money flow

Partial Accounting: Another spurious “cost” often used as a basis for policy appears as a result of partial accounting. An urban public transport service might be reduced or eliminated on the grounds that the costs of the service are nowhere near covered by passenger fares, and that costs can be reduced and the nation or city thereby enriched by cutting the service.

The error here is that all that is taken into account is the money laid out by the government on the service. This money comes from the community by way of taxes. These taxes would reduce if the service were withdrawn, but other costs to the community would increase if the buses or trains stopped running.

People are agents of throughput and the younger, healthier and less resistant to change are the people (for a given population, state of technology, and resource availability), then the larger and better quality the throughput they can achieve.

In more perfluent countries, in recent years, several factors have combined to effect a steady increase in the average age of the population.

There was an unusually high birthrate between 1946 and 1952. There has been a generally falling birthrate since then.

Medical and nutrition improvements have increased people’s life expectancy.

To back up the statement that the relationship of wages to prices is not linear, consider the case of an economy where there are no wages - where all the extraction of wealth, structuring and selling of goods and services is done by slave labour. Actually this is a fair approximation to the economy of the slave-owning states of North America, briefly the Confederate States of America, during the nineteenth century.

This post will cross at a different angle, ground covered already.

The belief is still currently widespread, and held by persons of influence in economic affairs, that a general increase in wages will boost the economy, i.e. increase the throughput rate and its derivative by increasing consumer demand.

As already discussed, this would apply to modern problems, for which it is quite inappropriate, the solution that was correct for the depression of the 1930s.

A preliminary point is that wage fixing must be taken away from the arena of conflict among stronger and weaker unions, stronger and weaker companies, and political ideology and vote-catching. High unemployment is such a serious social blight (as Keynes knew, but too many people seem not to recognise) that wage fixing should not be left to the vagaries of human nature but must be the sole province of an independent objective authority assisted by the best information technology and given legal power to obtain any and all statistics relevant to its work.