A New Economic Order - The Global Enrichment of Nations and their Peoples

By Patrick Amadasun

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The Book - A New Economic Order: The Global Enrichment of Nations and their Peoples. 

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• Language: English
• Publisher: Patrick Amadasun - US Paper Warehouse
• Release date: Sep 3, 2020
• ISBN: 9781735524108

Patrick Amadasun

Dr. Patrick I. Amadasun, Ph.D., DM., has a background in Biology and Medicine. He did his Doctoral studies in Finance, Economics, and Management at Georgia State University and University of Maryland. He is a life member of Phi Kappa Phi and a member of the Academy of Management. He was former Chairman of First Continental Insurance and seat on the Board of several Corporations. He has been a consultant for numerous corporate entities, including a nation. He is an erudite scholar and has authored several works of scholarship.

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CHAPTER 1

Introduction –

Existing Economic System

"Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases.

Good economists are scarce because the gift for using vigilant observation to choose good models, although it does not require a highly specialized intellectual technique, appears to be a very rare one."

John Maynard Keynes

Can you imagine a society or nation where no one pays taxes? Or, a society or nation where everyone is relatively wealthy? People may see this as a utopian dream!! But this is possible. This is factual. And, it is the new reality as presented in this book which will create a specialized global landscape that will generate wealth for all nations and their peoples. Readers of this book will see why they will never pay taxes again and see how they can become independently wealthy. It may appear to most citizens that there is an ambivalent relationship between taxes and wealth; nonetheless, there is a seductive flow of interconnectivity between these two economic elements which will be addressed in this text.

From the dawn of civilization when humans started organizing themselves into groups, tribes, societies, kingdoms and nations, there has been a need for leaders of these associations to find ways of funding the activities of their societies for the common good of all members of the societies. And, as such paying taxes by citizens and businesses in a society or nation have been the way of life for several millennia. As societies became more and more complex, there was need for leaders to create different departments to coordinate the activities of their societies. To fund these activities, leaders came up with taxes on individuals and productive activities for the better good of their societies. These activities, unwittingly, resulted in the transfer of wealth from individuals to individuals and, from nations to nations, and between individuals and nations (Mokyr, 2016).

Mainstream or neoclassical economists promote thoughts that enshrine commodity-only status in economics which support production and consumption activities in a society. On the other hand, orthodox economists posit that economics comprises merely of activities that deal with commodity exchange and ignores the gift relations which create wealth that ultimately generate ecosystem vitality within human community. In this book, a new direction on economics and wealth generation is promoted that is transformative and creates a major renaissance in economics, and how governments should be funded. By the time readers finish reading this book, they should become knowledgeable in the creation of nations and societies where there are no taxes; and where societies and their peoples become wealthy. Hence, a new Economic Order is created which results in the global enrichment of nations and their peoples. No Taxes, Period. Additionally, readers should be able to use this book as a reference to influence members of their congress, their friends and leaders of their countries to abolish taxes.

A major consequence for nations that delay the application of this new economic epistemology will be that these nations will lose their competitive advantage to nations that adopt the new economic system. Nations that are fueled by epistemic anxiety to see their citizens become wealthy will be likened to corporate bodies that actively seeks innovative technologies for competitive edge. It is not complex. Therefore, the more wealth a nation has the more resources, capabilities and innovative technologies that the nation will be able to muster. This proposed new system will provide great wealth for nations that choose to implement the new mechanisms through hermeneutical scientism.

Various scholars have different thoughts on how wealth and economics are defined and are able to provoke discourse cues on how this social science impacts the society. Regardless of the various definitions, there is a common thread that defines economics: the subject matter that deals with the production, consumption and transfer of wealth. Whereas macroeconomic deals with the production and consumption of society as a whole; microeconomics deals with the individual member of a society’s production and consumption. The transfer of wealth in a society has generally shown inequality resulting in some members acquiring more wealth than others (Anand & Segal, 2008).

Likewise, finance describes the management of activities that involve the creation of money and the acquisition of needed funds whether it is for Macro-finance, Governments and Corporate Organizations, or Microfinance that deals with individual management of financial assets and liabilities. The subject of finance has long been an area that produces rhetorical sophistication due to its connection to the stock market and the generation of wealth to some citizens. On the other hand, government is a subject matter that deals with an organizing system containing people of various departments who are empowered to make decisions to improve the lives of members of the community.

It follows, therefore, that economics deals with the transfer of wealth, and finance deals with how the wealth is managed, and government deals with the institution that is empowered to synthesize the wealth that is created and its transference. Consequently, it becomes a factual knowledge that the subject areas of economics, finance, and government are intertwined in a system-centered model for the production of wealth for the society.

The questions that need addressing by all stakeholders should be: What is wealth? What is individual’s wealth? What is a nation’s wealth? And what is a nation sovereign wealth? These questions elicit introspection into citizens’ perception of their view of wealth. A common definition of wealth is the abundance of assets, especially, its surplus over liabilities. It follows that individual’s wealth will comprise of his/her savings, money, house, investments and other material and valuable possessions. Whereas, a nation’s wealth will comprise the aggregate wealth of all its citizens plus other natural resources under its control, which includes all productive activities, its aggregate human capital and technological innovations. Further, some nations do maintain sovereign wealth funds which comprise of savings for investment purposes. Figure 1.1 depicts what a poor society looks like, and all governments should strive to improve the welfare of their peoples.

Figure 1.1: A depiction of a poor society.

In this book, an examination was made of the foundational thoughts on the funding of governments through taxes, other fiscal policies and natural resources which is the bedrock of existing economic system and principle. The process allows for the examination of a nations’ gross domestic product, fiscal policy, inflation, savings and investments, stock markets, other economic factors. This is the old and existing economic order which creates wealth for the few and impoverished millions of members of a society.

A new economic order is presented in this book which put an end to the existing economic system by creating a totally new different system that abolish taxes, yet create a new funding mechanism for government and its people (see Figure 1.2). The new system which was derived through investigation, immersion, and reflection underpins various contemporaneous environments that could be global and, also benefit all citizens of the world. This system funds and enriches the government and its peoples. Further, the new system allows the government to have a balance budget. Also, the new system enables the government to pay-off its debts. Additionally, the new system will enable wealth transfer, not only to the few millionaires and billionaires, but, to all citizens of the society. Hence, a New Economic Order: The Global Enrichment of Nations and their Peoples.

Figure 1.2: A depiction of a tax system that should be abolished.

Gross Domestic Product

Under existing economic system, gross domestic product (GDP) is the aggregate value of the goods produced and services provided in a country within a year (see Figure 1.3). This same definition applies under the new economic system proposed in this book. Gross domestic product has generally been used to gauge the health of a nation and the wealth of its people. Besides, aggregating the value of goods and services within the country, there is increasing emphasis on the effect of innovation and technological advancement on the GDP of a country. This nuanced element could have a strong and scalable effect on GDP’s growth.

The fact that current innovation within the economic system did improve the lives of normal citizens within a society and the inability to capture the effect of this metric on GDP brings to question the ability of current statistical systems in capturing this effect. Economists and statisticians have been trying to develop various constructs on ways in solving this conundrum. There is a divide between economists and statisticians on how to calculate the effect of this construct on GDP. Further, there is a new developing divide between economists on whether the current measurement of GDP in terms of being the economic gauge of a nation’s economic well-being should be seen as the only viable option of a healthy or sick nation (Kartaev, 2017).

Regardless of this controversy, studies do advocate that, though GDP is not a comprehensive measure of welfare or even economic well-being of a nation, yet, it is a very useful tool in the provision of good deal of information on a nation’s health. Some economic thoughts suggest that non-market activities should be inclusive in the measurement of GDP. Also, there is controversy on whether the effects of digital economy and the operation of multinationals corporations could be effectively captured on GDP. Further, the use of deflators in the separation of GDP into nominal GDP and real GDP could produce biased measures of inflation that may not produce an accurate picture of real GDP. It is important to note that the new economic system being proposed in this book attempt to simplify these measures and their effects on GDP, including the measure of the nominal GDP arising from the digital economy and the operation of multinationals corporations. Also, the deflators used to separate GDP into nominal GDP and real GDP may produce a biased measure of inflation. Our analysis suggests that, for goods and services that do not change in quality over time, current deflator methods work reasonably well. But, for new goods and services or goods in services that are changing in quality, current methods may not capture consumer surplus well. In addition, the position advocated in this book suggests that efforts to improve price measurement in order to measure consumer welfare should be pursued, as it is clear that such a measure would be very useful for understanding the current state of the economy and for policymaking. Our analysis suggests that, for goods and services that do not change in quality over time, current deflator methods work reasonably well. But, for new goods and services or goods in services that are changing in quality, current methods may not properly capture consumer surplus.

Figure 1.3: A depiction of a Reserve Bank building – a contributor to GDP measurement.

Additionally, most economists submit that there are three major factors influencing the growth of a country’s economy which they iterate from demand perspective as consumption, investment, and international exports. In order to measure this growth in the economy, some economists use quantitative research to analyze the equation of national revenue in the decomposition of GDP into consumption, investment, and net exports which utilizes the elasticity formula to gauge the contribution of final demand to economic growth. Also, another type of quantitative research employs an econometric regression model in the analysis of the contribution of final demand to economic growth. These types of measures on economic growth are consistent with the new models in the new economic system proposed in this book with the exception that the measure of National Revenue has been modified.

Fiscal Policy

Fiscal policy in existing economic system is a critical tool employed by government to moderate its expenditure (spending levels), tax rates (revenue generation), and transfer payments (consumer income and wealth) for the purpose of influencing the macroeconomic conditions in a nation (see Figure 1.4). In the new economic system, fiscal policy is similar except that taxes (which are revenue generation) are eliminated and transfer payments are modified.

On a generous note, fiscal policy references the ways by which the government of a nation rearranges and revamps its spending and revenue to shape its broader economy. When a government intends to revamps its economic activity within a short term, it generally increases or decreases its level of spending and tax revenue. Governments usually have a budget deficit by employing fiscal stimulus in order to stimulate economic activity when there is a downtime within the economy. Reversely, government will employ a budget surplus when there is an uptime in economic activities and the economy is said to be hot which result in a fiscal contraction that slows economic activities (Alesina & Ardagna, 2010).

In order to galvanize economic activity, government does engage in fiscal stimulus by increasing government spending, decreasing tax revenue, or engage in an amalgamation of the two methods. These highlighted manifold facets of the relationships between these factors work synchronously to produce sizeable impact on the economy. When government increases its spending activities, economic activities are stimulated either by direct purchasing of additional goods and services from the private sector or indirectly by transferring funds to its citizens who spend the funds in the economy. Also, when tax revenues are decreased, economic activities are boosted due to the increase in individuals’ disposable income, which tends to encourage the citizens to purchase and consume more goods and services. The employment of an expansionary fiscal policy is usually very valuable to an economy during recessionary periods due to its alleviation of elevated unemployment levels and stagnant wages.

Figure 1.4: A depiction of what a fiscal policy entail - government spending.

Nonetheless, expansionary fiscal policy should be employed tactfully in order to avoid rising interest rates, growing trade deficits, and accelerating inflation rate that could result if this policy is applied during a period of healthy economic expansion. The reverse, also holds, in that government will utilize contractionary fiscal policy in order to slow economic activity by decreasing its spending, increasing tax revenue, or by simultaneously employing a combination of the two methods. When government reduces spending, it tends to moderate economic activity since it purchases fewer goods and services from the private sector. Concurrently, increasing tax revenue tends to moderate economic activity due to the fact that citizens do have less disposable income which leads to decrease spending on goods and services.

Further, once an economy starts to exit a recession and continues its growth at a healthy pace, government may decide to reduce fiscal stimulus in order to avoid negative effects of expansionary fiscal policy like rising interest rates, growing trade deficits, and accelerating inflation, or may decide to concomitantly manage the level of public debt. Economists do suggest that the effects of fiscal policy on the composition of Gross Domestic Product (GDP) could be gauged by estimating the impact of government spending and government revenue collection shocks on private consumption and private investment which could create ‘crowding-out’ effects in the private sector. These fiscal policy shocks do affect asset markets (both stock prices and housing prices) and consequently, the wealth of its citizens. It should be stressed that markets tend to explicate expansionary fiscal policies as the causal effect of deterioration in public finances; and, therefore, suggest that stock prices react negatively to a rise in government spending and positively when there is fiscal consolidation.

It should be noted that the proposed new economic system in this book tends to perpetuate expansionary fiscal policy at all times. Nonetheless, a control measure is put in place and discussed in Chapter 11 of this book.

Monetary Policy

A country’s monetary policy is generally controlled by its central bank with the purpose of achieving sustainable economic growth through money supply and interest rate management to financial institutions (see Figure 1.5). Most economists see the evolution of monetary policy and economic growth theories as being influenced by dissimilarities, obscurities, inconclusiveness, and cross currents. Orthodox economists see economic growth theories and monetary policy as constructs that have their foundations on quantity theory of money (QTM) (Gali, 2008).

Nonetheless, current growth theories and monetary policy have a central premise that was structured under the Keynesian Liquidity Preference Theory and was superseded by monetarism, and, then followed by several theories like New Classical real business cycles, the New Keynesian Model and New Consensus Model (NCM). Controversially, some economists have produced studies that found no significant relationship existing between the money volume and real economic variables, economic growth and employment. Yet, other empirical studies attest to the fact that monetary policy contributes to, or influence economic growth (Abel & Bernanke, 2011). More studies have confirmed that interest rate shocks do produce significant impacts on output in accordance with current economic theories. However, emerging studies seem to suggest that money supply produces insignificant impact on economic growth.

Figure 1.5: A depiction of what a monetary policy entail – money supply.

The new economic order being proposed in this book do support monetary policies to the extent that it helps in moderating inflation, and seen as a crucial tool for influencing economic growth.

Inflation

Inflation in a society references the decrease in the purchasing power of a nation’s currency which is expressed as a percentage and quantitatively measured based on the increase in price levels of a basket of selected goods and services in an economy for a designated period (see Figure 1.6). Most economic discourses have focused on specific causes and channels through which inflation enters into the system. Also, the consensus by economists is that inflation is created by three fundamental factors: (a) when the economy shows excess aggregate demand over supply which results in an overheated economies at full-employment of productive resources; (b) when oligopolistic domestic companies exercise their market powers which creates the cost-push effect that result in rising unit labor cost, increased prices of imported intermediate inputs, and organized shortages of productive resources which creep into prices of consumption goods; (c ) and, organized revisions of prices that have a causal effect from increase in wages and rents.

A lot of literatures suggest the pragmatic notion that undeveloped countries undergo higher average inflation than developed economies. Further, the literatures suggest that there are different drivers of inflation in different countries and most of the burdens are placed on the country central banks instead of a joint effort with policyholders in government. Despite this observation, it should be stressed that monetary policies do have impact on inflation levels in a country. Also, studies have shown that inflation does negatively impact economic growth in a country and all efforts should be made to curtail this effect (Temple, 2002).

Figure 1.6: A depiction of Inflation.

The new economic order could increase inflation since demand will be heightened. However, a check to this effect is discussed in Chapter 11.

Savings and Investment

A clear definition of savings in economics refers to the portion left from income after expenditure on the consumption of goods and services (see Figure 1.7). On the other hand, investment is the portion of saving or portion of income that is spent on non-consumable goods and services which could be a great measure of consumer’s wealth (Sefton & Weale, 2006).

Further, archetypical perspectives by economists like David Ricardo, David Hume, John Stuart Mill, Henry Thornton, Henry Sidgwick, Alfred Marshall, Arthur Cecil Pigou, Irving Fisher, and John Maynard Keynes suggest that savings which are the bedrock of financial capital do exhibit positive dependent on interest rate. Keynes advocates that aggregate saving is governed by aggregate investment, and a rise in interest rate will diminish investment. Therefore, he suggests that a rise in interest rate would have a negative impact on income by reducing incomes to a level by which saving is diminished by the same level as investment.

Figure 1.7: A depiction of Savings.

Additionally, increased in investment that is caused by low interest rate will raise the demand for commodities which will increase the level of production of commodities; and hence, increase the level of income from wages and profits. Accordingly, Keynes suggests that the levels of savings are significantly dependent on the level of income.

The new economic system underpins the existing economic system, but departs from it in the ways that wealth is created for consumers, and, hence, the nation by putting emphasis on the increase in consumers’ savings and investments that is spurred by increase in consumers’ income. This process is discussed fully in Chapters 10 and 11.

The Stock Market as Precursor to Economic wealth

Generally, the stock market is where investors are able to purchase and sell investments and could be a precursor and measurement of a nation’s economic wealth (see Figure 1.8). The existing economic system and the new economic system advocated in this book show a commonality in that both systems support this process as a generator of wealth. However, the new economic system shows a slight departure from the existing system in that it enlarges the stock market significantly by promoting that if there are more companies being traded in the stock market, then, there will be more wealth created in the society.

Increasingly, there is more body of evidence suggesting that the stock market is not driven exclusively by news about fundamentals; but, in addition, stock market is also driven by investors’ confidence and sentiment. Economists’ argumentation over market efficiency would not be salient if the effect of stock market was not significant on economic activities. Assuming that the effect of the stock market was subordinate to other drivers of the economy, then, market inefficiencies would