Monowar Zaman - Economics of Information Biasing

ECONOMICS OF INFORMATION BIASING

Second Edition

Monowar Zaman

Copyright 2021 by Md Monowaruz Zaman.

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without permission in writing from the publisher, except by reviewers, who may quote brief passages in a review.

ISBN: 978-1-956515-35-0 (Paperback Edition)

ISBN: 978-1-956515-36-7 (Hardcover Edition)

ISBN: 978-1-956515-34-3 (E-book Edition)

Library of Congress Control Number: 2021917810

Book Ordering Information

Phone Number: 315 288-7939 ext. 1000 or 347-901-4920

Email: info@globalsummithouse.com

Global Summit House

www.globalsummithouse.com

Printed in the United States of America

PREFACE

(SECOND EDITION)

The first edition of Economics of Information Biasing (EIB) was published in 2010. It introduced a new way of thinking about economics. Thankfully, it was accepted for Baker Library, Harvard Business School, and Dewey Library, M.I.T collections.

The concept Biased Equilibrium was introduced in one of my articles published in the International Journal of Green Economics article (Vol. 6, No.1) in 2012, replacing the term Inefficient Equilibrium of the first edition. I believe this was the missing piece for streamlining the mainstream economic theories to address the dilemma of growth posed by the current economic trajectory. A foundational review of the mainstream theories is added in Chapter 02.

This second edition is eight (8) times bigger in volume than the first one. This edition enhances and substantiates the EIB framework from the historical, market, and institutional perspectives with a spectrum of new ideas and concepts. Please refer to the Glossary at the end of this book for the full list of the new terms.

For simplicity, this book contains no mathematical equation but over 100 illustrations. Even a student can use this

framework to develop his analytics to address real-world economic and environmental challenges.

I believe this book will attract a wide range of rational readers, from high school students to policymakers, academics, and non-academics.

Monowar Zaman

Brampton, ON, Canada

October 25, 2021

CHAPTER 01

INTRODUCTION

The first modern school of thoughts in economics began as political economics with the publication of his book The Wealth of Nations in 1776 by Adam Smith. He introduced the vision of a free market economy or invisible hand of the market, through which the pursuit of individual self-interest produces a collective good for society that causes an economy to grow. The concept like supply-side economics and David Ricardos principle of diminishing returns was introduced after half a century. Afterward, Augustin Cournot, a mathematician, introduced the concepts of demand and supply as a function of price. He was the first to draw the supply and demand curves. And then, it took another thirty years (in 1890) to show the concept of equilibrium, also called the partial equilibrium model at the intersection of demand and supply curve by Alfred Marshall. This makes analysis much simpler than in a general equilibrium model, which includes an entire economy, developed by French economist Lon Walras in 1874. It took 175 years to mathematically prove Adam Smiths proposition, the forerunner of general equilibrium, called fundamental theorems of welfare economics by Arrow and Debreu in 1951. 5,6&7

Although Adam Smiths had the vision of a free-market economy, since then, the whole view of political economics has been narrowed down to the accumulation of capital. Historically, wealth accumulation was one of the reasons for war and invasion that integrated different regions and countries ruled by monarchies. Slavery, moneylending, usury, poverty had always been prevailing. Although all religions were against usury and slavery, war and wealth accumulation continued using a religious banner. As monarchies and governments were engaged in war with each other, their lenders gradually became powerful. The historical path of capitalism was marked by many rise and fall of military and political powers but streamlined the flow of wealth and resources to the dominating powers.

The Industrial Revolution marks a major turning point in the history of capitalism that influenced almost every aspect of our daily life in some way. The supply-side economics of the industrial revolution geared towards series of wars in Europe. It merged into The Age of Synergy, where many new science-based technologies were developed backed by financial capitalism. The ultimate control and direction of large industries came into the hands of financiers. Several major challenges to capitalism appeared in the early 20th century. The Russian revolution in 1917 established the first communist state in the world. The Great Depression triggered increasing criticism of the existing capitalist system. Nevertheless, capitalism reinforced amid reshuffling the powers in response to the conflicts and crisis arose.

Efforts were made to refine classical ideas more theoretically precise, but since then, the whole view has been narrowed down to consumerism. They considered inflation was good since it would create more production and more employments. During Great Depression, Keynes (18831946) advised that when the economy falls into a recession government should spend more to restart growth. However, in 1970, government spending ended up in stagflation, in which contrarily, the inflation rate was high, but unemployment remained steadily high, and the economy slowed down. In this situation, economists advised government should cut taxes for the rich investors that would ultimately benefit everyone. Afterward, deregulation of the financial sectors created a continuous encumbrance for growth (Figure 1.1), while integrating the global economy under the dominance and vulnerability of the financial powers.

In institutional economics, the apparent solution to any economic problem is some degree of institutional reform. The challenge is that there is no incentive for those who hold the position to execute the reform if they themselves are the beneficiary of the existing institutional structure. In his famous book The Theory of the Leisure Class, Veblen (1899) argued that profit-focused businesses protect their existing capital investments and employ excessive credit, leading to depressions and increasing military expenditure and war through business control of political power. An attempt for a radical institutional reform often costs a huge toll on peoples lives and the economies. On the other hand, institutional reforms for increasing competition in the market are continuous experiments for maintaining economic growth, which presumes an unlimited supply of cheap energy such as from fossil fuel.

Recently, the worldwide borrowing craze to combat the COVID-19 pandemic will require further growth in the post-pandemic era, but it will cost environmental crisis, and faster exhaustion of fossil fuel and other resources, which will be much more catastrophic than the pandemic. On the other hand, the increase in the ten richest billionaires wealth during the first couple of months is more than enough to pay for a COVID-19 vaccine for everyone.