What is the 99% and why does it exist? In this paper an attempt is made to explain why socio-economic unrest remains a modern problem. An effort has to be made to understand the origins of strife in systemic design of modern economics. Without this knowledge it may not be possible to fix the very fundamental problems that lead to a broken society.Introduction
Economics 101: What is the 99% and why does it exist?
It is one thing to be part of the 99% in the Occupy Movement, but it is also important that an activist clearly understands why he or she is part of the 99%. Why does the 99% exist? There have been many explanations given for why unemployment and strife plague economies, however, there is a clear reason why no solution has been found. The 99% exists as a result of a problem in economics where the operating structure of the circular flow of income (CFI) diminishes the productive value of money. It causes as much as 100% of the productive value of money to be lost for no good reason; this loss is referred to [in Operating Level Economics] as implosion[1] or the zero growth position. In order to fight back and escape zero growth (which threatens to close businesses down) businesses mark up the price of the products they sell in a phenomenon or process that has come to be referred to as cost plus pricing generating what businesses have commonly come to know as profit.[2] It remains a fact that most business operators do not understand that this is the fundamental reason why profit exists. They continue to believe erroneously that profit exists to enable them to grow and succeed when in fact it exists to compensate for a flaw in the CFI.
When businesses use cost plus pricing or mark-ups to fight back the economy’s natural position which is to shut them down they are only able to recover or restore often as little as 1% in GDP of the productive value of money as a result of the flawed design of the circular flow of income, close to 99% remaining of this value implodes as an unnecessary form of economic and financial waste. As a consequence humanity must scratch a living on 1% of its productivity rather than the full 100%. This leads to a highly uneven distribution of wealth with many left out of the capacity of national economies to provide for their citizens. This oversight has proven to be and appears to continue to be the Achilles’ heel of development economics derived predominantly from modern Western civilisations and their engagement in the evolution of industry that has otherwise enjoyed some success. It is strange that so fundamental a flaw continues to escape the otherwise prodigious capacity of human intellect to accumulate wealth. It is as if the mind fails to observe this twist in the tale trapping humanity in a nightmare of poverty and scarcity from which it continually fails to awaken. If you are unemployed right now and can’t find a job, if you’ve graduated from college and work prospects look bleak, if your company is failing or an economy is proving generally unmanageable its because there is a general lack of understanding about this problem and the genuine origin of poverty.
It is this lack of knowledge concerning this specific weakness in the CFI that has many governments in a quandary about how to solve modern day economic crises. This failing or cracks in the knowledge paradigm of both developing and developed countries can be observed as recently as the forecast that the EU would grow by 0.5% in GDP, the correct interpretation of this is that the EU’s CFI will convert as much as 99.5% of available useful and productive financial resources into financial and economic waste over this period…for pointless reasons. Similarly, the Zambian 2012 budget projects Gross Domestic Product growth of above 7.0%[3]; though this is indeed considered a commendable achievement in contemporary economics, the Zambian economy would experience much greater growth if it were to recover the 93% of useful economic resources lost to implosion as systemic financial and economic waste created purely by a flawed CFI. The norm of departments managing economies and implementing policies is to focus too intently on the 0.5% or the 7.0% growth and guide governments toward these without recognising the respective 99.5% and 93% loss in financial and economic resources caused by simple inadequacies in the design of the modern CFI.
These flaws in the CFI stem directly from an inadequate understanding of the mechanics of money; money implodes when it is applied in the exchange of goods and services consequently negating its productive value creating a socio-economic phenomenon mankind has come to describe as scarcity or more humanely as ‘poverty’. Governments, non-governmental organisations and private companies spend billions of US dollars every year trying to compensate for and counter the effects of this technical hitch in the CFI, the modern day term for this mitigating process is Donor AID. Every economy in the world faces this problem since they use the same CFI[4]. The flawed CFI generates a system with a wasting processes where 99% are left out of the loop due to economic resources being scarce 99% of the time; and it is they who begin to experience hardship and suffering in its diverse forms. They become the hungry who hunger for employment, education, food, to escape from poverty, to care and provide for their children, to escape lack of opportunity, for better governance, for health care, adequate pay, for accommodation, improved standards of living and so on. Worst of all they cannot clearly explain the source of their suffering.
If an economy grows by 1% in GDP it entails implosion has lost 99% of useful resources in the CFI, if it grows by 3% it has lost 97% and so on of useful economic and financial resources. However, economics will tend to jubilantly tell the public the economy has grown by 1% or 3% with absolutely no clue that these gains are nothing compared to the inverse loss invisible to inspection by technocrats. Consequently people suffer, poverty persists and governments for the most part can do little to solve the problem. It creates a permanent resource vacuum that generates and perpetuates economic scarcity. As we fumble around in the dark, occasionally dropping the ball of finance and economics and scratch around frantically to find it, the 99% who suffer do so and will continue to do so as a direct consequence of this problem regardless of the management or policy strategy used to counter it.
This flaw has nothing to do with human corruption or failure it is very important to see it, it causes human corruption and failure by generating inordinate levels of scarcity and is created by systemic corruption of the CFI processes to generate an environment in which scarcity amplifies human vices; it is a technical rather than a behavioural problem. It is important to understand that the scarcity and poverty experienced by humanity today is not real, it is artificial; created by a flawed CFI. As long as a government administration does not resolve the artificial scarcity created by implosion in the CFI it cannot generate sufficient economic resources to cater to a nations entire population regardless of what policies or economic programmes it may have in place. The unnecessary and tremendous loss of useful economic and financial resources caused by the CFI will counter each and every move governments make to improve the welfare of their people, the operations of businesses and the plight of workers. Governments will have to switch their focus from, “What GDP gains is the economy making each quarter..?” approach as these gains are arbitrary compared to the tremendous waste of useful economic resources caused by an improperly designed CFI. The focus has to change to, “What economic resources can be recovered from the losses generated by the CFI".
Problems related to the implosion of economic resources are not thoroughly understood even in civilisations of the developed world which is why even the wealthiest and most powerful nations in the world, including the United States persistently struggle with scarcity; poverty exists for pointless and unnecessary reasons. Even developed countries continuously fail to manage their economies such that economic resources are abundant rather than scarce, whilst developing economies tend to mimic these styles of and methods for understanding economics and inevitably find themselves in similar circumstances. The CFI problem appears to escape contemporary intellectual analysis. It must be observed that even those with impeccable credentials who may be giving governments, businesses and the public advice on finance and economics will find great difficulty discerning this problem. This is due to the fact that technically though this flaw in the CFI is simple it is very heavily camouflaged and invisible to arbitrary observations of the operational function of money when it moves as a result of transactions.
There is no reason why, with current levels of knowledge and the level of technological advancement, countries should continue to fail to realise the economic resources they need to sustain their populations. In this Century, with the levels technology and wealth that have been achieved poverty should no longer exist and it is truly a shame that it does. Recently Christine Legarde expressed concern in an interview to France’s Journal du Dimanche that, “The world economy is in a dangerous situation.” The debt crisis that continues into 2012 After a European Union Summit, “is a crisis of confidence in public debt and in the solidity of the financial system.”[5] Central to this pessimism should be the economic and financial system applied today, that loses tremendous economic resources to implosion yet the paradox is that it remains captive and unable to focus on anything other than what little gains it can make each quarter. That so many people should continue to suffer on the basis of a technicality concerning the CFI is sad and an affront to prodigious human intellectual ability. As will be explained later in this paper the crisis is less of confidence and economics, but rather one of an inadequate knowledge paradigm.
As explained earlier the tendency in contemporary economics is to focus on the 1%, 3% or 7% gain in GDP governments may aspire to whilst remaining completely ignorant of the respective 99% , 97% and 93% loss taking for no reason other than process in the CFI, what is nothing more than a process chain problem.[6] This loss created by the CFI is a tragedy of contemporary economics and finance. It is a fundamental problem that is not helped by a lack of education on and awareness of implosion in the subjects of business and economics at schools, colleges and universities the world over. Consequently, populations the world over simply do not understand how or why scarcity and poverty exist or why unrest takes over a country and they become inextricably caught up in it. To avoid this problem leaders need to take the time to study and appreciate how to counter economic implosion in the national economy.
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[1] For a definition and mathematical explanation of what economic implosion is read the following; Punabantu, Siize. (September 2010), “The Origin of Wealth”; Punabantu, Siize. (2010:94); Punabantu, Siize. (August 2010:4); Punabantu, Siize. (September 2010:13-18); Punabantu, Siize. (2010:175-177)
[2] Failing to understand the real of role of profit in the CFI contributes to economic crises.
[3] 2012 Zambian Budget Address.
[4] The inferences and arguments of this paper are drawn from: Punabantu, Siize. (2010). “The Greater Poverty & Wealth of Nations: An Introduction to Operating Level Economics. How every economy has the latent financial resources with which to finance the doubling of its GDP in one year at constant price. ASG Advisory Services Group: Lusaka, [ISBN: 978-9982-22-076-7] – sic. GPWN
[5] Reuters (25 December 2012), “IMF's Lagarde warns that global economy threatened”
[6] Punabantu Siize (2010:15)
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