Saturday, May 06, 2006

Part 2 - Hyperwage Theory: Hyperwage Theory Revealed


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 02

Published: BusinessWorld May 12, 2005

Hyperwage Theory Part 2 (three years after Part 1 was published)

Chapter 2: Hyperwage Theory Revealed

“The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify into every corner of our minds.”
John Maynard Keynes
General Theory of Employment, Interest and Money
December 13, 1935

This is the portrait of the Street Strategist as an economist. I have the honor to declare that the World Bank whose vision is a world free of poverty is a complete failure. I have to honor to declare that the Asian Development Bank whose vision is an Asia free of poverty is a complete failure. Now is the time for the Street Strategist.

How do you solve population control? How do you tackle businesses who under-declare income? How do you address Filipino time? How do you eradicate corruption? How do you prevent doctors from working as nurses abroad?

We have a hundred different solutions for each of the problems above. But if tell you that there’s only one solution that will solve all of the above, like my friends you will exclaim: “I don’t see the connection.”

If you don’t even see the connection after I told that there is, how could you have thought of the connection in the first place?

Ideal audience
Economics is hard enough as it is because it is very mathematical and quite rightly dubbed as the queen of social sciences. Econometrics and quantitative analysis in economics are multi-variate such that partial differential equations (PDEs) are the norm at the level at high-end economic theory. In contrast, engineering and physics usually have only three or four variables.

Another thing that makes economics difficult is that our everyday sense of what is economical or not, is sometimes opposite to what is theoretically correct. For example, is high personal savings good for the entire economy or not? Is high personal spending good or bad?

Again, economics is hard at it is. Yet, what I’m going to discuss in this series is a new economic theory. This means that I’m going to turn on its head the current economic theories. And if you don’t understand current theory, how ready are you for another contrarian theory?

Therefore, I have decided to limit my audience. If you have no degree in business and finance forget it. Read the other columns. If you have a degree in economics but you only reached a BA or MA level, I reluctantly would welcome you.

If you have a PhD in economics, ah, there you are. My ideal audience. Why? Because by this time, with your PhD you have shall been brainwashed by the theories of economics. And I consider it a good challenge to turn your entire education head over heels.

If you hear me out, and afterwards, you still say I’m an economic idiot, I always was.

On the other hand, if you do agree with me, then I shall have convinced you I’m an economic genius. I don’t have to convince the man in the street, after all he does not have your economic IQ.

As for the rest of readers, well, you can be intellectual voyeurs. Who knows you will understand economics the way the Street Strategist does.

But if you try to argue with me and you don’t have a PhD, don’t. I don’t have time to give you a tutorial in economics.

Actually, this is part 2 of this series. I wrote Part 1 on May 2, 2002 in an essay called Strategy of Poverty.

Yes, that was a few years ago but then you know me, I have one of the must unstructured thoughts around.

While I was writing my 7-part series on ADHD, my 5-part series on traffic, my 10-part series on the bar exams, my 10-part series on certiorari conundrum, my 12-part series on commodities trading, I was also busy reading economics from the basic to the advanced theories in order to secure my footing. Most of all, I wanted to clearly define which principles or theories of economics I would have to violate with my own new theory.

I have to be a contrarian. And you know that contrarians must be wizards on the standard theory first.
I researched on economics so hard that I ought to be given a PhD. Of course, you don’t really believe that, but somehow, I have a feeling that you would believe it.

And even if you don’t have a PhD in economics, if you care to hop on to this journey, I assure you, with the guarantee of the expository mastery of the Street Strategist, that you will never look at economics the same way again. I shall liberate your minds and that’s a promise.

Street Strategist as economist
I have been with you for more than five years. I have revealed so much, although in weekly trickles, almost anything about my love life, my failures, my success and what I think about everything including the sizes of bond papers.

Therefore, my educational background is an open book. Yes, you know that my expertise happens to be in economics. Surprised?

Oh, you can call it aborted expertise because I never got to get my diploma in MA in Economics.

I actually went over my transcript of records a few days ago, and my record on economics is dismal.

In my Econ 1, I got a grade of only 1.5. Yes, I know that’s a high grade but my classmates got 1.0 (flat one or candle). In my Econ 51 I got a grade of 1.3. That’s an improvement but that was supposed to be easier than integral calculus. Still dismal.

While taking up my masters, in graduate school, for Econ 203, Quantitative Economic Analysis, the teacher had the misfortune of having the young man who was to be the Street Strategist as a student. Never mind if she was working on her PhD. But she was no match.

So, she asked her husband who had a masters in mathematics to teach the hard topics to us. When the husband couldn’t answer my questions, he said, “Hey, I know you.”

Of course, he knew me. I beat him in a physic quiz bowl a few years before. Eventually, I got grade of 1.1. Yes, that’s an extremely excellent grade. But I deserved the perfect grade of flat one. I knew more than the teacher and she had to request help. Well, I probably misplaced a comma somewhere in my bluebook. But then if the imperfect judge over the perfect, why would you expect perfection?

At any rate, it was my performance in Econ 204 that spelled the end of my career. I got a very dismal grade of 1.6. If you are taking a master’s degree in Economics, and you get only 1.6 in a simple subject such as Managerial Economics, that’s a disaster. There is no hope for you.

But it was the teacher’s comment that sent a broken arrow direct to my heart and my brain. Towards the end of the term, he inquired why he hadn’t met me in the econ undergrad classes and what I was doing while not taking summer classes. When I revealed to him my unstructured activities he said: “My God. You’re crazy.

You’re wasting the economic resources of this country. Whether you spend your own money or you enjoy a scholarship, that will still be a waste for the entire economy as a whole. There are so many people out there who don’t even have high school education because the economy cannot afford it, and now you are wasting the economic resources to educate yourself about economics? That’s a waste. You’re crazy.”

He was right. I quit economics. They were not able to brainwash me yet. Therefore, I am in the best position to challenge the economists.

New ideas
John Maynard Keynes expressed it perfectly: “The difficulty lies, not in the new ideas, but in escaping from the old ones.”

He wrote this in his controversial book General Theory of Employment, Interest and Money. The General Theory threw away the then existing theory which has since became known as the classical theory.

Thus, Keynesian economics has become synonymous with modern economics. Don’t worry, later on, I’ll discuss what makes the classical theory classical and what makes Keynesian economics modern.
Before we proceed. I’m going to quote Keynes against himself. In other words, I’m going to present a hypermodern economic theory that will violate certain - but not all – fundamental Keynesian principles.

Therefore, I’m going to say this to all economists, classical and Keynesians:“The difficulty lies, not in the new ideas, but in escaping from the old ones.”

First casualty
What is the first thing that happens when I propose that the salary of the domestic helpers, currently, P2,000 shall be increased to P20,000?
Or that the salary of a fresh college graduate should be P70,000?

What is the first casualty of the Hyperwage Theory? The moment we hear of the P20,000 minimum wage, we stop thinking.

Our minds are the first casualty of the Hyperwage Theory. Our brains stop working. Closed minds; hopeless country

The Hyperwage Theory of Economics
The minimum wage shall be set to a level that shall give purchasing power to the minimum wage earners, including domestic helpers, unlike current levels wherein the domestic helpers have almost zero purchasing power.

A hyperwage resulting in real purchasing power will stimulate domestic demand which in turn will stimulate production which in turn will stimulate employment.

This domestic demand, under the power of the economic multiplier will result in increased production of goods or services which in turn will result in more employment in a positive upward spiral.

The theory rests on the proposition that hyperwage does not automatically result in the same amount of hyperinflation in a Third World country. The logic for this is that many goods and services in Third World countries are already being sold at First World prices.

This theory is applicable only to Third World countries, not to First World countries.

Under the current economic theory, the discussion on minimum wage is limited to whether or not moderate increases in minimum wage will result in inflation or unemployment.

Furthermore, under the current theory, all economists agree that if the minimum wage is raised to a very high level (not merely moderate increase), there will be massive unemployment.

On the other hand, under the Hyperwage Theory, the minimum wage is considered as the central factor of the Third World economy. Thus, this is the only theory available that places the primary responsibility of redeeming the country’s economy in the hands of the minimum wage.

The Hyperwage Theory is the only theory that addresses, by way of proximate causes, many externalities and non-economic problems such as population control, inefficiency, corruption, brain drain, underdevelopment of intellectual capital, separated families due to overseas work migration, underdeclaration of business income taxes, and the slow justice system.

In short, the Hyperwage Theory purports to be the panacea with an actionable plan to solve the economic problems of a Third World country.

For discussion purposes, the minimum wage shall be set to be P20,000 per month for domestic helpers; about P70,000 for fresh college graduates. This is deliberately set comparable to Hong Kong and Singapore to avoid the labor wage arbitrage that is causing our school principals to work in Hong Kong as domestic helpers.
(Thads Bentulan, May 12, 2005)

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