Sunday, April 23, 2017

229. Monopolistic competition (Realistic competition)

https://www.youtube.com/watch?v=d57jftLwi4shttps://www.youtube.com/watch?v=d57jftLwi4s

228. Price maximation under perfect market conditions

228. https://www.youtube.com/watch?v=krUu_u63MiA

Thursday, April 20, 2017

227. Repatriation of Profits

The repatriation of profits is often perceived as a loss for the country from whom the money is taken. The following should illustrate that this is a misconception.

If a foreign company from country C mines gold in country A - in other words it pays the workers in country A. It then exports the gold to country B and sells it in country B. It moves some money to country A to pay for the factors of production (incl. the workers) and repatriates the profits to country C - the country of origin.

Who has benefited? The answer is clear = all participants - Country A loses gold but gains foreign currency; Country B gains gold but loses foreign currency: country C gains foreign currency but loses employment opportunities since the entrepreneur took their skills elsewhere.

So, what does one say to a learner that includes the following in an assignment: "Multinationals normally repatriate the profit out of a country back into the home country, so there is no real increase in living standards"

This clearly shows a lack of understanding of a basic economic principle which is that all participants normally benefit in voluntary transactions. There are no losers. The repatriation of money does not make any country lose anything.

The terms used by some such as "Country A has been 'raped' by the foreign company" surely is a misconception since the workers have been paid, mineral rights have been paid for, taxes have been paid by money flowing into the country. In country B the gold was valued by the buyers more than the money they paid (otherwise the transaction would not have been concluded) - obviously a win-win. And Country C now have some money that will benefit the recipient country in the sense that goods and services will be purchased there (which in all likelihood be purchased from Country D!).

It seems that the "mistake" in thinking is as a result of only looking at the flow of money and not the flow of value (goods and services) that flow in the other direction. Or am I missing something somewhere?

C.M. Heydenrych

April 2017

Tuesday, April 18, 2017

226. Radical Economic Transformation (Revised)


Will it be “radical” economic transformation if:
                                                                                                                                                                                                       
• It is ensures that all citizens have access to private property ownership and individual private property rights are extended to all.
• Consent serves as the basis of agreement between all individuals and groups.
• That there is minimum intervention and use of force by the state in the private affairs of people
• Rule of law (as opposed to the discretionary rule of men).

The supporting social institutions for such a liberal democratic state typically include a liberal constitution (which we have), a free press and free speech that does not incite violence, an independent judiciary and a vibrant civic community (which we have when looking at the level of civil protests and movements such as OUTA to resist the e-toll double tax system.

In a transformed market economy:

• The government will simply allow and protect the private ownership of property that is legitimately obtained. The access to proper title especially in Urban Areas, but also in rural communities is critical to unlock the "dead capital" and wealth of the people.
• The right to the voluntary exchange of labor, goods and services between consenting participants. The minimum wage laws keep the young less experienced and other vulnerable groupings out of the marketplace. Unemployment could be literally wiped out if persons are allowed to work.
• There is no fear of confiscation through taxes and expropriation for the common good. The total collapse of the Zimbabwean economy stands as a stark reminder of this.
• In a transformed economy all participants will be free to act as willing buyers and sellers that meet in an unfettered marketplace. For example the Subdivision of Land Act is particularly onerous and is retarding the sale of land to previously disadvantaged groupings – there are many other examples of laws made before and some even after 1994 that exclude people from trade.
• The value of goods and services are determined by buyers and sellers that are allowed to trade freely.
• Goods are traded without subsidies and price controls, and tariffs which increase the cost of living are absent. Why would there for example be a tariff on academic books?
• No special licenses and onerous regulatory controls are forced onto businesses and individuals. The "professionalisation" of many vocations (financial services, the estate agency business and others) have made it increasingly difficult for young persons to enter those industries. The attempt to exclude of  Uber as competition to the vested interests of metered taxis is an example of using licencing to exclude some in favour of the status quo.
• The involvement of the state is limited and there are normally various checks and balances in place to limit the actions of the state (Constitutions, separation of power, Bills of Rights, democratic institutions – such as parliament and an independent judiciary). Also, in such a free market economy:
• People would be free to trade with their property and labour in any way they see fit.
• Participants do not act in a way that would infringe on others to behave in a similar way; and if they do, there are remedies that they can apply emanating from an easily accessible and unbiased legal system.
• Excluded from relationships is the use of force or the threat of force (or acting in a fraudulent way). • Individuals take responsibility for their actions and cause no damage to others lives and property (again, if they do, there are remedies available to arbitrate and compensate).
• There is a free movement of people, goods and services (not like in Apartheid South Africa where free movement was severely restricted).
• The role of the state is not to promote the interest of any one group (not like the current and previous dispensation where there is legislation that stipulate certain group rights that override individual rights).
• The government sees its role as the protector of property rights of all – an ultimate arbitrator. This is particularly important with the land reform process where past inequities have to be resolved.
• The constitution and laws value individual liberty and the rights of groups to promote their group interests as long as it does not done in a way that it offends basic human and individual rights.
• Economic growth is high is because of having low tax and simple and fair tax regimes – this has become evident in countries such as Ireland, Mauritius where taxes have been reduced and the import processing zones instituted in many countries, where tax rebates and other tax incentives have led to increased economic activity.
• People spend more time and effort on creating wealth than on efforts to protect themselves from the tax authorities.
• Government upholds a policy of protecting the value of the currency and therefore takes no inflationary actions. Also government does not overextend itself to gain political favour (balanced budget).
• Nobody is granted any special privileges on the basis of race or gender as envisaged by the Freedom Charter (non-racist, non sexist).
• No special subsidies, tax concessions, import controls, tariff protections granted to favour some special interest groups.
• Political power and influence is curtailed (no state capture)  and limited to the essential services of foreign relations, the army, the judiciary and internal safety and security and perhaps a few others.
• Rules are kept simple and understandable and victimless crimes decriminalised. Common law principles uphold with the minimum of statutory interventions. All non-coercive actions are legal unless specifically prohibited.
• There is no unrealistic building, zoning, health and other restrictions on trade.
• No costly processes involved in setting up of businesses, the subdivision of land and the meeting onerous regulatory requirements.
• One would have a society where the government allows communities a bigger say in those decisions that affect them directly.
• In such a society the government also refrains from making life-style choice on behalf of citizens. Individuals take responsibility for their own decisions without a paternal Apartheid like state attempting to take decisions in "their best interests". The citizenry are treated like adults.

A quick way to economically empower the masses is to simply give shares of state owned enterprises to those that did not have the vote before 1994. This will release billions of Rands wort of value into the economy an impose market discipline onto their operations. We will stop wasting money to prop these up - money that cn be used better for much needed social services.

Amandla - give power to the people. 

With this personal overview of how Radical Economic Transformation can increase the wealth and participation of all, through a free market system based on classical liberal values, one would be in a better position to judge to what extent a particular arrangement or policy can be regarded as assisting or damaging a country’s ability to be prosperous.

C.M. Heyenrych
April 2017

225. International trade (comparative advantage)

http://www.economicsonline.co.uk/Global_economics/Comparative_advantage.html

Wednesday, April 12, 2017

224. Radical Economic Transformation

Handout: Radical Economic Transformation

Power to the people.

The market system has spontaneously developed through the ages in much the same way as language and law. It was not planned or designed (not like the other contrived economic systems) – it is the result of what social scientists call “spontaneous order”.

The features that make a particular society open and free as opposed to controlled by vested interests is the degree to which it upholds the institutions and practices that makes it possible:

• Private property and private property rights.

• Consent as the basis of agreement between individuals and groups.

• Minimum intervention and use of force by the state in the private affairs of people

• Rule of law (as opposed to the discretionary rule of men).

The supporting social institutions typically include a liberal constitution, a free press and free speech that does not incite violence, an independent judiciary and a vibrant civic community.

In a market economy:

• The government simply allows and protects the private ownership of property that is legitimately obtained. The access to proper title especially in Urban Areas, but also in rural communities is critical to unlock the "dead capital" and wealth of the people.

• The right to the voluntary exchange of labor, goods and services between consenting participants. The minimum wage laws keep the young less experienced and other vulnerable groupings out of the marketplace.

• There is no fear of confiscation through taxes and expropriation for the common good. The total collapse of the Zimbabwean economy stands as a stark reminder of this.

• Willing buyers and sellers meet in an unfettered marketplace. The Subdivision of Land Act is particularly onerous and is retarding the sale of land to previously disadvantaged groupings.

• The value of goods and services are determined by buyers and sellers that are allowed to trade freely.

• Goods are traded without subsidies and price controls, and tariffs are absent.

• No special licenses and onerous regulatory controls are forced onto businesses and individuals. The "professionalisation" of many vocations (financial services, the estate agency business and others) have made it increasingly difficult for young persons to enter those industries.

• The involvement of the state is limited and there are normally various checks and balances in place to limit the actions of the state (Constitutions, separation of power, Bills of Rights, democratic institutions – such as parliament and an independent judiciary). Also, in such a free market economy:

• People trade with their property and labour in any way they see fit.

• Participants do not act in a way that would infringe on others to behave in a similar way; and if they do, there are remedies that they can apply emanating from an easily accessible and unbiased legal system.

• Excluded from relationships is the use of force or the threat of force (or acting in a fraudulent way). • Individuals take responsibility for their actions and cause no damage to others lives and property (again, if they do, there are remedies available to arbitrate and compensate).

• There is a free movement of people, goods and services (not like in Apartheid South Africa where free movement was severely restricted). • The role of the state is not to promote the interest of any one group (not like the current and previous dispensation where there is legislation that stipulate certain group rights that override individual rights).

• The government sees its role as the protector of property rights of all – an ultimate arbitrator. This is particularly important with the land reform process where past inequities have to be resolved.

• The constitution and laws value individual liberty and the rights of groups to promote their group interests as long as it does not done in a way that it offends basic human and individual rights.

• Economic growth is high is because of having low tax and simple and fair tax regimes – this has become evident in countries such as Ireland, Mauritius where taxes have been reduced and the import processing zones instituted in many countries, where tax rebates and other tax incentives have led to increased economic activity.

• People spend more time and effort on creating wealth than on efforts to protect themselves from the tax authorities.

• Government upholds a policy of protecting the value of the currency and therefore takes no inflationary actions. Also government does not overextend itself to gain political favour (balanced budget).

• Nobody is granted any special privileges on the basis of race or gender.

• No special subsidies, tax concessions, import controls, tariff protections granted to favour some special interest groups.

• Political power and influence is curtailed to the essential services of foreign relations, the army, the judiciary and internal safety and security and perhaps a few others.

• Rules are kept simple and understandable and victimless crimes decriminalised. Common law principles uphold with the minimum of statutory interventions. All non-coercive actions legal unless specifically prohibited.

• There is no unrealistic building, zoning, health and other restrictions on trade.

• No costly processes involved in setting up of businesses, the subdivision of land and the meeting onerous regulatory requirements. • One would have a society where the government allows communities a bigger say in those decisions that affect them directly.

• In such a society the government also refrains from making life-style choice on behalf of citizens. Individuals take responsibility for their own decisions without a paternal Apartheid like state attempting to take decisions in "their best interests". The citizenry are treated like adults.

With this overview of how Radical Economic Transformation can increase the wealth and participation of all, through a free market system based on classical liberal values, one would be in a better position to judge to what extent a particular arrangement or policy can be regarded as assisting or damaging a country’s ability to be prosperous.

www.trainingineconomics.blogspot.co.za Charl Heydenrych – 7 April 2017

223. Words have meaning

Here is a good resource for students in economics: http://www.econom.co.za/econres/kn_ecs2602/t.html