#realonomics

[realonomics]

What Not Having Money Does to Your Brain

This is disturbing.

[realonomics]

Entrepreneurship in Jamaica

[realonomics]

Michael Manley Interview on what Jamaica stands for

[realonomics]

Why Jamaica's Debt is so high

[realonomics]

Jamaica's Hurdles to Growth Pt 4

Background

The culture of high govt corruption has been more than a sore toe for us. Maybe a bad foot altogether right? From the Montego Bay Mayor defacing the flag in 2012 during an inaugaration ceremony to the Trafigura and light bulb scandals in 2000s. Not to mention incidents from previous decades like that examined in the 1963 Dacosta Commission. We have endless examples of our greatest hurdle yet, which is a lack of patriotism.

Problem

The link between crime and poverty, is the same link between poor infrastructure and corruption.

Regarding crime, our police force can only afford to do so much and no more. This is especially certain when the conditions causing crime affect them as well, hence them becoming the ‘legal badman’.

Let's say there is an important exam like GSAT in which 5 students with mixed attitudes are doing. There are only 3 pencils available, and all 5 have to do the exam in the same time frame to pass. Conflict will surely arise in the exam because of the pencil scarcity, regardless of race, upbriging, intelligence and other variables related to the students. This is a big part of why so many police officers and legal officials engage in bribery.

We can’t put a band-aid on a gunshot wound. Even though it needs a bandage, it also needs antiseptic plus careful and decisive attention by someone experienced and interested in the matter. A new commissioner won’t stop crime and it takes cash to care.

Most crimes are a cry for help, which can’t be addressed with overly constrained resources which are greatly demanded by so many. Truthfully we can see that any human put in the right situation will commit crime to find ‘a way out’. Even Santa Claus steals cookies.

Corruption positively correlates to poverty as seen in the World Corruption Index. The poorer countries globally have higher corruption levels. This is only reversible through discipline, education, social programs and effective economic management which all have hefty price tags.

Poor water allocation by NWC resulting in the 2014 drought, roads looking like a yam hill, an outdated and extremely costly energy approach by JPS and lack of internet access will only breed more corruption. These things are not the responsibility of the police force. Only Jamaicans can look after Jamaica, both citizens and leading officials have an equal role to play in nation building.

Solution

Today there isn’t enough youth advocacy, research, volunteerism nor sponsorship from aristocracy to deal with country’s problems. We (80s and 90s babies) have to collaborate and become more interested in the future of our World and looking after our country is a central part of that contribution. Gen Y is too obsessed with money and not patriotic, which is how this cancer originated.

[realonomics]

The Game of Exchange Rates

Background:

An exhange rate is a ratio that expresses one currency in terms of another. So an exhange rate of 1USD : 100 JMD means that 1 US dollar has the value of 100 Jamaican dollars, ceteris paribus (all other factors remaining the same). But, what does this really mean regarding quality of life?

Crabs on an Island: Let’s say that Jamaica is a small island with crabs, and The United States is a much larger island with crabs as well. There are two types of crabs:

Red Crabs run away from you = Weakening or unstable currency

Blue Crab run towards you = Strengthening or stable currency

Working for pay is called ‘Crab chasing’.

More manufacturing = turns red crabs into blue crabs and makes blue crabs.

Less manufacturing = turns blue crabs into red crabs and makes red crabs

To survive you must catch 10 crabs per day through crab chasing.

In the Unites States, there are more blue crabs on the land while in Jamaica there are more red crabs due to the current economic conditions in each island.

Blue crabs are easier to catch because they are running towards you, while red crabs are the opposite. Hence the chance of catching 10 crabs in Jamaica is more difficult because of the type of crabs on the land.

Conclusion:

Many people say that ‘things are hard everywhere’ when assessing the quality of life in different territories. You have to ‘crab chase’ to survive regardless of location but the rewards will be different.

Truthfully, this is a simplified version of what actually takes place but is helpful in seeing why many of us think the United States as 'The Promised Land' and why remittances is the greatest source of foreign exchange in Jamaica.

[realonomics]

Jamaica's Hurdles to Growth Pt 3 : Solution

Solution

: Jamaica can’t merely cut it’s way to growth, neither can any other country in the World. Economic growth is attained by careful, purposeful spending and well thought out investment. If you want your child to grow, develop and prosper then you have to spend on varying programs and support the child. The same goes for a nation.

Austerity (cutting back) is used to correct excesses in the market.eg. If there is too much money in the market and it’s causing harmful inflation, then you cut money supply or issue bonds to stop it.

Using contractionary policy to achieve growth is like putting your child out of school so they can be better educated. We grow by adding and multipling, not by continuous subtracting and dividing.

•Where will the money come from, if not from the IMF?

There is already money in the country because of past and current business activity plus investments, and these sources of money can be multiplied through expansionary fiscal policy. This means reduction in taxes, making more business friendly policies and increases in subsidies, rent and other incentives.

GDP -> C + I + G + (X - M)

Consumption + Investment + Govt Spending + (Exports -Imports)

Higher GDP means growth, lower means contraction. A good economy has C, I, G and X higher than M. In Jamaica, M alone is higher than C + I + G + X .

Multiplier effect: Every Economy is a chain.

1) When taxes are reduced, people will spend more. This will boost C. When C boosts due to tax cuts, businesses will earn more. (One man’s spending= another person’s income)

2) When businesses earn more, they will expand, hire more staff and invest more (all profit maximizing firms do this) which boosts I.

3) When C and I are boosted, the government will earn more from gct and business taxes. Since they have more money to spend, G will increase.

4) When Consumption and Investments are high enough, then businesses will export their goods to earn foreign currency which boosts X. Imports will also increase, but the chance of outproducing what we consume is now far greater. Its easier for X to be higher than M.

Conclusion

We cannot borrow chiefly to pay our bills. We must produce goods to pay our bills. If we borrow, it should be to invest domestically (incentivize production) so that the investments will pay our bills via tax revenue. When IMF makes our dollar weaker, it’s in order to make the debt increase. Also, the longer we pay is the more money IMF makes. It’s like Singer and Courts offering goods on hire purchase.

The IMF’s role is to destabilize nations so that they can be indebted as long as possible in an effort to colonize them. Neo-colonialism is not new and is happening as we speak all around the World. At least old colonizing states invest in the development and not destruction of their territories.

Oh, and the ‘growth’ they’re talking about is when we get worse by 3% instead of 4%. So the 1% difference is recorded as ‘growth’.

[realonomics]

Jamaica's Hurdles to Growth Pt 3 : Problems

Background:

Jamaica is currently under an IMF contract arranged by the Truthfully ‘passing tests’ sounds lovely but if you ask a somebody for a loan out of desparation, and in return they demand total control of your personal life then they will naturally run your life in terms their best interest and not yours.

Imagine a wealthy and notorious neighbour choosing the quality of your spouse, car, house, box lunch, clothes, down to your toothpaste, all according to what suits THEM and not YOU! You would probably have a monkey instead of a spouse, wear leaves, live in a hut, drive a handcart with grass and stones to eat. “Not a raas!” you would say but every time we ‘pass a test’ it’s another ‘good monkey’ gesture from IMF. Let’s examine how this is so.

Problems:

The IMF only uses contractionary fiscal policy in the countries they ‘assist’. This means actions are taken to cut consumption eg. Tax increases and cuts in government spending (subsidies, salaries, etc). Examples of this approach range from West African States, India and counties in the Latin America and the Caribbean.

The Finance Minister says we have no other option and that this is the true path to growth. Let us look at what currency devaluation and contractionary policy does to developing countries:

•False ‘competitiveness’: The local currency is devalued on the basis of making exports cheaper so foreigners will buy more of our goods on the market. It sounds good in theory but the reality is that price isn’t the only factor that makes consumers buy goods.

Perception of quality, product image, availability of substitutes and performance also greatly influence what people buy. Therefore lowering the price of a product doesn’t automatically increase sales, which was proven by a fall in Jamaican export earnings in 2014 even though the dollar has been reduced in value continuously since 2012.

Currency devaluation only helps countries that have a lot of capital and strong market presence in production like Japan.

Japan’s yen is relatively cheap but it benefits them because their technological aptitude is high and can easily correct any shortfalls created by devaluation eg. Making their already loved Toyota, Honda, Nissan, Nintendo and Sony goods cheaper makes them more attractive on the market.

This will boost demand and sales thus increasing growth and foreign currency earnings. We don’t have the capital and brand loyalty (in producing goods) to benefit from that strategy. Is that really competitive?

• An unstable currency results in fast and frequent inflation. If producing goods is like hill climbing, then inflation is every time a stone or mud slides in your face. You have to exert more effort to get the same results, which is inefficient.

Even the best hill climber cannot beat a classic mudslide. Boom! Our inflation rate from December 2013 to August 2014 is 5% according to the Statistical Institute of Jamaica.1 to 2% in a YEAR is worrying but 5% in 9 months is outrageous! Now, is that really competitive?

• A widening income distribution gap is a condition of the rich getting richer while the poor gets poorer. It’s no mystery every reggae says it! This means that every person earning US dollars (mostly investors) will get richer as the Jamaican dollar weakens while the masses (earning Jamaican dollars) will have less purchasing power. This increases the amount of people who fall below the poverty line. Is that truly competitive?

• Higher energy costs will occur as most of our energy is imported from oil products. This makes Jamaican production costs too high, so by the time our firms pay JPS it’s already more expensive than the foreign substitute. This is prevents growth because the margin is too small, thus making investment difficult. Less business growth means less employment. Is that truly competitive?

• Cutting Education, healthcare and defense are a part of the IMF’s famed ‘bitter medicine’. However, in order for a country to successfully develop economically and socially it must invest heavily in education, technology, energy, healthcare and defense.

A) If a country can’t defend itself then wealthier territories can run over the military and take their resources aka the main story of how countries are conquered.

B)If a country has poor healthcare then the population will be unproductive and have higher mortality rates. This will scar the quality of life and make the nation more desparate.

C) If a country has a poor education system then it will turn out inefficient workers. The workers will do inefficient work which will lead to a plethora of troubles like lack of innovation, low skilled labour and brain drain as people will migrate to get better options.