Tell the average resident in the Gulf that slower or no inflation is a bad thing and you might be laughed at. Assuming such a person can be found — considering the mix of population present in the region — the notion that falling prices for food and other basic items might be a matter for concern would seem bizarre.
A recent research note from Emirates NBD confirmed that foodstuffs are indeed becoming cheaper in many Mena countries. Owing particularly to the strength of the US dollar and its diminution of commodity prices (for dollar-pegged buyers especially), that is entirely welcome. At the same time, though, fuel expenses in many cases may actually be rising, as subsidy reforms take effect to help improve fiscal balances, even as international oil prices have dropped.
That’s the kind of instance where the immediate interests of those at street level and the enduring issues affecting the government coffers may diverge.
For national authorities, how money is raised (substantially from the public they are meant to serve) and how it is dispersed and employed involves a certain amount of mystery.
To ordinary people, the concept of having an income, and perhaps a reserve of wealth, translates easily into having to manage a budget.
Of course, some have a tendency to perceive a preferred lifestyle and then to pursue it with comparatively little regard to how it’s financed, but that’s an issue of character rather than underlying, domestic economics.
Others may succumb to the charms of credit card salesmen whose livelihoods depend on you outspending your own. Again, that doesn’t change the fact that the money, in terms of hard cash today or tomorrow, has to be found, even if a prolonged interim is spent living in debt.
Not so, however, at the aggregate level. There are plenty enough analysts and commentators ready to remind you that national finances are really not like household sums at all. In fact, they scoff at the very idea, and consider it terribly naïve and uninitiated if you are not aware of the distinction, and consequently ignorant of the ability of the state to bypass mundane notions of budgeting.
Even before the advent of quantitative easing (QE) -- i.e. the so-called extraordinary operations of Western central banks to inject monetary demand, to try to jolt failing economic supply (output and employment) into life — policymakers for generations have routinely resorted to methods apart from what’s in the treasury’s cash till to allow them to spend pretty much as they wish.
Bribery with people’s own money
Those who encounter elections around the world know very well that politicians will promise the Earth to their electorates, based on funding taken from the past, present or future. Bribery with people’s own money or redistribution of other people’s is absolutely part and parcel of the process. So they will tax and spend, or borrow and spend, or (especially these days) simply print electronic money and spend — anything so as not to be confined to living within precise means, as practised by a lot of everyday folk.
And, yet, many in the economics fraternity seem unfazed by the accumulated debt arising from that inherent bias. You may have noticed, too, that they seem to be the same ones who urge even greater spending, and the indulgence of greater deficits, as the recommended escape route from that morass. Strangely enough, they get an extraordinary amount of airtime in doing so.
At the country level, there’s then an outstanding incentive to promote inflation (and warn madly of the need to avoid deflation), so as to diminish the real weight of servicing and repaying state indebtedness.
The true cost of dealing with it is then borne more by savers, unless they successfully adapt to the low interest-rate environment that induces inflation by pursuing investments (stocks, bonds, real estate, commodities or alternatives) that by their nature are riskier than simple bank deposits.
Western economic strategy is now dedicated to following such principles to ease the way for debtors, who do the spending that’s keeping damaged economies ticking over, and the creditors who both lend to and depend on them. The global detachment from sounder money management, something remotely akin to household budgeting, is more or less complete, and the dichotomy between state and individual is reinforced.
Hence, for example again, an inflationary surge in housing costs, as reported in the UAE by NBK, negatively signals the pinching of purchasing power for renters on the one hand, but represents a positive trend not only for landlords on the other, but in terms of the country’s business momentum.
With such competing motives in the works, and the dominance in popular imagination of cyclical ups and downs over the nitty-gritty of structural improvements to the economy, it’s no wonder that finding a favourable balance nationally is always such a tricky, not to say overwhelming, task.
