Expectations and Shocktrapy!

Every year, a month before and after New Year (which is 21 March in my country) we have a high inflation up to 30% including nearly all commodities and services. Why? Perhaps the direct and first answer coming to mind is because of high demand of consumers for commodities before New Year. This is partly true but it is not all the story for my country.

According to above answer, the ministry of commerce performs a policy to inject the highly demanded commodities (highly demanded for New Year) into market (think about supply law) in order to keep prices constant. Does this policy works? No, I think the second answer now is “expectations”. Years after year consumers and sellers has used to face higher prices before New Year so they form their expectation. We have another reason to have higher prices before New Year in my country. I call it traffic of changes in prices which again form expectations.

Every year when we get close to the end of the year a committee will decide how much to increase the minimum salaries for employees of government and other sections for the next year. Another committee will decide how much to increase the price of fuel which has an important role in transportation cost including public transportation and transportation of goods across the country. Another committee will decide how much to increase the price of natural gas (used by households), electricity and other utilities. I call this mechanism “Shock trapy”. Why? The purpose of this once increases in prices and salaries is to avoid persistence inflation. It is assumed by officials that when you increase all prices once like a shock we will have a sudden inflation and then during the year everything will be OK. Is this true? I don’t know. We are going to try dividing these changes across months of years to avoid expectations to form only for New Year. If we assume rationality of people I think this will not be useful in long term and the ultimate solution is to let invisible hand to work but is invisible hand successful in regulating market even for New Year? (This is like a cycle, we are back to first point)

Economic Models explained with cows - 2007 update

SOCIALISM

You have 2 cows.
You give one to your neighbor.

COMMUNISM

You have 2 cows.
The State takes both and gives you some milk.

FASCISM

You have 2 cows.
The State takes both and sells you some milk.

NAZISM

You have 2 cows.
The State takes both and shoots you.

BUREAUCRATISM

You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the milk away...

TRADITIONAL CAPITALISM

You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

SURREALISM

You have two giraffes.
The government requires you to take harmonica lessons

AN AMERICAN CORPORATION

You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyze why the cow has dropped dead.

ENRON VENTURE CAPITALISM

You have two cows.
You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more.
You sell one cow to buy a new president of the United States, leaving you with nine cows.
No balance sheet provided with the release.
The public then buys your bull.

THE ANDERSEN MODEL

You have two cows.
You shred them.

FRENCH CORPORATION

You have two cows.
You go on strike, organize a riot, and block the roads, because you want three cows.

JAPANESE CORPORATION

You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk.
You then create a clever cow cartoon image called 'Cowkimon' and market it worldwide.

A GERMAN CORPORATION

You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

AN ITALIAN CORPORATION

You have two cows, but you don't know where they are.
You decide to have lunch.

A RUSSIAN CORPORATION

You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION

You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

CHINESE CORPORATION

You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION

You have two cows.
You worship them.

A BRITISH CORPORATION

You have two cows.
Both are mad.

AN IRAQI CORPORATION

Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the **** out of you and invade your country.
You still have no cows, but at least now you are part of a Democracy....

A SPANISH CORPORATION

You have two cows.
Your cousin is jealous and wants one, so he starts a civil war over it!

A NEW ZEALAND CORPORATION

You have two cows.
The one on the left looks very attractive.

AN AUSTRALIAN CORPORATION

You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A perfect day

There is no doubt in the significance role of big corporations in the daily life of all people nowadays. This picture is only one of many other pictures that I have seen in the past showing how we are tightly attached usage of industrial products produced all over the world. There might be a change in the name of firms where a new product will be introduced and be widely used by everyone but as a matter of fact we should accept that our life in the future will be even more depend on these products.
Another interpretation of this picture, in my opinion, is about the role of marketing and innovation of these famous brands. Why Nokia and not Ericson? Why Toyota and not Fiat?