Thursday, September 8, 2011

Economic fundamentals

1a) The principle economic unit is the man-hour.
1b) A primary motive usually noted as greed, is the desire to have as much access to other people's man hours with the least effort of ones own man hours for another's purpose (these are means to get both what they need and what they desire).
1c) There is a minimal amount of means that are required for basic survival, and a further amount required for security and comfort - regardless of greed, being below these thresholds is life or livelihood threatening.
2) Man hours may be freely offered (voluntarism), and this is outside the scope of cost benefit analysis.
3a) Private for-profit organisations are optimized to maximize income of the owners. Long term survival of the organization is usually secondary to the interest of the owners. "Future discounting" is appropriate partly for this reason. In capitalist economies, this often leads to the impression of companies only acting for short term gain.
3b) Not for profit organisations are generally valued for their longevity. A lot more of their day to day running can rely on voluntarism, but there is still a minimal amount of means the organisation needs for its survival. The trade off of depleting these means and achieving desired results with them must still be dealt with just as in for-profit organisations. The survival motive vs the profit motive has a great deal in overlap with how cost-benefit analysis can and should be calculated.
4)The liquidity and solvency of either type of entity cannot be ignored. Individual policies that lose money as a net, or gain money at too much expense of effort or organisation goals must be looked at in terms of long term sustainability or profitability.
5)There are many intangible benefits and goals for either kind of organisation. For proper cost benefit analysis, the intangible must be converted to tangible.
6)Economics, like game theory, cannot quite be reduced to a science. The feedback of information about the system necessarily back into the system can change it's repeatability. Thus iron clad rules discovered, once disseminated, may stop becoming iron clad rules.
7)Broad rules of thumb which deal with universal observations, which may originate in simplistic game theory thought experiments, are the most useful.
8)Whithin the bounds of being judged by its longevity, a government is under no obligation to demonstrate a policy generates returns. A good rule of thumb is that fiscally responsible governments show where the money is coming from. A build up of popular but unfunded promises is the root cause of sovereign solvency issues.
9)Potential investments by private entities that make a return based on huge but intangible long term benefits to large swathes of customer or member base will be poor investments due to large up front costs, future discounting and the certainty of it benefitting competing private entities. These are defined as "Infrastructure"
10)Long term promised purchases of consumable commodities by governments to achieve desired citizen goals will be poor investments. Competition between private entities is the only proven way to ensure efficient allocation of resources in matching demand and supply. This inefficiency is not an issue for the short term or emergency, but will drain resources in the long term, requiring higher taxes or risking solvency issues.

1 comment:

Dr Clam said...

Very clear and logical, reminiscent of Pascal's "Pensees".