11.11.2005

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.

3 Comments:

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