Looking for help with an Economic Project. Business negative cycles and how to avoid them.

Question

I'm Ryan McConnell. I was born in Spain and I'm half American. I have developed a theory about business cycles that depicts the reality of the phenomena. I have developed an equation that depicts as well the growth and decrease of an economy. Eventually, I have developed a system called Sustainable Capitalism that avoids the negative cycles and assure the full employment. The information is sensitive because it can lead to the anticipation of a negative business cycle. I would like dealing with one or two good economist in private so I would like knowing about their works and occupation.

Answer 1

Shrug.  Outside my knowledge, although predictive models are always useful.

On the same topic, though, you can avoid recessions readily by supplying a universal dividend:  take a social insurance premium as a flat income tax on all personal income (wages, business transfers) and corporate profits, pay that out evenly to all adults.  This acts as a sort of progressive income tax with a negative tax zone:  if you have more income, you pay more currency into the premium; the benefit is absolutely flat, so households with less income pay a lower net percentage of their income into the premium when accounting for the benefit as a sort of refund.

Wherever there is concentrated poverty, this system has the greatest effect.  Localized recessions—poverty-stricken geographical areas—get an economic stimulus.  Moreover, the stimulus is deficit-free because you just adjust (maybe each year, with a Trust fund to stabilize intra-year funding) as the per-adult GNI fluctuates (trends to increase, but can decrease); and it's perfectly-targeted because its impact on an individual household and a geographical area is distributed based precisely on the economic situation, within the bounds of how the stimulus is distributed (i.e. fitting to the same rules and limitations, the distribution will always match the ideal distribution).

My impression is you're trying to predict negative business cycles and remediate them.  My approach here is to mathematically couple the economy to itself so that a particular stimulus program continuously remediates local recessions and repairs even the smallest cracks in the economy, essentially sewing up the tear as it opens, thus preventing negative business cycles before anyone can identify them.  This should also ensure full employment.

I'll posit to you this:  minimum wage concentrates the same income into fewer hands, gating access to the means of sustenance, thus restricting population growth.  Welfares and social insurances increase sustenance in unemployment, thus allowing growth of labor force into higher unemployment rates (e.g. "Population, Unemployment and Economic Growth Cycles: A Further Explanatory Perspective", et al).  I have also suggested shorter working hours would reduce per-capita purchasing power and thus increase immediate unemployment—like a minimum wage increase—with the long-term unemployment situation resolving itself by reduced labor force growth—again, like a minimum wage increase.

Has your model accounted for these factors?

Comments

You are explaining something similar to Milton Friedman's negative income. Following my model that method can't avoid negative cycles. What I discovered is a fatal failure in capitalism that nowadays only can be avoided being a big exporter country or receiving a great amount of wages from outside like China (in this case this country almost cover the two factors). It's not necessary to charge great taxes to anybody and you haven't to give free money to people because they can earn it by their own effort. Anyway I think your ideas are good to increase the living standard of the unemployed people or people in areas with a high rate or unemployement, though they'll lose their willing to seek for a job and educate themselves to have success in the job market.
My model doesn't take into account your methods because it's based mostly in the lucrative motive and competition, in a system where every country can mantain the full employment but where the competition still be the engine of the world and everybody has to work harder to earn profits day by day.
Talking about shorten work hours, in my system this is better for the economy because the firms haven't to increase costs and there are more people consuming their products(I know this sounds impossible or mad but it's a reality). Besides the workers would be more productive because they have to work less hours and the firm can lengthen its workday without cost or only with a little cost covered by the greater domestic demand.

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Actually, people in areas of high rate of unemployment can't simply go out and get a job and educate themselves.  Education is expensive (unless you create the social insurance of public university, vocation, and apprenticeship), and the microeconomics would suggest people can't just go spend money they don't have to go to college or to move to an expensive area where there are jobs.  Really, though, it's the macroeconomics that are the problem.

In areas of high unemployment, you can't have jobs.  You open a shop to sell things and nobody has any money to buy.  People over in the next area—people with spending money—also have shops near them, and buy there because there is more opportunity cost in spending extra time and money driving into the poverty-stricken area to shop than there is in shopping locally.  Because you can't get revenue, you can't pay yourself or your workers, and so you can't support employment.

As well, a Dividend isn't means-tested:  you continue to receive it regardless of situation.  For example, the Federal policy would pay $500/month; a full-time job at minimum wage would pay $1,667 (minus taxes) at the current minimum wage, and $2,500 (minus taxes) at the $15 target often discussed.  A person receiving $500/month would sit across the street from a neighbor also receiving $500/month, plus another $1,333 (or $2,000) per month.  Taxes and Dividend taken into account, the unemployed has $500/month while the employed has $1,833 (or $2,500) each month.

That's a 266% (or 500%) increase in standard-of-living, while the incentive to educate yourself and become an IT technician (at $35/hr) is a 250% increase in standard-of-living.  You suggest that the existence of McDonalds causes people to lose their will to seek education, since they can just make $10/hr running fries.

The Dividend is based in lucrative motive and competition.  It couples the economy broadly to itself to ensure that the demand for goods exists, enabling purchasing in poorer local economies and thus providing the supply of jobs to those who would seek them.

However, I was more interested in the consideration that higher unemployment leads to slower labor force growth—reduced labor supply—while low unemployment leads to increased labor force growth.  Stronger welfares in absence of a high minimum wage lead to an increased labor force growth and increased labor supply.  Therefor your model needs to account for the effect of lower unemployment itself on labor force size, per-capita income, and household standard of living.

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First I would like to say that I was raised in Europe and here the welfare system covers health care and high level education (paying a few taxes) and you are able to work at McDonald's while studying at college. In America I have heard that the military expenditure is too high to mantain this welfare standart, but I think that a constant situation of full employment where the population grows due to immigration makes enough profit for the government to expand welfare coverage on educational issues.

Second, the businesses operating in the poorer areas would be able to endure the situation ( due to a factor of the system I'm developing) while the labor demand starts to grow. Anyway, people finding a job in these areas would move to higher quality neighborhoods. This means that the poorer neighborhoods would lose population until the labor market would be so tight that these people would find a job easily if they are not running an illegal activity as substitute for legal work, allowing less business than in higher quality districts but enough in number to run their activities.

Regarding the Dividend Income, I have to say that it motivate laziness and it could be helpful in encouraging illegal activities related mostly to drugs, although it would encourage stopping other kind of crimes. Nowadays, legalizing marijuana, mostly all the young people of under educated neighborhoods would be buying food and smoking marijuana which further decreases their chance to get a job. I say this because I have been young and excessive welfare payments make you lazy. The real motivation when you are young is to find a way to earn money and a good life standard of living. With jobs available, only the worst workers would have problems matching with firms so they could receive a basic welfare subsidy to live. Thus I accept that method only in extreme cases.

Finally, my model accounts for what you suggested. The economic growth can be indefinite so the labor force growth can be indefinite too until immigration or population growth stops. In this phase the labor factors mobility would be very high and a maximun wage would be necessary to not expand demand and monetary base (in the average householder's hands) too high due to the high labor market tightness that makes firms to offer greater and greater wages competing with other firms, although maybe the increase of cost would do the task controlling wages so as not rise too high.

Per capita income would be high as the time goes on and global demand raises in the country due to the last fact and due to greater revenue in the firms. So the standard of living would be high, always controlling inflation, which in a period of continuous full economic potential tends to rise.

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I have forgotten a fact that is true. If you increase the demand with the dividend income you can create a small economy in the depressed area starting with it and creating jobs that increase the demand again. The supply of money from outside should be continuous or the same problem will appear again thus some people would be living without work. Anyway, this kind of "economic booster" would be really good under my system and wouldn't need to be continuous. It'a good idea for applying it to my model. Thanks to both of you.

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It has been shown time and again that strong welfares and social insurances create mobility and reduce illegal activities.  We've even seen programs pour money straight into the hands of alcoholics and cocaine addicts with the expectation that they'll just booze away, and they come back and the person has stopped drinking so much and taken up gainful employment to expand on their new-found economic stability.

You suggest people would find a job in poorer neighborhoods and then move out.  Those people cannot take a job too distant from their neighborhood, which means they have no motivation to move because they would be further from work; and if they did take a job IN their neighborhood and move further away, they'd take money away, reducing their neighborhood's capacity to have jobs by taking local consumer spending and moving it to wages paid afar.  By contrast, if they obtained a job OUTSIDE their neighborhood, then the wages would be bringing money to their neighborhood, increasing effective demand through their own spending, and thus creating jobs (basically, their labor is an export)—and if they moved out to be closer to their job, then the neighborhood would lose that economic stimulus.

Empirical evidence shows that places like Baltimore City, Flint, Detroit, Blackwater, the most poverty-stricken, horribly-collapsed economies don't simply recover on their own.  In the Nations now practicing austerity, they've found greater economic troubles and an expanse of poverty.  Meanwhile, in the nations where welfare is ridiculous—Norway, Iceland, Denmark, where welfare pays even as you enter middle-class—those areas affected as such tend to rapidly recover, and the people on welfare become people who are working.

Effective demand for goods and services requires that consumers be capable of paying.  Higher effective demand means more can be supplied.  To supply, you need labor, which means higher effective demand leads to a higher supply of jobs.  Without that supply, workers who demand jobs cannot have jobs.  These are advanced topics that were never quite understood by old-school economists like Milton Friedman and Thomas Sowell, who retained several bizarre beliefs such as that minimum wage is the cause of unemployment; they will be more clear to people who have understood John Maynard Keynes and Robert Solow.

The anticipation of a negative business cycle is the holy grail for stock traders.  Have you figured out how to make a lot of money in the stock market?

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Yes I meant finding a job outside their neighborhoods but your idea regarding the dividend income is a microeconomic solution that I had thought in a macroeconomic level, because the under developed countries need an economic booster in form of foreign assistance to develop their economies on a first step. I had not thought about translate it within the country.

I think anyway that if you find a good job you will "escape" from neighborhoods with high criminal rates and the normal movement would be go away from them to arrive in high quality neighborhoods. I read a work lately about how the state's assistance in Texas caused a movement to high quality neighborhoods. It's quite new and you can find it in the journal
of economic policy issued before the last one.

I have read Keynes and I know as you that demand creates supply and supply creates demand. Both of them can't survive without the other, at least in the world we know nowadays. Automatization makes bigger the hole between demand and supply and I think that education will be the main resource people should have in the future.

Regarding the stock market I know that after a negative cycle it tends to rise with the economy and if it's sure, like the last time, that there are enough resources to make the economy grow again is a good moment to invest until the unemployment rate reaches between 5 and 3 percent.
I don't do short-selling, I think is not ethical but that would be a good way to earn money too when the negative cycle arrives. I think that between 27000 and 27500 the american stock market will go down without brakes. I'm not really sure about this but it's my opinion.

PD: I'm sorry I though for a short time that you were two different people.

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It's actually intended as a macroeconomic solution:  it's not enough to provide e.g. welfare, but it's enough to nudge up spending by an individual household by a few dollars a month.  Multiply that by a whole lot of unemployed and low-income employed concentrated in an area of high unemployment (demand for goods and services doesn't provide enough revenue to create jobs) and you get an economic stimulus creating jobs, which then support households.

What we've found in the real world is people can't simply take a job 6 miles from home in e.g. Baltimore City because it takes 3 hours to get to work by transit (these people don't own cars).  The jobs over there are inaccessible, and so the workers can't take those jobs.  We like to build transit solutions here, although I've been pointing out that transit has a temporal problem linked to its spatial problem:  the further you are from your destination, the more time it will take at a minimum for public transit to get you there, and private vehicles are almost always more-efficient.  Transit reduces traffic congestion, so an efficient arterial transit system tends to improve overall transit efficiency, and provides more-equitable access to jobs for those near stops along the transit artery.

Again, as people move out, you're left without their consumption, and so your neighborhood just keeps getting poorer and wages cannot increase due to a theoretical labor shortage (the labor shortage won't happen).  The natural conclusion is what we call a ghost town.

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Yes I understand you perfectly. Your opinion is a good one but I'm afraid to say that following my discovery it isn't enough to mantain full employment in low income neighbourhoods as same as in the country as a whole. But I can say that your countribution is very good for my model because I didn't think of that economic booster within the country, in low income areas, like in underdeveloped countries. We can talk about another topic through here some day. You always can add something more here if you want.
Please to meet you.

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PD: I just saw your question and I think we are on the same boat. You can contact me through my Email on my profile and I'll explain you what I'm talking about after knowing a little bit about you and inform you about the problems with the discovery release. It's optional.