Sunday, April 02, 2006

Part 5 - Hyperwage Theory: The End of Modern Theory


Table of Contents

Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10

Part 12
Part 13
Part 14
Part 15
Part 16
Part 17
Part 18
Part 19
Part 20

Part 22
Part 23
Part 24
Part 25
Part 26
Part 27
Part 28
Part 29
Part 30
Part 32
Part 33

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The Misadventures of the Street Strategist Vol 1 to 13


Hyperwage Theory Part 05

Hyperwage Theory Part 5

Chapter 5: The End of Modern Theory

“Truth and logic alone are not adequate to form faith and belief.”
-Street Strategist

The Hyperwage Theory is either the most idiotic intellectual endeavor to emanate from any homo sapien or the most brilliant economic theory to grace the history of intellectual thought. No in-betweens. There is no room for intellectual faintheartedness.

By the way, an ordinary wage increase doesn’t work either. It must be a hyperwage increase. Don’t worry, I’ll explain this soon, along with many other issues.

I know that there are millions of you out there who disagree with this theory but the more you disagree, the more you confirm that the Hyperwage Theory is an original thought. And there’s already one beneficial flow-on effect: By stating that the minimum wage should be P20,000, I have softened your hearts and opened your minds to the thought that an increase from P12 to P25 or P125 are actually a miniscule increase compared to hyperwage. Government and labor could now threaten businessmen, “Which you do want – hyperwage or a P125 increase?”

Another flow-on effect is that Hyperwage Theory raises the consciousness of society regarding the state-sponsored modern-day slavery of domestic helpers who are not even given “worker status” classification. They are not found in the statistical records of the Department of Labor and Employment and the National Statistics Coordination Board.

Primacy of labor
Can you imagine the transformation of domestic helpers, from being the forgotten entity to the most important entity?

The Hyperwage Theory declares that the proper valuation of labor is the crux of any economic redemption of Third World countries.

In my opinion, the failures of World Bank, ADB, and the Third World governments precipitate from their refusal to recognize the primacy of the correct valuation of labor.

Instead of a single sweeping stroke of raising minimum wage to a level where the lowest of the low will have purchasing power as proposed by the Hyperwage Theory, the economists wrongly propose hundreds of complex solutions that beat around the bush which in turn create distortions, loopholes, bureaucracy, and systemic inefficiencies, redundancies and complications.

For example, how does their economic theory address population control? Their theory does not have a solution for this because population explosion is a non-economic issue. On the other hand, the Hyperwage Theory solves this problem elegantly without the millions of dollars spent for a population program, as a direct consequence of raising minimum wage to a hyperwage level. Sounds too good to be true?

End of single theory
Furthermore, in my view, the fault of the economists lies in the fact that they have only one theory for all the economies. Their equilibrium equations, curves, and principles comprise a single set of theory applicable to any economy.

On the other hand, I propose a revolutionary economic thought. I hereby break up economics into First World theory which focuses on controlling inflation (inflation-centric) on one hand, and Hyperwage Theory for the Third World which focuses on giving hyperwage to the lowest level of labor (purchasing power centric) on the other.

If you think along these lines, there is no conflict, only an enlightened revelation. This is the end of the single theory of economics.

In Part 1, I revealed the strategy of poverty unwittingly perpetrated by our government, or any Third World country for that matter.

In Part 2, I described the Hyperwage Theory with the surprise feature that the solution to a Third World country’s poverty rests on the country’s valuation of the labor of the poorest of the poor. We must recognize that domestic helpers should be part of the minimum wage law, and that they should be paid wages with actual purchasing power.

In Part 3, I laid out the paradigms needed to understand the Hyperwage Theory. I hope I have convinced you that with those paradigms, the Hyperwage Theory comes as a direct natural logical and elegant consequence.

In Part 4, I discussed the circular flow of economics and the common rejections of the Hyperwage Theory which we shall address in a future installment. I mentioned the irony that labor do not think they deserve a hyperwage. I disparaged the aimless strategies of the economists (World Bank, ADB, government, and academic economists) with their “beating around the bush” solutions and their insistence on an inflation-centric First World economic theory for Third World countries.

So far, I have not introduced any discussion that requires the knowledge of a PhD in economics but I have already set the backdrop for you to appreciate the Hyperwage Theory, and I think you are starting to. Appreciate Hyperwage, I mean. See, you don’t have to be weatherman to know which way the wind blows.

“My students who were able to catch your discussion on air yesterday have raised the issue of Hyperwage, and now my credibility is at stake. If what you are saying is true, then our economics textbooks are wrong. We’ll just burn them!”

This was an angry reaction sent in by an economics professor to the radio anchor who had me as a guest for two days, some time ago. There were so many reactions that I have probably heard of every possible opposition to the Hyperwage Theory from ordinary people in the streets.

Another said: “Are you saying that all the World Bank economists are wrong? What makes you better than them?”

Still another said: “Why don’t you tell the President about it? Become her adviser!”

These, and other questions will be in the Q&A portion that I will present towards the end of this series.

How does one reply to these questions? There are many ways to answer their questions but instead of a mild-mannered reply, I said: “Yes, our textbooks are wrong. Burn them. They are useless. Yes, the World Bank is wrong because they are using First World theories. If our textbooks are correct, how come our country is still poor after 100 years? As of today, is there any hope in sight for this country?

Do you expect change in the next 20 years? If the World Bank economists are correct how come we are still poor? We have been following their prescription but we are still poor. There’s only one solution and that is to give a very high minimum wage to the poorest of the poor. Whatever you do to the least of my brothers you do unto me. All the economists are wrong, and I am right. The president wouldn’t be able to understand me because she has a PhD in economics, and Hyperwage is anti-economics. Why don’t I just run for president, and implement Hyperwage before the businessmen assassinate me?”
Spoken like a true demagogue. I intentionally fanned the flames of controversy. You can just imagine the chaotic Q&A during the show. Talks of revolution, government take-over, and uprising swelled up.

But I did answer their questions in detail, not merely with demagoguery.

I have never been called an idiot and a genius, a foolish dreamer and a messiah, so many times in the same day in my life.

More Marxist than Marx
Before I finally declared that modern economic theory is a failure, I tried to give it a chance. After all, I knew zilch of economics, and the World Bank has billions of dollars to spend thinking about poverty.

They probably did just that, merely thinking, not doing.

One day, I just got tired of all these economics nonsense and said to myself: “I am a genius. I will start from ground zero. Zero-based theory. I will ignore the fact there are a million economists ahead of me.

I will identify the problems of the Third World. I will identify the current solutions of modern economic theory for each of the problems. Then I will analyze why their solutions failed. Of course, their solutions failed, the poor got poorer the rich got richer.”

And so I did. But with an extremely surprising insight: The best solution available, one that is the most effective and efficient, was more Marxist than Marx. And yet I started all my theory from a completely capitalistic approach.

Defects of modern economics
Why did I consider modern theory a failure? I have identified some defects of the modern economic theory. In summary, these defects are not really “economic” issues but more of “non-economic” ones.
How does economic theory solve the diaspora problem? We have separated families and broken homes due to overseas contact worker migration. How many generations have grown up without a father?

During birthdays, the father is not there. In sickness, he is not there. The daughter is pregnant, he is not there. The son is into drugs, he is not there. The wife is a having an affair, he is not there. The father is never around. He is an engineer working as a lowly construction worker in the Middle East.

Leave !
Is this going to be an eternal feature of our Third World economy? Of course, this is eternal because the government needs the OFW remittances. In other words, the government is perpetuating this separated family scenario. Can you name a single move of the government that tends to strongly reverse this trend? There is none.

Isn’t it ironic that the only way to solve the problems of this country is by leaving this country? That’s the government policy, isn’t it? Leave now, remit later.

Every time I think of this I can’t help but laugh out loud.

“But our country cannot afford to give high wages because we are poor,” the government says. Oh yeah? What are Singapore and Hong Kong but barren islands? What natural resources do they have?

Do they have oil, natural gas, timber, gold, copper, silver, nickel, beautiful beaches? Again, I’m jumping the gun. I’ll discuss this later.

Do you think our corrupt politicians care? They will give you a consuelo de bobo designation of “OFW, new hero.” Try complaining about being raped by your masters to our consulates, and you realize it was your fault you got raped.

But this is a non-economic issue, the economists do not include this in their econometrics. Economic theory fails.

Brain drain
A more serious problem is brain drain. What do our economists think about this? They don’t think about it in the first place because for them this is not an economic variable. How does economic theory solve this? Again, it’s not in their equations. That would require a separate non-economic analysis.

And I have seen the most stupid ideas being floated around by our government officials on how to curb brain drain. I’m getting tired of this ineffective modern theory.

Research center
Why is our country not the center of research for cancer? Or anti-matter? Or superstring mathematics? You will get quizzical looks.

The government and the economists in turn will ask you, “In the first place, why would you ever expect us to be such centers of research? We are only a poor Third World country.”

In other words, they are asking “Why?”
On the other hand, I’m asking “Why not?”
I’m sick of using our status as being a poor country as a convenient excuse for any bad performance, or bad service, or lack of foresight by our government.

Again, this is not found in the equations of modern economics. Strictly speaking, this is a non-economic variable. Economic theory fails.

Fear of inflation
Modern economic theory is afraid of high wages because according to them it will cause inflation.

They have a fear of inflation because… frankly, I don’t know. Massive unemployment? Collapse of the economy?

I tried to think about this fear of inflation. Do you know what I realized? I realized that the fear of inflation by economists is similar to the fear of navigators falling off the edge the world during the time of Fernando who hailed from the place called Magallanes. (Yes, Magellan was not his surname as much as Leonardo’s surname is not da Vinci. Thus, the book should not be “The Da Vinci Code” but “The Leonardo Code.”).

What I’m saying is that the fear of inflation by modern theory is not justified. I’ll explain later.

Inefficiency, low productivity, automation
How does economic theory address the massive inefficiency of Third World countries? How long does it take to deliver ordinary mail from one end of the same city to the other? How do we solve massive bureaucracies, low productivities, and lack of computerization? Can you imagine furniture manufacturers having five employees doing payroll alone? Do you know that some city halls have 3,000 casuals?

But then while these problems affect the economy in general, these are not “economic variables” and thus beyond the jurisdiction of economic theory and equations. Thus, economic theory fails, once again.

Culture and corruption
Our culture is one of closely-knit families, yet the only way to earn a decent living is to separate the family. In First World countries, it is even considered a penalty to be posted overseas. How does economic theory address the cultural and psychological customs of the country? It doesn’t.
How does it address corruption? Same answer, it doesn’t. With Hyperwage, you’ll be surprised.

Nothing has changed
But our government economists can show us statistics that our economy has improved. The economy has changed.

I have changed too. I have more gray hairs but that doesn’t mean I’m a wiser person. In other words, changes that have no direction are mere palliatives.

The problem with these changes is that they will give us a false sense of hope. These changes maintain the status quo, Our train 3 will remain on track 3. We maintain the caterpillar mentality not the butterfly metamorphosis.

Does Hyperwage, in turn, give a false sense of hope? Be patient, I shall soon address all these issues.

Wrong theory, single theory
Modern economics is defective not so much as it is self-inconsistent as it is wrong applied. In other words, yes, economic theory is correct, but no, it’s not the correct theory to be applied to Third World countries.

Furthermore, the concept of a single theory that applies to all economies is another defect of economic theory.

Closed systems
My course in Thermodynamics taught me three important things. First, the Second Law of Thermodynamics states that the level of entropy, which is the measurement of chaos in the universe, is always increasing, never decreasing. Chaos rules! And no perpetual machines.

Second, thermodynamic equations assume closed systems. Third, even if the teacher relies on you in open public to solve problems he himself cannot solve, it does not necessarily mean he is willing to give you a grade of flat one. You have to settle for a 1.3. Somehow, the first two lessons above are easier to comprehend than the third.

Anyway, what is a closed system? You may think of a closed system as your own self-consistent world of make-believe. It’s not real.

Of all the courses I have taken, it is only Thermodynamics that heavily uses the concept of closed systems. And rightly so, because it focuses on heat. If you don’t put it in a closed system, heat dissipates without being accounted for.

As you study deeper into Thermodynamics, the assumption of closed systems is never dwelt with passion because it has always been a basic assumption. Even the students forget or do not even realize that there is such an assumption in the first place. They solve the problems using the given equations and formulas.

On the other hand, the closed-system assumption had a staggering impact on my young mind. Why?
I reasoned out that if ever I work out a wrong solution to a thermodynamic problem, I could always invoke the closed-system assumption.

“Well, sir, your correct solution, and my incorrect solution exist under the assumption of a closed system. Suppose this problem is in an open system, then it is possible that your answer is wrong and my answer is correct. Therefore, by invoking that the closed-system assumption has been violated, your own equations may no longer hold true, therefore your conclusions are invalid, and therefore, I don’t have to believe your results anymore.”

Of course, I didn’t have the occasion to invoke such chutzpah, but the lesson had a lasting impression on me. The “closed-system assumption” which is taken for granted by the students and professors is actually a “redeemer of last resort” whenever one invokes that it has been violated.

In other words, by a single stroke of discarding the closed-system assumption, I could discard an entire theory, and create an entirely new one. Whew! That was mind blowing. I had the power to create my own theory. It was simply staggering.

Economic relevance of closed systems
What is its relevance in economic theory? Quite simple. Modern economics with all its equations is an example of a closed system. And what did we say about closed systems? We have the power to discard it in a single stroke by merely invoking the violation of the closed-system assumption. I finally had the chance to apply a framework of analysis that I formulated during my college days: Violate a basic assumption, create a new theory.

Now you know why it was quite easy for me to discard the economic theory of the World Bank and their handsomely paid PhDs. I simply declared that their economic theory is applicable only to closed systems, and since I wanted to solve problems that are not part of their closed systems, for example, non-economic problems such as brain drain, I concluded that their economic theory is ineffective, inappropriate, and improper for Third World countries. Therefore, the next obvious step was to create a new theory, and thus, I conjured up the Hyperwage Theory.

Consider the aforementioned variables. They are not within the scope of the equations of economics.

These variables lie outside the ambit of economic equations which are based on a closed system. In fact, they are treated as non-economic issues. Modern theory does not address “non-economic” issues because they are classified as separate issues beyond its ambit. Isn’t this an open-and-shut case of a closed system unable to account for important variables that lie outside its system?

In short, modern economic theories and models do not address many of the “non-economic” issues, yet many of our problems are “non-economic.”

Ergo, to solve these problems, we have to discard modern economic theory and replace it with a new one. We must break out of the caterpillar mentality and strive for a butterfly metamorphosis, There is only one hope, and that ladies and gentlemen, is the Hyperwage Theory.
(Thads Bentulan, June 2, 2005)
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+ Hyperwage Theory Part 32
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