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Will the Economics Profession Wither or Flourish in the 21st Century?

by John Brian Shannon | September 10, 2015

I compare the entire economics profession (and each individual economist in it) to a star quarterback — like the great Joe Montana who is probably the best quarterback who ever lived, or who will ever live.

But what would the great Joe Montana have been *without a healthy dose of self-confidence* and who instead lived his life on-and-off the field in a world of self-imposed self-doubt about his overall importance to his team — in short, a world-class athlete with vastly superior skills who didn’t know, or didn’t believe, how capable and how important he was to his team, to his sport, and to the fans?

That is similar to how economists and the profession in its totality appear to me in the year 2015 — world-class, with vastly superior skills, who don’t know, or who don’t fully believe how capable and how important they are to our society, to our nation, and to our civilization.

Spelling it out for you! Economics must trump Politics. Image courtesy: The jesuitpost.org

Image courtesy: The jesuitpost.org

Where we are – and where we need to go

It is a profession that is better than it has ever been, certainly no cohort of economists have ever had the knowledge, sophisticated theory, and datasets of today’s economists, nor have such intractable problems ever required solving.

For example, the economic puzzles extant in ancient Rome or of the Victorian Era were Lilliputian by comparison.

Three problems confront the economics profession today

1. Unlike Joe Montana who received huge accolades for his massively successful plays on the field — economists sometimes prevent economic catastrophe but nobody notices and the world moves blithely on.

Economists prevent economic catastrophes and nobody notices. Need I say more? It’s a problem related to mindfulness, to the recognition of competence, and of reward.

It’s a problem intrinsic to human psychology that we reward some, but not others.

It might be more accurate to say that today’s economists ‘make plays’ that are of the utmost importance to ‘the team’ but are more analogous to the defensive linemen on a football team ‘who prevent the other team from scoring’.

Notice that for those players the cheering isn’t as loud?

It’s a problem in sports, and in economics too, and (unbelievably) many economists don’t give their own colleagues due respect.

It isn’t always about creating ‘touchdowns’ sometimes it’s about preventing ‘touchdowns’ by the other team — each is just as important as the other.

Psychology is a major factor in economics, in trade and in the markets, yet the application of human psychology in economic theory has been largely overlooked.

2. The profession lacks self-confidence. Imagine superstar pro athlete Joe Montana — but *without* confidence. (!)

Did Joe Montana, great as he is, ever seriously think that every time he threw the ball that it would result in a 50-yard touchdown?

No. Joe Montana showed up on gameday and played his best game. Because that’s what Joe Montana did.

But did the fact that he didn’t throw a 50-yard touchdown every single time he threw the ball, cause him to lose confidence? No.

If you’re playing *your best game* then you should have all the confidence in the world. But there’s no harm in trying to improve your game, over time, that’s a given. But to lose confidence every time you don’t score a touchdown? That should never enter the equation.

3. “Start with the end in mind.”

In order for economists to do their jobs properly, we need to have measurable goals and metrics to steer by.

Nobody enters a serious car or yacht race where there isn’t a definite start line and a definite finish line.

Economists are stuck in a race with no start line and no finish line. Why are we even racing?

We know who we’re racing, we know when we’re racing, but what goal are we trying to achieve? Would somebody tell me?

They can’t. There is no goal. Economics is a free-for-all-race against other economies with no end goal.

And yet, every economy (country) is in that race and each one started at a different position, are driving different kinds of vehicles, at different speeds, and taking different routes.

We need to stop that.

You can’t *win* a race when there’s no finish line (a goal) unless you kill all the other competitors. Then, you *win* by default. Not very sporting, old chap.

We tried that before. Mutually Assured Destruction (M.A.D.) — anyone remember that?

We arrived at M.A.D. in the 20th century because politics ruled the world and not always with good results. Thus far, the 21st century doesn’t look much better.

I could write a thesis on this — and volumes, or even tomes would still need to be written on the clear and verifiable path that took us from the (economic) competition between nation-states, to the (political) M.A.D. doctrine.

National Economic Goal-Setting

We need to start with the end in mind, a goal.

I posit that the finish line *the goal* (limited to the U.S.A. to keep this example simple) should be that every citizen should have a reasonable expectation to attain a net worth of 1 million dollars by age 25, near-perfect health with universal healthcare systems, and a tuition-free university education.

Further, regulators should require that a minimum of 25% of every American’s investment portfolio should be invested in U.S. corporations, or single entity businesses (artisans, for example) and another minimum 25% of their portfolio be invested in foreign companies that are located in countries that enjoy ‘Most Favored Nation’ trading status with the United States.

And finally, for the United States to always earn a Top 5 ranking in such indices as the UN Happiness Index and the Social Progress Imperative if we expect every citizen to fully buy-into our national success.

Economists could ‘work to’ and ‘measure against’ and ‘devise new theories’ in order to meet those goals

Who but America could attain such a goal?

Germany, Japan, The UK, France, Canada, Australia, a few more Western nations maybe — with America leading the way.

Beginning with the end result in mind would give the economics profession unprecedented focus and allow it to become all that it can and should be, instead of it continuing on without clear and measurable goals to steer by — and because of that it is a profession laden with self-doubt and presently living under the thumb of politicians.

A Tipping Point for Economics

The economics profession is nearing a tipping point in the early 21st century.

It will either rise to unprecedented greatness by asserting its independence from politics by setting its own goals with the ‘end-user’ of economics in mind (which are citizens, not corporations) thereby becoming super-efficient, super-effective, and consequently, economists would become more confident — or the profession will forever remain the scapegoat of politicians.

In the 20th century we faced Mutually Assured Destruction due to the competition between political models.

If economics remains subservient to politicians the 21st century will devolve to M.A.D. of a different kind, this time it will be the Mutually Assured Destruction of the global economy due to the competition between political models.

Because in a no-goal model, the only way to *win* is to eliminate competitors

Economics by its very definition is amenable to and works better with metrics, and an end goal. In politics, there is no end goal.

If we are to survive as a species, eventually, the importance we place on economics must supercede (Canadian spelling) that of the importance we place on politics, because, as I said before, in a no-goal race the only way to win is to kill all the other competitors. Then you *win* by default.

Which is what we’ve been doing in slow-motion since 1914 and one could argue, since the time of Cain and Abel.

Our species must evolve past the ‘law of the jungle’ model to a point where it isn’t all about the politics of ‘country A’ vs. ‘country B’ — but where it’s all about how well citizens score their nation on the UN Happiness Index and Social Progress Imperative index

Only when we devote our industrial, academic, and social effort towards the well-being of the ‘end-user’ (citizens) with verifiable end-user metrics, will we stop working at cross-purposes. Then watch our species succeed!

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International Trade Agreements: Win-Win or Lose-Lose?

by John Brian Shannon | June 11, 2015

The secrecy surrounding these agreements is a complete non-starter for me.

The obsessive secrecy is enough to tell me everything about this being a corporatist agenda on the one hand — and a latter-day containment policy concerning China (or any country that crosses the U.S.A.) on the other.

It really muddles the difference between trade and governance as many commentators have said.

Elizabeth Warren, as usual, has it right; “If transparency would make it harder to sell the final product to the public, it raises serious questions about the desirability of what is being negotiated.” — Elizabeth Warren (paraphrased by Professor Dani Rodrik)

Yet, having said all of that, I’m strongly in favour of international trade agreements!

TTIP protest in London, UK

TTIP protesters in London, UK (Aug 2014)

What NAFTA could’ve been, vs. what it became

To this day I’m a strong proponent of NAFTA — but NAFTA had the potential to be so much more.

Instead, some of the more mediocre minds took over what was a grand overriding vision of peace, order, and good governance for all of North America — and one of the vehicles to help make that happen was the original NAFTA agreement, which was to be followed up by additional agreements, e.g. NAFTA II and NAFTA III.

But because it was handled so badly, the public mood turned against NAFTA and all talk of later NAFTA agreements were dropped like a stone

To state it a different way; The corporatist agenda greedily precluded the long term interests of North America.

And what did we get in exchange from corporations for opening up the North American market thereby allowing corporations to make additional billions per year?

They took their NAFTA windfall profits they had earned in North America to Asia, and 2/3rds of North American manufacturing jobs went to Asia, as well.

Thanks for that.

But it’s not the fault of corporations. They’re in business to make money for their shareholders — which increasingly, means the 1 percent.

To one person, the actions of these corporations might seem profoundly ungrateful to North America — while to another person, these corporations acted in their best interests.

It depends who you work for, I guess…

If you’re a person who works for 1 percent of the population, then this result is acceptable to you. If you’re a person who works for the 99 percent, then this is a wicked bit of business indeed.

Occupy Wall Street protests and other anti-corporate sentiments didn’t materialize out of thin air.

The Occupy movement happened because 99 percent of the population suddenly realized that both the corporations and government were ‘against’ the little guy — you know, the people who actually pay the bills and fight in wars — not the cabal of the 1 percent and their government acolytes

If we pass TTIP and TPP in a shroud of secrecy to further satisfy the corporatist agenda the #OWS protests will seem a minor historical disruption by comparison. (Just a friendly warning from someone who believes in trade agreements)

Some look for advantages between signatories of trade agreements

Which completely misses the point.

In the NAFTA example, many people were spending endless hours trying to decide if the NAFTA agreement benefited Canada? Did it benefit the U.S. more? Or perhaps Mexico was the main beneficiary?

NAFTA was about lowering barriers to improve the free flow of trade between the North American partners with the goal of making North American products and services more competitive in all respects — against other trading blocs or nations. Not against each other.

THAT is what NAFTA was about. Which many people missed originally, or have since forgotten.

It’s too bad that the subsequent windfall profits ended up strengthening the Asian economy instead of the North American economy where all of those profits had been earned

So; Are those corporations ‘traitors’ to North Americans — or are those corporations ‘heroes’ to their shareholders?

The answer is glaringly obvious.

If you’re a one percenter (or a government acolyte of the 1%) then these corporations were ‘doing their duty to shareholders’ under legal boundaries set by government policymakers and financial regulators, even though the optics look incredibly bad for both corporations and government policymakers.

If you’re a ninety-nine percenter you probably view these corporations as ‘traitors’ to North America — even though these corporations followed the letter of the law. Everything else is just spin for you.

A summary of NAFTA?

1. It could’ve been so much more.

2. The corporations made additional billions (maybe even trillions) due to NAFTA, and in that respect it scores a clear win for corporations — but they have lost much of the support and good will of ‘We the People’ in the process.

3. The additional revenue made by corporations due to the NAFTA agreement are now in China not doing a damn thing for the North American economy where those windfall NAFTA profits were earned, making NAFTA the third-largest transfer of wealth in modern history.

(a: The largest wealth transfer in modern history was from the Old world to the New world, b: the second-largest wealth transfer in modern history was from the West to the oil rich Kingdoms, since 1932)

4. NAFTA was a major instrument in the creation of the 1 percent and the societal problems that have since flowed from rising inequality.

Unprecedented in modern history, the 1 percent own more wealth than 1/2 of the world’s population and by 2030 the 1 percent will own 3/4 of the world’s total wealth.

Leaving only 1/4 of the world’s wealth for the 99 percent to exist on, going forward…

Can you say… inequality? Or how about… protest marches? This time with billions of protesters.

As productivity has only little room for improvement in the developed world, the only other factor to allow the present economic paradigm to continue is falling incomes for the 99 percent

If you don’t recognize that as a looming societal apocalypse, you’re not an economist.

If you are an economist, I apologize in advance for your nightmares.

It looks like it’s up to citizens to stop policies that are clearly skewed to benefit the 1 percent and are increasingly detrimental to the 99 percent.

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Why is Profit Bad for the Canadian Economy?

by John Brian Shannon | Mar 31, 2015

It matters where all that profit is going. Or does it?

You decide. But the great sucking sound you hear is Canada’s money going into Canadian bank accounts to gather dust, or it’s off to Asia to be invested there for higher but riskier returns. Either way, such money is completely unproductive to the Canadian economy.

Stock market index graph

Money seeks higher returns wherever those may be found. These days, profits earned in Canada are simply ‘Canadian dollars waiting to leave the economy’ on their way to be invested in Asia, or ‘parked’ in Canadian bank accounts doing nothing productive for the Canadian economy.

In the case where that money is invested in Asia, that money has permanently been removed from the Canadian economy. If it was just a few million dollars per month it wouldn’t be a problem, but it has been occurring for decades on the order of billions of dollars per month.

And that is unsustainable economics and it is why we are now into permanent slow growth, inequality, and falling living standards for 99% of Canadians.

Side issue: Some $24 billion leaves Canada each year via personal remittances to family members overseas, and that is a tiny number compared to the corporate billions that leave Canada annually.

Read: Sending home $24 billion a year from Canada. Who gains, who loses?

Profit, Profit, Where Art Thou?

An astonishing percentage of-the-remaining-in-Canada-money-supply is concentrating in the hands of fewer and fewer people (which used to be known to economists as the top 20% for most of Canada’s history) but nowadays, the top 1% have accrued more wealth than the bottom 99% all together. And it’s getting worse every year.

You can’t run an economy like that

Some educated people (and some junior economists) thought that our historic growth rate statistic was responsible for our successful economy — when in fact it was the ‘velocity of money’ that allowed Western economies to become so successful. But few recognized it at the time, and worse, that still holds true today!

It was ‘money velocity’ that made our Western economies grow and the ‘growth rate’ was and still is, an arcane statistic.

Money Velocity is Everything to the Economy

Money velocity is a ratio of nominal GDP to a measure of the money supply (M1 or M2). It can be thought of as the rate of turnover in the money supply–that is, the number of times one dollar is used to purchase final goods and services included in GDP.” — The St. Louis Fed

We need to stop increasing the money supply (stimulus) which, due to our presently unbalanced economy, now has the net effect of concentrating even more money into the hands of the top 1% and leaving about the same amount of money for the bottom 99% to fight over.

If all that excess liquidity piling up in bank accounts or invested offshore was put back into the economy, there would be no poverty, GDP would skyrocket, Debt-to-GDP would fall off a cliff, and personal wealth would increase among average Canadians.

It’s unethical to now steal the money from the 1% — as Canadians gave it to them willingly and they took it lawfully.

But there must be some mechanism to get the huge sums of money (the money that hasn’t already left for Asia) back into the Canadian economy and doing something productive with it, instead of just sitting there waiting to be transferred to Asia.

Tax The Rich, Until There Are No Poor?

As the Beatles said; “Tax the rich, until there are no poor.” Although that would be a hard sell for today’s governments.

But as it is now, the rich pay little in taxes except when making purchases. But how many Bentley purchases does it take to keep an economy going vs. how many Bentley’s does each rich person purchase per year?

Which is why money that isn’t productive should be taxed heavily — while money that is reinvested in Canada shouldn’t be taxed at all

This effectively turns the 1% people into part of the solution as they will seek to lower their taxes — rather than be taxed when removing their money from our economy to invest it outside of Canada.

Income tax Change-up

Also, we need a 0.00% income tax rate for those who earn under $25,000/yr, a flat income tax of 17% for those who earn $25,001–$99,999 annually, and a 25% flat tax for those who earn over $100,000 per annum.

Under that scenario if you don’t want to pay the 25% tax on the portion of your annual income that exceeds the $100,000 boundary — simply reinvest it within Canada — and pay 0.00% tax on it. Yay!

If that results in hundreds of thousands more jobs (it would) and a dramatic lowering of inequality (it would) and gets the economy booming (it would) the government will just have to compensate for (possible) lower total tax revenues. And not with export tariffs, or sky-high fees for government services!

More than half of tax revenue is used to ‘service’ government debt. In this case, ‘servicing the debt’ means paying interest on it forever, and ever, and ever, with no pay down of the principal.

Let’s get rid of Canada’s debt

We do that by passing a law to make it illegal for the federal government to run deficits. And we create another law that requires a 5% reduction in Canada’s public debt every year. Ergo, we have no debt in 20 years. And no deficits all the way.

When billions of Canadian dollars per month are no longer leaving the country it becomes exponentially easier to eliminate deficits, pay down the debt, and reduce inequality between citizens.

High government debt unbalanced the economy — which led to the creation of the 1% and inequality — and ‘money velocity’ (the real economic driver) is on life-support

Heavily taxing those individuals that sit on billions of dollars of unproductive money — yet giving them a way to pay zero tax on their over $100,000/yr earnings is one solution to an unbalanced economic equation, one that is getting more unbalanced with each passing year.

As for companies taking their profits out of Canada, until now it should’ve been considered unethical corporate behavior (at the very least) when everything they are was created and supported by Canada (sometimes by tax favours or millions in outright corporate welfare) and from the blood, sweat, and tears of workers here.

But, there will always be people willing to take their money out of Canada to invest it overseas. Great! It will cost them. Because every dollar that leaves Canada would be instantly taxed at 25% before it leaves the country. (This wouldn’t apply to normal cross-border shopping activities, or transactions under $10,000)

Companies that want to take money out of our economy to invest it globally, should be welcome to do so. And that 25% tax must be paid before the money can legally leave Canada. The government will love you.

Corporations to pay the same tax rates as citizens

For corporations removing up to $25,000/yr from the Canadian economy, 0.00% tax is payable on it. If they remove between $25,001-$99,999 annually from the Canadian economy, they pay 17% tax on those ‘withdrawals’ from our economy, and if they remove any amount more than $100,000 from the Canadian economy, they must pay 25% tax on it before it is allowed to leave the country.

And if a company removes $200,000 (for example) from the Canadian economy to invest it outside of Canada — they are paying 25% instant tax on that money — unless they want to lower the tax rate it to 0.00% by showing proof they have invested an identical amount (in this case, $200,000) in the same tax year, somewhere within Canada.

This way, both individuals and companies would play by similar tax rules and have the same tax opportunities.

Over decades of time, such a plan that is based on increasing the money velocity, tax fairness and transparency, and instant taxation on significant amounts of money leaving the country would result in the disappearance of the top economic quintile and the disappearance of the bottom quintile.

A more balanced Canadian economy would result and inequality would be found only in history books.

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