive corporation tax strategy in any event I suspect that a reduced rate of 22 percent would have the effect of increasing the size of the economy there is the likely interest from international businesses looking to relocate for the tax benefit derived therefrom, rather than a scenario where foreign investors buy up static investments like property where there is no worthwhile benefit gained however the cost of living increases for subsequent generations. One must also take into account that if the minimum wage is increased less tax payers money is likely spent on benefits to the unemployed indeed more tax revenue will be generated through income tax, national insurance and V.A.T.

Wednesday, 6 July 2011

Social mobility (1) - Minimum wage

Where to begin in such a wide ranging and all embracing work such as a political biased philosophy! So I thought I would start at the bottom, quite literally so in fact; I shall start with a consideration of the 'bread and butter' worker in society, he/she who is most likely unskilled or semi skilled perhaps and works for a minimum wage rather be reliant on state handouts whilst being unemployed. I'm going to use financial data from the UK as the basis for my thesis however I expect that for those that are interested there will be similar information available in other countries which can be substituted using the same formulas.

It seems to me that the most likely incentive in mobilising a potential work force is remuneration. What is of most concern to an individual is what they can get out financially for the work that they put in. When taking welfare payments into consideration it is evident that there must be sufficient incentive to the unskilled worker to induce a working mentality in such a person therefore there must be a structure in place which dictates that employers offer a minimum wage, an hourly wage is most suitable, which will benefit the prospective employee more so than welfare payments.

The model that I am going to use to determine the preferable minimum wage in any given economic zone is based primarily upon the gross domestic product (GDP) of that zone and the number of people available to work aged 16 to 64. The model that I am proposing is my own model and not one that has been used by anyone else before however it gives surprising results in that the resultant minimum wage figure is not that different to the one already used in the UK, albeit a more favourable result for the employee.

GDP in the UK in 2010 was 1,514,309,840,000 (1 trillion 5 hunderd and 14 billion etc) with the number of people at working age 41,883,853. The number of people reliant on the welfare state on child benefit, pensions, unemployment and sick benefit, etc, withdrew a total of approximately 245,000,000,000 from the UK economy in 2010. This figure requires to be deducted from GDP before such is divided by the total number of people at working age and then reduced by 50 percent. The reason that GDP needs to be reduced by the welfare payment is so that all citizens in an economic zone are accounted for, and not accounted for twice, which is what would happen if all citizens were taken into account without discrimination viz. it would appear that a person on welfare would be given the minimum wage per week in his benefit in addition to what he/she was already receiving in benefit. The reason a 50 percent reduction is made to the final figure is to take into account the profit that an individual and/or business will make from their entrepreneurship. The fact that not all workers are paid a minimum wage but some receive salaries in excess of such is also accounted for by the reduction.

1,514,309,840,000 minus 245,000,000,000 divided by 41,883,853 equals 30,305.

30,305 divided by 2,080 (the number of working hours in a year: 35 per week x 52) minus 50 percent equals 7.28.

So based are the model I am proposing the minimum wage in the UK should be £7.28 per hour in 2011. I would suggest that such a figure should be revised bi-annually to keep pace with the economy in general, although I suggest that the hourly wage should never be revised downwards unless deemed necessary in exceptional circumstances.