tomusch2001.com

Daily Blog 7

Everyday Living Issues Blog                                    (c) Thomas-Ulrich  2018

                                                                                                     e: tomusch2001@yahoo.com

Good-day

This is the first official day of my blog.

A New World Order Requires Diplomacy

The balance of global power is currently reshaping because countries other than the US are growing in both economic and political influence. In the post-war years America ruled supreme and this superiority lasted until early this century when for the first time foreign enemies were able to invade namely destruction from 9/11 attack.

Now the Chinese and Russians together can challenge the West for at least an equal share of global power. Both are aggressively pursuing territorial expansion China in the South China Sea and Russia taking Crimea. Militarily there is a balance of power now too.

Taking nuclear weapons out of the equation means diplomacy is the key to advancement of mankind in this perhaps final millenium. The alternative is total obliteration of the human race which would be the final result in a nuclear war.

 

All sides need to state their case bargain for their interests give and take and work toward some harmony for a meaningful world order.

Daily Blog 8  Economic Realism

Economics is a way of looking at the choices people make and actions taken to understand what's going on in the world. Economists need to closely investigate how the economy works in all its parts and as a whole. This involves collecting data which may be in monetary terms and analysing it to understand The Big Picture of what is happening in the economy.

Daily Blog 9 Choices, Decisions and Actions

A New Direction for Economics in the 21st Century

This writer proposes a new direction for economic enquiry. Economics has lost its way for almost one hundred years. In the 21st Century realism must replace econometrics or economic modelling using mathematics as focus for economists.

Economics should concern itself with the Big Picture and all the parts of the whole economy and their connections. To do this the discipline rather than being a science per se must collect and analyse all sorts of data in relation to what's happening in the economy. In about the last half century political economists have had a resurgence seeking to identify the influence of government and politics including the role of lobbying as part and parcel of the workings of the economy. Still more recently behavioural economists have revealed what actually underlies decision making which may not be rational. But these approaches to Economics still don't go far enough because they don't deal with what drives economic activity namely the choices, decisions and actions of people whether as individuals, business or government.

The economy represents the sum total of choices made by people and the actions taken. Economics merely is a way of looking at what's going on around us from an economic point of view that is what people choose to do and the consequences of their actions. Economists need to concentrate on decision making and the perceptions held. It is undeniable that people are not always rational. Emotions play a role in the decisions they take. Behavioural economists are trying to uncover how people behave in the economy. This requires not only a scientific approach but also intuition in seeking out the psychological aspects of economic behaviour. This shift in focus on what is behind the choices, decisions and actions of everyone in the economy is critical for Economics to be viable and relevant in the 21st Century.

Individuals, business and government face choices make decisions about courses of action and bear the consequences through their actions. In complete detail this needs to be the substance of the economist's enquiry. Keeping an eye on the Big Picture at all times will ensure adequate attention is given to all parts of the economy and how they are connected. The whole economy is more than the sum of all its parts hence the importance of the connections between the parts. In essence this is an holistic approach to economic enquiry which has been seriously lacking in the past. Additionally through study of what's actually behind the choices, decisions and actions of those in the economy that reality is depicted and analysed for useful purposes.

 

So what are the main areas of Economic Realism? In a nutshell the main areas of study centre on choice, decision making and action together with their consequences. This applies to individuals in their private lives, businesses inside and outside the country and all levels of government that is local, state and federal. Economic Realism has reality as its focus and requires thorough examination of what's going on in the economy. From this standpoint the economist collects relevant data, analyses it and tries to reach an understanding of how all the parts fit to make the whole, namely the Big Picture.

A cursory examination of people's behaviour reveals all manner of reasons for it such as social status, education, fashion, effects of advertising, effects of mass media, wealth, poverty, greed, honesty or lack of, criminal element and so on. This writer coined the saying 'if you can't eat it or wear it you don't need it'. This isn't suggesting we don't need shelter but rather home buyers shouldn't overly burden themselves with debt and possible financial ruin for the sake of home ownership. Consumption behaviour can be explained in simple terms especially with regard to necessities and with great complexity regarding luxuries. Thorstein Veblen coined the phrase conspicuous consumption to refer to purchases which give status and draw attention to oneself. Shelter is a necessity just as food and clothing are. However the homeless don't choose between types of abode rather where to bed down for the night such as in the park or under a bridge. Transport involves a variety of modes all behind which decisions are made which follow from choices available at the time. 

Leisure choices are made depending on whether holidaying or just a night out on the town. Gambling can be addictive for some people and not for others. It is sobering to know in one year Australians lose about ten billion dollars on the pokies. Although only five percent of gamblers have a problem it beggars belief why people are prepared to lose so much money in a leisure activity.

 

Clearly what lies under the economic actions taken by people involves a myriad of options and degrees of complexity of thought. After all a person who goes shopping for shoes will consider the purpose first such a formal affair or a sporting activity, then quality, colour, size and of course price. Online shopping favours purchases from abroad and so exchange rates also come into play.

 

In the past scarcity has been a major concern of the economist. However what of poverty, population explosion, pollution, global warming, crime etc for they seem boundless. Sport as well is flourishing and worldwide competitions in football, golf and tennis to mention a few. Even space travel defies limitation. Technology or the sum total of man's knowledge has a prime role in human activity and it too may be limitless. Especially information technology and the digital age are reshaping everything we do to the point where there are serious concerns about risks from growth in artificial intelligence. Robotics too is infiltrating secondary industry in particular and almost anything can be duplicated by a printer. Man's abiliy to solve problems and innovation cannot be contained.This is the reality of the future which can't be encapsulated by oversimplified assumptions required for modelling producing largely meaningless predictions or ineffective policy solutions.

This is my second book published but first on the internet.

Book Title: Upgraded Economics

Author: Thomas Ulrich Schwab (c)2019

TOMUSCH2001.COM

 

                                                                Preface

 

This book aims to upgrade the way Economics as a field of study is done. Theories 

abound about what purpose Economics serves now and for the rest of the

21st Century and beyond.

 

There is a well bandied joke about economists which goes something like the 

following: ask for an opinion about an economic problem and you'll get plenty of

different responses. Most responses will contradict each other. There is only one 

particular problem but yet according to economists there are a multitude of solutions

with varying degrees of certainty about whether they'll work.

 

Without a doubt in most aspects of our daily lives to some extent there are questions

of an economic nature which need answering. One only has to pick up a daily 

newspaper and on the front page there will be an economic story of sorts. These

stories relate to interest rates or unemployment or boom in real estate or industry 

super versus retail super and so on. Come budget time whether federal or state the

majority of the newspaper will be devoted to it.

The writer argues for an upgrade to Economics as a field of study and for 

the tools of the economist to be fit for purpose. This requires a major shift 

towards taking into account human nature and how we behave in the real 

world. It is proposed that we all face choices (C), make decisions (D) and act

one way or another (A). Our actions determine what happens in the economy

and for this reason the so-named CDA sequence proposed by the writer

represents a fundamental upgrade.

Of course economic matters are only one side of human behaviour. There are 

three other sides to our behaviour ie. political, social and cultural. But central to

this is choice, decision and action of everyone whether on the individual 

household, business or government level.

INTRODUCTION

This book is written with the professional economist in mind. At the heart of

it is methodology for studying economic matters specifically in the broad 

sweep of society, culture and politics. Neither of these aspects of humankind 

can be studied in a closed sense because they are inextricably linked. Even

contributions in the fields of anthropology, psychology and international

studies can help in economic analysis.

 

The methodology used is holistic to ensure the parts of the economy are

treated both separately and as part of the whole. Because the sum of the 

parts is greater than the whole the linkages between them and the processes

operating have to be considered to get a complete picture ie. The Big Picture.

Problems in the economy such as inflation, unemployment, booms and 

busts are not isolated issues rather a common element is the nature of 

mankind. Considering the spectrum of human nature from the best features

such as empathy and symphathy to the worst such as greed and corruption

the scope for analysis is complicated and far reaching.

 

Regardless of the type of economy whether representative democratic, social

democratic, socialist or planned and/or communist or purely totalitarian 

each of these can be analysed by taking a holistic approach. Politically 

speaking, how an economy is organised and functions depends on prevailing

institutions and the associations formed between the members of the 

population. Group behaviour is necessarily different from the individualistic

and the wielding of power is critical. The rules that apply reflect the power 

of individuals versus the governing groups. Political influence in the economy

cannot be underestimated.

These points apply not only on the domestic level but also internationally. 

This century the global economy will experience setbacks and progress 

which is entirely unchartered. Certainly the role of technology is paramount

and change will be constant. The two main global issues of climate change 

and exploding population growth must be analysed from a wider perspective.

The writer proposes that most of what happens in the economy can be viewed

in terms of the CDA sequence. Every person faces choices (C) makes 

decisions (D) and takes courses of action (A). This is an analytic tool designed 

to expose how human nature impacts on what we do. We don't always choose 

wisely, nor make reasoned decisions least of all follow through with a well

executed plan of action. These less than optimum behaviours can be found

in households, businesses and governments. From analysing our behaviours 

we can help solve economic problems and steer away from pitfalls eg.

excessive buying on credit.

 

The housing market is a major driver of the Australian economy. 

Following the end of the mining boom of the early 21st Century

housing played a major role in preventing an economic downturn.

Employment in this industry has taken some of the slack left by

mining shrinkage. However due to heightened speculation and 

record low interest rates following the GFC of 2008/9 a residential

boom occurred during 2011-18.This period saw values double 

with a concomittant rise in rent as well.

 

Booms and busts have characterised much economic development

in Australia during the post war period except that since 1991

there has been uninterrupted economic growth. This has been

made possible with sustained immigration particularly of skilled

labour. Well managed macroeconomic policy by government 

especially the Liberal-National coalition saw to that. Inflation 

has been kept under raps by the Reserve Bank.

 

Internationally Australia is a member of the G20 and other 

overseas organisations. The IMF views Australia as a middle

of the road economic unit with a relatively stable government.

It is a mixed economy with a highly urbanised workforce.

Congestion is a major problem in urban centres and the supply

of suburban land is doled out sparingly by the NSW government.

More and more rental accommodation is becoming the norm.

First home buyers face the prospect of saving for a large deposit

and struggling with low wage rises and burgeoning living costs

especially high petroleum prices, their future homeowner's dream

is steadily fading away.

The housing market is subject to demand and supply factors 

but government interference does distort it. For example it is

generally accepted that first home buyer grants/subsidies 

have pushed up prices. Removing stamp duty for them gives

first home buyers a foot in the market but there is a risk of

defaulting on home loan when debt repayment becomes too

difficult.

 

Over the long term Australian industry has to become more 

competitive, be value-adding, and innovate. Given the relatively

small population Australia has to specialise and make better

use of its highly trained labour resources. For instance in 

medical research Australia punches above its weight eg. cochlear

implant has revolutionised hearing aid industry. Manufacturing 

has to be selective and suited to our relatively small market, 

there being little opportunity for heavy industry and car making.

Service industries specialising in education, healthcare and 

retirement living getting a foothold abroad will bring in valuable

foreign exchange. There has to be a shift away from residential

construction proportionately as a contributor to GNP towards 

innovative business ventures and startups that add value and

become attractive to consumers whom are looking for benefits.

A viable venture for B2B would be in cyber security for instance

which is in the forefront of business needs.

 

Chapter One              The CDA Sequence and Human Nature

The CDA sequence is the cornerstone of this new economics approach. It

simplifies studying and analysing the myriad of transactions occurring in

the economy at any one time. Of course any economic study must take into

account human behaviour which is complex to say the least. The gamut of 

human nature is almost boundless from the likes of Mother Teresa, the 

epitome of selflessness, to the ruthless Wolf of Wall Street with an insatiable

greed for money and wealth.

 

Every moment of our working lives we face almost countless choices. From 

wearing shoes to going barefoot and spending our last dollar to saving it, we 

choose between options. Sometimes choice is limited to a small range of 

options eg. Henry Ford famously told his customer you can have any colour

of car as long as it is black. On other occasions the choices are mind boggling

for instance going grocery shopping.

 

Decisions have to be made otherwise nothing will ever get done. There are

simple decisions we make every moment such as whether to have a cuppa

or just drink tap water. Then there are hugely complicated decisions for 

instance choosing the best home loan which fits our budget. The great Aussie

dream of homeownership is becoming more and more a fleeting one. Unless

someone inherits a sizeable estate it is a Herculean feat to save a deposit

towards the median house price in Sydney of one million dollars. Given the

cost of living these days with exorbitant electricity bills and high petrol prices

it is more a matter of what rental accommodation to choose between and 

decide on considering the current period of slow wages growth.

 

Acting on a decision also isn't a fait de compit, take for instance car 

purchasing. A buyer decides on a black Ford but they're out of stock if

you want a manual so someone who doesn't want to drive an automatic

has to either postpone the purchase or look elsewhere. Of course the car

buyer could forego his wish to drive a manual and settle for the automatic.

Then there is the question of what to do with the second hand car ie.

either trade it in on the new one or sell it privately. Even the government 

can influence a household purchase by offering rebates on new white

goods to combat green house gases.

 

 

 

Chapter Two                      CDA Sequences in The Economy 

Throughout the economy there are almost an infinite number of

CDA sequences at any one time. These sequences occur in 

individual households, businesses and governments wherever

people are. What drives these sequences and the resultant 

outcomes in total largely make up the economy.

 

There are innumerable processes and linkages at work. 

Obstructions do happen regularly but ultimately the economy

works and its performance is measured using data collected, 

analysed and summarised.

 

One of these summaries is called the national accounts. Each 

year the federal treasury produces annualised reports on

employment level, inflation, terms of trade and economic growth.

Budget papers are prepared using these reports and projections

are derived using models by econometricians.

 

Over the last century expertise at the treasury has made great

advances to the point where economic management is efficient

and can be relied on as a basis for planning. Departmental 

secretaries of the ruling government make decisions and policy

using collected data and reports. These technocrats represent

an ongoing store of knowledge and skills which is at the disposal

of incoming governments of one persuasion or another. How

effectively these services available to the ruling government are

used will depend on the calibre of elected politicians in office.

 

The electorate wants a government to rule with fairness and 

equanimity. In this representative democracy the people trust

their government to look after their best interests, collecting 

taxes and redirecting this money to provide services in the 

interest of all citizens. In short, government by the people for

the people.

Chapter Three: The CDA Sequence and Forces/Processes/Linkages

 

The economy functions the way it does because of forces at work at the

domestic and international levels. Today the global economy largely affects

what happens at the domestic level. For instance, climate change is a world-

wide issue and the so-called Paris Agreement stipulates how individual 

countries will reduce their carbon emissions. This in turn provides the impetus

for governments at all levels to come up with a climate policy in line with this 

agreement. Each country ideally wants to be seen as a good global citizen.

 

 

How a national government derives it's policies in the main portfolios such as

education, health, defence and so on will largely reflect its political philosophy.

The Liberal/National coalition place greatest emphasis on allowing individuals

to go about their daily lives as they see fit. The Labor party on the other hand

have an ideology of one for all and all for one. Both parties favour safety nets 

to ensure people don't inadvertently fall between the cracks.

 

Another case in point is the policy of negatively geared investment properties.

This is in force at the moment but the opposition party, namely Labor want 

it to be scrapped arguing it unfairly benefits the well to do at the expense of

the lower socio-economic group. The Labor party says the additional revenue

will help fund schools and hospitals. The Coaltion puts the counter argument

that rents will go up because the stock of houses will decline relative to

population growth.

 

The resources available at a point in time are limited and for reasons of 

efficiency and equity they have to be used wisely. This applies throughout

the economy and particularly with regard to government revenue which

has to be distributed in the form of services, equitably and efficiently.

 

Business relies on the government to provide the legal framework necessary

to let them get on with what they do unimpeded.

 

Households in turn rely on the government for safety and security of 

national borders. The defence budget is one of the biggest and given

that Australia is the largest island continent it needs a well-equipped

naval fleet and so it makes sense that the government has commissioned

the construction of a modern fleet of submarines.

Chapter Four The CDA Sequence and the International Economy

The influence of the global economy is pervasive and far reaching.

Each country can be viewed as an economic unit within the broader

international economy. Countries vary according to their level of

sophistication and how wealth is generated as well as income

distribution.

 

The CDA Sequence is identifiable regardless of the state of a 

particular economy. So developing countries versus developed

all exhibit this fundamental element because basically human

nature is the same wherever one goes. The United States stands

alone as the largest economy yet the likes of China and India

together represent about one third of the world's population

and have the potential to outstrip it in the not too distant future.

China alone has a middle class of about 200 millions at the 

present time.

 

There are a variety of political systems operating in the world. 

The spectrum ranges from a suppressive society to a free one.

The United States proudly sees itself as the leader of the free

world. On the other hand North Korea exercises strict control 

of its citizenry but is showing signs of wanting to become 

accepted internationally as long as it can determine its own

future. It goes without saying Kim Jong Un doesn't want to be

dictated to about how he should run his country, he would argue

that's soley his jurisdiction.

 

There are a whole set of issues which influence various economic

units or countries in the world today. Some of these are the 

environment, extinction of wild life and problem of poaching, 

degradation of the oceans eg. plastics in the sea, trade relations,

international law concerning human rights and free speech/press

and so on. There is an abundance of ethical questions too such 

as birth control, abortion, gay marriage, surrogacy, medical 

tourism, piracy, human rights especially concerning women, 

asylum seeking, territorial disputes eg. Israel versus Arab Nations

especially Palestinians, nuclear weaponry, poverty and 

discrepancy in income or wealth distribution to mention just a

select few.

Chapter Five Minor and Major CDA Sequences

It has been estimated that in the course of a day a person will face

something like 10,000 to 15,000 choices. These choices will range

from the almost insignificant such as whether to have cereal or

toast for breakfast to more serious ones namely to speed while 

driving to work in order to get there on time.

 

Similarly with each choice comes decision-making and once again

there will be degrees of difficulty in arriving at a decision one is

comfortable with depending on a host of factors such as time

available, finances and stress level.

 

The final step in the sequence is doing something. In other words, 

the resultant action has consequences which may or may not be

apparent at the time. As an example say you want to have a 

holiday. Unfortunately there is an airline strike and your holiday

has to be postponed but your accommodation is already booked.

You didn't get travel insurance because you couldn't afford it.

 

Government is responsible for the safety and security of its

citizens. But in these times with so much political unrest and 

wars on almost every continent people want to escape to a 

safe, more prosperous place. They do business with people 

smugglers, board leaky boats and eventually meet their demise 

at the hands of pirates or drown at sea. Or having been more 

lucky they reach their destination only to be detained and later

possibly receive asylum and settle putting financial burden on

the host country.

Chapter Six Disruption to CDA Sequences

The CDA Sequence doesn't always follow in step rather there can

be road blocks along the way. Someone may make a choice between

options available but on deciding what to do realise the choice is 

not practicable and abandon it. Alternatively, the action taken may

prove dangerous and so necessitates a rethink such as driving a 

motor vehicle under the influence.

 

Human nature dictates that besides being rational there are many

decisions made spontaneously, or at a whim or even without 

thinking. Then again someone might be inclined to procrastinate

and delay taking action thereby missing out eg. one might be

trying to decide on playing the pokies versus buying a Lotto ticket

instead and winning nothing, as the saying goes you have to be in

it to win it.

 

On an international level if a trade war ensues and a market is no

longer an option then an entire industry may be brought to its

knees such as live cattle trade.

 

We don't live in a predictable world especially regarding natural

disasters and of late fires have decimated large swathes of 

countryside including buildings in several countries. The California

fire recently destroyed many mansions in exclusive districts 

and people lost their lives because they underestimated

the danger.

Nevertheless the CDA Sequence still operates though not necessarily

as one would expect. Whenever there are disruptions, at some stage

things return to normal and choice leads to a decision and an 

action follows.

Chapter Seven: Implications for Public versus Private Interests in the Economy

The CDA Sequence has several salient implications for how well the

economy serves private interests as well as public interests. Individual

households primarily are concerned with making a living. Business

is focused on making money in the first instance. Besides this it tries

to develop meaningful and genuine relationships with their customers

because repeat business relies on word of mouth and customer

loyalty. Government is responsible for passing laws as the need arises

aimed at looking after the citizenry. Each department or ministerial 

portfolio tries to cater specifically for services required in foreign

relations, health, education, defence, immigration and industrial

relations.

 

Private interests are served by making the right choices, based on

sound decision making and desirable outcomes. Likewise government

is held to account by the electorate. It is commonly said that the 

ruling party more likely loses an election on the basis of its

performance than an opposition wins it.

 

Some people would argue we get the government that we deserve

which is well and good when things work out. But especially in the 

last decade or so government in Australia has been characterised

by a revolving door of prime ministers and generally it has been 

unstable. Political parties have been more concerned with navel

gazing than getting on with governing. Strong leadership has been

lacking and there has been bickering within political parties.

Chapter Eight: Policy Design and Implementation

The government of the day has an agenda which supposedly has

been sanctioned by electors. Each party takes a particular stand on

what it sees as the main concerns of constituents. Once in office

the ruling government must carry out its policies given the 

circumstances at the time.

 

Climate change policies of the two major parties are in a state of

flux because electricity consumers are very price sensitive, they're

in the now in the sense that what really hurts is rising prices. The 

cost of living is out of whack because people struggle to pay their

power bills. However there has to be a longer term perspective 

since unless carbon emissions are reduced green house gases

will lead to global warming and other consequences such as more

severe flooding and droughts. Renewables are expected to takeover

as the main sources of power in the future but storage and base

load are contentious matters. The population have to consider the

impact of climate change policy for the present, medium and 

longer term. The window of opportunity for reducing carbon

emissions from coal burning electricity generation is rapidly closing.

 

 

Chapter Nine: Economic Management

The two main agents for economic management are the Reserve Bank

for controlling inflation and the Treasury for advising on the budget

and making economic predictions including forward estimates and 

cost control. Fiscal policy sets out measures to do with revenue and

expenditure. While monetary policy is about controlling the money

supply and interest rates.

 

The government must effectively manage the economy otherwise it 

will eventually lose office.

Chapter Ten: The Treasury and Modelling

The Treasury consists of technocrats with no assigned political 

inclination or bias. Over the course of many decades it has perfected

tools to better gauge the economy and to correct mishaps. There are 

checks and balances to ensure tax payers are given value for their 

money.

Chapter Eleven: Summary and Concluding Remarks

There are several concluding remarks to be made from the discussion

in this book. The writer puts forward a viable upgrade to the Economics

discipline which isn't a pure science nor simply an artistic endeavour.

It's a field of study of prime importance to the wellbeing of all of us

not just domestically but also internationally.

 

Economists must seek out what works and what doesn't in getting

the most out of studying the economy. The tools of trade have to be

fit for purpose otherwise outcomes will be less than optimal.

 

The CDA Sequence is basic to how economies function on the 

domestic scene and internationally. Everyone faces choices, makes

decisions and takes action. This sequence is subject to road blocks

and won't always proceed in an orderly way. Human nature

determines outcomes of the CDA Sequence.

 

As individuals in society our morality determines the choices we

have before us. Taking criminals as a case in point, the extent to 

which violence plays a role in dishonest behaviour, will be a matter

of life and death under extreme circumstances. In society today the

scourge of drugs is ever present and undermines our moral fibre.

Businesses will thrive or fail depending on how well they read the

market, decide strategy and achieve positive outcomes. Government

too will effectively tackle the issues at hand or not make a positive

difference to the lives of their people.

 

In sum, the CDA Sequence takes into account human nature which 

determines where, what, why, how and when things are done. It 

applies in the world as a whole not just at the domestic economy

level.

International Economics

This is the second book published on the internet.

(c) 2019 Thomas Ulrich Schwab

 

Preface

This book aims to show that the CDA Sequence can be used to analyse the international economy.

Additionally the writer posits there must be a push forward by the economic profession to replace Economics/Political Economy as our field of study to H u m a n  E c o n o m i c  R e l a t I o n s. The main reason is this will reposition us enabling devotion to economic  activity of humankind. Human nature underlies choices, decisions and actions in the domestic economy and internationally.