The mathematics of whatever you want: some educational content regarding political systems

My editorial on You Tube

This time, I go educational, and I go educational about political systems, and more specifically about electoral regimes. I generally avoid talking politics with my friends, as I want them to keep being my friends. Really, politics have become so divisive a topic, those last years. I remember, like 20 years ago, talking politics was like talking about the way to organize a business, or to design a machine. Now, it has become more like an ideological choice. Personally, I find it deplorable. There are always people who have more power than other people. Democracy allows us to have some control over those people in power, and if we want to exercise effective control, we need to get your own s**t together, emotionally too. If we become so emotional about politics that we stop thinking rationally, there is something wrong with us.

OK, enough ranting and moaning. Let’s get into facts and method. So, I start as I frequently do: I make a structure, and I drop numbers casually into it, just like that. Later on, I will work through the meaning of those numbers. My structure is a simple political system made of a juxtaposition of threes. There are 3 constituencies, equal in terms of incumbent voters: each constituency has 200 000 of them incumbent voters. Three political parties – Party A, Party B, and Party C – rival for votes in those 3 constituencies. Each political party presents three candidates in the electoral race. Party A presents its candidate A.1. in Constituency 1, candidate A.2. runs in Constituency 2, and Candidate A.3 in Constituency 3. Party B goes sort of the opposite way, and makes its candidates run like: B.1. in Constituency 3, B.2. in Constituency 2, and B.3. in Constituency 1. Party C wants to be original and makes like a triangle: its candidate C.1. runs in Constituency 2, C.2. tries their luck in Constituency 3, and C.3. is in the race in Constituency 1.

Just to recapitulate that distribution of candidates as a choice presented to voters, those in Constituency 1 choose between candidates A.1., B.3., and C.3., voters in Constituency 2 split their votes among A.2., B.2., and C.1.; finally, voters in Constituency 3 have a choice between A.3., B.1., and C.2. It all looks a bit complicated, I know, and, in a moment, you will read a table with the electoral scores, as number of votes obtained. I am just signalling the assumption I made when I was making those scores up: as we have 3 candidates in each constituency, voters do not give, under any circumstance, more than 50% of their votes (or more than 100 000 in absolute numbers) to one candidate. Implicitly, I assume that candidates already represent, somehow, their local populations. It can be achieved through some kind of de facto primary elections, e.g. when you need a certain number of officially collected voters’ signatures in order to register a candidate as running in a given constituency. Anyway, you have those imaginary electoral scores in Table 1, below. Save for the assumption about ‘≤ 50%’, those numbers are random.

 

  Table 1 – Example of electoral score in the case studied (numbers are fictional)

Number of votes obtained
Party Candidate Constituency 1 Constituency 2 Constituency 3
Party A Candidate A.1 23 000
total score [votes]

              174 101    

Candidate A.2 99 274
Candidate A.3 51 827
Party B Candidate B.1 6 389
total score [votes]

              111 118    

Candidate B.2 40 762
Candidate B.3 63 967
Party C Candidate C.1 13 580
total score [votes]

              134 691    

Candidate C.2 33 287
Candidate C.3 87 824
Total 174 791 153 616 91 503

 

On the whole, those random numbers had given quite a nice electoral attendance. In a total population of 600 000 voters, 419 910 had gone to the ballot, which makes 70%. In that general landscape, the three constituencies present different shades. People in the 1 and the 2 are nicely dutiful, they turned up to that ballot at the respective rates of 87,4%, and 76,8%. On the other hand, people in Constituency 3 seem to be somehow disenchanted: their electoral attendance was 45,8%. Bad citizens. Or maybe just bloody pissed.

Now, I apply various electoral regimes to that same distribution of votes. Scenario 1 is a simple one. It is a strictly proportional electoral regime, where votes from all three constituencies are pooled together, to allocate 5 seats among parties. The number of seats going to each party are calculated as: “Total score of the party/ Total number of votes cast”. Inside each party, seats go specific candidates according to their individual scores. The result is a bit messy. Party A gets 2 seats, for its candidates A.2. and A.3., party B passes its B.3. man, and Party C gets C.3. into the Parliament. The first, tiny, little problem is that we had 5 seats to assign, and just 4 got assigned. Why? Simple: the parties acquired fractions of seats. In the strictly proportional count, Party A got 2,073075183 seats, Party B had 1,323116858, and Party’s C score was 1,603807959. I agree that we could conceivably give 0,32 of one seat to a party. People can share, after all. Still, I can barely conceive assigning like 0,000000058 of one seat. Could be tricky for sharing. That is a typical problem with strictly proportional regimes: they look nice and fair at the first sight, but in real life they have the practical utility of an inflatable dartboard.

Scenario 2 is once again a strictly proportional regime, with 6 seats to distribute, only this time,  in each constituency, 2 seats are to be distributed among the candidates with the best scores. The result is a bit of an opposite of Scenario 1: it looks suspiciously neat. Each party gets an equal number of seats, i.e. 2. Candidates A.2., A.3., B2., B.3., C.2., and C.3. are unfolding their political wings. I mean, I have nothing against wings, but it was supposed to be proportional, wasn’t it? Each party got a different electoral score, and each gets the same number of seats. Looks a bit too neat, doesn’t it? Once again, that’s the thing with proportional: growing your proportions does not always translate into actual outcomes.

Good. I go for the 3rd scenario: a strictly plural regime, 3 seats to allocate, in each constituency just one candidate, the one with the best score, gets the seat. This is what the British people call ‘one past the post’, in their political jargon. Down this avenue, Party A pushes it’s A.2. and A.3. people through the gate, and Party C does so with C.3. That looks sort of fair, still there is something… In Constituency 1, 87 000 of votes, with a small change, got the voters one representative in the legislative body. In constituencies 2 and 3, the same representation – 1 person in the probably right place – has been acquired with, respectively, 99 274, and 33 287 votes. Those guys from constituencies 1 and 2 could feel a bit disappointed. If they were voting in constituency 3, they would need much less mobilisation to get their man past the post.

Scenario 4 unfolds as a mixed, plural-proportional regime, with 5 seats to allocate; 3 seats go to the single best candidate in each constituency, as in Scenario 3, and 2 seats go to the party with the greatest overall score across all the 3 constituencies. Inside that party, the 2 seats in question go to candidates with the highest electoral scores. The results leave me a bit perplex: they are identical to those in Scenario 3. The same people got elected, namely A.2., A.3., and C.3., only this time we are left with 2 vacancies. Only 3 seats have been allocated, out of the 5 available. How could it have happened? Well, we had a bit of a loop, here. The party with the highest overall score is Party A, and they should get the 2 seats in the proportional part of the regime. Yet, their two best horses, A.2. and A.3. are already past the post, and the only remaining is A.1. with the worst score inside their party. Can a parliamentary seat, reserved for the best runner in the winning party, be attributed to actually the worst one? Problematic. Makes bad publicity.

Scenarios 5 and 6 are both variations on the d’Hondt system. This is a special approach to mixing plural with proportional, and more specifically, to avoiding those fractional seats as in Scenario 1. Generally, the total number of votes cast for each party is divided by consecutive denominators in the range from 1 up to the number of seats to allocate. We get a grid, out of which we pick up as many greatest values as there are seats to allocate. In Scenario 5, I apply the d’Hondt logic to votes from all the 3 constituencies pooled together, and I allocate 6 seats. Scenario 6 goes with the d’Hondt logic down to the level of each constituency separately, 2 seats to allocate in each constituency. The total number of votes casted for each party is divided by consecutive denominators in the range from 1 up to the number of seats to allocate (2 in this case). The two greatest values in such a grid get the seats. Inside each party, the attribution of seats to candidates is proportional to their individual scores.

Scenario 5 seems to work almost perfectly. Party A gets 3 seats, thus they get all their three candidates past the post, Party C acquires 2 seats for C.2. and C.3., whilst Party B has one seat for candidate B.3. In a sense, this particular mix of plural and proportional seems even more fairly proportional that Scenario 1. The detailed results, which explain the attribution of seats, are given in Table 2, below.

 

Table 2 – Example of application of the d’Hondt system, Scenario 5

Number of votes obtained divided by consecutive denominators
Denominator of seats Party A Party B Party C
1        174 101            111 118            134 691    
2          87 051              55 559          67 346     
3          58 034              37 039          44 897
4          43 525          27 780          33 673
5          34 820          22 224          26 938
6          29 017          18 520          22 449

 

On the other hand, Scenario 6 seems to be losing the proportional component. Table 3, below, shows how exactly it is dysfunctional. As there are 2 seats to assign in each constituency, electoral scores of each party are being divided by, respectively, 1 and 2. In Constituency 1, the two best denominated scores befall to parties C and B, thus to their candidates C.3. and B.3. In Constituency 2, both of the two best denominated scores are attributed to Party A. The trouble is that Party A has just one candidate in this constituency, the A.2. guy, and he (she?) gets the seat. The second seat in this constituency must logically befall to the next best party with any people in the game, and it happens to be Party B and its candidate B.2. Constituency 3, in this particular scenario, gives two best denominated scores to parties A and C, thus to candidates A.3. and C.2. All in all, each party gets 2 seats out of the 6. Uneven scores, even distribution of rewards.

 

Table 3 – Application of the d’Hondt logic at the level of separate constituencies: Scenario 6.

Party A Party B Party C
Denominator of seats Constituency 1
1        23 000        63 967            87 824    
2        11 500        31 984        43 912
Constituency 2
1        99 274            40 762  (?)        13 580
2        49 637            20 381          6 790
Constituency 3
1        51 827              6 389        33 287    
2        25 914          3 195        16 644

 

Any mechanism can be observed under two angles: how it works, and how it doesn’t. It applies to electoral regimes, too. An electoral regime doesn’t work in two respects. First of all, it does not work if it does not lead to electing anyone. Second of all, it does not work if it fails to represent the votes cast in the people actually elected. There is a term, in the science of electoral systems: the wasted votes. They are votes, which do not elect anyone. They have been cast on candidates who lost the elections. Maybe some of you know that unpleasant feeling, when you learn that the person you voted for has not been elected. This is something like frustration, and yet, in my own experience, there is a shade of relief, as well. The person I voted for lost their electoral race, hence they will not do anything stupid, once in charge. If they were in charge, and did something stupid, I could be kind of held accountable. ‘Look, you voted for those idiots. You are indirectly responsible for the bad things they did’, someone could say. If they don’t get elected, I cannot be possibly held accountable for anything they do, ‘cause they are not in a position to do anything.

Wasted votes happen in all elections. Still, an efficient electoral regime should minimize their amount. Let’s compare those six alternative electoral regimes regarding their leakiness, i.e. their tendency to waste people’s voting power. You can see the corresponding analysis in Table 4 below. The method is simple. Numbers in the table correspond to votes from Table 1, cast on candidates who did not get elected in the given constituency, under the given electoral regime. You can see that the range of waste is quite broad, from 4,8% of votes cast, all the way up to 43% with a small change. It is exactly how real electoral regimes work, and this is, in the long run, the soft spot of any representative democracy. In whatever possible way you turn those numbers, you bump on a dilemma: either the race is fair for the candidates, or the ballot is fair for voters. A fair race means that essentially the best wins. There is no point in making an electoral regime, where inefficient contenders have big chances to get elected. On the other hand, those who lose the race represent people who voted for them. If we want all the voters to be accurately represented in the government, no candidate should be eliminated from the electoral contest, only then it would not be a contest.

 

Table 4

Number of votes, which do not elect any candidate
Constituency 1 Constituency 2 Constituency 3 Total elections
Scenario 1 23 000 40 762 33 287 97 049
Scenario 2 0 13 580 6 389 19 969
Scenario 3 23 000 54 342 33 287 110 629
Scenario 4 63 967 54 342 39 676 157 985
Scenario 5 (d’Hondt method, pooled) 0 54 342 6 389 60 731
Scenario 6 (d’Hondt method, separately by constituency) 23 000 54 342 39 676 117 018
Percentage of votes cast, which do not elect any candidate
Constituency 1 Constituency 2 Constituency 3 Total elections
Scenario 1 13,2% 26,5% 36,4% 23,1%
Scenario 2 0,0% 8,8% 7,0% 4,8%
Scenario 3 13,2% 35,4% 36,4% 26,3%
Scenario 4 36,6% 35,4% 43,4% 37,6%
Scenario 5 (d’Hondt method, pooled) 0,0% 35,4% 7,0% 14,5%
Scenario 6 (d’Hondt method, separately by constituency) 13,2% 35,4% 43,4% 27,9%
Average 12,7% 29,5% 28,9% 22,4%

 

I am consistently delivering good, almost new science to my readers, and love doing it, and I am working on crowdfunding this activity of mine. As we talk business plans, I remind you that you can download, from the library of my blog, the business plan I prepared for my semi-scientific project Befund  (and you can access the French version as well). You can also get a free e-copy of my book ‘Capitalism and Political Power’ You can support my research by donating directly, any amount you consider appropriate, to my PayPal account. You can also consider going to my Patreon page and become my patron. If you decide so, I will be grateful for suggesting me two things that Patreon suggests me to suggest you. Firstly, what kind of reward would you expect in exchange of supporting me? Secondly, what kind of phases would you like to see in the development of my research, and of the corresponding educational tools?

Educational: microeconomics and management, the market and the business model

My editorial

This time, in the educational stream of my blog, I am addressing the students of 1st year undergraduate. This update is about microeconomic and management. Regarding your overall educational curriculum, these two courses are very much complementary. I am introducing you now into the theory of markets, and, in the same time, into the managerial concept of business model. We are going to consider a business of vital importance for our everyday life, although very much unnoticed: energy, and, more specifically, electricity. We are going to have a look at the energy business from two points of view: that of the consumer, and that of the supplier. If you have a look at your energy bill, you can basically see two lines: a fixed amount you pay to your supplier of energy, just for being connected to the grid, and a variable amount, which is, roughly speaking, the mathematical product: [Price of 1 kWh * Quantity of kWh consumed]. Of course, ‘kWh’ stands for kilowatt-hour. On the whole, your expenditure on electricity is computed as:

E = Fixed price for connection to grid + [Price of 1 kWh * Quantity of kWh consumed]

                             P1                                                                 P2                                 Q   

From the point of view of the supplier of energy, their market is made of N consumers of energy. We can represent this market as a set made of N elements, for example as N = {k1, k2, …, kn}, where each i-th consumer ki pays the same fixed price P1 for the connection to the grid, the same price P2 for each kWh consumed, and consumes an individually specific amount Q(ki) of energy measured in kWh. In that set of N = {k1, k2, …, kn} consumers, the total volume Q of the market is computed as:

Q = Q(k1) + Q(k2) + …+ Q(kn) [kWh]

…whilst the total value of the market is more complex a construct, and you compute it as:

Value of the market = N*P1 + Q*P2

  Most consumers have a more or less fixed budget to spend on electricity. If you take 1000 people and you check their housing expenses every month, you will see that their expenditures on electric power are pretty constant, unless some of them are building spaceships in their basements. So we introduce in our model of the market a budget on electricity, or Be, specific to each individual customer ki. Hence, that budget can be noted as Be(ki). Actually, that budget is the same as what we have introduced earlier as expenditure E, so:

Be(ki) = E = P1 + P2*Q(ki)

This mathematical construct allows reverse engineering of individual power consumption. Each consumer uses the amount Q(ki) of kilowatt-hours, which satisfies the condition:

Q(ki) = [Be(ki) – P1] / P2

In other words, each of us has a budget to spend on electricity bills, from this budget we subtract the fixed amount of money P1, to pay for being connected to the power grid, and we use the remaining sum so as to buy as many kilowatt-hours as possible, given the price P2. This condition is a first approach to what is called the demand function, on the part of the consumers. Although this function is still pretty sketchy, we can notice one pattern. The total amount of electricity Q(ki) that I consume depends on three parameters: my budget Be(ki), and the two prices P1 and P2. In economics, we call this an elasticity. We say that the quantity Q(ki) is elastic on: Be(ki), P1, P2. How elastic is it? We can calculate it, if we now the magnitudes of change in particular factors. If I know that my consumption of electricity has changed from like 40 000 kWh a year to 42 000 kWh, and I know that in the meantime the price P2 of one kilowatt-hour has moved from 0,1 euro to 0,12 euro, I can calculate something called deltas:

delta [Q(ki)] = ∆ Q(ki) = 42 000 40 000 = 2 000 kWh

delta (P2) = ∆P2 = €0,12 €0,1 = €0,02

The local (i.e. specific to this precise situation) elasticity of my consumption Q(ki) to the price P2 can be estimated, in a first approximation, as

e = ∆ Q(ki) / ∆P2 = 100 000 kWh per €1

The first thing to notice about this elasticity is that it is exactly contrary to what you see in my lectures, and what you can read in textbooks, about the demand function. The basic law of demand says something like: the greater the price, the lower the consumers’ willingness to buy. Here, we have something contrary to that law: greater consumption of energy is associated with a higher price, through a positive elasticity. I am behaving contrarily to the law of demand. In science, we call such a situation a paradox. Yet, notice that it is a local paradox: I cannot keep on increasing my personal consumption of electricity ad infinitum, even in the presence of a constant price. At some point, I have to start saving energy and increase my consumption just as much, as the prices possibly fall. So, generally, as opposed to locally, I am likely to behave in conformity with the law of demand. Still, keep in mind that in real life, paradoxes abound. It is not obvious at all to peg down a market equilibrium exactly as shown in textbooks. Most real-life markets are imperfect markets.

Now, if you look at this demand function, you can find it a bit distant from how you consume electricity. I mean, personally I don’t purposefully maximize the quantity of kilowatt-hours consumed. I just buy stuff powered by electricity, like a computer or a refrigerator, I plug it in, I turn it on, and I use it. Sometimes, I vaguely practice energy saving, like turning off the light in rooms where I am not currently staying. Anyway, my consumption of electricity Q(ki) is determined by the technology T I have at my disposal, which, in turn, consists of a set M = {g1, g2, …, gm} of goods powered by electricity: fridge, computer, TV set etc. We say that each j-th good gj, in the set M, is a complementary good to electricity. I can more or less accurately assume that an average refrigerator consumes x1(fridge) kWh, whilst an average set of house lighting burns x2(lighting) kWh. We can slice subsets out of the set N of consumers: N1 people with fridges, N2 people with air conditioners etc. With Q(gj) standing for the consumption of electricity in a given item powered with it, I can write:

 Q(ki) = N1*Q(g1) + N2*Q(g2) + …+ Nm*Q(gm) = [Be(ki) – P1] / P2

It means that, besides being elastic on my budget and the prices of electricity, my individual demand for a given amount of kilowatt-hours is elastic on the range of electricity-powered items I possess, and this, in turn, means that it is elastic on the budget I spend on those pieces of equipment, as well as on the prices of those goods (with a given budget to spend on houseware, I am more likely to buy a cheaper fridge rather than a more expensive one).

Now, business planning and management. Imagine that you are an entrepreneur, and you want to build a solar farm, and sell electricity to the people living around it. Your market works as shown above. You know that whatever you want to do, your organisation will have to satisfy the needs of those N customers, with their individual budgets and their individual elasticities in expenditures. The size of your organization, and its structure, will be significantly determined by the necessity to maintain profitable relations with N customers. Two questions emerge: what such organizational structure (i.e. the one serving to build and maintain those customer relations) would look like, and how could it be connected to other functional structures in the business, like building the solar farm, maintaining it in good technical state, purchasing components for construction and maintenance, hiring and firing people etc. You certainly know one thing: you have a given value of the market = N*P1 + Q*P2 and you have to adapt your costs (e.g. the sum total of salaries paid to your people) to this value of the market. Thus, you know that:

Average salary in my business = [(N*P1 + Q*P2) – The profit I want – Other costs] / the number of employees

In other words, the size of my business, e.g. in terms of the number of people employed, as well as my profit and the wages I can pay, will be determined by the value of my market. Now, let’s go along a path at the frontier of economics and management. I want to know how much capital I should invest in my business. I posit a condition: that capital should return to me, in the form of profits from business, in 7 years. Thus, I know that:

My initial investment = 7* My annual profit = 7*(N*P1 + Q*P2 – Current costs) = N*Be(ki) current costs = N*E current costs = N*[P1 + P2*Q(ki)] current costs

This is how the size of my business, both in terms of capital invested, and in terms of the number of people employed, is determined by, or is elastic on, the prices I can practice with my customers, the sheer number of those customers, as well as on their individual budgets.

Educational: International Economic Transactions, Analysis of the GATT 1994

My editorial

In this update, I am mostly addressing my Graduate Master’s students in their curriculum entitled ‘International Economic Transactions’. Still, I will be delighted to provide meaningful insight to any of my readers. We take on analysing the GATT 1994. It is on purpose that I am not starting with GATT 1947. That mother-treaty of the World Trade Organization was signed in very special circumstances, when the Western world was shaking off after World War II. The political and economic climate was somehow unique. The GATT 1994 is much closer to the present reality, and the road covered between its signature and that of the Trade Facilitation Agreement (2013 – 2017) is easier to trace than if we were starting in 1947. And so we start with GATT 1994. I am starting with decrypting the acronym: GATT means ‘General Agreement on Tariffs and Trade’. Nothing to write home about, basically, and still one thing is interesting. If there is a general agreement, it logically implies the existence of specific agreements. This is very much the reality of international trade: wherever you look, you see complicated, multi-level, intricate structures made of bilateral agreements, multilateral ones, letters of understanding, memoranda and whatnot (e.g. protocols).

If now, you care to read GATT 1994, there is not much reading to do, indeed: it is just two pages. It is a strange logical structure. On those two pages, you have just two sections. Section 1 says what specific documents does the GATT 1994 cover, and section 2 provides ‘Explanatory Notes’. The questions pops up: why the hell should anyone put any effort in negotiating that looks like two pages of minutes from a management meeting? As you read through section 1, you notice that the member countries of the World Trade Organization (WTO) have hatched quite a lot of various documents concerning trade, between 1947 (some of them even before the entry into force of the GATT 1947) and 1994. The most cryptic category is to be found under section 1(a)(iv), namely ‘Other decisions of the Contracting Parties’. Thus, many governments had had signed the GATT 1947, and then they had been doing things that stretched the original agreement in so dire a way that a new agreement had to be signed, recognizing the legal validity of those things that governments had been doing.

This is a good moment to exemplify the relation between an international agreement pertaining to trade, and its economic context. The GATT 1947 had been signed with a general purpose of avoiding so-called ‘trade wars’, i.e. a spiral of aggressive pro-export policies in individual countries, when a government deliberately depreciates its own currency in order to make its exported goods more price-competitive in foreign markets. Thus, the GATT 1947 had been originally combined with an international financial architecture, where the currencies of major economies had been tied nominally to the price of gold, and de facto to the price of the US dollar. On the other hand, the general principle of free trade, in GATT 1947, was strongly supported by economic sciences, either on the grounds of the so-called Ricardian paradigm – countries benefit from free trade by the development of their most competitive categories of businesses – as well as based on the the Heckscher – Ohlin model , which, in turn, stated that free trade compensates the negative effects of the otherwise imperfect geographical distribution of production factors. Still, since 1947, things kept happening, and they did so in a way which very much contradicted the fundamental principles of free trade. The biggest economies in the world, led by the biggest of the biggest, the United States of America, kept enforcing protectionist policies regarding trade. The clause of domestic components has been really the fashion since 1947. It says that you can import any goods inside a given country, but if you do not include in those goods a given percentage of components made domestically in this country, you pay additional tariffs, or, for example, your goods are excluded from public procurement (i.e. the government cannot buy them). In the 1970ies, most economies started departing from the gold standard, and even the United States detached their dollar from the price of the gold. As the system of tied monetary exchange rates faded progressively, the idea of free trade supporting said system became obsolete as well. New economic research showed that whilst the Ricardian paradigm, and the Heckscher – Ohlin one generally hold, other forces are at work, which can actually increase economic inequalities . The idea of aggressive depreciation in domestic currencies returned, with the energetic showing around from the part of Asian economies (Japan, China etc.), and with the governments of developed countries rediscovering an old truth that manipulating their own currencies could help in alleviating the burden of public debt. Regional zones of free trade, like the European communities or the ASEAN in the Asia and Pacific region, made the provisions of GATT 1947 look a bit pale. All in all, by the beginning of the 1990ies, it became obvious that the GATT 1947 has to be changed somehow, only in the meantime, i.e. since 1947, a whole bureaucratic structure had emerged under the label of World Trade Organization, and this structure was not keen to give up their position. It is funny how an otherwise quite substantial bureaucratic structure can call for ‘minimizing bureaucracy in trade’.

Now, here is the first big lesson in understanding international economic transactions. When countries transact ‘economically’, it means they do so in a way that affects whole economic orders. In fact, countries do not transact at this level: governments do. In international economic exchanges, there is a business level, and a government level. The latter expresses itself in policies, and some of these policies find an expression in international agreements and treaties. Second lesson: those international agreements and treaties are usually at least one step behind the business level of economic exchange. When governments claim they ‘signed a forward looking agreement’, it is to be understood as ‘we sincerely hope that no bloody business people will think about something new and unexpected, which would force us to renegotiate this document’. Trade has been going on for millennia, and it will keep going on. When governments claim they ‘stimulate’ trade with their policies, it means that at best they don’t get in the way.

The third lesson in more complex: if you want to understand how a given regulation works, trade agreements included, try and build various antithetic alternatives for it, i.e. regulations built with provisions logically opposing those actually studied ones. Section 1 of the GATT 1994 starts with a general provision that “The General Agreement on Tariffs and Trade 1994 (“GATT 1994”) shall consist of: […]’, and the […] takes the remaining of the A4 first page of the document, listing all those things that governments had done since 1947. Imagine an agreement starting with “This agreement SHALL NOT consist of […]’, with the […] being rigorously the same as in the original. The first option means that the agreement being signed explicitly incorporates all those past, particular polices. It is usually practiced when the agreement being signed has to deal with, and de facto recognize, deep disagreement between the contracting parties. This is the type of agreement we sign just in order to give some flesh to further negotiations that we know inevitable. The second, antithetic a version means a sharp divide: we do not recognize the validity of those policies. It is being used when a real agreement has been reached, and the new regulations can safely supplant the old ones.

Thus, when a new agreement is being signed in the place of an old one, two big strategies can be followed: the new one can build on the predecessor, or it can completely supplant it. The GATT 1994 is an example of the former, but, for example, consecutive treaties of the European Union bend more towards the latter.

Educational: Opening remarks for the winter semester 2017/2018

My editorial

As the academic year starts, I start using my scientific blog for educational purposes, too. During the winter semester 2017/2018, I will be holding classes in English in the following subjects (curriculums): International Economic Transactions, Economic Policy, Principles of Organization and Management, Microeconomics, and Undergraduate Thesis Seminar. In order to assure as smooth a delivering of educational content as possible, I will be using my two, mutually mirroring scientific blogs, to find respectively at  https://discoversocialsciences.com or at https://researchsocialsci.blogspot.com . By ‘mirroring’ I mean that every update on one blog has a twin on the other, and the reason for mirroring is my willingness to be present in two environments: Blogger, and Word Press. My students can feel free to browse any content I am placing there, and the updates specifically addressed to your curriculum will be labelled as: ‘Educational’ followed by the name of the subject, followed by any additional information. If you need to contact me individually, here are my email addresses: kwasniewski@afm.edu.pl  or  krzysztof.wasniewski@gmail.com .

Curriculum ‘International Economic Transactions’

This specific update addresses specifically the curriculum labelled ‘International Economic Transactions’, at the graduate (Master’s) level of studies. In these classes, we will be studying various types of international economic relations, and to that extent, it will be very much a development on what you have already learnt in the classes of macroeconomic, international trade or economic policy, during your Undergraduate studies. Still, there is one particularity to this particular curriculum, namely the focus on the process of institutionalisation in international economic transactions. In these classes, we will be focusing mainly on those aspects of international economic relations, which are institutionalized in international agreements and treaties. In your earlier years of study, you have certainly acquired some knowledge about international organizations like World Trade Organization, European Union, ASEAN and others. You probably remember, as well, the institution of bilateral agreements and treaties between countries. In this class, we are going to focus on the ‘how?’ of those institutions: how do they come into being? what are the premises for the underlying negotiations? what type of phenomena hides behind particular dispositions in those agreements and treaties?

You will be graduating this subject with your individual research project. Your task, and the basis for your final grade in this curriculum, consists in preparing a written analysis of an international economic agreement or treaty. Of course, such an assignment gives rise to questions from your part: what’s the point? what should it look like? which particular agreement or treaty? how to do it? First things first, the point of doing it. The didactic goal of this particular curriculum is to develop your skills in the analysis of documents pertaining to international economic relations, for one, and your presentational skills, for two. I expect the work you will present to demonstrate that you can: a) search and analyse the relevant sources, documentary and others b) wrap your observations up into an intelligible document of your own.

Now, the way your work should look. What I basically expect from you is an essay, of at least 2500 words, with proper referencing of the sources you have used. I will be grading this essay on the grounds of three criteria: scope of research (weight 0,5 in the final grade), depth of analysis (weight 0,5), logic and grammar (acceptable or not). The scope of research means simply the number of sources you convincingly reference in your work. By convincingly referencing I mean, first of all, referencing at all, i.e. providing a proper bibliographic reference to any sources (google up ‘scientific referencing’ or ‘bibliographic referencing’ to know more). Convincing referencing means, in turn, that in the body text of your essay you explicitly refer to those sources, i.e. I can see a logical link between the contents of the source in question and your own writing. The basic source you will have to reference to will be the international agreement or treaty that you will be writing about. Convincingly referencing to the contents of this particular document gives you 1,5 points, or the Polish ‘pass’ grade, namely 3.0, weighed 0,5. If you expand your referencing up to 5 sources in total (books, articles, official policy statements etc.), you get 2,0 points (or 4,0 * 0,5), and referencing more than 5 sources gives you 2,5 (5,0 * 0,5). The depth of analysis means the understanding you demonstrate in your writing. I distinguish four basic levels regarding this criterion of grading. At the lowest level, your writing does not demonstrate any understanding at all. This is the case of those ‘I-will-copy-and-paste-from-Wikipedia’ essays. It is worth a fail, and disqualifies your whole work, even if your reference list looks impressive. I give the ‘fail’ grade to plagiarisms, as well. The basic level of demonstrable understanding, worth 1,5 points (3,0 * 0,5) is an essay, where you describe correctly the economic context of the agreement (treaty) you are working with, but you do not articulate it into an argumentation with a hypothesis. You can get 2,0 points (4,0 * 0,5) if you present an articulate argumentation, but without clear conclusion. Finally, if the flow of logic in your essay convincingly leads to an explicitly formulated conclusion, you get 2,5 (5,0 * 0,5).

Now, a remark as for logic and grammar. As many of my students come from Ukraine, Russia, or other countries in the East, the temptation is strong to Google translate or Yandex translate texts in your native tongue. Still, keep in mind two things. Firstly, automatic translators translate words, not syntax. The syntax used in Russian or Ukrainian, for example, is very different from the English one, especially in the formal register. If you Yandex translate a document, the raw result in English is very likely to be utter gibberish and will disqualify your work for the reason of unacceptable grammar. Besides, I can read Cyrillic, and if I trace back the source document of your translation, we are in the fairy tale of plagiarism, and this is a tale where really bad monsters dwell. One of them is called ‘Disciplinary Procedure with The Dean’.

And so we pass to the ‘how?’. You can choose any international agreement or treaty to work with, as long as it pertains to economic relations between countries. You can be smart, at this point, and take on studying more than one agreement or treaty. Each of those agreements will count as a separate source and will pump up your scope of research. Feel the blues? If you don’t feel like being smart, I can assign you a particular agreement to work with. Just ask. As for the way of working with those sources, you will be using, of course, the content delivered in my classes. As for now, I am giving you the following hints. Firstly, do your research. Go to Google Scholar , Microsoft Academic Research  or to the Social Sciences Research Network and find publications connected to the agreement (treaty) you are working with. Secondly, keep it close to real life. Imagine real situations in business, covered by the scope of the agreement at hand. Imagine how can the enforcement of this agreement change those situations.

Now, I am listing, here below, the fundamental pieces of theory – in other words, the contents of the lecture – you will be smart to google up (or bing up, whatever) and which will make the backbone of our in-class activity:

Fundamental concepts: international agreement, international treaty, signature of an agreement, ratification of a treaty, bilateral and multilateral agreements (treaties), scope (hypothesis) of a legal norm, disposition of a legal norm, sanction of a legal norm, balance of payments (and related concepts), political system, constitutional order, barriers to trade, trade facilitation.

Analytical methods: basic analytical tools of economics, micro and macro.

Typical scopes of international economic agreements and treaties: free trade, selective removal of barriers to trade, facilitation of investment, free flow of capital and people.

Typical institutional forms of international economic cooperation: agreements, treaties, joint ventures and joint operations, international organizations, international agencies.

Case studies (this is an indicative list, still you can use those links, download those documents, and you can use them for your projects): WTO Establishing Marakesh Agreement , GATT 1947, GATT 1994, WTO Trade Facilitation Agreement, United Nations Arms Trade Treaty, Egypt – EFTA Free Trade Agreement, China – Nigeria Bilateral Investment Treaty, and the Charter of The Shanghai Cooperation Organization.     

This is it as for the opening update. See you in class. Now, I pass to sketch the landscape for other curriculums.

Curriculums: ‘Microeconomics’ and ‘Principles of Organization and Management’

The curriculums ‘Microeconomics’ and ‘Principles of Organization and Management’ are both addressed to students in the first year of undergraduate studies. I teach those two subjects to the same group of students, and I am trying to make as much meaningful connection between the two as possible. So, my basic didactic goal in these two curriculums is to give you fundamental analytical skills for preparing a decent business plan, period. My understanding of what a business plan is corresponds to quite broad a range of situations. It can be a business plan strictly spoken: you want to start a business, you go to a bank for a loan, and they ask you to present a business plan. Besides this basic version of events, others are possible. You start some kind of social action, you will need to make it sustainable in financial terms, and so you will need some kind of plan as for how to make capital come to your project and stay there. You work in a corporation, and you can get a promotion if you present a convincing plan, together with a budget, for a project built around an idea of yours. These are all situations, which I refer to when I say ‘business plan’. Any student wants to pass their exams, rather than fail at them, and it is a natural thing that you try to predict the expectations of your professor, me in the occurrence. So, here they are, my expectations: demonstrate your skills in building a business plan.

The curriculum of ‘Microeconomics’ regards the way markets and businesses work, whilst in the path of ‘The Principles of Organization and Management’ we will study the way organizations work and what you can possibly do about it. I am giving, here below, the formal contents of both courses, i.e. the list of theoretical concepts we will be working with this semester. So, the formal contents of ‘Microeconomics’ are the following:

Fundamental concepts of microeconomics: economic good, private goods, public goods, utility, substitute goods, complementary goods, opportunity cost (alternative cost), economic profit, market, capital, assets, equity, debt, fixed assets, circulating assets, value added.

Analytical methods: marginal value, elasticity, isoquant (indifference curve), balance sheet, income statement, statement of cash flow, rate of return on investment, net present value, fundamentals of calculus and of algebra.

Theory of markets: demand, supply, function/curve/law of demand, function/curve/law of supply, perfect competition, Marshallian equilibrium, equilibrium price, equilibrium product, imperfect competition, monopoly, oligopoly, monopolistic competition.

Theory of production: production factors, production function, costs of production, fixed costs, variable costs, total cost, average cost, marginal cost.

Institutional forms of doing business: individual (private) business, partnerships, companies, corporations, cooperatives, non-profit organisations.

Financial markets: money, credit and the supply of money, borrowing capacity, credit risk, interest rate, discount rate, market of securities and types of securities, fundamentals of financial investment, financial risk.

Now, I pass to the contents of the ‘Principles of Organization and Management’:

Fundamental concepts: organization, social structure, hierarchy, behaviour, social communication, goals.

Analytical methods: mathematical probability, sequence and timeline, mathematical sets, goal setting, scenarios.

Theory of organizations: social structures and organizations, types of organizations, process and structure inside an organization.

Theory of communication: media of communication in management, the basic pattern of communication (message > coding > medium > decoding > feedback).

Hierarchy building: types of hierarchies, orders and their formulation, types of orders (directive, semi-directive, non-directive), enforcement of orders.

Network building: negotiating and contracting, stable and unstable networks, the use of network-type structures.

Uncertainty and risk: types of risk, evaluation of risk, operational risk, financial risk, systemic risk.

Basic functions of management: organizing, marketing, human resource management, finance and investment, production.

Good, now that you know the contents of the course, the next question is ‘where should we take all that stuff from?’, or the question about your resources. Firstly, you can try and participate in those strange gatherings we will have at the university. They are called ‘classes’, ‘lectures’ (PL: wykład) or ‘workshops’ (PL: ćwiczenia) in your schedule and sometimes they are useful. Secondly, arm yourself with textbooks. Anything that has ‘Microeconomics’ or even just ‘Economics’ on its cover will be OK for the course of microeconomics, the same holding for management (i.e. any textbook with ‘Management’ on the cover will do). Thirdly, I will do my best to deliver educational content on this blog. Finally, you can smartly use online resources. Wikipedia is just fine: feel free to use it. Search by those keywords I have just given as the formal contents of those two curriculums.

Now, assessment and evaluation. Both curriculums – ‘Microeconomics’ and ‘Principles of Organization and Management’ – end up with an exam. Both exams will consist of two parts: test questions and essay. The scope of each exam will correspond to the same formal contents of each course, which I have just specified. I practice so-called ‘pre-exams’: they are risk-free attempts at the final exam. They have the same contents and the same requirements as the final exam, but you cannot fail, i.e. if you fail at them, the fail grade is not official: you just take the final, formal exam. If, at the pre-exam, you have the very good grade (5,0), you are just done with me for this semester and you have this grade as your final exam grade. If, on the other hand, at the pre-exam you get pass (3,0), or good (4,0), or something in between, like 3,5 or 4,5, you can keep this grade kind of in reserve and try your luck at the regular final exam. I schedule the pre-exams so as to have them at the penultimate (i.e. the one before the last) lecture in each curriculum. That will be January 10th 2018 as regards ‘Principles of Organization and Management’, and January 17th 2018 as for ‘Microeconomics’. In the last lecture of each curriculum, I will discuss the results and contents of the pre-exam.

In the course of ‘Microeconomics’, besides the lectures, you also have workshops (PL: ćwiczenia) with me. They are supposed to be training in the usage of microeconomic theory. Your assessment regarding workshops is based on your activity, which, this semester, I am evaluating on the grounds of your performance in presenting solutions to complex economic problems. What kind of problems, will you ask? Here it comes, an example, I mean. Look outside, through a window, or just look around you in the street. What kind of economic phenomena can change that urban landscape you see? How those changes are likely to occur? You study this problem, you present a complex answer to it in workshops, taking care of using meaningfully that microeconomic theory, and you can have very good for workshops. I will give you such problems to solve in class, on an ad hoc basis, the kind ‘I ask and you respond on the spot’. I will give you such complex mindfucks on this blog, as well, and, finally, you can invent those problems by yourselves. I will report in my notes each case of presenting in class a solution to a complex economic problem, and the student who does it will have points for their final credit in workshops. If you want to have very good (5,0) in workshop credit, solve and present one really complex problem, like the one I have just phrased, or achieve at least 3 successful solutions of ad hoc problems given in class. Each student has to achieve at least a partial solution to a complex problem, or one solution to a simple problem given in class, in order to be credited with a pass (3,0) for workshops. Cases in between will be credited at 3.5, 4.0, or 4.5, accordingly to the demonstrated performance.

Curriculum ‘Undergraduate Thesis Seminar’

Now, I am addressing the students of third year in Undergraduate studies, who chose me as their scientific supervisor and tutor for the writing of their Undergraduate thesis. This curriculum is the most open and the least formal of all, and yet I find it useful to provide some basic principles we will be following. We have two semesters for working together. The end game of this work is your Undergraduate thesis, properly written, positively reviewed, and backed by a successfully passed Undergraduate final exam. This curriculum is supposed to lead you towards this complex goal. These two semesters are slightly distinct, and it is reflected in the assessment procedure. The winter semester ends up, for you, with a dummy credit (i.e. credit or refusal of credit, PL: ZAL <> NZAL). It means you have to do some minimum work in order to consider you eligible for taking the same curriculum in the summer semester 2018. The base for that dummy credit in winter will be the completion of at least 4 reviews of scientific sources suitable for your topic of research. They can be articles or books, but they have to be 4 distinct bibliographic resources thoroughly reviewed. By review, I mean, first of all, a summary of the contents, and secondly, a personal position, from your part, on the points you judge the most important. The purpose of the whole exercise is to develop your skills in working with literature, which is fundamental in the writing of your thesis. In the summer semester 2018, you will be writing your thesis properly spoken, and you will get a scalable credit (PL: ZAO), from 2,0 to 5,0. If you want to get 5,0 (very good) in that second semester, you have to finish writing your thesis, and to convince me, in class, that you can defend it in your Undergraduate final exam, and all that before the end of the summer exam session, i.e. before June 25th, 2018. I think it could be a smart idea to use this blog as a kind of knowledge-bank for your whole group. Just follow along and we will figure something out together.

Curriculum ‘Economic Policy’

Finally, I am addressing the students of 3rd year in Undergraduate studies, regarding the curriculum of ‘Economic Policy’. This is one of your final courses, and it is an integrative one, i.e. we will be combining theory from many fields (mostly economics, but not only). From this point of view, it will be a pre-seminar for you. The formal contents of the course are the following:

Fundamental concepts: you are expected to have a good grasp of economics (mostly macro, but you can do with some micro as well), political sciences and sociology.

Analytical methods: revise your economics and your maths; balance sheets, functions, probabilities and equations will just pop up from under every stone on this path.

Political systems: political players, constitutional orders and partisan orders

Monetary policy: money and monetary systems; the institutional frame for the supply of money; central banks and commercial banks; stability of the monetary system; interest rates; expansionary, restrictive, and neutral monetary policy; exchange rate and the Mundell – Fleming model.

Fiscal policy: the impact of public expenditures and taxes on the economy; the public sector, its internal structure, and its financing; the budget of the government; the distinction between the primary and the structural fiscal balance; automatic stabilizers; public debt and its financing; expansionary, restrictive, and neutral fiscal policy.

Institutional policy: the way governments can use law to influence business and markets; restrictive and liberal legal regimes;

You graduate this course with an essay, of at least 2500 words, which will demonstrate your grasp of the theory I have just specified here-above. As this is an integrative course, you will have to use many resources. There are few textbooks about economic policy in general, and so you are the most likely to compile a small library of your own. Online resources are just fine. I will use this blog to update you, from my part. This course is very much like the work of a journalist: I expect you to get s*** done rather than just learn theory. Do your homework and do your research, write your essay, send it to me via email, improve it according to my remarks, and get rid of me before the exam session comes in winter: this is the drift to follow.

This is all, folks. See you all in class.