Sunday 8th October, 2006

 

Economic knowledge ..informs our choices

 
 
 
 
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The recent expectations, widely discussed on radio talk shows and elsewhere with respect to the national budget would have been formulated by virtue of the rational expectations hypothesis, according to one school of thought.

This hypothesis puts forward the idea that people know, on average, how the country’s economic model works, and this knowledge is based upon rational thought.

Such knowledge allows them to then form reasonable expectations about what will happen in the future, and it informs their actions.

According to others, however, the rational expectations model falls flat because it expects householders to know too much about economic matters.

In fact, they view it as unrealistic that the average person would have even a sufficient knowledge to make rational predictions. But in truth, we go through life making decisions on financial and economic matters based on our individual understanding of how things will flow.

The difference in the exactness of our predictions really lies with the difference in the amount of information we seek out with respect to our various interests, and on our ability to make sense of the information.

What complicates the matter further is that there are powerful interest groups in modern society who have a formulated agenda to deliberately influence the thought processes.

For example if I tell you often enough, using various media, that there will be another violent earthquake within the next few weeks, enough people will take actions that reflect such expectations.

So if I tell you that worldwide, more workers are being denied standard employment compensation benefits, as a result of the new contract work ethic, what action would you take?

It has been the standard for more than 40 years, that collective bargaining, and human resource sensitive employment practices delivered to workers the most attractive and comprehensive compensation benefits packages.

What exactly is a compensation package? It includes all the benefits front-end and back-end, that employees and workers in general get in return for their labour hours, from employers.

A comprehensive compensation package will start with a pay cheque directly related to the volume of work rendered over a short period-a fortnight or a month typically.

In addition there will be provision for long term service to the employer: bonus pay and pension plans. There will also be a health plan designed for the group of workers, at best expanded to include dental and vision care, and foreign medical treatment.

Further there can savings plans, executive pension plan above the standard plan, travel grants, study allowances, uniform and travel benefits, company cars, and housing allowances.

There may also be cash incentive awards, and employee recognition awards. There may be exercise rooms, jogging tracks, day care centers, personal business leave, employee assistance programmes and trips abroad.

The movement towards contracting consultants and specialists is a movement away from the most comprehensive compensation packages.

The movement towards contract labour in construction and maintenance is a movement away from the system that provided basic health care benefits and pension plans.

Many populations have been led to believe that social security benefits will take up the slack but that is not happening yet.

It is our understanding of how the economy works that will develop in us expectations of what will occur in the future.

How we allow ourselves to be conditioned by the communications that come from the agenda driven directorate, will determine what actions we take.

If those who oppose the Rational Expectations hypothesis are correct, it would appear that we really need the collective bargaining process and that trade unions are vitally important in our future economic welfare.

 

 

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