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Commentary on Consumer Behavior in Covid-19

Economics Today 

Economics as a field has unfortunately attempted to depart from the realm of the social sciences and moved towards an independent approach to analyzing scarce resources and unlimited wants. Economics today have attempted to brand itself as a natural science with sometimes over-complicated mathematics that unfortunately a decent, well-educated lay person may not understand. The effects of this departure from a grounded philosophy found in social sciences to an unknown territory currently undefined has thrown many economists to confusion in interpreting the data they gather in front of their computer screens. If the economists themselves, who are maestros in their field of study are not able to validly interpret the data, then any other person who are not experts will almost certainly not receive much use in viewing the data. 

Understanding the Economy in Consumer Behavior 

As the world’s economy continues to stagnate, one might wonder how it would end, economic-wise at least. Well, respective multi-lateral organizations like the International Monetary Fund (IMF) have re-adjusted their projected world growth from their initial 3.3% to a dismal contraction of 3%. Statistics and numbers are essentially market signals. These tools are meant to aid us in interpreting what goes on in people’s lives and how they behave. In the field of economics, it is how people make purchase decisions and adapt to the reality of scarce resources. Understanding consumer behavior and their inherent psychology can give clarity to economists attempting to interpret the data. This understanding must be placed in the backdrop of an economy that emphasizes the consumers above all else. In theory, our economy is consumer-led. At least, in the majority of the advanced and developing world. 

Consumer-led Economy 

A consumer-led economy depends heavily on consumer demand. That means if a country’s economy is dominantly consumer-led like South Korea, a large part of their GDP comprises of consumer spending. There are five determinants of consumer spending. First, disposable income. This is the income minus taxes paid. Disposable income also determines to some degree people’s purchasing power, not entirely because some individuals have capital outside their disposable income, the more likely consumer demand would increase. Income per capita is the second determinant of consumer demand. This determinant is similar to disposable income. The difference is that this ‘income’ is placed in the context of cost of living. Therefore, income per capita signals how much of their income people can spend in their residential country. Thirdly, income inequality. The more ‘income equal’ a country is, the greater would be their consumer demand. An increase in wealth in only the rich is problematic because the rich have a higher propensity to save. On the contrary, the poor have a higher propensity to spend. Household debt is the fourth determinant of consumer demand. This type of debt can encompass credit card debt, school loans, and healthcare costs. New spending is made possible when household debts are low. Lastly, consumer expectations. A positive outlook in the economy opens possibilities to increase consumer spending. It is akin to a justification to spend because the economy is good. 

Putting in Perspective 

Two of the determinants above, with the exception of income per capita, income inequality and household debt have a direct relationship with the current Covid-19 pandemic, at least for now. The rate of unemployment in badly hit countries like the United States (US) have shot to the roof. Its exponential increase is unprecedented, the worst since the Great Depression of 1929. Unemployment directly affects disposable income especially if the unemployed was in formal employment. For the majority, there is little means of other income streams beside their formal employment which adversely affects consumer demand. Consumer expectations of the future is negative and uncertain. The reality that people fear going out is the most obvious signal of negative sentiments. The propensity to save will increase as consumers become more frugal in their spending. This in itself may not be a bad thing but if the majority of the economy is based on consumer spending, it can lead to a further dampening of the economy as consumers largely spend precariously. 

Redefining Marketing 

In Marketing 101, students learn that perception is everything. The product could be substandard, but if people perceive it to be of good quality, then it does not matter if the reality is bad. The idea that consumers’ precarious spending is based on wants and not on needs is only half true. Consumers create new needs from their wants. Their wants are like their wish list, built with occasional window shopping. The whole idea of online shops putting a ‘wish list section’ is so that the supposed want can become an apparent need. It is the job of marketers to make their potential customer’s wishes comes true. In this time of Covid-19, it is quite difficult to see how this pans out because traditional spending in retail shops have temporarily stopped. But in the online world, shopping continues albeit slowly and, in less volume, but more frequently. Less volume in each purchase session relates back to the reality that disposable incomes are dropping. More frequent shopping could be an effect of prolonged self-isolation. Shopping do give certain pleasures. We all know too well retail therapy. Frequent online shopping gives an instant gratification especially those who are alone at home. 

There is Still Hope 

When economics start to incorporate consumer psychology, the statistics become clearer and frankly more human. Businesses can start to incorporate new initiatives and also remodel their marketing campaign on new realities. All is definitely not lost for businesses dependent largely on consumer demand. The true value of a product is not entirely dependent on its market price. Its market price is merely one value signal among others. The true value is dependent on those who demand it and ultimately perception is more important than reality. 

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Commentary on Geopolitics and Human Resilience in the Coronavirus Pandemic

Human Resilience 

The coronavirus (Covid-19) is no doubt one of the most devastating pandemic in at least the last 100 years. Every country’s public governance and system is tested because of this virus. Nevertheless, it is important to note that no matter how good and robust any system is, the most important element in every society is human resilience. Human beings are very unique because it is their resilience amidst adversity that sets us apart from the rest of the animal kingdom. A non-sentient animal would be ‘resilient’ in difficult times (e.g. droughts, flood) because of their inherent instinct. Because they are non-sentient, they do not have the intellectual capacity to figure why they ‘feel resilient’ or ‘choose to be resilient’. Human beings are different. Humans are sentient beings hence we can choose to be resilient and also figure why we feel resilient and experience the effects of this decision. 

Hence it is important for governments to draft public policies especially in these times that leverage this powerful human characteristic. When public policies do this, their people will be empowered to make conscious decisions through rationality (and not by mere feeling) and through communities so that these decisions are made for the sake of others. With the advent of globalisation, no country is an island. Every country is interconnected in some way to another by means of trade, communication, labour and even popular culture. Hence, it is vital for countries to seek multilateral organisations like the United Nations (UN) for effective large-scale coordination. 

Structure of the United Nations (UN)

The United Nations (UN) is a multilateral organisation consisting of 193 member states and 2 non-member observer states (the Holy See and Palestine). The main purpose of the UN are four-fold, namely (1) maintain international peace and security, (2) achieve international cooperation in solving economic, social, cultural and humanitarian problems, (3) promoting respect for human rights and fundamental freedoms and (4) coordinating efforts among the nations to achieve these goals. The UN’s principal organs include the Security Council, General Assembly, Economic and Social Council, International Court of Justice, Secretariat and Trusteeship Council. In the context of Covid-19, the second purpose (2) of the UN is the most pertinent. Covid-19 is indeed an economic, social and humanitarian problem. 

The scope of the UN is almost all-encompassing and hence there are various organisations under the UN that focuses on specific areas of human living. In this case, the World Health Organisation (WHO) is a specialised agency under the UN that coordinates, in a large scale, health problems that sweeps the entire world. 

Geopolitics 

WHO’s perceived passivity in this pandemic as observed by some critiques must be seen in light of how the UN operates and is structured. As mentioned, the Security Council is one of the principal organ of the UN. The Security Council comprises of five permanent members and ten non-permanent members. These five permanent members include the United States (U.S.), the United Kingdom (U.K.), France, Russia and China. All these member states have the right to veto which means any decision that is made in the council must be agreed by all five of them. The ten non-permanent members are not that important and they are elected by the UN General Assembly (UNGA). Due to the veto power of the five permanent members, UN funding also comes mainly from these five. With the recent US-China relationship strained because of constant bickering on who started the virus, UN legitimacy is also adversely affected. Russia is also preoccupied with crude oil politics with Saudi Arabia in the Organisation of the Petroleum Exporting Countries (OPEC). The UK and France are knee-deep in the fight with Covid-19. With the five most powerful countries in the UN either bickering with rhetoric, politicising or overwhelmed by the virus, it is extremely difficult for the WHO to coordinate any humanitarian efforts through the power of these five. 

Coordination is not just mere conference over the air. Effective coordination requires authoritative voice so that other countries outside the veto countries can listen. Actually one of the reasons for such veto power is so that these five countries can lead by example through their prudence and expert capacity. But unfortunately, we have not seen any such leadership. As time progresses, each country is looking dangerously inwards into a relatively ‘protectionist’ stance on their public policies. Just recently, the Prime Minister of Australia, Scott Morrison, advised all international students studying the country who may not have the finances to survive the pandemic to return to their home countries. The rationale for his statement is to safeguard the interests of Australian citizens who may need to be hospitalised and to prioritise national resources for their benefit. 

Hope For The Future 

When the human race enters the light at the end of the tunnel, the world we knew before the pandemic would be non-existent. People’s buying patterns would change especially after prolong home isolation. The geopolitical dynamics in the world will change as faith and trust in multilateral organisations like the WHO and the UN slowly diminishes. Potentially, a surge of nationalist and protectionist sentiments would arise. But I believe post Covid-19, we would see a more caring and resilient society, at least that is my hope for the future. Anyway hope is trust and believe in things unseen. For now, it is best for all of us to live every moment in the present, together with our families and be grateful for every good gift bestowed upon us. It is advisable not to look into the future too far ahead. As far as the news narratives are concerned, everything is uncertain and nothing is set in stone. Plan the day tomorrow and live today as if it may be our last. As for the geopolitics of the world, countries would mend and arrange itself. For us, it is best to remain resilient and confident amidst an uncertain future. At the end of the day, we are all in this together are we not?