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DAVID RALPH MACKERETH dmackereth@canimac.com

Redefining GDP to account for Gross Dominant Poistion

Following the manufacture of a shirt sold in New York; let’s evaluate the impact on the GDP of the two primary countries. We will put the cost of producing the shirt at U.S. $2.00 in Bangladesh and set the New York retail value at U.S. $150.00. Resulting in the country doing the more important function acquiring a GDP contribution that is 75 times less than the country (in the Gross Dominant Position) fulfilling lesser skill sets.

Q.E.D.: The measurement of Modern Day GDP follows ‘Trickle Down Economics’ in reverse!

Having an in-depth look at the U.S. GDP calculation provides insight into the authenticity of that GDP. The cost of providing healthcare to an average U.S. citizen was U.S. $5,859 more than the average for the rest of OECD countries in 2016, as per Tami Luhby, US Spends Twice as much on Health care as its Peers (cnn.com January 8, 2019):

United Sates: $9,892 – OECD: $4,033 = Difference: $5,859 Multiplying this individual person health care cost variance by the U.S. Population generates a total just under U.S. $2 Trillion. This U.S. $ 2 Trillion represented approximately 11 % of the United States GDP in 2016 – and is equal to 100 % of Italy’s GDP (population 60.5 million) – solely from overcharging health care services. Adjusting for military expenditures that tower over the rest of the world combined, and excessive non-productive financial transactions: you would end up with a reduced U.S. GDP. Consumer Consumption generates just under 70 percent of U.S. GDP, while having the largest International Trade Deficit (U.S. Imports exceed Exports by just under a US Trillion Dollars).

“Unbelievably, the health care system itself is the third largest killer of people in the United States after heart disease and cancer.” Don Tapscott and Anthony Williams, Macrowikinomics: New Solutions for a Connected Planet (2012)

Q.E.D.: One does not always receive full value for healthcare payments!

Zero-based budgeting: benefits

At the Oxford English Dictionary we find Budgeting: “[T]he fact of being careful about the amount of money you spend;” “Zero-based budgeting is a method of budgeting in which all expenses must be justified for each new period. The process of zero-based budgeting and every function within an organization is analyzed for its needs and costs. The budgets are then built around what is needed for the upcoming period, regardless of whether each budget is higher or lower than the previous one.” investopedia.com

“[Responsible budgets are to] help ensure that public resources are planned, managed and used effectively to make a positive impact on citizens’ lives. […] the budget is a contract between citizens and state, showing how resources are raised and allocated for the delivery of public services.” OECD, The Principles of Budgetary Governance (2014)

As example, in Education, you would start Budget Building from the student and work your way up to the Administrative Level and in Healthcare from the patient to Hospital Administration and Government Departments. Funds would be fully allocated to the student and patient levels initially then applied as you work through to the Administration Level until they are exhausted. The funding for both Education and Healthcare has not been set-up to provide generous salaries and exciting careers; this financing is to support educating the youth and achieving adequate healthcare: PERIOD! Obviously, those carrying out these most important functions must be equipped with reasonably gratifying working conditions: but that is a secondary focus.

At the least, sufficient funding must first and foremost look after Teachers, Nurses and Doctors, in a civilized country. Once these are thoroughly supported: the remaining financing can be allocated to Administration and other requirements.

“For the last twenty years we’ve let fall into disrepair nearly all of the public infrastructure – roads, water systems, schools, power plants, bridges, hospitals, broadcast frequencies – that provides the country with a foundation for its common enterprise.” Lewis H. Lapham, The Age of Folly, America Abandons Its Democracy (2016)

Q.E.D.: The U.S. would have greatly benefited from a Zero-Based Budgetary approach in its allocation of Federal Revenues for infrastructure.

“To secure the greatest amount of pleasure with the least possible outlay should be the aim of all economic effort […]” Francois Quesnay (1694-1774) French physician and some consider the first economist.

“The money saved from an object may be usefully applied to another, and there will be so much the less to be drawn from the pockets of the people.” Alexander Hamilton (1755-1804)

Federalist Paper Number 13

“It appears that nutrient exchange and helping neighbors [Trees] in times of need is the rule […] Apparently, the trees synchronize their performance so that they are all successful.” Peter Wohlleben, The Hidden Life of Trees: What They Feel, How They Communicate (2015)

Fifteen years ago, I spent a night with my father-in-law in the hospital just prior to his passing. I chatted with one of the two floor nurses who advised, “if you really want to know what troubles healthcare [Canadian] just visit the staff parking lot at 10 AM on a weekday, and then at 10 AM on the weekend. The weekday visit will see the lot full to the brim, and on Saturday a third or so full. And we represent a 24/7 operation. But are mainly a 9-to-5 weekday operation with more and more staff not directly attending patients’ everyday needs.”

Q.E.D.: The Digital Age is moving healthcare from a Hands-On Patient Care approach to a Top-Heavy one!

Role of the Stock Market

“Some in clandestine companies combine; Erect new stocks to trade beyond the line; With air and empty names beguile the town; And raise new credits first, then cry’em down;” Daniel Defoe (1660-1731), Poem ‘London’

“[The] dangerous practice of stock-jobbing, would divert the genius of the nation from trade and industry.” Robert Walpole (1676-1745), Great Britain First Lord of the Treasury

It was a Democrat Government under President Bill Clinton that in November 1999 repealed the Glass – Steagall Act (1933 – separation of commercial and investment banking), which many economic experts consider the primary cause of the 2007/2008 international financial crisis. A non-Republican President caused great financial distress to lower income families with this one single Government decision. Resulting in approximately 9 million Americans losing their jobs and roughly 1.5 million house mortgages foreclosed. While trillions were subsequently advanced to prop-up the larger U.S. corporate interests (especially big banks).

“All those suspected of illegal profits at the time the public delusion [The Mississippi Scheme – 18 th century] was at its height, were sought out and amerced in heavy fines.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1841)

“The U.S. stock market was now a class system, rooted in speed, of haves and have-nots. The haves paid for nanoseconds; the have-nots had no idea that a nanosecond had value. The haves enjoyed a perfect view of the market; the have-nots never saw the market at all. What had once been the world’s most public, most democratic, financial market had become, in spirit, something like a private viewing of a stolen work of art.” Michael Lewis, Flash Boys: A Wall Street Revolt (2014)

“While the [US] Investment Act of 1940 restricts what conventional diversified mutual funds can invest in, hedge funds generally have no such limitations as unregistered securities and are free to employ large amounts of borrowed money – or ‘leverage’ – to make investments. […] Leverage up to 10 times is not unheard of.”, as revealed at Zacks.com

Q.E.D.: U.S. Hedge Funds with their enormous financial resources/positions operate partially outside the Financial Regulatory Environment.

American multi-national investment company BlackRock, Inc. has over U.S. $10 trillion in assets under management: that sum is only exceeded in GDP terms by the United States (U.S. $25 trillion) and China (U.S. $18 trillion).

“America today is witnessing its third stock bubble […] in the past fifteen years. These bubbles do not help the real economy but merely enrich brokers and bankers.” James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (2014)

Q.E.D.: The U.S. senior financial market gurus are either 1) not that competent, or 2) really are that good: having the market move up and down in a mostly predictable direction generating memorable commissions.

“The alternating boom and bust is the form economic development takes in the era of capitalism.” Joseph Alois Schumpeter (1883-1950) former Finance Minister of German-Austria. Benefiting those with significant discretionary funds!

When Mutual Funds and Hedge Funds manage a considerable portion of the investment pool: they in fact, are slapping away Adan Smith’s ‘invisible hand’. Millions and millions of potential stock market decisions are being directed through a narrowing funnel of mutual/hedge fund managers, violating basic economic reasoning!

“[T]he evidence from more than fifty years of research is conclusive: for a large majority of fund managers, the selection of stocks is more like rolling dice than like playing poker. Typically at least two out of every three mutual funds do not achieve their own benchmark in any given year.” Daniel Kahneman (Noble Memorial Prize in Economic Sciences), Thinking Fast and Slow (2011)

“The U.S. stock market ended 2020 at all-time highs […] despite a deadly pandemic that has killed more than 340,000 Americans and left millions jobless and hungry.” Hamza Shaban and Heather Lang, The Washington Post (December 31, 2020)

Q.E.D.: In the middle of a deadly worldwide pandemic the Stock Market rises!

Do markets self-organize?

If U.S. business folks believe markets should be left to sort themselves out; why are they extremely interested (hands on) in how the Economy is ‘Guided’ by the Government?

“Are the self-organizing principles of markets that have emerged over the past 300 years, in conflict with the self-organizing principles of ecosystems that have evolved over the past billion years.” Adbusters 141 (Jan/Feb 2019), Anti-Capitalist (Advertising Free) Canadian Magazine

“The whole notion of the free-market, laissez-faire capitalism, globalization is a very rationale for unmitigated greed by a tiny oligarchic elite. And they have made sure that that ideology is taught in universities across the country.” Chris Hedges, The Pathology of the Super-Rich (2014)

“We should be led to control and reduce the so-called ‘business cycle.’ […] In short, both the bull market and the crash are largely explained by the unsound financing of sound prospect. […] we must regard banking as something more than a private business. It is a great public service. […] The main conclusion […] is that depressions are, for the most part, preventable and that their prevention requires a definite policy in which the Federal Reserve must play an important role.” Irving Fisher (1867-1947), some consider to be the greatest United States economist.

Q.E.D.: Banks provide Public Services and should not be private enterprises!

“The irony of deregulation is that the more freedom business is given, the more dependent it becomes upon government as the savior of last resort.” John Ralston Saul, The Collapse of Globalism: And the Reinvention of the World (2004)

The trillions of dollars the U.S. Government supplied (especially to very large financial institutions) following the self-imposed financial meltdown adequately supports Saul’s observation.

“There can be no ‘free market’ without government.” Robert B.

Reich, Saving Capitalism: For the Many, Not the Few [2015} Q.E.D.: Governments are responsible for and provide the backing supporting the infrastructure of free markets!

Derivatives: calculus and/or economics

“The term derivative refers to a type of financial contract whose value is dependent on an underlying asset.” Jason Fernando, Investopedia.com (July 2022)

“Geometrically, the derivative of a function can be interpreted as the slope of the graph of the function or, more precisely, as the slope of the tangent line at a point. […] Both numerator and denominator still approach 0 […]” Britannica.com The current financial derivatives market exceeds a Q-U-A-D-R-I-L-L-I-O-N U.S. dollars and current worldwide Gross Domestic Product is estimated at one hundred trillion U.S. dollars.

Q.E.D.: Some financial wizards really are wizards – a few thousand can generate a quadrillion while eight billion are needed to manage a lesser one hundred trillion! Financial derivatives approach infinity, while mathematical derivatives approach zero. In the final analysis, they are most likely both approaching zero, as financial derivatives are supported by latent valuations.

Derivatives are not just an ‘important asset class’, like bonds; they’re the largest ‘financial weapons of mass destruction’, as Warren Buffet called them in 2003.

“Derivatives serve practically no purpose except to enrich bankers through opaque pricing and to deceive investors through off-the-balance-sheet accounting.” James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (2014)

At Investopedia.com we discover: “Derivatives were originally used to ensure balanced exchange rates for internationally traded goods.” Fully understood by many. And then a few financial diviners come along with their exotic creations to make money: and an unbelievable amount of money at that! But there is always an end and will the Economies of the world be able to withstand the shock of a serious ‘Derivatives Meltdown’: correlate with ‘Too Big to Fail’! Cognizant there are no resources anywhere; to bail out a Quadrillion.

“Back in 2004, the biggest Wall Street investment banks had created the instrument of their own destruction, the credit default swap on the subprime mortgage bond.” Michael Munroe Lewis, Boomerang: Travels in the New Third World (2011) However, these swaps fabricated immense sales commissions!