National Accounts-

As Though Human Beings Mattered

Preamble:

No public corporation which never produces a Balance Sheet, or anything approaching a Profit and Loss Account exists. The Directors of a company such as the world’s biggest miner, BHP Billiton, which neglected to do so would go straight to jail. Righty so, as their shareholders do have a right to know.

More germane to the issue, the Directors themselves know perfectly well that they cannot make appropriate decisions without any considerations of information, so any such dearth of information is not tolerated. There is a case for knowing the truth, for it is alleged to set one free.

Of all the large entities existent upon earth, be they Trusts, Corporations, Mutual Funds, Charities or otherwise, there is only one form of entity, which has never, absolutely never, in the whole administration of the world, produced a comprehensive Balance Sheet for assets under management, nor a Profit and Loss Account (or it might here be more properly called, a Supply and Demand Account) to enable us to know the economic situation. This is decidedly NOT a matter of conspiracy, it is the result of a herculean deficiency, insuperable economic incompetence, and the impenetrable stupidity of all who aspire to high political office above their competence, which in some countries, notably Australia, is neigh invincible.

Anger at imbecility may be understandable, but it is no excuse for the unkindly portrayal of the perpetrators of same. Intolerance of the impossibly arcane should also not to be unkindly understood, but there may, nevertheless, be a case for its cessation.

The point and purpose of what follows, is not combative, accusative, nor cognisant necessarily of the nefarious concepts of crime and punishment.  It recognises stupidity ascendant, exultant, and overbearing, but would mitigate it, and ameliorate it, as a better alternative to pronouncing upon it.

What we are trying to annunciate in the considerations below, is above all, that which is relevant to the lives of private proper persons is the primary stuff of human economics. A society which has just built 50 Egyptian style pyramids or produced guns before butter, may have an extraordinarily high GDP, but have food shortages or a population in relative penury. The object of economic activity does not consist in measuring its magnitude, but in its results measured in terms of human satisfaction.

Neither a rich man in a desert and in need of water, when none has any for sale, nor a poor man in a superabundance of good things with no means of buying anything, can have his human satisfaction. While we accept these possibilities for individuals, too little interest has been taken in examining whether such may be the case for us collectively as a society.

The socialist dogma that the poor are poor because the rich are rich is so universally accepted, it seems even by anti-socialists too, that we have never thought to examine the possibility that we tend to be relatively poor because we all tend to be relatively poor. A society which expends its efforts, for example, in constructing sky scrapers and incarcerating the population therein as bureaucrats running interference, would have a high Gross National Product, very probably, but may deliver deprivation to its people simultaneously.

No Company which only produced a Budget once annually, and even that a rather “rubbery” one subject to change, could be regarded as other than criminally negligent. How then are we to consider the World’s Governments?

No Politician (nor anybody else) can claim a knowledge of the economy without being able to answer the questions “What are the assets and liabilities of the entity under management?” or “Do consumers, between them all, have the purchasing power to buy the consumer products available and for sale?” and evidence the veracity of their answer.

Perhaps it’s time to change this.

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A National Supply and Demand Account

 

If the purpose of human production is human consumption, our statistical institutions’ efforts are quite inadequate to understanding the human economy.

An example of this is that GDP is a measure of gross domestic economic activity. It is not a measure of consumer products intended and available for personal human consumption; though personal human consumption is the whole and final purpose of the economy. Gross economic activity and efficiency in terms of human satisfaction, are not co-equal or of the one substance.

Similarly there is no calculation of personal income available to enable this production to be consumed. It may indeed be consumed, but this is, or may be, only accomplished by an increase each year in credit card and other personal loans (personal debt increases), and the knock-on effects of increased Government and corporate indebtedness.

To understand the situation of real people in terms of the real purpose of the human economy, new National Economic Indicators are required.

To understand the nature of the consuming public’s situation two new calculations are essential. One might be termed the Gross Consumer Production (the GCP) and the other the Aggregate Personal Income (the API).

The GCP would measure the gross consumer products intended and available for personal human consumption. The API would be a measure of the personal income available to effect personal consumption.

Whether these are in equilibrium has been a matter of contention for a century now, a controversy most notably associated with the names of C H Douglas and John Maynard Keynes, but has never been quantified although the data is now available, though admittedly somewhat scattered. The constant increase in indebtedness throughout this preceeding century, and the current acceptance by authorities of such measures as quantitative easing and deficit funding, implies recognition of a deficiency of AGI to meet GCP. Accepted or not, it is surely time to quantify it. The act of quantifying it will confirm or end the allegation of disequilibrium.

Something of the nature of the items to be calculated into the composition of the GCP and API are examined below.

GCP for a period would include;

·       All consumer goods sold during that period

·       An adjustment for the rise or fall of inventories of consumer goods

·       All services provided to consumers during the period. (These first three items are actual and measurable (real, and happened) and therefore with effort, knowable.

·       A calculation of the unused capacity to produce desirable consumer goods and services which might have been reasonably expected to have been produced and consumed, were there sufficient effective purchasing power in the hand of the public during this period to enable this to take place, might form a footnote for consideration.

·       All net imports over exports as an addition, or net exports over imports as a deduction

·       The rental value of all currently rented and also newly built residential housing during the period,  and the maintenance  cost of owner occupied existing dwellings

·       The aggregated actual consumption of motor vehicles, white goods, computer ware and other durable consumables of a duration of over 1 year, with the exclusion of housing

·       All contributions into superannuation, annuities, and also life, income protection, and property insurance, as well as other insurances paid by proper persons

 

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GCP would exclude;

·       All intermediate goods produced unsuited to end consumer use

·       All taxes paid by corporations

·       All consumer goods purchased for corporate or Government use.

·       All capital items, however owned, directed towards industrial, commercial or Government use

 

 

Aggregate Personal Income

API for a period would include;

·       All wages, salaries and other employee benefits paid during the period.  (The US Federal Reserve Bank of St Louis “Income Measures V’s GDP” of November 2014, gives wages, salaries and other received benefits as only 53% of the US GDP.)

·       All dividends paid to proper persons. ( From the data supplied by the Research Analyst of the Factset Dividend Quarterly, Andrew Birstingl),  for every one of the 480 Companies included in the S&P 500 index, it is revealed that only  2.17% of the $400 billion paid in dividends  in 2013 went to proper persons rather than corporations.) This represents 0.05% of GDP.

·       All rents, royalties, commissions and like payments paid to proper persons, which are not associated with their employment.

·       All Social Security Payments

·       All receipts from insurance, superannuation, and  annuities and suchlike

·       All rent income from personally owned businesses, farms and other assets, and other paid self- employment

·       All interest paid to proper persons from Corporations or Government

·       All taxes paid by proper persons would be deducted.

·       All contributions  from superannuation, annuities, and also life, income protection, and property insurance, as well as other insurances received by proper persons

 

 

API for a given period would exclude;

·       All personal expenditures funded by debt.  (Debt and interest paid between proper persons only transfers personal income, and debt had from corporations is not income proper.)

·       Any insertions into the account intended as balancing entries. The purpose of the account is to discover whether any imbalance exists, and if so, to reveal the nature and quantify the extent of it.

 

A National Balance Sheet

Assets:

 

Most, but not all, of the information with regards to national assets is already readily available. Initially some tolerance as to accuracy will be acceptable, provided that the basis of the estimations is fully transparent.

Because only a small proportion of assets listed below will ever be on the market at any one time, a similarly small proportion will be monetised, that is to say, represented by created money. From the point of view of this consideration accuracy is not highly critical, though desirable of course.  An outline of the items which may be listed, with some comment as to the availability of information thereto follows:

 

·       Residential Housing.  The number of residential dwellings is already known via census taking, and the Real Estate Industry Associations know the value of the average sale. While homes of a lesser value may sell more often than those of greater value (or vice versa), this is an acceptable initial basis of estimation.

·       Agricultural Assets. The numbers of farms, hectares of arable land, numbers of the various livestock, orchard acreage, and much else is readily available. The depreciated value of agricultural machinery in use may be more problematical, though not beyond reasonable estimation. Off farm agricultural assets such as irrigation dams and water delivery systems are of a known cost and durability.

·       Mining Assets. As mining is highly regulated information about mining activity, production and assets is readily at hand for Governments.

·       Manufacturing Industrial Assets. Industrial floor space, inventories, equipment and machinery, patents and intellectual property are all involved with differing degrees of difficulty of estimation. Provided that the basis of estimation is transparent and the administrators of the accounts are listeners, refinements towards accuracy will accrue.

·       Commercial Infrastructure. Assets in use in commercial endeavour (other than money) are calculated and estimated here.

·       Communication and Transportation. Telephone, postal and internet assets, including satellites assist with communication, while vehicles (known through registration) are a transportation asset, and public roads and highways qualify under both categories.

·       Education. Intangibles are assets too. If we believe that what has been spent on our education during our lifetimes was worthwhile we have an initial value of education. To this may be added an experiential value accruing after training, and an actuarially calculated depreciation as we approach retirement.

·       Intellectual Assets. A whole plethora of assets accumulate here. Patents, processes, designs etc. which are best summed in the American expression “know-how”. Much of our economic inheritance which has vastly grown the human ability to do things is simply discovered information.

·       Goodwill. A population which is at peace with each other, possessing common ideas as to the purpose of society, and known by neighbouring Nations as acting in good will has this asset. A gaggle of warring tribes or sects occupying a geographical area has not. The New Orleans floods took years to recover from. The Brisbane floods of 2013, where the population voluntarily rose to help each other, was at least all cleaned and tidied away in 3 weeks. Goodwill in Sydney has declined since the 1920’s when people didn’t even bother to lock their houses, but a large measure continues to exist. This asset is, at least potentially if not now, our most valuable asset.

·       The Taken-For-Granted. We are used to the idea of monetising (putting a money value) on the items above. So how are we to arrive at a capital value for sunshine, cool breezes, rain, the English language, and the human DNA which, among other things come for nothing. These “assets” so to speak, are more valuable to us as we have inherited them for no charge, than are many others, surely? The Philosopher-Accountants need to stand up.

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National Liabilities:

A liability is anything which constitutes a claim upon our assets. Our claims upon others are our assets. The claims of others upon us are our liabilities. It is here that the most horrendous shock to political/economic thinking has to be delivered. We have never had a National Balance Sheet so there was no way that we could be told, that by far the Nation’s greatest liability is;

·       The Nation’s Supply of Money. There are various calculations of the money supply. As the M3 calculation does not, unlike M5, involve a measure of double counting it is here recommended. It is money which gives effective demand against our assets, and is therefore, overwhelmingly, our prime and largest liability.

 

For centuries Western politicians have been making unceasing efforts to increase exports, a means whereby we exchange assets in the form of products in exchange for liabilities in the form of money. Similarly they have been eager to exchange our farms, mines, tourist resorts, office buildings etc. in order to have less assets and gain more liabilities. These clearly maniacal practices have always been described and presented to us as “Favourable Balances of Trade” or “Favourable Balances of Payments”. Was it Napoleon who said that “Three million Politicians can’t be wrong”?

 

·       Debt.   Sums owing from or to payable to external  entities, represent to us assets or liabilities respectively. This is only realistically so if it is accompanied by an ultimate intention to claim real assets in exchange for debts owing.

·       Depreciation.  While depreciation diminishes our assets, it is probably best because of its differing rates in each category of asset to address it, along with appreciation, in the valuation of each separate class of asset.