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RIP-Real Incomes Policy
Thematic note

The calculation and knowledge problem

Hector McNeill1

This note is part of a series as a sequel to the article, From nominal growth to stable real incomes. To place this note in context readers are encouraged to read this article before reading this note.

This note explains a fundamental policy requirement to enable communities and whole economies address most things from productivity, real incomes disparity and the climate crisis. This is the elimination of the calculation and knowledge problem by introducing a policy to enhance community participation on policy instrument value determination.

Why centralised policies go wrong

The fundamental error made in macroeconomic policy is that it is not guided by a participatory system of policy design but is based on a theory related to aggregate demand management. This imposes from the centre base interest rates and monetary injection targets. This has not worked for over many years and the extent of growth in money issuance has transitioned the world economy into a Modern Monetary Theory world. The problems with this state of affairs was explained in the article posted 20 July, 2020, The emerging status of Modern Monetary Theory. I wont elaborate more on this here.
Price Performance Policy

RIP has two macroeconomic policy instruments: The PPR is a measure of progress of each economic unit in lowering the ratio between changes in output prices against variations in input costs. The PPL is a rebate on a basic levy according to the PPR values achieved. Economic units can manage their affairs to minimise the levy even to zero. In this way the macroeconomic policy is coordinated by the participatory development of companies and their workforces and not by largely arbitrary interest and debt targets.

RIP bases policy inpact and success on the knowledge and calculations made by the economic actors thereby solving the calculation and knowldge problem in an operational structure that more closely approximates participatory constitutional economics.

In a constitutional economic situation the contributions of government are fine tuned to the extent of achieving agreement of the electorate based on pubic choice.Because we are not organized this way politicians, guided by economists and by the interests of their party financial benefactors have tended to estblish macroeconomic policies which created a class of winners, far more losers and some who remain in a policy neutral impact state. The general tendency has been inflation in asset markets and declining productivity in wage-earning sectors for the production of good and services. Governments and central banks respond to the simplistic calls for asset holders to maintain asset values and/or to increase them at the expense of the general population. The general mechanisms involved have been published in the document,"Why monetarism does not work".

To resolve the productivity problem which is intimately linked to the climate crisis solutions there is a need for macroeconomic policies that respond to the needs of individual economic units from individuals to corporations and to the workforce and their families. The only way to achieve this is to help individuals and companies progress in a productivity-enhancing and more-for-less pathway. This is only possible if policy instruments contain the level of flexibility required for all people to benefit according to their circumstances and capabilities. The other basic requirement is to accelerate the payback to required changes by combining the factors of moderated or reduced output prices with productivity.

The only mechanism, thusfar proposed, which can achieve this is Price Performance Policy which is intimately responsive to each and every economic unit's needs. By establishing this trend in this type of productivity, real incomes will rise while less resources are consumed per person. This will become progressively clear as additional notes are posted covering other types of impact of this policy.

Feedback and comments welcomed.

1  Hector McNeill is director of SEEL-Systems Engineering Economics Lab

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