IT is difficult for people even with so-called “higher education” to understand the economy of the nation and there are several reasons for this.
While the basis of any discussion of economics is the “numbers,” and we tend to think of numbers as being scientific, it is not a science. Science requires that “1+1=2” whether counting coconuts or kangaroos.
Science requires that formulas and models work across time and place. Galileo discovered in the early 1600s by dropping objects from the Tower of Pisa that, in the absence of air resistance, all bodies fall with the same acceleration and speed regardless of mass and weight. Nothing has changed in 400 years.
There are a multitude of factors that affect what happens in an economy and those change over time. Norway’s economic history shows that from 1516 to 1914 annual inflation was 0.5 percent. Over the past 20 years, inflation has been 2.1 percent on average. Since 1960, the average is 4.4 percent. You could never list and correlate all the variables that changed the final numbers.
Comparisons are critical in science. The Pythagorean theorem that the sum of the squares on the legs is equal to the square on the hypotenuse applies to any right triangle regardless of size. If not, then the theorem is wrong. In economics, comparisons are feeble. It might be acceptable to compare the economic consequences of a typhoon hitting the Philippines and Vietnam at nearly the same time. But even then, the analysis is fragile unless we might, for example, be speaking of the “disaster response” mitigating the effects.
Economic data is subject to interpretation unlike most scientific “numbers.” Further, the large number of variables and correlations make the interpretations less helpful.
“Trade deficit widens to $3.53 billion in February,” says the headline. Then we read that the trade deficit was pushed by the substantial increase in fuel imports while the other important trade indicators such as capital imports and raw materials posted only modest gains. “Most other sub-sectors saw slower growth, which does not bode well for the expansion hopes for the Philippine economy,” says one economist.
All of that is true but not necessarily a “correct” interpretation.
Oil prices are sky high and it is costing much more for fuel. Two realities. The fuel expenditure is critical because without it, nothing is made and nothing moves and that will kill the economy. No choice.
Further, there is a limited amount of funds from private companies and priority purchases—like fuel—comes first. Capital imports and increasing the raw materials inventory are important but not short term essential while companies respond to the high oil price storm.
The larger economic picture though is that “Data from the Bangko Sentral ng Pilipinas said the country’s gross international reserves level rose to $108 billion as of end-March 2022 from the end-February 2022 level of $107 billion. It is also higher than the $104 billion level in end-March last year. This represents a ‘more than adequate’ external liquidity buffer equivalent to 9.6 months’ worth of imports of goods and payments of services and primary income.”
The greatest challenge to understanding the economics is the way all this can be massaged and manipulated for political purposes. “The Government,” “The Opposition,” and every political agenda in-between are using the “Science of Economics” to sway your opinion and gain your approval. Beware.