Saturday, February 07, 2009

Recession ... a theory

Everyone knows we are in midst of a recession. A lot of economic textbooks and newspapers would have educated you on how a "cycle" works and about "boom" and "depression" too. So let's forget about all that. Lets talk about basics.

Capitalism works very well with democracy for a simple reason that the more choices people have the more they will demand. The more people demand, the more there are choices and so on. I hope this convinces some of you. A very few of you who think "well there is got to be a limit to what a human can ask for", well guys there is none. And I am guessing the few of you who thought are either from India or China or are very above 50 years of age. Don't ask me why.

In the history of mankind, human beings have evolved in their thinking and their capabilities. You have reasons to think that its not actually a human who is empowered but there are accessories to empower her, well ultimately the objective of empowerment is achieved.

Money has been defined and redefined itself. From just being an instrument to buy and sell stuff, it has become an industry in itself called Finance.

So I told you about 3 things : Capitalism, Evolution of humans and Money. Lets take our argument further with these 3 things.

Human beings essentially like to fulfill their needs. Obviously, the more of us are there the more choices we want to have. So basically there is enough "market" for some of us to go ahead and capture. Now why would I want to look at a set of human being's needs as market? Because I got to live and good old barter doesn't exist. So I choose to use something called as Money. Money gives me options to buy anything I like and I go "Ooh! I have choice to buy stuff". The more money I have the more choices I can demand.

The flip side, if you may, of this situation is if I catered to all of you, I have a lot of money and ultimately you all start catering to me. Market is ultimately people. If I built a Wal Mart and start giving flexible finance options to buy stuff from me (assuming you are all fools of capitalism), ultimately you are bonded to me for the goods I provide to you. Unless....

Unless you all start looking outside to see if you can serve some more so that you earn more and get rid of me.

Looking at Human development index, only 15% of countries in the world are Rich. So basically these are the people who can "demand" stuff. Unfortunately because they are rich, they are the ones who "cater" too, at times. Therefore, people of Rich countries need to head out and look for other markets. Fortunately there are 50% countries whose Rich populace also needs to be catered. Voila! more demand. Now these Rich people from poor country start to look at their own country for some services. Voila! more demand.

With a Population growth rate of 4% , number reaching 1.3 billion people, India can never run out of demanding people or rather "target markets".

If you are still looking at Obama to provide stimulus package to kick start Indian economy, oh my God, you are looking at walmart to provide you financing to buy stuff from it.