Saturday, 1 March 2008

Economic Diet

Watching the Academy Awards ceremony last week, one would be forgiven for thinking that all is well in the United States of America. The endless parade of the Hollywood glitterati through the red carpet—in their designer frocks and million-dollar blings—would never give away the fact that storm clouds are a-brewing in the American economy.

And dark storm clouds they seem to be as well too.

Yes, for ordinary Americans, 2008 would seem to be a very difficult year indeed. The housing market is in the doldrums, unemployment is on the rise, and business confidence is at an all-time low. To compound the situation further, fuel prices show no sign of coming down, just as the war in Iraq seems to go on forever and ever.

One need not be an economist to tell that all is not well indeed!

It is amazing how today we know so much more about our health and well being. It used to be that in the past, dieting and exercise was the preserve of either the idle rich, or movie stars who need it to continue earning a living. Today, the general population is quite aware of their lifestyle habits, and most people know what they need to be doing to stay physically healthy.

Funny enough, we are being told now that the best diet is a no-diet. In other words, if one ate sensibly, exercised regularly and stayed away from excessive drinking and smoking, this lifestyle would benefit our health much better than indulging in excess, and then going on starvation diets to burn off the excess poundage afterwards. The latter not only stresses the heart but harms other vital organs as well, such as our liver.

In other words, for our health, the key is moderation.

A bit amazing therefore that what we know to be good for our physical health, we still haven’t quite figured out would be good for our economic health as well. One only needs to look back a few years ago at the American economy to understand what we mean.

During the good years, money, it seemed, was no object to the American consumer. Fuelled by the availability of cheap credit, everyone went on spending sprees, buying everything in sight—from fancy houses, expensive cars, flashy jewelry, designer clothes and grand vacations.

This orgy of spending, in turn, benefited a lot of businesses while it lasted. Companies expanded to meet the demand, employing more people to support their growing businesses. The newly employed, in turn, took it upon themselves to fuel the spending spree even more, creating still more demand and feeding a growing cycle of prosperity that seemed to go on and on.

But as the unhealthy soon find out about their condition, so does the economy realize that all is not well.

Like a chronic disease slowly manifesting itself over time, certain triggers eventually lead to a correction. High fuel prices tell their toll first. Rising business costs compel some to save money elsewhere, often by reducing their workforce. Sometimes they outsource a number of their processes overseas, for the same financial benefits, and also with similar consequences to their employees.

Of course, people without jobs lose the capacity to buy, and also the ability to pay for their past purchases.

More next week.

Published in the Sun Star Daily, Saturday, March 01, 2008

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