THE PARADOX IN THE ECONOMY

Jul 26, 2016 Peeping Tom

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In the old days of the cinema, it was usual, during the intermission, for persons to flock to the cafeteria and make purchases. If you were carrying a girl to the cinema, it was always advisable to have enough in your wallet to at least buy her a drink and puri.
It was a tradition that if you took a girl to the cinema you had to at least buy her something at ‘half-time.’ Otherwise it would be the first and last time you had a date with her.
The cafeterias, and even the vendors and shops outside of the cinemas did very good business. Many a family made their fortunes from having shops near to a cinema.
The modern concept of the movie houses located in shopping malls has replicated the success story of having eateries in the vicinity of the movie houses.
The Giftland Mall is no exception. It has a large area in which are located a number of eating kiosks. Large volumes of persons go each weekend to the movie houses located at the Giftland Mall. Persons usually have to wait for the show to begin and while waiting or even after the movie, they will patronize the eating houses in the mall.
A visit to the Giftland Shopping Mall recently reveals that some of the eating houses are not doing well. In fact, one of them has closed, a very surprising development considering the amount of persons who pass through that Mall each weekend. Also, there are a number of stores in the Mall which are up for rental.
But the more serious concern, reflective, of a downturn in sales, is the decline in VAT revenues.
Business persons have been indicating, since last year, that there has been significant slowdown in sales. It was hoped that once the Budget was passed, business would pick up. But this has not happened. The economy is doing well but the growth seems not to be reflected in increased business activity.
A number of explanations have been offered. The more bizarre is that the ‘drug’ money is not available anymore. Those who make this claim, unfortunately, do not have a basis for determining that less drug money is circulating. They are offering a politically- biased explanation. They want to say that the government is doing well and this is the best twist they can put on the decline in sales in the commercial sector.
The other mistake is that many persons are using one economic variable or indicator as the sole basis for analyzing what is happening in the business community.
There is a paradox to be unraveled. The economy is growing but the business sector which is supposed to be doing better, the gross sales of business, is below that of previous years. At the same time, businesses are closing down as was evident with quite a few of the establishments at the Giftland Mall.
This paradox cannot be explained by resort to only one variable. Some have tried to do this but still have not explained the contradictory results.
Total credit within the economy has increased. But this is in relation to 2015 when it was accepted that credit would be constrained in the economy and the growth of credit would have declined given that it was an election year. The increase in credit alone does not explain what is happening in the commercial sector.
Another variable used, quite puzzlingly, is the velocity of money in the economy. It has been pointed out that in recent times there has been an increase in the turnover of the money supply in the economy. I am not sure how this assertion supports the contention that the economy is robust because increased velocity of money also has a bearing on inflation.
We are told that inflation has been constrained. Yet the average shopper is complaining about rising prices and services in all the items which constitute the basket of goods used to measure inflation.
Wages have not declined. Disposable income has not deteriorated. There is no evidence of capital flights. International taxes are up. So why the problems? And why is the IMF predicting that tax revenues are going to be flat. Do they know something that the government is not telling?
A more detailed but independent analysis is needed of the cause of the decline in business in the economy. The government, instead of asking the IMF to help them with the revision of VAT, should ask the IMF for help in assessing why sales have declined in the economy.
There needs to be a better understanding of what is taking place. Independent analysts cannot offer their insights because of the limited and delayed and untimely publication of statistics on the economy.
The government has published the results of the census. It should move to produce the half year statistics about the economy before more businesses begin to close shop.

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