The Crisis?
By Fred Flintstone
As Fred handed over the rubles to pay for Fred Jr.’s school, Fred asked Wilma if she thought the school would try to raise tuition. “Sure, everything costs more now – it’s a crisis,” was the answer. “What costs more Fred asks?” and stormed off after this further evidence of the curious logic relating to exchange rates that has accompanied the “krizis” in Bedrock and the fixation on foreign currencies. Even financial and business journalists have not been immune; statements appear in the media about increases or decreases prices without clarifying the currency. It now takes more rubles to buy US dollars and euros, but does that mean the cost of living is greater?
Certainly there is a crisis for anyone who has lost a job, and some of those who have kept jobs have had pay and benefit cuts. However, Fred doubts that any raises have been handed around to teachers, administrators or janitors at Fred Jr.’s school.
With commercial rents down about 50% in US dollar terms, which translates to a 25% decline in ruble terms, occupancy costs for the school should be less if anything. Fred’s household bills for communal costs like electricity and gas have only slightly increased in ruble terms and it is unlikely the school would have significant increases particularly since oil prices have declined so steeply. Fuel costs are less – the price of 95 gasoline has fallen from 22.5 to 19.5 rubles per liter in the past few months, a 13% decline. From what Fred has seen he doubts that much imported produce is used for school lunches, and domestic food prices have been stable in recent months.
Fred had anticipated the crisis and kept receipts since his Passport article in late 2007 that compared grocery prices in the US with Bedrock. He was particularly interested in non-exotic staple foods, the kind that make up the menu of most Bedrock residents (and school lunches). Comparing prices between May- June 2008, October-November 2008, and March-April 2009, infl ationary increases are indicated during the first period when commodity prices were rising but prices appear to have stabilized in the second. Mysteriously, some imported products like a 200-gram packet of Finnish Valio butter fell in price from about 65 rubles to 45 rubles and a bottle of French Barton & Guestier Chardonnay is the same 339 rubles that it was in late 2007.
Even some imported electronics prices have fallen in ruble terms. A 3G iPhone that cost 22,000 rubles before the crisis can be had now for about 18,000. There are big 20%-30% discounts on plasma TVs and other goods at M-Video and other electronics retailers. The lesson here is straight out of business school – a rational business prices goods according to the market and not based upon cost. During the last few years when money flowed like oil through Bedrock, importers, retailers and distributors were able to earn extremely high markups. Now they must determine whether to increase prices on imported goods and lose market share, or lower prices to maintain share. Some will decide to shift some production onshore – a boon for the country’s economy.
Foreign travel has become more expensive, which means more vacations domestically, just as fewer Americans traveled to Europe when the dollar plunged against the euro in recent years. More domestic travel is another boost to the local economy.
The 1998 financial crisis seemed like the end of the world at the time. But the economy had been completely import dependent. The following period of investment in domestic production freed the country of some of this dependence, however the country later became hooked on high oil and resource prices. Fred thinks this new crisis will create a renewed interest in development of productive businesses, and in the future be seen as just another bump in the road to a modern economy.
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