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Modern Economic Paradoxes

"Why is Philippine labour cheaper than Australian labour, when supposedly they are of equal value? If there is no fundamental reason for the disparity, why does it persist? If the lower price represents an increased economic efficiency, then one would expect that the nations that jobs are off-shored to would be able to produce desired outputs at a greater rate and efficiency. Yet they are poorer and the people seek to move to countries with less efficient labour rates. Here we have two contradictory market forces. The first, movement of people, suggests that despite the increased cost, first world nations are a more desirable economic proposition. The second, movement of capital and jobs, suggests that the increased cost in the first world nations is not worth it, and third world nations present a more desirable economic proposition. They both can't be right, yet our economic world-view is that both are."

The paradoxes of the modern economy:

1: An economy can be defined as the process by which inputs are turned into desired outputs.

That is, the process by which materials, energy, labour, time and knowledge are converted into desired goods and services.

Economic efficiency is therefore simply maximising the quantity of desired goods and services produced from the
inputs available. The more efficient an economy, the less inputs that are needed to obtain a desired output. A
basic axiom that is understood by all manufacturing sites and put into practise using lean manufacturing techniques,
six sigma and so forth.

The cost involved with the purchase of a good or service on the marketplace is related to the resources involved in
creating or realising it. Greater economic efficiency results in lower prices, as is usually observed when new mass
produced products enter the marketplace.

Yet our economists and politicians often celebrate the opposite by considering, in some cases where beneficial for
those who have a vested interest and a voice, increasing inefficiency as "a good thing". Increasing housing prices,
which results in individuals expending greater resources to achieve the same outcome is lauded as an economic
positive. It may be to those who sell (and supply and demand plays a factor in allowing prices to be driven up, as
does controlling availability of credit through the central banking system), but fundamentally, despite individual
profit, this is an economic inefficiency and individual cases of profit making are used to divert attention away from the larger overall national economic regression.

Asset bubbles and increasing asset prices impede the economy and make it less efficient and ultimately, cost more
than the benefits they supposedly bring. Increasing house prices, for example, tie up capital which could be used
to realise new products or ideas and absorb money that could be used to fuel other economic sectors.

Cartels and oligopolies increase prices through market manipulation and government, media and academic Compliance and promote economic inefficiencies which drag down the national economy for private benefit.

2: Wealth is obtained by creating goods, services or ideas which are of value to society.

A person's individual wealth is commensurate with the wealth they've created which is of value to others. This basic economic principle is the foundation of the success of market economies over other economic systems, where individuals are compelled to be productive and creative to reap the gains of such work. This also goes by the name of the 'profit motive', though modern understanding of human psychology and evolution has produced a model of human behaviour where desire to work and create is more complex than the simple 'profit motive'. People will, for example, work to have children, despite this economically being a loss, or engage in charity work or fight in defence of their nation for the benefit of their own nation.

The success of market economies over centrally planned economies, such as those in Marxist countries is from the
motivation and freedom for people to build their own wealth by creating wealth for others. Though the motivation is
often misunderstood (it isn't always just about getting rich), this is an observable reality.

Yet any time you hear of a "wealth creation" seminar, it is ALWAYS about making money without creating anything of
value to others. "Wealth creator" is often synonymous with being a parasite, and "wealth creation" seminars, or
other books on building wealth simply teach using the system to enable one to be a more efficient parasite.

The paradox here is that market economies are wealthier than non market economies due to people being motivated to produce what people want or need. But if the path to wealth shifts from productive activity to unproductive activity through moral and structural changes in the economic systems, then wealth creation is diminished. The more this happens, the more those who push this talk about "wealth creation" and "job creation".

Those choosing to obtain wealth through gaming the stock market, rent seeking, through capital gains in property
investments through tax concessions and tax payer funded population engineering, are not contributing anything in
return for their profit. Again, this impedes progress by tying up capital in unproductive endeavours and encouraging the growth of economic activity which does nothing, wasting labour, knowledge and time.

As a result, productive output in terms of GDP per capita is diminished and productive output is exchanged for non
productive activity. Standard of living and overall wealth is also diminished, or at the very least, future opportunity is lost.

Our keepers of the economy avoid distinguishing between productive wealth generation and non productive wealth
generation, as our economy is now controlled and run by those who prefer and sell the easier, non productive path.

Wealth is being transferred away from productive people to "wealth creators" and overall, out of these nations and
to those nations who still produce goods.

The term "free market economy" has been corrupted to represent rent seeking, market manipulation by plutocrats and state condoned parasitism. It is promoted by Libertarians and Conservatives who imagine themselves to be capable predators in such a system.

3: Only governments can interfere with free markets.

This is not so much a paradox, as it is a mis-truth. Free Market Libertarians and Conservatives usually point to
government regulation or interference as the source of economic problems (and there is truth to this), but they
overlook other forms of market manipulation and interference which come from other sources.

This comes down to a simplistic notion, possibly derived from anti-Socialist writings written to specifically counter Marxism, that "government" is the sole agent by which people interfere with markets. It is based upon a world-view that markets and government represent some sort of duality, being independent bodies, rather than being two components of a singular national enterprise. Ayn Rand's free market philosophy seems to be little more than an
inversion of Marxism and it also denounces any form of collectivism, both Socialism and Nationalism. In doing so,
the recognition of the encompassing social force which includes both the economy and government is denied.

Therefore the possibility that corporations, big business, media, business lobby groups or wealthy individuals can
also interfere with markets is denied. Any power can manipulate the market, regulate it or otherwise interfere with
its workings, and government is just one of many entities which distort the market. A market cannot be free if it
can be manipulated at will by ANY entity, interest group or institution.

The other paradox, is that if the government is truly democratic, then any market interference or regulation is done
BY the market and therefore not external interference, but part of the market acting on itself. The market is therefore still working according to the wishes of those who comprise it.

Real Estate industry lies, conditioning and information hiding, mainstream media propaganda, "paid for" economists
and think tanks, marketing professionals. These are all entities which interfere with and create opaqueness in markets. They exist to push out the actual views of the market by interfering with democratic processes and
promoting a flawed understanding.

Regulation agreed upon by truly democratic means is therefore required to ensure a functional free market. A
completely free market is a paradox, and regulation is required for free economic activity, in much the same way
that freedom requires laws and force to prevent the exercise of freedom taking away other peoples freedom.

4: Unemployment is a problem.

The idea of work as a virtue goes back to Calvinism and the Protestant work ethic, and prior to that, slavery and
indentured servitude. Our society considers work a virtue and idleness a sin (lifters and leaners), though in the
history of the Western world, there are many philosophers and members of nobility who have expressed the opposite, that it is leisure, not work, that we should value and consider noble.

As a result of this ethic, our economic and social structure is geared upon the expectation that all should work,
whether it is required or not. Politicians are elected upon the promise of making people do something they want to
avoid doing, that is, work. The economy required people to make things which must be sold by pressure, to earn
money to buy things they are pressured to buy.

Paradoxically, as technology has greatly improved our economic efficiency, by greatly reducing costly labour
required as an input to produce a good or service, it has resulted in impoverishment by placing people out of work.

Even more perplexing is the idea that if machines did ALL our work, we would all be impoverished.

Again, like the first paradox, our economic structure, to benefit a few who own the rights to the products of those
machines, requires and promotes economic inefficiency, and all the waste of resources and environmental degradation that results from it.

A progressive economy, capable of dealing with change, which ours currently isn't, would be able to adapt to this and welcome it rather than see it as an issue. The economy needs to transition to allow people to make a living
without necessarily having to input work effort according to current standards or resort to unproductive 'wealth
generation' through speculation.

The incentive for people to engage in speculation and in financialising a post-industrial economy would be great,
thereby increasing the urgency and necessity to dissuade the proliferation of this behaviour.

5: Some desired outputs are 'outside' the economy.

If the economy is the means by which productive activity and resources are used to generate a desired output, then
why are some desired outputs cast out of the economic sphere? These include social cohesion, ample and clean living space, leisure time, natural environment, stability, continuity and individual empowerment.

There are pushed aside as 'externalities' and taken out of the equation. Yet the gap is there, glaring.

For example, a company can more efficiently operate a call centre, or manufacture goods by moving the jobs to a
poorer nation. This results in what appears to be an increased efficiency in producing that service, but in modern
times, the analysis stops there and the equation is viewed in an incomplete state.

Other costs involved, such as the loss of employment in the home nation are not factored, nor is the comparatively
lower value of the standard of living in the poorer nation. Here again, short sighted analysis sees a benefit (greater profits for shareholders), but the greater loss, that is, lower quality of life is disregarded. High standards of living (a desired output) comes at a cost, which is higher prices for labour.

6: Globalism and markets.

Economic theory dictates that market forces will find the right price, yet the doctrine of Globalism is pushed with
the assumption that wages and costs worldwide will equalise. Whether this is believed by them, or a lie pushed to
allow capital to cross borders freely is up for debate.

Many nations maintain a lower standard of living with comparatively lower wages. We are supposed to believe that
the valuation of labour and of the currency is both correct and incorrect, rational and irrational.

It is rational because we are to accept that free market valuation of currencies and labour is reflective of the true value of rational markets. But we must believe that it is irrational, because prices will equalise and there is no fundamental reason for the disparity.

This poses a paradox. Why is, for instance, Philippine labour cheaper than Australian labour, when supposedly they
are of equal value? If there is no fundamental reason for the disparity, why does it persist?

If the lower price represents an increased economic efficiency, then one would expect that the nations that jobs are
off-shored to would be able to produce desired outputs at a greater rate and efficiency. Yet they are poorer and
the people seek to move to countries with less efficient labour rates.

Here we have two contradictory market forces. The first, movement of people, suggests that despite the increased
cost, first world nations are a more desirable economic proposition. The second, movement of capital and jobs,
suggests that the increased cost in the first world nations is not worth it, and third world nations present a more
desirable economic proposition.

They both can't be right, yet our economic world-view is that both are.

It seems that the latter disregards an externality, one that the masses of migrating peoples of the world value. It
is an externality which explains why the global market prices labour differently, and why as first world nations
accept incoming third world workers, the wages drop in the host country, irreversibly. It would seem therefore,
that off-shoring work and globalism is about selling this unstated externality for private profit.

Comments

Great thoughts. Is the fundamental truth here that globalisation is inherently unsustainable? Just like the spreading of seeds and fungi from one ecosystem to another would destroy all ecosystems by creating a mishmash dominated by weeds? Isn't the concept of every person on earth having access to an equal share of global GDP just an economic illusion that delivers nothing to everyone?

The ideal of neoliberalism is to destroy all barriers to markets, and commerce, and privatise resources. It means free markets to extract profits. Its' about predation on third world countries, under the smoke-screen of "helping" them to reduce poverty.

The neoliberal experiment has failed to combat extreme poverty, has exacerbated global inequality, and is hampering international aid and development efforts. These policies discourage government intervention into economic, financial and even social affairs. Thatcher-led governments in Britain brought immense damage to the social and economic fabric of the country to profit her rich backers. For Thatcherites unless someone is incapacitated (for instance, by poor-health, by disability or simply by their age), long-term, structural deprivation can only be the consequence of hindrances to the operation of the market —state-imposed regulation that can and should be swept away.

Unrestrained free markets destroy the middle class, push working people down the economic ladder and concentrate wealth at the top.

In a speech in London in April 2012, Australia’s future treasurer Joe Hockey boldly proclaimed “the end of the age of entitlement”, and foreshadowed some of the tough measures the Coalition has since taken to reduce government spending. If you are poor, you have to “pull yourself up by your bootstraps” and aspire to middle-class consumption. If you cannot muster that, you are lazy, stupid, Godless and generally undeserving.

The irony now is that we poach professionals and the skilled from third world countries, for our "skills shortage" when government are reluctant to spend money on education and universities.

When people talk about "Free Markets", they are talking about a dogma.

They say nothing should impinge upon the markets, not even the market itself!

Consider a democratic society (or any society which has some form of governance for the benefit of the people) which regulates the market to ensure that excesses don't hurt the society. According to the dogmatists, you shouldn't intervene or regulate, at all. Not even if those who comprise the market want to use their systems of government to restrain excess or prevent abuse. But surely, if the people who partake choose particular restrictions (such as trade barriers) for their benefit, that is the market's wishes?

This is where the dogmatism comes in. The dogma says that any intervention is bad, and government intervention is bad, so this is taken as an absolute. As a result, if the people who participate in the economic market want a particular regulation (such as lowering skilled migration), it is, due to their dogma, redefined as not being part of the market at work, and therefore ignored and vilified. As a result, peoples ownership over their own systems is denied.

If the people have no choice as to certain market actions which affect them, how can the market be claimed to be free and representing the aggregate will of the people?

I do believe a market system is the best one (I consider this question settled), though don't assume this means individualism. The "economic unit" may be the family or tribe (ie, communalism and shared property with the tribe, but trade with other tribes).

I'm not sure whether Abbott, Hockey and all the other dregs of humanity which calls itself the Liberal Party operate according to an ideology, or naked self interest for their plutocratic mates. I suspect a bit of both, but probably more the latter. I think what is happening is our standard of living, and social progression is being liquidated on the market for cash for a few to pocket. Hockey's comments about the end of the age of entitlement is just to ensure people accept this, as people don't realise their way of life is being sold, or are too blindsided with they money they've made selling our way of life (through high property prices) to bother weighing things up.