Counterbalance Economics Summary
Key Concepts
Incorporating an Equal opportunity for all would dramatically improve any democratic system and can be used as a lens to determine the level of democracy in our society. If we could implement Equal Opportunity for All in Australia, this would be one of the biggest wins for everyone. However, in order for this to occur, we need to first re-balance our Economic, Political and Judicial Power systems to provide a better distribution of wealth and reduce the level of inequality in society.
Since employment and income are the key mechanisms used to distribute wealth in our society, focusing on this area will give us the best chance to achieve that goal.
Human Rights Article 23.1 states that ‘Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment’ (United Nations, 1948).
Professor of Economics at the University of NSW, Richard Holden, writes in his 2018 publication 'Australia’s 5% jobless rate is not Full Employment' (Holden, 2018):
'What level of employment constitutes “full employment”?
Economists used to say that a 5% unemployment rate was
FULL employment'
Unless they have studied economics, most Australians would not realise that when economists and politicians talk about full employment, they are not talking about everyone who wants a job being able to get a job. Professor Holden believes we need a certain level of unemployment to prevent wage-push inflation.*
More unemployment is on the horizon, assuming we maintain the current trajectory. According to an important report published by McKinsey Global Institute in 2017: 'A FUTURE THAT WORKS: Automation, Employment, and Productivity' (McKinsey, 2017, p. 8), anywhere up to 50% of current jobs could be automated within the next 20 years.
Our Question is:
The Australian Council of Social Services (ACOSS, Inequality 2019), believe that the problem with excessive inequality is that it is harmful to society as a whole, not just for the people experiencing it.
Counterbalance Economics model is the name given to the model we are advocating for and these are the issues the model is trying to address:
1. If the Government or market provided a job for everyone who wants one, it would create wage-push inflation.*
2. If the Government tried to increase wages or unemployment benefits, that too would be inflationary.
3. If wages are increased beyond a certain point, employers would be forced to sack workers to remain solvent.
Therefore, we need to find or develop a better way to transfer wealth that will allow 100% employment and an increase in wages without the unwanted consequences.
Current Economics Systems have Failed - The reason both enterprise capitalism (Neo-liberal economics)** and social capitalism (Keynesian economics)*** have failed is because they are both working with a structurally flawed tool: money. Using the first model, money causes inequality, using the latter, it causes inflation (Heywood, 2013, p. 145). That said, it is obvious that our current society cannot function without the use of money therefore, we have developed an alternative currency called Countertrade Credits, which allows us to achieve the above stated goals without the negative outcomes. It is designed to work alongside conventional currency as outlined in Are Countertrade credits as flexible and efficient as cash? A novel approach to reducing income inequality using countertrade methodology (Malliaros & Pacheco, 2021).
Using computer simulations to test the Counterbalance Economics model - Based on the simulation, introducing the CBE into the Australian, UK, US, Swiss or German economies would result in an overall GDP increase of under 1% however, the level of inequality would be reduced from an average of 0.33 down to an average of 0.08.
Click here for a demonstration.
Different types of Money
Cash - cash is money in the physical form of currency, such as banknotes and coins
Cheque - is a document that orders a bank to pay a specific amount of money
from a person's account to the person in whose name the cheque has been issued
Digital Currency - is centralised, meaning that a transaction within the network
is regulated in a centralised location, like a bank
Cryptocurrency - is decentralised, and the regulations inside the network are
governed by the majority of the community
Timebanking - is an alternative currency or exchange system where the unit of
account is the person-hour or some other time unit
Countertrade – sophisticated barter system used for international trade through
an exchange of goods rather than by currency purchase
Contra-deal - is where a business will exchange their own goods and services for the
goods and services of another, usually without the exchange of money
Barter - exchange (goods or services) for other goods or services without using money
Inflation - an increase in prices and a fall in the purchasing value of money
Power System - A leadership approach in which influence and power tends to flow from
the coach to the athlete in one direction only
Direct Democracy - Democracy without representation, where those entitled to decide
do so in sovereign assemblies, and where committees and executives are selected by lot
rather than elected.
The Swiss model is a great example (Federal Council of Switzerland, 2019).
The different forms of currency and how they are used serve to show that there is more than one way to trade goods and services. Each of the methods outlined have been developed to solve a particular problem.
Countertrade Credits (CC) are the name given by the authors to a special type of in-kind transfer voucher that exhibits the characteristics outlined in (Malliaros & Pacheco, 2021).****
Fairer Distribution of Wealth – the Counterbalance system advocates for the Average Weekly Earnings (AWE - in Australia, it is currently $1,714 p/w) amount to be paid to those working as Community Enterprise Employees. Based on computer simulation modelling, and for reasons outlined in the discussion paper (Malliaros & Hall, 2019), this is pivotal to achieving the goals of the Counterbalance Economics model. To understand the impacts of income inequality in every facet of life, please watch the TED talk above, given by Richard Wilkinson a British social epidemiologist and author of the Spirit Level: Why Equality is Better for Everyone.
The goals of the CBE can be achieved by paying Community Enterprise Employees less than the AWE, however, the positive impacts on income inequality and wage-push inflation would be compromised.
The justification behind paying the AWE is that it is the fairest distribution of wealth, as shown in the dictator game experiment carried out by Daniel Kahneman (a psychologist who shared the Nobel Prize in Economics in 2002), Jack Knetsch and Richard Thaler using students.
Employing 100% of those who want to have a job – As mentioned earlier, economists used to say that 5% unemployment was considered full employment. 'Attempts to stimulate the economy, or cut interest rates to get the unemployment rate below 5% was therefore seen as pointless because it would merely stoke inflation. Which is why the 5% rate has been referred to as NAIRU – the 'Non-Accelerating Inflation Rate of Unemployment.’
In order to stop the upward wage-thrust that would ensue after providing a job for everyone who wanted one using the current form of money, we would do the following:
- Set the minimum wage payable at $85,000 p/a (the current AWE), payable in CC;
- Employees would be given the choice of being paid at the current rate in $AUD or receiving the increase in CC;
- All employers with employees who currently earn less than $85,000 p/a and who elect to be paid in CC's, would receive a 100% wage subsidy, which means that both businesses and employees would be better off.
Businesses would be asked to provide the equivalent of the wages saved as goods & services to Community Enterprise Employees. Anyone being paid in CC is deemed to be a Community Enterprise employee. Businesses will be credited for the cost of the material used to create goods and services as outlined in the discussion paper (Malliaros & Hall, 2019, p. 8).
There are currently around 56,000 charities providing services that should be provided by the government, or by the market (ACNC 2020). In other words, the NFP sector is there to pick up the slack created by market and government failures.***** All of these activities would become Community Enterprises (CE)****** and the unemployed would be employed in activities that support the community in this way.
The structural differences between the Countertrade Credits and $AUD are what creates the Counterbalance to the current economic system. This is also what allows zero unemployment (excluding frictional unemployment)******* to be implemented, regardless of what phase the business cycle is in.
We have two papers pending peer review and publication to more fully expain and verify the model .
Given that you will be guaranteed an income each week, 4 weeks paid leave each year, ten days’ sick leave and superannuation for your retirement, there is be no need to hoard the income you receive. Importantly, the increased income coupled with the reduction of concern about the future will encourage everyone to spend what is earned, which will further boost the economy.
Summary
The Counterbalance Economic system allows us to overcome the key issues relating to employment which will then allow anyone who wants a job to have a job! Implementing the system described along with our other key policies, will reduce inequality and finally allow us to achieve the goal of Equal Opportunity for All!
All ideas and policies are based around the Counterbalance Economics Model as outlined in the Discussion Paper (Malliaros & Hall, 2019) and the research paper (Malliaros & Pacheco, 2021).
Asterisk Definitions Key:
* Wage Push Inflation - A variant of cost-push inflation that attributes the origin of inflationary pressures in the economy to increases in nominal wages.
** Enterprise or Neo-liberal capitalism (as in the US) is known as ‘pure capitalism’, as articulated by Friedman, Phelps and others is where the economy is managed by the market (Heywood, 2013, p. 134).
*** Social capitalism – an attempt to ‘marry market competition with social cohesion’ and where the economy is managed to a greater or lesser degree through government regulation (Heywood, 2013, p. 134).
**** Countertrade Credits (CC’s) are the name given by the authors to a special type of in-kind transfer
voucher that exhibits the characteristics outlined in (Malliaros & Pacheco, 2021).
***** Market and government failure is a situation where the market fails to produce or provide enough of a good or service to fulfil demand. Government failure is where their intervention leads to more market failure or where government policy fails to rectify the market failure (Hubbard et al., 2015, p. 170). Please note that in the CBE context, market and government failures has a more holistic meaning and includes a failure to rectify social inequity and environmental failures, not just a shortage of supply of goods and services.
****** Community Enterprise (CE) - in the Counterbalance model, there are 2 types of business activities. For-Profit activities & activities that benefit society where the motive isn't to maximise profit for stakeholders. These activities are called Community Enterprises. CE's are designed to fix community, environmental & market failures. Not for Profits would therefore become Community Enterprises, fully funded to ensure they're achieving Key Performance Indicators.
******* Frictional unemployment - Short-term unemployment arising from the process of matching workers with jobs.
Seasonal unemployment arises due to factors such as weather, variations in tourism and other calendar-related events. Structural unemployment is unemployment that arises from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs (Hubbard et al., 2015, 223-224).
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The Counterbalance Economic system
assists to overcome these issues and allow
anyone who wants a job to have a job!
Implementing these strategies will reduce
inequality in our society and allow us to achieve
Equal Opportunity for All!
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References
ACOSS. (2019). Inequality. http://povertyandinequality.acoss.org.au/inequality.
Federal Council, Switzerland. Direct democracy. (2019).
https://www.eda.admin.ch/aboutswitzerland/en/home/politik/uebersicht/direkte-demokratie.html.
Heywood, A. (2013). Politics. Basingstoke: Palgrave Macmillan.
Holden, R. (2018). Vital signs: Australia's 5% jobless rate is not full employment.
Hubbard, G., Garnett, A., Lewis, P. & O'Brien, A. 2015. Introductory economics (custom edition), 1st edn, Pearson Australia.
Malliaros, P., & Hall, P. 2019. Discussion paper. Introducing counterbalance economics & community credits (CC).
https://files.secure.website/wscfus/10556979/26488398/introducing-a-new-type-of-currency.pdf.
Malliaros, P. & Pacheco, A. (2021). Are Countertrade credits as flexible and efficient as cash? A novel approach to reducing income inequality using countertrade methodology. Manuscript submitted for publication.
McKinsey Global Institute. (2017). Harnessing automation for a future that works.
Tootoonchinia, M. 2020. Image: Justice scales balance lawyer. https://pixabay.com/photos/justice-scales-balance-lawyer-423446.
United Nations. 1948. Universal declaration of human rights. Article 23 (1).
https://www.un.org/en/universal-declaration-human-rights.
Wilensky, U. (1998). NetLogo wealth distribution model. http://ccl.northwestern.edu/netlogo/models/WealthDistribution.
Center for Connected Learning and Computer-Based Modeling, Northwestern University.
Wilensky, U. (1999). NetLogo. http://ccl.northwestern.edu/netlogo. Center for Connected Learning and Computer-Base
Modeling, Northwestern University.
Wilensky, U., & Rand, W. (2015). Verification, validation and replication. In An introduction to agent-based modeling: Modeling
natural, social, and engineered complex systems with NetLogo. The MIT Press.
Scientific Modelling (click here)
The outcomes achieved in these computer simulations of the effect that the Counterbalance Economics has on economic growth and the distribution of wealth, provide hope for a more equitable and sustainable future for all.
Below are screenshots of the Netlogo simulations which model the effects of adding the Counterbalance to any economy.
Click on an image for a demonstration:
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