ECONOMICS OF THE POOR

SHAMSUL GHANI
(feedback@pgeconomist.com)
May 31 - June 6, 20
10

Food inflation in Pakistan has not subsided in line with the global food prices deceleration. Cartelisation of food commodities has played havoc with the lives of those subsisting on or below the poverty line. Food inflation for the last year (April to April) is recorded at 14.54 per cent against the general CPI of 13.26 per cent. No doubt, during 2007-08, global food prices had seen unprecedented rise but that was due to the onslaught of speculative forces that were soon punished by the inherent weaknesses of global financial system. The dust has long settled down and inflationary economies every where have transformed to recessionary economies. Rate of inflation all over the world has drastically come down. Pakistan still boasts of having the highest rate of inflation in the region. It is time for the ruling elite and the opposition to disengage themselves from such phony issues as Charter of Democracy, NRO, Swiss Cases etc. and do something for the masses, not for the sake of the masses alone but for the sake of democracy itself.

Reproduced blow is a paragraph from one of my previous articles The Age of Man & Money Degradation:

"The astronomical rise in the prices of basic food items and economically important metals without any quality improvement or value addition during the last 50-55 years gives an inkling of where we would be after another 50 years. The increase in the prices of gold could be attributed to resource scarcity as world gold deposits cannot be replenished unless new finds are made. But procurement of a continued rather enhanced supply of basic food items relates to land and animal fertility which can always be, and is being continuously, improved upon through technological advancement. So what is the logic behind the price increase of such items? This is the satanic power of our economic model that has not only hugely devalued our money but also eroded our human values. We are living in the age of man and money degradation."

Besides the insensitivity of various economic models to the problems of the poor, the very subject of economics is tricky to the extent of being anti-human. It reveals little and hides more. It relies on generalisations that certain cases turn out to be the most misleading. The anguish of modern day economists over the imperfection and fallacies of the subject has now started to come to the fore. The reliability of macro indicators like GDP, GNP etc. as measures of an economy's health is under the scanner. Measuring of prices through devices like CPI, WPI, SPI etc. is yet another dubious tool of economics that has been used for standard reporting down the ages.

The methodology, the group weight, the basket of goods, the selection of a particular market, all afford room for maneuvering/erroneous conclusions. Nevertheless, the inflation reporting through these indices remains a standard economic practice.

The very expression "inflation" suggests that the prices in the existing economic models are supposed to increase continuously. Any deviation from this basic assumption that is drop in prices is taken as an unusual development raising fears of an impending recession or even depression. Price stability is the shortest possible period when markets and the market players are in the "indecision mode." That is why the price stability periods are few, far and between.

FOOD CPI (BASE YEAR 2000-01 = 100)

GROUP

GROUP WEIGHT %

INDICES

APR- 2010 MAR- 2010 APR- 2009
General 100 223.44 219.65 197.28
Food & Beverages 40.34 252.53 247.55 220.46
Non Perishable Food Items 35.20 251.68 251.14 219.29
Perishable Food Items 5.14 258.37 222.96 228.42

The mechanism for reporting inflation is quite deceptive as are most of the economic tools and policies. No matter they have their roots in Keynesian economics or come direct from the fancy economic tool box of the Chicago school economist Milton Friedman. For a common man, the understanding of the very concept of inflation is camouflaged in arithmetical intricacies. He may feel flabbergasted when he is told that the CPI has registered a rise of 14.54 per cent only in comparison to the previous years' peak of 25-30 per cent. The reason is simple; his fast deteriorating resource position makes him skeptic of the economic data loaded on his un-arithmetical mind. We, the ones who are conversant with the data-game, are to blame.

An interesting paradox is that the national economics and the common man's economics are often at odds with each other. In Pakistan's agro based economy this contradiction often surfaces in an ironic fashion. For example, during the recent weeks, certain commodity prices have shown signs of so-called stability - even a few of them have dropped (sugar, rice, wheat etc). This, from a common man's viewpoint, is a positive development, but from market standpoint, it's a depressing change. The rice export is not picking up, thereby creating external account concerns from national economic standpoint. For, a common man, the depressed domestic rice prices in the wake of excess supply position come as a great boon. A bumper wheat crop in Afghanistan closes doors for Pakistan wheat export (and smuggling). This hurts national economic interest (and that of smugglers and profiteers too). But for, a common man this turns out to be a favorable development as he doesn't have to worry for a higher food budget allocation, at least for a few weeks. Where to look for the resolution of these anomalies? Is Pakistan's economic model defective, or are the country's economic policies poorly designed, or is it the imperfection of the subject of economics itself ? Do we need to introduce a new subject with the title Economics of the Poor?