For decades, two opposing theories of economics have been causing heated debates — those of John Maynard Keynes and of Friedrich Hayek.

For many years, it seems that John Maynard Keynes was more influential to economic managers. Keynes was big at the role of government in influencing the economy through spending, keeping interest low, among others. Friedrich Hayek, on the other hand is best known for free market capitalism — he argues that less government intervention is best for an economy and that an economy should be allowed to take its natural cycle of boom and bust.

With all that’s going on in the world economies, the debate between Keynes vs. Hayek is alive again, and it seems that it is more heated than it ever was before. As to whose theory will be best, only history can judge that.

To learn better about Keynes vs. Hayek, here is a ingenious video about two opposing theories… and believe it or not, in MTV style! Watch it.

con’t.

I realize that the preceding paragraph (in part 1) shows such a defeatist attitude so let me try to redeem myself and offer some enlightenment on the subject matter.

When prices rise steeply, there are two things we can do to combat the rising prices. The first thing we can do is to earn more. Rising prices is a natural economic reality; one can’t expect prices to remain constant as one can’t expect income to remain constant as well. Assuming inflation is at 5% but your income rose by 8%, you can actually counteract the effects of rising prices and still have some of your income left for you to either spend or save (I urge you to do the later) despite the higher cost. The simplest way to combat rising prices therefore, is to increase your income. I said it was simple, I did not say it is easy. Increase in your income will happen but the question is when? It usually takes time before your income registers some growth. If you are an employee, you will need to wait for a raise and most of the time, those raises happen towards the beginning of the year and that’s assuming your company is profitable. Since it is only April, you will have to wait for many more months before you can get some financial relief from the scorch of high prices. If you are in business, it also takes time for you to realize a higher profit margin – there are way too many variables for you to undertake before you can see an improved bottom line.

While you are waiting for your income to rise, you may want to pay attention to what you spend on. To have a better cash flow, you need to ‘make more money’ and ‘spend less money’. Curbing consumption, in my opinion (as if there are people who actually care to hear my opinion, haha!) is the most sensible way of combating inflation. A closer look at what you spend on and how you spend will be your best bet in battling the mystery of the vanishing purchasing power.  As many personal finance books will inform, as well as finance experts and even those self-proclaimed finance gurus will pontificate that there are two kinds of expenses: needs and wants. When we do try to reduce our spending, we often try to do so by cutting down on some of our needs because cutting down on wants seems to be more difficult. Why? Because spending on wants is pleasurable while spending on needs is a drag! To articulate (my friends say I ‘articulate’ too much) my point — do you know anyone who screams of excitement every time his Meralco bill arrives? If you know anyone who does, please bring him to a doctor and have him checked. On the other hand, do you know people who are ecstatic whenever their favorite store or mall is on a big Sale? I proved my point.  Cutting down on necessary expenses is not the wise thing to do; there is a reason why they are called necessities in the first place. Cutting down on wants, though harrowing to some is the prudent thing to do. I recommend that you list down all your expenses and I mean all – including those branded coffees that seem to be so addicting and those new fancy and costly milk teas everyone seems to be going gaga over lately. Once you have written everything you have expended on, start determining which of those are ‘needs’ and ‘wants’. Don’t try to fool yourself by trying to be coy and justifying your wants and masking them as needs. I once heard someone say that going to a salon is a need because if she does not look really good, she can’t sell enough life insurance, thereby the salon costs are really needs and not wants – yeah that sounds so right (I’m actually attempting to be sarcastic here).

… to be continued.

Update as of Jan. 2010

Philippine exports break losing streak–rises in November

·       Exports in November hit $3.69 billion, up 5.1% from a year earlier

·       This is also +0.6% higher  from October levels.

·       For the January-November period, exports were down 24.6% to $35 bn.

·       This is the first time exports grew since September 2008

·       Growth was driven by the increase in electronics sales.

·       Electronics exports in November rose 6.9% to $2.14 billion.

·       Exports to the U.S., Japan and the Netherlands showed on-year gains of 7.5%, 2.7% and 56%, respectively.

FDI for Oct 2009 reached $59 M

·       For Oct 2009, the country recorded a net inflow of $59 mln in foreign direct investment.

·       A reversal from an outflow of $62 mln the previous month.

·       Central bank said that a net-equity capital infusion of $41 mln came from Hong Kong, the U.S. and Japan.

·       With the bulk of the investments allocated to the mining, construction and financial intermediation sectors.

·       The positive investor sentiment resulted to an 18% rise in net inflow of FDI in the Jan-Oct period.