Is our wealth distribution system really broken?

pot_goldA first reaction could be: “ok, the people who voted for Donald Trump clearly feel it is broken, but I am not sure they are that smart”, or “I am doing ok, and I think the system is fair. Yes people like that Elon Musk character have ‘X’ times more than me but he is also ‘X’ times more clever than me so he deserves it!”.

But the system feels sufficiently broken to those who voted for Trump, that they were desperate enough to vote for him, and there appears to be some similarity with the ‘Brexit’ vote in the UK.  Something has to change, even if it is just perception or we are going to keep having to live with these kinds of election results.

Also, either Elon Musk is really clever, in which case we should listen when he is proposing that we need to make changes to wealth distribution (soon, if not now),  or, he is not clever, in which case he does not deserve his wealth.  Either way, we need to consider changes.  Continue reading

Australian Record Trade Surplus: good news, or a warning on automation?

skitched20truckAs explained by ‘Alan Kohler’ of the ABC, the record trade surplus is largely due to “A huge rebound in iron ore, coal and gold exports delivers a record trade surplus of $3.5 billion in December, providing a big boost to national income.”, with no proportional increase in imports.

I suggest an analysis of the impact on the Australian economy is reason for people around the world to consider the impact of automation.

Continue reading

Convenience Arguments: The dangers of quick adoption

search1How do you sway others to support your heartfelt convictions, beliefs and causes when they don’t feel the same way?  One tactic is the ‘convenience argument’.  An ‘Convenience Argument’ provides a logical, and usually economically rational, reason for supporting actions a person already wants for an entirely separate heartfelt believe.

Convenience Argument: (definition).  An argument we champion because it supports a conclusion or belief we for reasons separate to the logic of the ‘convenience argument’.  A new, and accessory, reason to convince others to embrace or support our beliefs.

Refugee example: A classic example is people who feel compassion for refugees, trying to convince others to help refugees because there are economic benefits, even though the person presenting the argument is motivated by compassion, not economics.

We sometimes rapidly search for these ‘convenience arguments’ and then champion them, because we believe it will encourage the outcome we seek, even if not for the motive we embrace.   The danger is that we search for these convenience arguments to justify beliefs, the same way we search for something like car keys.  We stop searching immediately we find something and can easily pick up and do not care very much about what we find, as long as it seem to fill our need. There is an old joke that goes like this:

Why is it that when I have lost something, I only ever find it in the last place I look?  Answer: Is it because once you find what you are after, you stop looking?

But stopping the search as soon as we find an ‘convenience argument’ that justifies the actions we want for our own reasons ,is fraught with danger. Continue reading

Highlander Economics: Does it end with only one?

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from IMDB

Back in 1986, the movie Highlander was released. It was actually sufficiently successful to inspire four sequels, plus spin offs and even a reboot. Something in the original clearly stuck a chord, and the tagline and concept ‘in the end there can only be one’  could be part of this.  The plot centres around a small group of individuals, immortals, who become ever stronger by defeating ‘competitor’ immortals in mortal combat.  The immortals all seem have a share of power. Defeat another immortal and grow stronger as the victors gain the power of the vanquished, until only one immortal remains, and the one remaining will hold all the power.  So how closely does the ‘rules’ of the highlander actually match the ‘rules’ for competitor companies?

How accurate is the analogy? Continue reading

How the wealthy become wealthy.

pot_goldIt was a reference to ‘trickle down economics’ that started me on this thought path.  The proposal that simply allowing the wealthy to become even wealthier could generate additional wealth that in a flow on process will trickle throughout the economy and result in everyone being wealthier.  Yes, even Wikipedia seems to largely discredit the idea, but it is still pushed by various politicians.  Cynics may point out those same politicians need to keep their wealthy backers happy in order to fund their re-election, but surely their must be some truth to the idea or we would not vote for them anyway?

Ok, here is my conclusion: the wealthy get wealthy by gaining a small share of wealth from each member of a large population.  To get wealthier, they require either a larger share from each individual, or a larger population. Continue reading

Addressing the ‘ageing population’ problem?

Have you heard of the ‘ageing population problem’? The ‘aging population’ is often presented as a key pillar to support arguments that a nation must keep increasing the national population, or to support . “We need to keep growing our population to minimise the ageing population!”. But does continually increasing the population actually address any proposed resulting from an ‘ageing population’, and is there a real problem to be solved anyway?  The reality is that the ‘ageing population’ is one of ultimate ‘opportune arguments’ that sounds convincing until further inspection, and is raised to support an alternate agenda.  I mean, ageing sounds like a negative already correct? It just must be better if the population was getting younger, surely.

Why do we have an ‘aging population’?

There are two reasons most countries are having an ageing population.  Population growth is slowing due to smaller families, as widely discussed elsewhere on this blog. In a rapidly increasing population, each new generation has a greater population than the previous generation.  In this expanding population, the older generation is much smaller than the younger, and with a small number of the older generation, the average age of the entire population is much lower. Contrast this todays’  relatively stable population, and the generations are of a similar size, so without the ever increasing numbers of younger people, the average age is older.

The second factor generating this ‘on average older’ population is that people are also living longer.   Generally, those considering the ‘aging population’ a problem are not suggesting to stop people living longer,  but rather the argument is that to increase immigration, or move back to having more children and return to a rapidly expanding global population.

What is the resulting  ‘problem’?

The theory is that people reach an age where they can no longer work, and therefore can no longer contribute towards the production of the wealth of the society. The wealth produced by ‘productive’ people, ‘breadwinners’, must be shared by all: wealth producers (breadwinners) and those who can no longer produce wealth(dependants) alike. In economic terminology,  the “Gross Domestic Product” or economy is produced only by those “breadwinners” in the workforce.  GDP per capita, one measure of the wealth of society, is determined by dividing the  “Gross Domesitc Product” by the number of people in the population.  Therefore greater ratio of people who do not produce wealth, the greater the burden on those producing the wealth to produce a high level for the entire population.

This is of course all based on the assumption that the elderly have a much greater ratio of “dependants” than the rest of society.

Immigration is at best a questionable solution.

Every country benefits from the highest possible GDP per capita, and suffers hardship when GPD per capita falls, not just countries seeking to address this ‘aging population problem’.   To increase the ratio of  ‘working population’ through immigration, a country must have an immigrant intake with selected to maximise the ratio ‘of working age’ among immigrants.  The effect of such a policy is to selectively extract ‘breadwinners’ these people from other countries.  Immigration does not change the global ration of old to young, or the global ratio of “breadwinners” to dependants, immigration only changes who lives where.   One countries gain in this equation is another countries loss.

Since it is the richer countries who are in the best position to attract immigrants,  this solution is generally about the richer countries trying to improve their ratio of “breadwinners” by luring these breadwinners from poorer countries.  While these immigrant “breadwinners” may send part of their income back home to support dependants back home, all their income still counts as GDP for their new country and they boost taxation revenue of the new country.  From a government point of view, such a strategy helps rich countries and is a problem for poorer countries.

Returning to “growth age” birth rates as a solution?

The growth age featured larger families, with a far greater ratio of younger people. Whereas the trend of todays more stable population yields a similar number of people in each age group, the peak growth age had far more children and far fewer elderly. ‘Aging population’ solved?  Except that the proposed problem, less dependants, is not solved at all.  It turns out that children are also dependants!  And high birth rates mean far more of them.  In fact, with children now spending longer in education, and then the higher rates of unemployment among young people, the reality is higher birth rates does not reduce dependants, or the cost of dependants, nor increase the ratio of breadwinners at all.  Reality is there are far more ‘self funding retirees’ than self funded children.  The only impact is that the dependants are younger, and perhaps we feel happier about young people being a cost to society?

Conclusion.

There entire ‘ageing population’ problem, is a great argument to justify plans and actions by government where the real motivations are less attractive to promote.  I will follow with more posts on these real motivations.

Inferno: How could we limit the population?

dantes_infernoThere is an argument that we currently have more people on Earth than ideal, but even if you accept that we have an overpopulation problem, the idea that a sudden reduction in the population would solve the problem is both absurd, dangerous and damaging.

The premise of the movie ‘Inferno’ is that a virus could randomly target and render infertile one in three humans as a means of population reduction. Inferno is a movie, and a suspense drama, not an actual plan.  But if you do accept that the earth is overpopulated, what would be a real appropriate response, and why are ideas, such that containing in the movie, so damaging? Continue reading