The power of clout...

Wal-Mart recently announced that they have a plan to place pressure on Congress, which if anyone has that kind of clout, it's Wal-Mart, to reform minimum wage (which has remained at $5.15USD for over a decade. Wal-Mart has put forth the argument that the current minimum wage is not helping the working poor and that reform is necessary to up the level across the economy. There are many interesting points to be made about this reform, with a special focus on the difference between appearance and reality.

The first point is, Wal-Mart pays the majority of its Associates that work in retail operations at a rate higher than both Federal and State minmum wage in almost all stores.
To elaborate:
If Wal-Mart were to keep its wages after the reform at an identical level (so long as it's still above the new minmum wage) as before, this move will cost Wal-Mart absolutely nothing. The only effects they would feel would be increased costs of products so long as they are manufactured, or in any way handled, by an American worker making minimum wage. Other than that one possibility, the additional costs added to Wal-Mart's expenses is zero. Following this line of rhetoric, there is an inflation index to which the Federal Reserve sets targets, meaning that the prices (which are arguably sticky in the short run for small firms, but are not so sticky for a corporation the size of Wal-Mart) will rise. But as almost all of Wal-Mart's goods being manufactured outside of the United States accompanied with the inherent strength of the domestic currency, they are in line for supernormal profits made simply with their clout.
If Wal-Mart decides to adjust, on a pro rata basis, their "minimum" wage accordingly with the rise in the new minimum wage, they will most definitely have greater expenses, meaning decreased profits.
I am going to go out on a limb and to say that Wal-Mart, the most successful company in the world, besides Microsoft (which is arguable, as Wal-Mart dominates many former nearly perfectly competitive markets), would ever take an action such as this for a non-profitable reason. Of course, there are many that will not think of such a proposition, or at least will think of it, and not be educated enough to see it. I predict a large portion of the population (particularly the left) will discredit this move as a publicity stunt, which, it is. But it is a lot more than a publicity stunt; it is a publicity stunt with major reprecussions. And still there will be another portion that will welcome this move, and buy the publicity stunt; because it is true that the increase in minimum wage will benefit all those who have minimum wage jobs, except of course those that lose their job because of the higher level of minimum wage.
What Wal-Mart really wants in doing this is to use its unprecedented clout to attempt to push smaller competitors out of the market. First of all, they can absorb the new minimum wage with zero change in costs. Secondly, they are by far the biggest of its industry and would be able to best abosrb the extra costs if their current standard was minimum wage. This move will hurt every single competitor, besides those who pay more tha minimum wage; of course, depending on their choice of action, whether it be leaving the wage unchanged, or adjusting it on a pro-rata basis.

The only thing I can say is that Wal-Mart, as a competitive company, is unprecedented. There is no button Wal-Mart won't push and no edge they will not seek. If Wal-Mart becomes successful in this bid to scale up minimum wage, they will have gained a competitive edge that has a trickle down of reprecussions for competitors as far as the eye can see. I do believe that it will come to a point where there are absolutely no more room for Wal-Marts, the question I pose is what will they do next?


Fatalism for Change

I recently attended a lecture at my school that was entitled, Peak Oil: The Crisis of Capitalism. It was interesting in the sense that it was really nice to see that people actually participated in these free lectures for the sake of extra-curricular education. But the point being made, was more or less absolutely fatalist nonesense. To me, it was a completely unedcated understanind of capitalism and its nature, as well as, how, once it is in place, it maneouvres. Peak oil is the point at which exploration approaches zero, and consmption tends to infinity. It is basically an effect in which the oil base has become fixed momentarily, and is now being diminished on a daily basis. There was once a point where the consumption of oil barely made a dent in the amount that was being found and being prepared to be tapped (basically, buying the property and the rights). The speaker was correct in pointing out this instance though, there is potentially oil crisis after oil crisis in store for the economy, and humans; and with this I do not disagree; but where I do disagree with him is in his notion that capitalism will fall as a result. He sees the capitalist "ideology", as he likes to call it, as being founded on oil and that it would cease to exist without it. I propose to the speaker that he is, well, and idiot.
Capitalism in no way is founded on the oil base, it is based on the demand of society and those who provide what people want/need (supply). When, not if, it comes to a point where the price of oil does reach astronomical levels, there will be an increased demand for affordable energy. It just so happens that "green" energy will become a very valuable investment, as it will be at the bottom of the "S" curve of the life-cycle of a buiness. Meaning, its demand is about to explode and there will be investors jumping all over that insufficient supply. Excess demand is a beautiful thing really, and to cotinue with that idea, there will be an adverse affect on the price of oil as people begin to make the switch to the new, affordable, sustainable, and hopefully portable form of energy. If there is no demand for something, its not worth anything, which means the price of oil will, what?, thats right, drop. I draw attention to the somewhat recently development of hybrid cars, and more importantly, the ongoing struggle to complete a safe hyrdogen-cell powered car. It is impossible not to see that the switch is on, capitalism will evolve. It will still be the large firms on Wall St. and Bay St. deciding where the best investment is, and that will be in new energy.
You always have to think in terms of markets when you think about capitalism. There is this mass amount of capital flowing around throughout the entire worlds economy. People like to make money on their money, becuae they worked hard to get it in the first place. So investors will seek to make the highest possible return on their dollar; capital does not discriminate on the nature of the business, only the return. Although, this is, and its debateable, disgusting in some ways; capitalism does leave room for prefences and externatlities, so it comes down to the morality of the people on that point. But, when it becomes time that there is a significant yield on the investment in renewable energy, the capital of the world will back it. We are so heavily vested in oil right now because it is simply the most efficient form of portable energy we have. I once saw a bit on TLC that was about the Norwegian windmill fields. I believe that each blade of the 3 piece "fan" is 39 metres long. Thats a big fucking windmill and it creates, to the best of my memory, enough energy to meet the needs of approximately 2,000 homes. And, whether or not I believe it or not is irrelevant, the ROI (Return on investment) is supposed to be approximately 6 months. They cost, again, an esimate, $50 million USD to buy. And to be honest, if you think about the size of the capital markets, is pocket change. The Government of Ontario recently put, I think, $4.6 billion into refurbishing a nuclear power plant. So that means, at a 1.2 exchange rate, they could have bought 76 windmills. Well, thats an exaggeration, we'll say with all other associated costs to operate the windmills and convert the energy, maybe 40 windmills, to be conservative; that would provide energy to 80,000 homes. Not bad, although, I do not know exactly how many homes a nuclear power plant can feed; but even if it were more, what is the biproduct of a windmill? Not toxic waste.
The point being, that there are alternatives out there that exist. Wave power, water powered desalination of sea water, wind power, solar energy, biothermal energy, natural gas (I know, its not renewable, but it's there and its portable), and still, billions and billions of barrels of oil. The only thing that I hope for is that renewable energy becomes cheaper than coal before the people start looking for something to switch to because they can't afford oil. That's my only concern.

My advice is to simply wait, and watch how capitalism evolves past this crisis it faces. To say that capitalism would ever cease to exist, would be to say that people will stop being greedy, or stop existing basically. I'm not saying that I like the way it is, but it most definitely is the way it is.

"What you want is what I'm sellin'
Make you think that buyin' is rebellin'.."
If people didn't want, there would be no need to blame anyone for our consumption.


A youthful, ambitious mind...

The title of this particular entry is "A youthful, ambitious mind..." for one reason; and that is that I was 18 when I derived this theory. Although it is completely utopian in every way and is not applicable, as it would defy the laws of rationality and human greed, there are concepts within this that are nothing short of intriguing.
I am sure that there are errors galore in the peace, as I had only just entered my second year of a B.Comm; meaning I had taken only introductory micro and macro economics, nothing more.
The ultimate goal is to pursue this as PhD. thesis; so if you try to steal any of my concepts, you will be fucked when I prove the time this was written.

Enjoy, hopefully...

Original Text written in Microsoft Word:

The Mirror Theory of Wages and Wealth By: Jeremy Boorman

The theory was thought of on September 19, 2003 while thinking in my head. It goes as follows:

When a man and a woman are each in the prime of their earning lives, they are somewhere between the age of 40-55. This is where the joint gross income in the Average (urban) Canadian Family is $100,000 to $300,000. At this rate the university kid/empty nesters are the greatest consumers in the economy. They have a grossly oversized income for the amount of expenses they have. They have paid the mortgage off over 25 years, worked tirelessly to save up for their children’s post-secondary educations, paid all of the car and utitliy payments that they barely paid at time. The bottom line is, the wealth allocation is weak in our economy. It seems all the money is deposited into the bank accounts of those who need it the least.

This original thought is the foundation for the theory, so here it goes…

We must first start by understanding a few simple economic and motivational theories.

One would be the theory to motivation that money is a motivator near the start of your climb up Maslow’s hierarchy of needs, and thus we are motivated by money for a period of time, but after your survival and shelter have bee achieved you start to believe in the idea of self-esteem and achievement. Thus following move towards recognition and self-actualization. It can be illustrated by a pendulum swinging upon and Indifference curve. At the start of your life the pendulum is all the way up on one side, fully satisfied by the fact that money and survival are true motivators. The pendulum swings down the indifference curve maintaining is total satisfaction meter at a maximum. It slowly starts to (perfectly) substitute achievement and self-actualization motivators for money, until he reaches the point where they are fully satisfied by the latter. And remaining 100% satisfied the whole way.

Marginal Diminishing Returns of Labour, Productivity, Revenue, Costs, ETC.

The theory may begin:

We start by putting a centralized economy (command system) economy in the sense that equality and community are the most important needs in society. Meaning that a leftist government must be in a power, one not scared of intervention.

We then proceed with believing that we are all profit maximizers.

The compensation for management and the working class must be inversed and every level will switch with its level the same distance from the bottom as it is from the top. Meaning that the entry-level workers will be receiving the compensation of the C level workers. And Front Line Office Management would trade its marginally different salary with that of the head manager of the working floor. Everyone is more or less than what they would be in a traditional economy.

The rationalization of this switch is justified by many things. For starters, the needs of the people with entry-level jobs far outnumber the needs of the elderly. They need to pay back student loans, pay for their wedding, down payment on a house, monthly mortgage payments, first car, furnish the house, buy second car, first child, diapers, food, education, books, toys, second child, all that stuff again. Day camps, summer camps, homework supplies, high school lunch money, University to put your kids through. Making monthly bills and maintaining your old cars, etc.

All these things hit you when your gross joint annual income is $60,000 and continue up until the time you make $200,000+. But by the time you reach the 200,000, everything has somehow been sorted out and managed, and you have all this extra money to waste on sinful pleasures.

But if you were given a joint annual income of $200,000 when you were in your young 20’s. Your down payment on your house would be as much as you want it to be, you are rich. You can afford a nicer house, adding to the economy in new housing starts, and all inputs will be increased because of the size of the houses being built. You are still making in the high $175,000 range at least when you have your first child and go on your second honey moon nine months before. But you have taken a sizable amount into your mortagage with a last years even bigger income, (and remember, you are paying more principal rather than mostly interest as in our economy by paying large amounts early in your life and small amounts (when most interest has been paid and you are paying off principal (which is used to calclulate interest), leaving you with a much shorter term for your mortgage, and less total interest paid. Smaller the principal, less the interest.

You have saved up a fair chunk into your RESP for your kids educations.

You have money in a GIC making 10% per year (high interest rates because there is less total interest being earning, banks need an income, high interest rate, (real, not inflation).

****so important, compound interest on large principal at 10%****

**** Net interest earned skyrockets, more savings******

You have the big SUVs and luxury cars when your kids are young and want to adventure

Your house has a pool, you’re rich

You never worry about putting food on the table

You are happy at the office because you are young, and money motivates you, the pendulum!!!

(you create an all around happier work force with the pendulum theory)

You can go on long vacations because you have the great benefits of a 5 week vacations

You have access to company sports events and entertainment facilities

Everything you want, you name it, you have it when you are young, in love, have great little kids, its all right there for you.

As you grow older and your kids have part time jobs, the mortgage was paid years ago, all your cars last for years because you bought the nice car when you were 25 as opposed to the shitbox you would have bought otherwise, you have a home you love because you built it custom with all that money. You have no monetary obligations but to just live out your life in peace and marriage. And you are making a measly $60,000 gross joint annual income. But that is plenty to live on with no obligations. It goes a lot farther than when you have 2 kids, work 10 hours, have payments to make, and all that garbage. People may say that older people would not work for such a small amount, but we forget that the pendulum has moved and the worker is more satisfied by achievement. And he’s in top management by now, what more achievement does he want. 20 years at the same company, he is respected by all, made famous moves early in his career. Its all there for him, and he has enough money to cover what he needs, just as the younger worker now as enough to cover all his needs. The socialism is very evident.

As well, its not like 60,000 is all you have, if you saved a measly 10,000 out of your first year of living the life, somehow and put it in the bank for 25 years at a modest 8% it would be worth 10,000 ( 1.08)^25 = $68,484.75 when you retire. An perpetuity of $10,000 for 25 years would be approximately $125,000

a lot of money, and then if you just saved a bit less and less everyyear and invested it, for a shorter amount of time obviously, all the come out when you are 50. you would be so rich it would be amazing. You could use that money to live comfortably for another 25 years, even longer.

Now your high principal investments are early in your life, meaning they compound over more yeas, and your small investments come later, and they are the ones only compounding a short time. But remember, more principal, more intrest

You are filthy rich

The people that are now 25 are filthy rich, and everyone is equally rich all throughout the system because of the idea that everybody’s Value = Annual Income + Accumlulated Wealth (interest) would be equal because it’s a beautiful curve on indifference.

All as rich as each other, not all as poor as each other as in Russian or China.

The business will be started by the first generation of older (more experience) people that have accumulated far more wealth that ever before in history. The world will be run by super capitalist industries that follow a socialist humaine system. Large companies will ensure that the large salaries can be covered and more management positions in a large company than many little ones. Keeping in mind that management will become top heavy, but it will be fine because of the fact that large economies of scale will be created, meaning lower costs more money to go out. As well, the fact that different people fall out of Maslow’s hierarchy of needs earlier than others because of the amount of achievement needed to create self-actualization. Making up for the idea that there would be way too many people in the system.

The economy could also run with the discriminating idea that people with less education should make more money. Meaning that there can be levels at which you can receive a certain compensation based on your line in the company. Obviously a health company would be at a higher earning level than a mechanics shop. Cause lets face it, there are people tat don tlike education very much, and they will always be lower earnings. They will some day earn a high amount, but not any more, its there now.

Everyone earns their maximum when the expenses are a maximum, insteat of vice versa.

With a big encouragement on education and more public services due to increased money in the system, the world would be a more intelligent and advanced place

People would hopefully want to stay in school, which would just improve our LRAS curve to a greater amount, meaning that our economy is growing the long run. Educating your nation is key to increasing LRAS, as well as technology which is a byproduct of education. Technology helps to increase your capital stock and increase capital per efficiency worker. And adds to the efficient workers in the economy.

The Economy is going great, interest rates are at optimal level*

*meaning that it would operate as a price taking profit maximer that would “set” its price at the level where the amount of loans give out equaled the amount of interest being earned on those loans and money invested into the banks savings accounts (10%). Economic profits would be set to zero, its in perfect equilibrium, and banks still show an accounting profit.

It fits perfectly into the theory of perfect competition (many banks, optimizing profits, no central bank needed), but it would work none the same. Just encouraging entrepreneurship.

You spend your whole life in richness. You grow up with rich young parents, you become rich as a young person, and then you bask in your wealth when you are older

Savings is up so Investment is UP, GDP up

Salary would be the same so Tax Revenue would not go up so much

Private sector would be enormous; all types of government service could be provided at a lower Perfect Competition price because there is so much wealth out there to make entrepreneurship more prosperous.

To implement the plan would take large government centralization and command system activity, but over time, the laws of economics would make changes to the economy and move it towards the direction of perfect competition, being on our Production Possibilities curve, lowering inflation, profit maximization, cost minimalizing (good for the environment). And we would become the perfect Theoretical example of all the goods in economics working together in unison, and creating pure Capitalism.

I believe the theory can go full circle even more, I am tired and need to sleep but I Think that I have stumbled upon a miracle

If have not only created a socially responsible and helpful (safety net) community

But I have created perfect capitalism and perfect competition.

Free Trade would only increase the PPC even more

“Happiness” the immesasurable variable” will be maximized, so however you want to measure it, it goes up

Everything good goes up, everything bad either stays the same or goes down a lot

Socialism and Pure Capitalism are but the same idea…

Pareto efficiency says that we keep moving in an economy where we cannot make one person without making another person unhappy

Meaning that we fix wages based on some sort of discrimation, in this case age and thus we will settle to equilibrium, where the Values (Wealth + Annual Income) of each person is maximized.


A Model Micro Economy

The premise of this argument is to show that not only do competitive markets create the lowest possible price at the highest possible output, but that it creates a better distribution of income and less disparity. An example of this,

There Chinese-Canadian population that has strong numbers, 409,530, in Toronto. I believe this population, for the most part, to be a model population in terms of increasing the overall and average standard of living through a great number of small proprietors. Sole proprietors are the best living example we have in our modern economy of perfect competition. Although I have not done any empirical evidence, which is a VERY important point to make before hand, I believe the percentage of sole proprietors per total population to be the highest amongst visible minorities, possibly even non-visible minorities. Although I cannot speak for an entire race of people, I believe the chinese to be conservative in nature (not Conservative necessarily), but at the same time have an aggressive and ambitious personality to own, operate, and make profitable, a small-medium business. There are of course deviations from this generality; those being that the majority are of the third (and bottom) level of Adam Smith's model, providing wages for labour (like most of us), and the second being those who are heads of large organisations that they built from the bottom - up.
There is less disparity amongst the Chinese, in my opinion, due to their high participation in reasonably profitable operations. It is rare to find a Chinese-Canadian two-income family that is making $1,000,00+ a year in gross/net (if your lucky) income. Accompanying this is the rarity in finding a Chinese-Canadian two-income family that falls at worst, below the poverty line, or at best in the bottom 25% (pure educated guess) of the income distribution. This implies that they have will, arguably, have a higher mean (marginally) income but most definitely have a smaller variance of income. I would demonstrate through the normal distribution graph (use your imagination) by saying that the a greater majority of the Chinese-Candains would fall with in 1 standard deviation of mean (population) than of most other ethnic backgrounds.
Accompanying this is the idea of velocity and ownership of money. I believe the Chinese-Canadian community to be very close-knit in terms of their circulation of money. I guess to say that there is a high propensity that once money gets into the hands of a Chinese-Canadian, it will stay in the hands of a Chinese-Canadian, just not necessarily the same person. This is most likely, as all close communities are, brought about by the matrix-like language barrier that exists in the great ethnically diversified city of Toronto. Which, in my opinion, is perfectly okay; both the diversity and the fact that people stick to those of their own language in business and in life.
Back to the point...
The Chinese-Canadian community is a model in terms of spreading the income evenly, but through markets and exchange, throughout the community by way of limiting their greed but never ceasing to be ambitious. Although there is still a disparity (due to chosen level of participation) in the income of the individuals, they, obliviously, have developed and inherent aspect of "leave no one behind". Take that left-wing.

To be continued...

Xenophon and the Silver Mines

For those who don't know, Xenophon was the first Philosopher that could be considered the first free-trade economist; as well as the first with an understanding of returns to scale and optimising the use of capital.
His proposition for the nation of Ancient Greece was as follows:

Ancient Greece was primarly an agrarian society in the times of the writings of Xenophon, which is the basis for his entire argument. In an agrarian society, there are constant, and sometimes decreasing returns to scale of capital and labour, which Xenophon saw to be an inefficient allocation. There are great risks associated with agrarian production, mostly yield risk and price risk. He also saw that there was fixed amount of land (limited supply) that could be used for agrarian production, and and even more limited amount of land that would yield enough of a harvest to be considered an efficient investment. He saw that maximising the amount of capital and labour invested into the silver mines would create at least constant, if not increasing returns to scale, guaranteed.
These are the details he outlined:
The first step that needed to be taken was that the nation needed to go out and accumulate 10,000 foreign slaves that were to be branded as state property. In ancient Greece, it was almost against the law for a native to lift a finger in any way, and thus slaves were an extremely popular way of acquiring a labour force. These slaves would be, as I mentioned before, branded as state property with the sole purpose of being rented out to any capitalist willing to invest in silver mine extraction (production). Xenophon saw this as a primary need as if you asked any silver mine capitalist, he was always short of labour to meet his desired level of production, which was infinite. The secondary argument for the use of state-branded slaves was that it would be a form of constant and steady revenue for the state, as the slaves were rented out on contract for a "market price". He saw that regulating the supply of labour in the sense of making the supply more than sufficient to meet demand would create an incentive for all capitalists to venture into the idea of producing silver. Xenophon also proposed having a few (or numerous, depending on the need) government owned and operated firms to decrease the possible fluctuations in production, thus decreasing the fluctuations in the price of silver; as a fluctuation in the price of silver would drive capitalists in and out of the market, making it unstable and inefficient, in the eyes of Xenophon. He knew that there needed to be a steady expectation as to the amount of silver that would be produced in a given period to create a stability in the market place, or an added incentive for even more capitalists to "make the switch".
Xenophons argument for this re-allocation of the nations public and private resources to the production of silver was both a supply-side and demand-side argument. The above was the meat of the supply side, and the demand side of the argument was quite simple; it's infinite. He saw the demand for silver to be so great that its price would never fall to a level in which the cost of producing a given amount of silver would ever rise above the market price of that same given amount. In his argument, he went so far as to say that the demand for silver is so high due to the fact that most are happy burying their silver as if they had spent it. In other words, man's greed has no bounds.

The implications of his propostion are quite interesting. He saw that allocating the resoucres of Greece towards the production of silver would increase the nations wealth, both internally and externally. They would, as a result, become the worlds "leader" in terms of silver reserves and yearly silver production. It would be unecessary for Greece to farm and create the subsitence for its people, as all it needed to do was produce silver and buy subsistence from the market of international trade. Now, I doubt that he was proposing a 100% switch from agrarian to silver, but sufficient enough of a switch to create a negative balance of trade in terms of finished goods. For this reason, Xenophon is considered to be one of the first proponents for international free trade, as well as the first with a recognition of the notion of competitive advantage and the mutual gains from trade. He saw that there was a certain level of learning by doing, or possibly original endowment, that created a bias towards a particular type of production. And that optimising your capital involved finding projects which yielded the highest returns of capital and labour. So long as silver yielded the highest return, all of the people in the nation would necesarily be better off, as their individual marginal products of labour will increase, thus creating a higher standard of living and allowing each individual to consume more of any goods they did desire by way of purchasing it with their silver. All the while, the nation itself (the public purse) will grow as it is receiving cash flows from the renting out of slaves. For anyone who is thinking that Xenophons vision was short-sighted, it was, but another point for how thorough his thought process was, is that he saw the possible costs of exploration. He did accept that the market price of silver would have to cover both the costs of production, as well as all the costs of exploration as well. In other words, he did have an understanding of the risks associated with entering the silver production market and that there is a need for exploration, which can be costly.

More on Xenophon to come as I read more....

A tad on Communism

Karl Marx wrote 1984 before Orwell, but as a non-fication, and some people actually believed him. Marx is a utopian author that had dreams of an idealistic and altruistic population of individuals all working for the mutual benefit of eachother. Unfortunately, this is high impractical.
There is an inherent flaw built into the communist system, and it is simple. If one man cheats, the systems will tend to fall apart. An explanation maybe? Sure.
To begin, there is an assumption within a Communist system that all individuals will work, in any different specialisation they either desire to (if unskilled) or are qualified for (if skilled). There is a standard of education that is expected, or at least was touted, to be above that of the education of a Capitalist society (economy). Although this can be argued for days, I would agree that the distribution of education level would be tighter, thus creating less disparity, but would also argue that the mean education level in a Capitalist society to be greater than that of a Communist society (through the magic of economic incentives). This pattern will follow through for almost all industries and centralised activities; that being that there will be less disparity in output, but less output overall. If one is content in complacency, it sounds like heaven. But there are a flaws in this sytem that we must expose; the first being the problem of a zero-incentive economy. A Communist economy does not reward contribution over and above that of the average unit of labour; in other words, there is zero incentive for a worker to become more productive, even if it be simply by way of learning by doing. Although, if every member of the society were to strive to increase their personal productivity, the incentive would exist conditional to the fact that every individual within the economy becomes at least marginally more productive, leading each member to subsequently attain a higher general standard of living. The problem is, this is a very big condition for which to go out on a limb and attain a higher level of productivity; especially as the reward for the increae in productivity will come with great delay and most likely inefficiency loss, leaving you with your original share, plus the increase in average marginal product, minus the costs of distributing this average marginal product. I, unfortantely, believe the average human to be of a more selifsh and time-sensitive nature, meaning that they will react much more responsively to a near-instant incentive rather than an incentive which requires benefit sharing.
The second inefficiency is an extension of the first, but with a greater regard for the notion of the condition of increased productivity; that being that everyone must become more productive. Why? Or each individual that becomes more productive will not receive their "fair" share from becoming more productive. If a farmer becomes more productive and produces a higher yield, in the Communist society, he would receive much less more of his yield than what he actually creates, as it is shared amongst the population. Should he have a demand for something made by the blacksmith, yet the blacksmith remains at a more stagnant level of productivity, there will not be enough produced to fairly compensate the farmer (with another good he demands) for his increased productivity within his specialty. This implies that there is a free-rider problem inherently placed within socialism. There is a great interdependency amongst all the members of the community. Should any one member of the society choose not to participate in the improving of the standard of living, yet they cannot be denied their basic necessities provided by the rest of the community, you have a net-taker from society. In terms of Game Theory, there is an unbelievably large incentive to cheat. A single member of society can produce nothing in a given year, yet receive the exact same amount as he received last year by way of government transfers (whether in-kind, or in-cash). Unless there is a system of checks and balances in which each member of the community polices eachother in terms of ensuring individual productvity is at least remaining constant, if not improving, the resulting situation will be one of some individuals becoming better off (in terms of the ratio of effort put in over compensation received) and other individuals becoming worse off.
Y = GDP of period 0
L = Working Population
Y/L = Marginal Product per working citizen (average)
y = increase (decrease) in total output in period 1
l = increase (decrease) working population in period 1
N = Non-working Population
P = L + N (Total Population)
Y/P = Rightful share of total product

Therefore, if there is one member of society that decides to exit the population L and become a member of the population N:
Y decreases by y = (Y - Y/L)
L decreases by 1, therfore L. = L-1
Y/L. = (Y - y) / L-1
Y/P* = (Y - y) / (P + n)
where (Y/P)* is the rightful share of total product in the next period

Y/P* < Y/P by two factors, y and n Output has shrunk in total, and each individuals piece of the pie has also decreased. This is an obvious trade-off decision for the individual, has he will be determining his utility between putting in some sufficiently high level of effort to attain Y/N in comparison to putting in zero effort and receiving a slightly less in total, yet relatively cheaper, amount of (Y/P)*. So long as the effort required to attain Y/N is high enough, the incentive condition to exit the producing side of society will remain as:
E u[(Y/P)*] >= E u[Y/P] + E u[Work Effort]
where E u[] is the expected utility, which varies based on personal preferences, as well as a certain level of risk that revolves around the chance of an overall increase in the economy's productivity as opposed to a decrease. Meaning that there is even a chance that one could participate in the labour force, become more productive, but be subject to a decrease in their piece of the pie due to the lack of increased productivity in the aggregate. Although, I will acknowledge that this risk is spread across both sides of the inequality, as Y in the next period in the case of not participating in the market is also subject to the aggregate productivity of the economy. But it is certain that Y in the next period will be definitely lower if that one individual decides to exit the labour force than if he does not.
To estimate the effort function is quite difficult, but it can only be explained on an intuitive level. There will be some function that will show a scale of prefences subject to the individual deisres and characteristics of any particular member of society. There will be some negative coefficient multiplied by labour hours work (not simply a number, but a function of labour hours as well as any excess skill or effort required) that will have an adverse affect on the utility attained by the individual. This implies that the second term on the right side of the inequality, E u[Work Effort] will be negative so long as there is an assumption of negative utility received from effort.
The incentive to cheat is quite evident, both mathematically and intuitively (although, I will admit that the math is amateur at best, but still helps derive the point). And there is an underlying implication that once one member of society realizes this incentive to cheat, that the propsensity of individuals treating will only increase; as no person likes knowing that they are giving more than they are receiving. There is diminishining marginal utility of cheating, meaning that the first individual to cheat will face the greatest gain in the short-run; but as individuals exit the labour force one by one until such time as the incentive condition is no longer in the individual's favour, the incentive to cheat becomes marginally less each time. The final person to exit the labour force will be indifferent to the two possible pay offs.

The third inefficiency requires an assumption to be made that there is a fully established, functional and operatioanl Communist economy. Ha
After logic has been denied and the assumption has been achieved, the efficieny is as follows: There is an enormous incentive for black market activity in a socialist economy; even more than that of a Capitalist society (think taxation and regulation).
We assume that there is a regulated quota, price and distribution of widgets. Now suppose there is an individual widget manufacturer who has received his quota from the centralised government. He will proceed to acquire the necessary input materials to produce his quota; assuming that the supplier is also on a quota system (but wit more leaway due to possible inefficient use of materials, say a 10% lost materials rate), there will be a possible excess of materials remaining after quota is met. The widgets will be distributed to retailers at a fixed and regulated price in fixed and regulated quantities. Now, the widge manufacturer has leftover materials after meeting quota due to his allowement of a bad materials overage. There is an incentive for this manufacture to produce beyond quota and sell off the excess for a discounted price; as the cost of both the materials and the necessary capital is sunk. So long as the discounted price is suffice to cover the variable costs of production, it is efficient to proceed with production; so long as there is a retailer to be found. I find it hard to believe that there would not be at least one retailer in the industry that doesn't face a situation of excess demand and would not be seeking to acquire an amount of widgets in excess of his quota; especially at a discounted price. All of this, of course, but be done in complete secrecy without there being any knowledge from the centralized governemnt, as I'm sure they understand the consequences. If the retailer has aquired excess inventory at a discounted price, it is in his best interest to price discriminate and attempt to sell the excess at either a premium (should demand allow for it), at par, or at a discount to ensure minimal amount of possession time of the black market widget. Assume that there is a large volume of excess created by a particular manufacturer as he is able to vertically integrate his black market activity and find a supplier of materials willing to supply more materials at a discounted price (as it will increase his overall profitablity and wealth in the given period). When the materials are finished and are being distributed, by way of the black market, to the retailers at a discounted price; and once again, turned over to the general public at a discounted price; the black market goods have replaced the regulated market goods. There is an incentive down the entire supply chain for black market activity, and once black market activity becomes on a large enough scale to undercut the regulated price (a perfect example of the beauty of capitalism), the regulated industry has been proven to be inefficient.
Taking a step back, we must analyze this chain of events through the measure of pareto efficiency.
The input materials producer is better off due to increased profits from excess sales.
The widget manufacturer is better off due to the increased profits from excess sales.
The widget retailer is better off due to the increased profits from excess sales.
The consumer is better off due to discounted price as a result to a combination of increased supply and discounting due to black market risk of possession.

The law of supply and demand will determine the success of any particular black market, but the principle remains. There is always an incentive to break quota and produce more than what you are required. Think about OPEC, the words oil cartel, there is an incentive for every member of the cartel and any point to break quota and produce excess supply. There will be supernormal profits to be made by breaking quota and maxxing out capacity, but markets will see a decrease in price. Although oligopoly profits are always superior to that of the profits receieved in a competitive market, there are even greater profits to be made by cheating in an oligopoly.
Think of Communism as a massive oligopoly littered with quotas and regulated prices. The same argument applies to the production-consumption side of the economy as it does to the employer-employee side. Any labourer seeking to improve his individual position within the economy will be willing to work at a lower rate than that which is regulated from the government. So long as there are a sufficient number of labourers willing to work for less than the regulated wage to create a net increase in income, the regulated price will fail to remain efficient, nor recognized.

This has been a small part of my entire attack on communism and its inherent flaws.
Capitalism has its way of always emerging out of every type of economy that has ever been attmped; and that is because, in my opinion, Capitalism is not an ideology, but moreso a commentary on human nature and their responsiveness to incentives, as well as their constant desire to improve both their absolute, and sadly enough, relative positions in society.

The Premise

Welcome everyone to the blog. The purpose of this blog is for those who find themselves to be just as I, just left of right. In other words, you believe that fiscal and monetary policy should be developed by elected representative, but that pressing social issues should be determined by way of referendum.
This blog is specifically for Canadians, and much of the content will be relevant to the Canadian economic and political systems; although there will be extensions into American policy (privatization, for example).

The political that I propose is simple:
It will follow a very similar structure as it does now; where there are elected representatives for geographic- and populatoin- determined constituencies. These representatives will be MPs that will debate on a daily basis the issues that are facing the nation; whether they be administrative, legislative, executive, or economic, they shall be determined by a representative system. Further within the proposition is that politicians should be Economists, as oppose to lawyers, as the economic decisions a country faces will seal the fate of the progression of the society for years to come. But this is not imperative and will thus be discussed in greater detail at a later point in time.
The issues that will not be debated, nor determined, by the elected officals will be those that pertain to a social right or policy. For example, the abortion law would be a matter which would be dealt with by way of referendum. This is the only way to ensure a true majority decision of the people (democracy) with no influence whatsoever from partisan politics. There are myriad issues which will fall under this category, some more being: homosexual marriage, entering war, adoption policies, etc.
There are many ways in which this process can be implemented and executed; the most feasible being a website (assuming that all people within the society have access, or access can be granted, to the Internet) in which a citizen will log in with their Social Insursance Number, Drivers Licence Number, or Health Card Number and a predetermined password (last name possibly) to participate in the issues.
The more issues that become influenced by partisan politics, the more the distribution of method of determination will lean in favour of the referenda. There would be a suggested time period of once a month; meaning there would be 12 days a year in which the citizens of the country would particpate in a complete concensus pole to determine the fate of pressing social issues.
I believe this system to show an enormous amount of promise.
I believe that a system like this will create a more active passion for the legislative, and even economic, decisions that are made within parliament on a daily basis. If the people no longer feel alienated, they will be more willing to compromise and agree; as they see more value in their single vote. There will be greater government responsibility, as there can also be non-offical polls that can be used a system of checks and balances; where, if the majority partisan party is using its influence and deviates from the results of public opinion, there is a sign of non-confidence. The more complicated, and much more pertinent, decisions that must be made on a daily basis, mostly referring to those of economic policy, will still be made within Parliament. To think that the average citizen is truly capable of seeing the entire trickle-down effect of an economic decision is insulting to a PhD. in Economics or Finance. There is a need for true policy experts to be more prominent in the Canadian political forum, and thus this is a call for economists to pursue their interests in a position of greater public interest.

If you, in any way, find this propostion to be intriguing please leave comments, suggestions, criticisms, hate mail; whatever you'd like. Although, there is a preference for those with an interest in further pursuing such a prosition in the hope of implementing a true democracy; somewhere between the ideals of Ancient Greece and current manipulate Ameritocracy.