EconoMix

People are no longer buying things they don’t need. And that is apparently bad news for the world.

I have always been awed, and perplexed, by the working of the great Economic brains of the world. How they always seem to know what will happen after it has happened. And how, mostly either through a Rate Cut, or Rate Increase, they can solve the most internecine problems plaguing our world.

But how does it work? In order to not further tax the already busy brains of the Economists who are probably working out how they already knew about the impact of the Corona pandemic, and to decide whether it should be a Rate Cut this time or a Rate Increase, I decided to work it out for myself.

Let us take the example of the travel industry, one of the industries often cited as an example of being deeply impacted. As we are not travelling, they must be going through a torrid time. Airlines and hotels must be losing money because travellers, the people who would be paying them for their services, are not paying them. In short, because travellers are not coughing up money, airlines and hotels are getting poorer.

If they are getting poorer because travellers are not spending money, then travellers, who are not spending the money they would normally have, much be getting richer.

Makes sense?

Some of these travellers getting richer could be the people who run small businesses. Like restaurants. In Japan.

But people who run small businesses like restaurants are losing money because they have to shut down, and customers cannot come to them and buy their services. In other words, they are getting poorer.

If they are becoming poorer because customers are not coming and buying their services, then the customers who would have come to them must be getting richer because they are not spending that money.

Some of these customers getting richer could be makers of protective face masks. In Kenya.

Makers of protective masks are making money because there is huge demand for these masks. They just cannot make them fast enough. Hence, they are getting richer.

People buying these masks are becoming poorer as they now have to pay for an item that was not budgeted in their original scheme of things.

Some of these people becoming poorer could be employees of a software company. In Mexico.

On account of uncertain business outlook, the software company that employs them has offered a choice of retrenchment or pay cuts to employees. Hence employees are becoming poorer still.

If there are fewer employees and they are being paid lesser, and are becoming poorer as a result, then the employer, because it is spending less money, must be getting richer.

At the same time, the software company getting richer is seeing its carefully built business crumbling. The investment in creating a sales pipeline seems to be wasted as clients are unwilling to place new orders and even cancelling existing ones. If orders are not coming through and existing ones are being cancelled, it will gradually become poorer.

As clients of this software company are not paying money for new orders and saving money on placed orders, they must be getting richer.

Some of these clients getting richer could be mid-size garment manufacturing units. In India.

Mid-size, or any size, garment manufacturing units are seeing a steep decline in orders and are losing money because of that. Not only are they not getting orders, they have to keep paying salaries which is what the government has mandated. As is the business of governments in free markets to do. Mandate. Hence, they are becoming poorer twice as fast.

If they are becoming poorer because customers are not placing fresh orders and buying their garments, then the customers who are not placing fresh orders must be getting richer because they are not spending that money.

Some of these clients cancelling orders and getting richer could be retail clothing stores in Europe.

Retail clothing stores are losing money because footfalls have totally dried up on account of the lockdown and people are restricting purchases to essential items. Hence clothing stores are getting poorer.

Customers who are restricting purchases to essential items are paying lesser for clothing items and hence getting richer by saving money they would otherwise have spent on clothing.

Some of these customers getting richer could be people working for online platforms that facilitate video meetings and interaction over the Internet. In Canada.

They have been offered overtime pay and bonuses because their employer’s business is booming. Hence they are getting richer still.

Their employers, the businesses that own and run these online platforms, must be getting poorer as they are paying more to employees than was budgeted.

Online platforms that facilitate video interaction over the Internet getting poorer are experiencing a surge in demand and cannot seem to be expanding fast enough to keep up with it. Their revenues have seen a spike and they are getting richer.

People buying these services are becoming poorer as they now have to pay for an item that was not budgeted in their original scheme of things.

Some of these people getting poorer could be farmers growing food for the teeming millions. In Brazil.

Farmers are continuing to grow and sell food as people need to eat. They are neither getting richer nor poorer as people continue to buy food and eat. If anything, they could be getting marginally richer as the focus on buying and consuming food is now much higher than just a few weeks back.

People buying and consuming food would be getting neither richer nor poorer as they continue to buy and consume food like they have always done. If anything, they could be getting marginally richer as the more expensive eating-out options are not available at the moment. Not only that, they could experience an unforeseen improvement in health as the home-made food being consumed these days might be healthier.

Some of these customers getting neither richer nor poorer could be employees of a large corporation that operates an airline. Because there is no demand for travel, the airline has sacked a large number of staff. Without jobs, these staff members are getting poorer.

The airline that employs them must be getting richer as it no longer is paying what it had expected to pay in the form of salaries.

But we already learnt at the start that the airline is getting poorer because nobody is travelling and their capacity lies unutilised.

Clear? As mud? Or, using an Indianism, ‘as a jalebi?’

Are we getting richer and poorer at the same time? Or, are we getting neither richer nor poorer at the same time?

And I haven’t even begun to decide whether it will be a Rate Cut or a Rate Increase this time.

I think I better leave it to the Economists.

But all is not lost. At least I have been able to establish that, like the oceans of the world, we are all connected. You wouldn’t have known that, would you?

34 thoughts on “EconoMix

  1. Nice one Ankur. In the end, I suppose, it is all about the sentiments. Let us say, that the virus is controlled in the month of May, therefore Jun onwards everything should get back to normal. Other than the losses for those 3 months, nothing else has changed. So if people get convinced(the most difficult part) that everything is the same, as what it was 3 months back, they earn and spend in the old ways, things could turn around. But how do you convince 7 billion people?

    • Thank you. In my view, nobody believes that the existence of the ‘race’ is under threat. It will survive, maybe minus a few. And, it will find a way to thrive, and a way of calculating that thriving to make it seem like it has never been better. At such a time, how would it matter whether the period of worry lasts 3 months or 3 years? I also think that some of our Economics will change. As it does with every major event. On the one hand, this seems to be a call for Big Government, that can spend money and shelter people. At the same time, this is also a call for Small Government, and independence of communities, so that mankind does not get wiped out in one stroke.

    • The only thing you might not have known is that you are getting poorer even as you get richer. And you are 1 in 7 billion going through this remarkable phase in our evolution. Hence, and sorry to disappoint you here, you are not nearly as deprived as you might have believed you were 😦

  2. Your post is a veritable tour de force of the kind of circular arguments so rampantly raging through the publications authored by the so-called expert economists. Well done, Ankur!

    • Thank you Peter. Very kind of you to say that. One of my peeves with economists is that they often don’t take a stand and tend to use “I told you so’ once something has gone wrong, quite often.

  3. My degree is in economics so I can help with this. It boils down to two words: It’s complicated.

    There, that’s all you need to know.

  4. For some reason the fact that I am getting richer is not showing in my bank account. So that must mean I’m getting poorer and Amazon is getting richer. Time for a jalebi and coffee! 🙂

    • What’s in a bank account, Mr. Bezos might ask you? If still something left in there, let me take that away too. Like all great business leaders, he is trying to become richer and richer for the good of humanity. Like responsible citizens, let’s order jalebi and coffee on Amazon 🙂

    • Thank you. To you too. I think we have failed to assess (or deliberately overlooked) the downstream cost of gaining wealth, for example, the impact on our ecosystems. When this cost kicks in, the poor are often the ones picking up the tab.

    • I am honoured that you even considered that I could answer this question. It should be put to our gyaani economist population. From my simple perspective, GDP based measurement systems have run their course and I think we need to move to a more relevant system. Also, as a result of the lockdown, there will obviously be reduced economic activity. In our current definition, that will qualify as a recession.

    • And, thank you for the nomination,. I am honoured once again. However, I must respectfully decline. Please understand that this is because I am not in a position to comply with the requirements of the nomination. I have declined other nominations as well. I hope you will forgive me for declining.

  5. Loved the post, sir. Being part of an industry hit with the pandemic myself, I see eye to eye with the challenges you’ve spoken of.

    Midst all the economics, lies a literary wonder “Clear? As mud? Or, using an Indianism, ‘as a jalebi?’,”

    In case you get a chance, you must read lectures by Micheal Sandel, for his course Justice at Harvard. I think that’ll interest you.

    • Thank you Anika! The pandemic has put all of us out of our comfort zone. For example, we had come to expect that travel is a given and had created industry and infra around it. It seems it may not be so easy in the new normal. Unfortunate and sad for people who had built a life around this, or other deeply impacted industries. Thanks for pointing me to Sandel.

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