Thursday, 30 October, 2008

Who's melting?

Will we say that a fall in book prices is an educational meltdown or a reduction in medicine prices is a medical meltdown? Surely, publishers and pharmaceutical companies lose money unless demand picks up at the lower price. Surely, the two effects do not always happen simultaneously. Yet we see the larger picture. We want ever more people to have medical care and education. 

Why then is a fall in share or real estate prices as a meltdown? Don’t we want more people to have homes or own shares in companies and be able to grow money? It may well be argued that those who stayed out of share markets because they thought share prices were too high will not come in once prices fall. 

It can be similarly argued that a poor person will be wary of medicine’s effectiveness once he can afford it. Does he actually feel so? There may be stray cases, but, in general, we see only good in being able to afford better health and education. 

Yet on purely economic terms, it isn’t so straightforward. When everyone is a MA, doctorate becomes the new MA. When everyone can work till 70, 20-year-olds find it harder to land jobs or negotiate salaries. By that logic, educated people should not want lower book prices and each layer of society, ranked in terms of access to medical care, should want medicines it can afford to be out of reach of the layers that come next. 

Of course, it’s more complex, because productivity increases, quality of life improves and the rest of it. Can’t similar good things happen with the stock market, at least over the proverbial ‘long run’?  Why can other meltdowns be confined to industries, but market meltdowns not stay confined to a class?

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