Economics and Woman Empowerment

One says if you teach a parrot to repeat the words - supply and demand- there you go, you can produce an economist. I find it very witty and funny but economics is more than that. One funny analogy is to say that pop music is all about Justin Bieber. Ok here's a better analogy. To say economics is about supply demand is equivalent to say Cambodia is all about Angkor Wat and temples. Yes, Angkor Wat is an indispensable wonder which puts Cambodia on the world map, but Cambodia has more things to offer besides the beautiful Angkor Wat. Similarly, we can use the basic concept of supply and demand as a framework for our analysis on many social phenomenon. 

The mind-boggling thing about economics is that you can see economics everywhere you go. (Credit to our friend at Economind for the inspiration.) Should you use your last $10 on drinking with your friends or $10 phone card to call your bae? That is an economic question related with cost and benefit and which alternatives produce the higher level of satisfaction and happiness or what economists like to call “utility”. (The term utility is a bit vague and I’m pretty confident that it is very very similar to satisfaction and happiness. I hope our friend at Economind would share the same understanding) Should you send a girl to school or force her to help family at home? Yes, it’s more about gender equality and education but I can assure you that it has everything to do with economics. You see, an educated woman can participate in the labor force and labor is a scarce resource to the economy. We don’t have an infinite amount labor to produce goods and service, so we have to be clever in allocating the labor in a way that produce the most output “as many and fast as possible”. Economists also have a term for that. It’s called “efficiency”. Making a woman stay at home may not be the most efficient way to utilize her labor. She may be able to be involved in other activities that generate more social or personal benefit, be it a manager, a teacher, a salesperson, a factory worker and so on. An educated woman produces more than just income for household. A study found that a child born to an educated mother is “50%” more likely to survive past the age of 5. An economist can even monetize the social return/benefit of child mortality reduction and of educating a woman all thanks to our brilliant mind.

Our friend at Economind made a very interesting point and I'll add his whole quote. "Economics is indeed everywhere. A failure to recognize this is a failure to see solution to many problems. Gender empowerment is in every bit and piece economics as it is about gender equality. On top of what you just said, allowing women in labour force will also raise tax revenue and increase marginal productivity of capital, meaning capital investment will yield more return due to larger base of labour force. This boosts economic growth significantly."

Now you understand the massive scope of econ. Well, similar to M&M chocolate candy which comes with many colors, economists can be separated into many kinds as well such as trade economist, financial economist, health economist, agricultural economist, other development economist and so forth. The point is when it comes to allocating scarce resource to its most efficient use, superman has nothing on economists and they are just one call away to save the day. (Congrats to you if you get the Charlie Puth’s reference. Give yourself some kind of reward because you have a good taste, my friends.)

Find our friend Economind athttps://www.facebook.com/economind/?fref=ts

Brands and The Economics of Information

We would like to touch on a subject that is ubiquitous to everyone - brand - which comes to my mind today when we talked about which cinema we should go to watch Finding Dory from my favorite animation studio: Pixar. Some of my favorite Pixar films are “Up, Toy Story 3, Wall-E, Ratatouille and many more. Enough of my praise for Pixar and I will focus instead on coffee, since it’s something that many people know and relish.

The common misconception for many people is that they consider “brand” as something that is of high value and high value and it is a label on a product. While it’s true to a certain extent, it doesn’t completely cover what brand really is. When you think that your co-worker is very genuine and helpful, that’s a brand you attach to your co-worker. Perhaps you think that your co-worker is a hypocrite and manipulative, that’s also brand with which you associate your co-worker. You see, brand goes beyond the label on the product. Brand can extend toward a person, service, a religion and a country. Brand is more than the label per se. Brand basically is the “perception” or “image” you have representing a certain product/service and everything. Even my country Cambodia is putting a lot effort in “rebranding” our country’s image.

Source: https://d.ibtimes.co.uk/en/full/1455968/finding-dory-movie.jpg?w=400 http://funnyand.com/wp-content/uploads/2014/12/Starbucks-Coffee.jpg

There is a reason why a market researcher asks a respondent to tell the researcher the words that come to the mind of the respondent immediately after hearing the name of a product. It goes something like this “What three words come to your mind when you think of Starbucks?” Take 30 seconds to answer this very question yourself. Well, some internet users would comment “Overpriced, Overrated, Overhyped”. Some might say “Quality, Hip/Cool, Cozy/Relax”.

But what brand has anything to do with economics? Well, as I told you in the previous post, you can feel the force of economics almost everywhere you go. Brand has many things to do with the economics of information. Let’s say you drive to a faraway place and you are in need of some caffeine and your favorite drink is hot latte. You have two choices: you can buy your latte at a local coffee shop or at your well-known Starbucks. More often than not, you would get your latte at Starbucks. But why is that? It doesn’t necessarily mean that Starbucks latte is always highly superior to the local shop’s, but you know what to expect of Starbucks latte and service. The local shop’s coffee might be a lot better than the population cafe chain like Starbucks, but we do not have the luxury of having this piece of information. Brand can exerts confidence and quality to the mind of a consumer. This is why a company can spend considerable amount of money on marketing campaign to convince consumers that their products are different than the competitors’ in terms of quality, experience, satisfaction and so on. By planting a particular brand image and perception inside the mind of the consumers, the company of such branded product can design a monopoly (a monopoly is a market situation where there is a single producer of a product and the producer can set a price- price setter) for its own niche market and set the price accordingly.

Normally, a branded product costs more than a generic product. But is it worth it to pay extra for a branded product? Well, if you ask me, I would give a classic reply “it depends”. (Economind, great mind thinks alike) Different people have different perception on a branded product. If you think highly of Starbucks and you derive high utility from consuming Starbucks and you consider the benefits are higher than the cost of Starbuck’s latte, you should go for it. If you are a person who rate Starbucks very low and your utility derived from drinking either Starbucks’ or the local coffee shop’s is the same, then perhaps you would go for the local coffee shop.

Now you know the framework for analysis inside the mind of economists. Just in case you are curious which cinema we are going to watch Dory, it’s Legend. Why? Because our utility derived from either Legend or Major isn't very different and we also gather enough information to make this decision.

Why can't a country print more money to be rich (Part 2): Worst Hyperinflation in History

We touched on the basic economic principle, that is, excessive money printing leads to dramatic rise in price level - inflation. Don’t get me wrong here. Inflation may also be caused by other factors, but we will only stick to money printing as one of the sole factors.  In addition to inflation, the idea of printing more money to be rich is a complete fallacy. We also envisioned a country with extreme money printing and what easy money can do on the price of our beloved sedan Mercedes, clothes, phones, food and other available goods on the market that you can name it. The envisioning is not real and there are a few times when an economic theory and model sounds perfect on the paper but it just does not work in real life due to unrealistic assumptions and other reasons. So as promised we are back again to find examples in real life whether printing more money does indeed bring turmoil to the economy. Before we get into some of the worst inflation, I have to make it clear that the economic notion of money growth and inflation is so complex that economists exchange argument back and forth and I am nowhere near the economists’ status. With that being said, it is possible to learn it the intuitive way by studying previous hyperinflations in the past.

Probably the most well-known hyperinflation in history, at least to me, Weimar Germany’s hyperinflation was a disaster to the economy pioneered by wild money printing. You must have heard of World War I and it is  one of the deadliest war of the modern era due to the modernization of weapon and the massive scale of the war. It is dubbed by historians “The War to End all Wars”, but this world war was followed by another world war began in 1941. Following the end of WWI, Germany was obliged to pay war reparation to other countries. Weimar Germany’s government resorted to money printing to exchange with foreign currency and as a result Germany’s Papiermark’s value fell significantly. A down-to-earth economic concept can be used to explain the devaluation of Papiermark. According to the Working Paper of Steve Hanke and Nicholas Krus, the daily inflation rate was approximately 21% and it took only 3 days and 17 hours for price to double. To put this data into context, price of goods on the market must be changed every hour or even every 10 or 15 minute. The German Mark depreciated to a point when people would use the notes for toilet paper, since it was cheaper to directly use the notes than to purchase the toilet paper.

German’s hyperinflation might be the most well-known but it didn’t earn the title of the worst hyperinflation in history. One of the worst hyperinflation in recent memory was Zimbabwe in 2008 when the inflation rate was 79.6 billion percent following the infamous land reform designed by non other than the chief architect President Robert Mugabe. The land redistribution from the rich white farmers to the local people, many economists believe, led to a dramatic fall in agricultural and manufactured outputs due to the lack of experience and training.  I remember quite vividly when my Corporate Finance Professor showed the class the trillion dollar Zimbabwe dollar note. There were so many zeros that I lost count. Price of goods doubled every 24 hours which must be a headache for those who hold the money. Moneyholders would buy needed items immediately in lunchtime before the price doubled during dinner. So what is the solution to combat this hyperinflation? Well, Zimbabwe ditched their “beloved” Zimbabwe Dollar for other foreign currency such as the US Dollar to restore people's confidence.

The title of the worst hyperinflation in history goes to Hungary after the WWII. Hungary was obliged to pay war reparation to the Soviet Union. At its peak, the monthly inflation rate in Hungary was 13.6 quadrillion percent which means price doubled every 15 hours.