Occupational Hazard Entries: The Number Seven

DISCLAIMER: The following blog entries titled Occupational Hazard Entries will cover some of my accidental discoveries that relate to economics (which is incidentally what I am studying, hence the name Occupational Hazard Entries). Any conclusions made are purely by myself and are not the stand of any other economist. So please consult a specialist if you intend to do any financial decision after reading my blog (though I strongly doubt so). - deciphering

Clear and present danger

Perhaps it is still a little unclear what we are talking about around here. Maybe it will be easier to talk from a numbers point of view. Take, for example, the number seven. Take a good look at this number and think about everything that is symbolises. Yes, 7 is one of those lucky numbers. It’s also symbolic in the phrase the “seven-year itch”.

It’s also a sensitive topic where Singapore is concerned. Here we go:

7% GST: Something happened on the 1^st of July, 2007. We woke up to higher prices in almost every single commodity imaginable. Within months, we started to face the stark reality of higher fuel prices. And within the short span of six months, we talked about another 7 –

7% inflation: We all know that when something becomes less valuable, it probably means that there’s another more valuable substitute that people are coming to terms with. Well, with people losing confidence in the US currency – confidence is what currency is based on primarily – people have been looking for alternatives. And they’ve found them in commodities – gold, silver, platinum, even that black stuff called crude oil. And they are finding it very, very valuable. US$106 a barrel was the last recorded price as of March 2008. Think about chickens, going up almost 25% from its initial price in June 2007. We are seeing spectacular inflation rates all around the world, but Singapore, with the heated economy, is letting off steam.

Expecting inflation to go up

The bad news here is this: Expect for more inflation up till this year ends, at least. Our recent bumper budget promises more money for everyone – but this is not the solution. Money was never the solution to any problem. It is the mentality of the people, the mindset that needs to change. Giving out more money, by going back to standard economics, means a multiplier effect is set to happen and cause a bumper increase in spending in the economy.

Think about it in this way – every one dollar that you spend isn’t just spent by yourself. Think of that same one dollar that you spend for example to buy a snack. The snack-seller can now use that same one dollar to purchase something. Then, the person who sold him the same thing will be able to purchase something else. That one dollar sets a long chain of events – and consumption – that economists call the “multiplier”.

So when you give a person more money, people are quite likely to spend it, unless our savings interest rates start going up as well. Why is it so? If savings rates are low, people are more compelled to spend it on something to enjoy the benefits of now than later. This symptom is called instant gratification.

To be continued.