Economics and Business Forum

Thinking like economist

The most pressing issue all over the world is the economic problem.

This problem hinges on scarcity of material, goods and services that we would like to have.

People have different ideas about solving this problem. Some believe in the literal meaning “ask it shall be given to you.”

When they ask for something from a friend, parent or government, they are indignant when they do not receive it. Even when they cry or go on streets to demonstrate they discover sooner than later that not all things they demand can be given.

In the secular world, it is in order to say work hard and you may have some of the things you want.

He that thinks like an economist knows that there are no gains without pains. Some of the pains we are going through at present are the inherent costs of development.

Those who are calling upon President Joyce Banda to reverse the economic reforms seem to suggest that if their wishes are complied with, we will sleep on beds of roses.

This is wishful thinking. The reforms had to be undertaken because our position was getting worse and we were heading for collapse.

He that thinks like an economist knows that where there is scarcity, you have to make a choice between one thing and another.

When you choose one thing, you forgo another. That which you forgo is called opportunity cost. We meet opportunity costs even in tackling macro economics.

The demonstrations by members of the Consumers Associations of Malawi (Cama) as well as their sympathisers centred on the price hikes which followed the devaluation and floatation of the currency. It was a cry against the galloping double digit inflation.

To try and decelerate price spirals, it was necessary for the central bank to raise interest rates. This would take out excess money in the economy otherwise called liquidity.

High interest rates discourage private companies from borrowing from banks. When the companies do not borrow they reduce their production capacity. In situations like this employment opportunities do not multiply. There is the risk of going into recession.

He that thinks like an economist knows that certain things are easier said than done. He knows economic forces are part of natural laws which cannot be repealed by parliaments or fiats.

Natural law says cereal seeds can germinate in the soil only if there is moisture. A sickly economy whose mainstay is agriculture can be turned around only during the rainy season unless there are extensive irrigation works.

Crops will bear fruits in accordance with their natural gestation periods. He that thinks like an economist knows that when an investment has taken place there is a gestation period to wait for patiently. When you try to force nature to obey your will you are asking for costs of some kind.

Adam Smith, founder of economics, wrote: “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner but from their regard to their own interest. We address ourselves not to their humanity, but to their self-love and never talk to them of our necessites but of their advantages.”

Whether he deals with a customer or investor, he that thinks like an economist addresses that person’s self-interest. We must try and sell the products or goods that the world of customers wants not what we prefer to offer them.

In this age of globalisation, customers welcome exports that satisfy them most in price and quality regardless of where they come from. They will not buy our exports just because they sympathise with the economic plight of our country.

As for investors, we have to deal with them as we deal with customers. The conditions for investment must be attractive not repellent.

If on the one hand we say our country is the Warm Heart of Africa, but on the other hand, we treat investors who are already here as are undesirable aliens, we are discouraging other investors from coming.

 

 

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