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Are we in the process of bargaining our economy out of existence?

The future of our economy is literally in your hands when you dig into your wallet to make a purchase.

Now more than ever, we live in a society where we are all looking for the best price in the form of a “bargain deal”. Two for the price of one or asking service providers to reduce or cut fees does not always mean you are getting the best possible product or service. Take for example special offers for the end of range clothing, is this a bargain or are clever marketers getting rid of stock they could not sell or shifting used or returned items? We all have rushed to stores for major retailers’ sales or “Black Friday” deals.

But have we ever really thought of the actual consequences of always getting or demanding a “bargain” or “best price”?  The world economy is driven by everyone making a profit from a service or from merchandise that they are selling. If the corner greengrocer is unable to make a profit from the goods he sells as another grocer opens up down the road and undercuts prices, they may both be unable to sustain a viable business and will have to close down which may put a number of employees out of work.

The knock-on effect of this is that these unemployed people have no income and are not able to support other businesses through normal daily expenditure. The economy has just shrunk causing damage to both businesses. Economies rely on the flow of money from profit. The businesses that offer a “bargain price” are probably also undercutting their own profits, which does not really help the economy as they too now have less to spend.

At what point does one cut profit to sustain a business? A small home-based business that does not provide jobs for the greater economy may be able to undercut larger businesses that need to pay for premises and support a staff complement.  Again, in the search for a bargain, the larger business may need to reduce their staff complement or even close its doors and more people become unemployed, adding to the shrinking economy.

Millions of new people are also coming into the job market that has now shrunk, but there are fewer jobs to be had and companies are reluctant to recruit people with little experience.  This becomes a vicious cycle, people cannot get jobs, there is no money to spend and now the economy shrinks even further. We already have huge unemployment and the never-ending search for the “bargain price” may add to these already pressured economies.

If there is a smaller economy then there are fewer companies, fewer companies mean no stock market. One can take this to a country level. The cheaper imports that we receive from other countries have also just created unemployment in your own back yard… all in the search of a “bargain price”. In the meanwhile, one is supporting another country’s population with jobs and taking jobs away from the local inhabitants and possibly your future children.

If you have children or are planning on going on pension in the future, where are your children going to find jobs and where is the money going to be generated for you to earn an income from the markets in your later years.. all in the search of a “bargain price”?  Can one really complain that there are no jobs being created for your children and the economy is bad when one is always looking for “deals” and “bargains”? The fact is that it takes money to run businesses large enough to employ people and this means that people will have to spend money.  This does not mean that one should always be ripped off, but rather pay a fair price for a service rendered or a product been bought.

The future of our economy is literally in your hands when you dig into your wallet to make a purchase.

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Michael Haldane

Global & Local Investment Advisors

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