7 Things That Are Bad For Your Wealth But Good For The Economy

7 Things That Are Bad For Your Wealth But Good For The Economy. Economics is a little wonky. Sure, at first it's complex - convoluted, even - and generally difficult. That's because it really is. But when you get into it further, it seems kinda crazy. Why? Because what's good for the national economy is actually bad for your personal wealth. Here's are 7 things to show what I mean.
Economics is a little wonky. Sure, at first it's complex - convoluted, even - and generally difficult. That's because it really is. But when you get into it further, it seems kinda crazy.

Why? Because what you think are good things (on a personal level) are "bad" at the national (macro) level.

And when you think about it, what's good for the national economy is actually bad for your personal wealth. Here are 7 things to show what I mean.


(This is a bit longer than my usual posts. But if you stick with it, it does have a point.)

Taxes

Obviously. Who wants to fork over more of their money to the government? But the government wants to get more taxes.

Admittedly, this can be good or bad - depending on where and how they spend it.

Consumerism

Every time there's a press release about high GDP numbers, I shake my head when I read that one of the top reasons was consumer spending. You know what that is, right? People ignoring their 1-year old smartphones to buy the newly released one... After which they buy over-priced coffee to talk about it.

Apparently, the economy improves whenever people neglect to save and invest first before spending. Too bad our wallets don't magically get fatter when that happens.

OFW remittances

Usually the top reason for "robust consumer demand" are OFW remittances. Another cringe-worthy reason.

What this basically means is that intelligent, hard-working people left their families to work abroad. And then their families went out and spent all the salary they sent back to buy a whole lot of fancy stuff.

That means OFWs will get stuck abroad for a while, and basically be broke when they return.

And somehow the economy improves when we drain our local talent pool and make sure they stay away.

(If you or someone you know is an OFW, ask them to visit the OFW Usapang Piso facebook group, if they aren't already saving and investing.)

Minimum Wage

I'm no activist. And I'm no more emphatic than the average guy about the plight of jeepney drivers and other laborers that go on strike every 1st of May.

However, it's no secret that everyone wants higher wages.

But apparently the economy will suffer when ordinary folks have more money to save, invest, and buy stuff.

Like you, I've read the reasons why. But have you heard the counter argument? If not, and you have some (or a lot of) free time, try reading the Hyperwage Theory.

I'm not necessarily a proponent, and I can't fathom how to enact it, but it's very thought provoking at the very least.

Deficit Spending

When a person borrows money to pay off debt, he's in trouble. When the government does the same, it's par for the course.

When a person keeps on borrowing money, eventually people (and banks) stop lending to him. In contrast, not only does no one stop lending to governments, they almost expect/encourage them to do it.

A person in debt doesn't have extra money. It's either spent on necessities or to used to pay off more debt. In truly bad scenarios, it's spent on frivolous stuff. Either way they have no extra money.

In stark contrast, a government can regularly talk about a "budget surplus" even when it has hundreds of millions of debt. If you don't believe me, follow the GDP and budget press releases the government makes.

A person in good financial standing has no debt. A government in good financial standing could actually have massive debt. As an example, the United States and France both have massive debt; much more than the Philippines. And yet, not only are their credit ratings (i.e. worthiness as a debtor) several notches higher, it's practically excellent - AAA or AA+.

Of course, there are reasons why governments borrow money. And I'm not necessarily opposed to Keynesian economics. But at some point, paying it off and thriving on cash should be a priority.

Chasing Foreign Investments

This one took me a while to recognize. I actually like it that foreign companies are setting up shop here. They create jobs. And increased demand for workers can eventually lead to higher wages and a higher standard of living.

But it's the wrong target. Here's why.

What's the biggest, most powerful economy for the past several decades? The U.S. And they did it through entrepreneurship.

Their citizens setup shop and grew their business. Of course, they're a nation formed by immigrants, so in a way you could say it was a form of foreign investment.

But what about the second largest and powerful economy - China - how did they do it?

The government controlled the economy, and only later on let foreign companies in. They got to #2 by nurturing their own companies.

And what about the former #2 - Japan. Sure, they've been in a slump for what seems like forever. But they're still a first world country, and one of the largest economies in the world. They did it by closing off their country after World War 2.

On a personal level, if you're always dependent on others, you'll never achieve much. In general other people will look out for themselves first and help out after.

GDP

I think the reason why the economy seems so wonky is that because it might be too focused on a higher GDP. We've covered what GDP is, and why it doesn't affect us as much as we think.

But to really show what I mean, here's a 9-minute video from the Story of Stuff Project and Free Range Studios:



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photo credit: danielmoyle via photopin cc

2 comments:

  1. Superb post Carlos! In economics, ceteris paribus always applies. There is the goo and there is the bad. No matter how much we push humanity or technology forward, something has to give.

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