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Hector W. McNeill1

The table below shows a direct comparison of conventional policy elements (KMS) and their outcomes and a Real Incomes Policy in the form of PPP (Price Performance Policy). This represents the evident differences according to the current state of knowledge of the Real Incomes Approach (August,2015).

Keynesianism, Monetarism & Supply Side Economics
The Real Incomes Approach
PPP-Price Performance Policy
OBJECTIVEVariously aiming to control inflation, employment, growth, investment, exports, import substitution, exchange rates and the purchasing power of the currency Increased productivity, sustained or increased real incomes & stabilized currency value.

POLICY MODELADM-Aggregate Demand Model.PACM-Production, Accessibility & Consumption Model.
POLICY INSTRUMENTSTop down centralized monopolistic market interventions by government applying money volumes, interest rates, taxation, public spending and government debt aiming to manage "aggregate demand".PPR - Price Performance Ratio aiming to encourage productivity and competitive pricing to promote consumption and growth.
METHODSNo specific methods but attempt to maximize profits within moving policy environment

Transparent business rules for management of economic units to optimism the level of the policy instrument (PPR) with a view to minimizing the Price Performance Levy paid (PPL) applied; economic unit allocation decisions determine the policy success
GOVERNMENT REVENUE-SEEKING (CORPORATION TAX)The profit paradox causes conflict between the objectives of:
  • profit maximization
  • taxation of profits
  • growth in wages
and therefore the corporate taxation legal accountancy and audit frameworks result in sub-optimal allocations and less than transparent reporting. This includes tax avoidance and evasion, hiding of profits and wage constraints leading to a cost of living crisis.
Profits do not feature in the legal accountancy framework with profit substituted by investment in technology and human resources and corporate return being measured in terms of real incomes of owners, shareholders and employees.
There is no corporate tax.
Government revenue is collected via personal income tax only.

GOVERNMENT REVENUE-SEEKING (PERSONAL INCOME TAX)Income tax applied progressively to personal incomes.
Bonus payments tend to be paid to executives.
Owner and management salaries tend to outstrip inflation whereas wages do not. Effective tax take on wages declining in real terms.
Income tax paid by economic unit owners, shareholders and employees. Because there is no corporation tax wages can be increased to a living wage with bonuses being paid to all grades of personnel pro rata against basic income scale. Leakage is curtailed through Pay as you Earn tax payment (PAYE).
GOVERNMENT REVENUE-SEEKING (VALUE ADDED TAX)Value added Tax (VAT) has been progressively increased and has no productivity incentive characteristics. The role of VAT as a source of revenue depends upon the general augmentation in personnel incomes and which being set at a higher level could obviate the need for VAT.
PUBLIC SERVICESTend to be cut back during recessions and no emphasis of efficiency and productivity.

Public services subjected to the same regimes as private sector to provide a direct incentive for productivity and reduction of costs.
IMPACTSDifferent abilities to achieve higher net of tax nominal profits because policies not adapted to individual economic unit needs.

Positive systemic consistency in the achievement of higher net of PPL (Price Performance Levy) real incomes by enabling response by management to individual requirements of each economic unit.
INCENTIVENo policy-based incentives
Assumption that business incentive is to gain higher net of tax profits
Policy-based incentive is the ability for managers to reduce PPL (Price Performance Levy) to zero and maximise income bonuses while also maximising price elasticity of consumption (pEc) impacts.
Positive Systemic ConsistencyNoneBroad positive systemic consistency achieved
Distributiuon of benefitsEconomic and social constituencies end up as winners, losers or in neutral impacted states.Less divergence of generally positive constituent outcomes
Income-corporate margin relationshipsFalling real wages in comparison with profits.Rising real wages with rises in corproate margins
Monetary policyReal incomes depreciation by at least 18% each decade because of 2% inflation target.No real incomes depreciation but rather real incomes appreciation.
GrowthLargely unpredictable in terms of policy impacts.
Poor policy track record.
Positive growth and directly related to policy environment
ExportsLargely unpredictable in terms of policy impacts
Poor policy track record.
Positive growth and directly related to policy effects.
Import substitutionLargely unpredictable in terms of policy impacts
Poor policy track record.
Positive growth and directly related to policy effects.
InflationNot controlled in predictable fashion over monetary cycles.
Poor policy track record.
Low to zero inflation with tendency to deflation
Public servicesRising costs and stalled productivity.Rising productivity and falling costs.
Income multiplier impulseNone.Higher income multiplier      and controllable impulse    .
Source of investment financeTendency to increasing use of loans.Tendency to increasing generation of own-equity.
Policy tractionPoor.Robust.
Income distributionVariable.More equitable.
Growth in InnovationMediocre.High.
Learning & proficiencyNo policy effects.Encouraged.
Accumulation of tacit knowledgeNo policy effects.
ProductivityUnpredictable policy effects.Central policy objective and impact.
Impact of profit paradox
Mis-reporting of profits
Tax evasion and avoidance
Wage rises contained.
Elimination of profits accounting category eliminates the impacts of the profit paradox.
Corporate resources allocation optimizationVirtually impossible under policy regimes and impact of profit paradox.Maximised effectiveness because of elimination of profits accounting category and removal of profit paradox effects.
Audit & accounting regulatory frameworkIntensifies the impact of the profit paradox.Required changes to eliminate profit category by substituting this by investment in technology and human resources and corporate returns being measured directly in terms of real incomes of shareholders and all employed personnel.

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

Updated: 3rd August 2015:Added details to General Results (Impacts) section.

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All Copyright is held by © Hector Wetherell McNeill (1975-2015) unless otherwise indicated

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