Tackling our economic realities - The individual's role
There is a whole generation of Europeans who do not know what a real recession is. The oil price shock of the 1970s came too early for these youngsters to really appreciate that living standards could indeed be seriously eroded in a very short time as...
There is a whole generation of Europeans who do not know what a real recession is. The oil price shock of the 1970s came too early for these youngsters to really appreciate that living standards could indeed be seriously eroded in a very short time as a result of events largely out of our control. For those of us who have been around longer, the present bleak economic prospects are a grim déjà vu.
I believe that there are similarities in today's economic circumstances and those of the 1970s when the first major oil price shock hit the world economies, but there are also major differences which make me optimistic that the effects will not be as deep and as extensive on our economy.
For one thing, although inflation at 4 per cent in the eurozone now seems far too high, it is nowhere near the double digit inflation we experienced in the 1970s. I also believe that the local economy is considerably stronger today with the role of the more efficient private sector in the economy more prominent following government's divestment of various commercial investments that it inherited from the 1970s. We now also have a more diversified economy with particular sectors, like financial services and the gaming industry, performing very well.
It is so easy to risk being labelled a begrudger, doom monger or even anti-patriotic because one dares suggest "that the emperor has no clothes" when reviewing the state of health of our economy. But from time to time we need to have such people with their feet solidly on the ground to tell us when we are living an illusion of wealth and well-being that is not really there.
As the media increases its analysis of the evolvement of the current phase of stagflation, ordinary people who may have difficulty understanding economic theory, but are more than competent to use their common sense to address the new realities facing them, will alter their behaviour to defend their quality of life.
I remember quite distinctly the psychological shock that people in Malta suffered when the first massive price hike in petrol was announced in the 1970s. The day after the announcement of massive increases in local petrol prices I had difficulty getting a seat on the bus on my way to work. Everyone seemed to have decided to leave the car at home and use public transport. Admittedly, this practice did not last for very long, but people did adjust, and I am sure they will do the same thing again today.
There are many sensible things that most Maltese families who have to work hard to earn their money will do to ensure that the spiralling cost of food, fuel and all the other items affected by these essential basic commodities will not jeopardise their ability to survive this downturn.
No doubt, people will, among other things, increasingly buy their foods from low-cost supermarkets, will downsize from their fuel guzzling 4 x 4 cars when the opportunity to do so comes, will switch off their power-hungry air-conditioners, will think twice before deciding to eat out, and when they decide to do so they will look for places that offer the best value for money. They are also likely to give up their branded clothes to save the premium they have to pay for sporting a branded item of clothing.
This is all very understandable and indeed laudable. I would advise such people to go beyond this and resist the marketing onslaught by financial service providers to dump on them products which may not really be needed, or that may in fact worsen their financial situation. I am of course referring to the "special offers" for easy credit lines, credit cards and investment products that may carry a high risk profile.
The local financial regulator is doing an excellent job in scrutinising the local financial services community to ensure that they do not oversell their services. Their role is crucial for safeguarding consumers' interests against the hard-selling tactics so often used by some operators in the financial services industry who are only too keen to promote the buy-now-pay-later culture.
Next week: The government's role
I believe that there are similarities in today's economic circumstances and those of the 1970s when the first major oil price shock hit the world economies, but there are also major differences which make me optimistic that the effects will not be as deep and as extensive on our economy.
For one thing, although inflation at 4 per cent in the eurozone now seems far too high, it is nowhere near the double digit inflation we experienced in the 1970s. I also believe that the local economy is considerably stronger today with the role of the more efficient private sector in the economy more prominent following government's divestment of various commercial investments that it inherited from the 1970s. We now also have a more diversified economy with particular sectors, like financial services and the gaming industry, performing very well.
It is so easy to risk being labelled a begrudger, doom monger or even anti-patriotic because one dares suggest "that the emperor has no clothes" when reviewing the state of health of our economy. But from time to time we need to have such people with their feet solidly on the ground to tell us when we are living an illusion of wealth and well-being that is not really there.
As the media increases its analysis of the evolvement of the current phase of stagflation, ordinary people who may have difficulty understanding economic theory, but are more than competent to use their common sense to address the new realities facing them, will alter their behaviour to defend their quality of life.
I remember quite distinctly the psychological shock that people in Malta suffered when the first massive price hike in petrol was announced in the 1970s. The day after the announcement of massive increases in local petrol prices I had difficulty getting a seat on the bus on my way to work. Everyone seemed to have decided to leave the car at home and use public transport. Admittedly, this practice did not last for very long, but people did adjust, and I am sure they will do the same thing again today.
There are many sensible things that most Maltese families who have to work hard to earn their money will do to ensure that the spiralling cost of food, fuel and all the other items affected by these essential basic commodities will not jeopardise their ability to survive this downturn.
No doubt, people will, among other things, increasingly buy their foods from low-cost supermarkets, will downsize from their fuel guzzling 4 x 4 cars when the opportunity to do so comes, will switch off their power-hungry air-conditioners, will think twice before deciding to eat out, and when they decide to do so they will look for places that offer the best value for money. They are also likely to give up their branded clothes to save the premium they have to pay for sporting a branded item of clothing.
This is all very understandable and indeed laudable. I would advise such people to go beyond this and resist the marketing onslaught by financial service providers to dump on them products which may not really be needed, or that may in fact worsen their financial situation. I am of course referring to the "special offers" for easy credit lines, credit cards and investment products that may carry a high risk profile.
The local financial regulator is doing an excellent job in scrutinising the local financial services community to ensure that they do not oversell their services. Their role is crucial for safeguarding consumers' interests against the hard-selling tactics so often used by some operators in the financial services industry who are only too keen to promote the buy-now-pay-later culture.
Next week: The government's role