By Tony Samson
IT SEEMS economic scenarios from government and bank economists for the rest of the year through the full lifting of quarantine restrictions deal with macroeconomics. This category covers country-wide numbers like the impact of the shutdown on GDP, monetary and fiscal policies, inflation, and sovereign credit ratings. Sometimes, the economics of the firm, or “microeconomics,” also get into the conversational soup in terms of companies and sectors that are at risk and the rescue plans being put in place, including debt moratoriums and easing of bank provision for doubtful accounts.
But what about household income, an even more micro sector of the economy?
Thomas Schelling (2005 Nobel for economics for his game theory shared with Robert Aumann) used the term “egonomics” for self management where one person may have within him warring selves wanting one thing in the past and despising the same thing in the future, much like buyer’s remorse — why on earth did I buy this heavy leather jacket for Baguio?
Egonomics pertains to the individual. It refers to his economic decision-making. This very micro perspective is the intellectual playground of the new branch of the dismal science, called behavioral economics which differentiates itself from rational economics based on perfect information and the attractiveness of the lowest price. The behaviorists use psychological tools to analyze real incentives and motivations behind economic decisions. Do you prefer to have unlimited choices for your burger? Nope. You just look at three combo meal options. And you order the same one every time.
Will the projected NEDA V-shaped quick recovery chart of the GDP apply to household income? The short answer is “not likely,” not even for the macro picture. A more realistic shape for post-Q semester would be an L-shaped chart with a slightly upturned tail in December 2020 to suggest a fractured U-shape.
Since over 90% of employees work in companies with less than 30 employees, the hard-hit SMSEs (restaurants, barber shops, art galleries, theater companies, and retail outlets) reeling from the lockdown and the new ways of doing business will need to scale back if not close. The seating capacity and available space for adequate social distancing discourages patronage.
The glut in labor supply from layoffs or reduced work hours, as well as from returning OFWs, may lead to the bidding down of wages and benefits, further depleting household income.
A rising economy usually encourages entrepreneurship. This surge or recovery of lost momentum will need to wait a bit with the prospect of negative GDP growth. Franchise businesses that afford a way in for the starting entrepreneur will also be consolidating.
The dismal “egonomics” scenario will hopefully be temporary. But it will last at least a year. In this period, the household sector will be on survival mode. Living on debt will be the new normal for the household. And the most readily available source of needed cash, even for necessities, will be the credit card. This is an opportunity for card companies to extend pay-now-pay-later programs and creative installment payment plans for their card holders. And since most card companies are owned by large banks, this new consumer loan business should be supported by the BSP.
The household sector that needs to adjust covers the previously employed. They may even belong to the DINKY (double income, no kids yet) category, with disposable income going beyond food, utilities, and rent. It’s this once upwardly mobile segment that could afford a car and dine out twice a week that may be shaken up. It’s not just an economic adjustment but also a psychological one. Acceptance of the new survival normal can be stressful.
The macroeconomic picture of GDP growth is discouraging enough as it introduced the year’s first negative quarter in 21 years (or 84 quarters) of steady positive growth. The next three quarters will not be pretty either. Economists are still hopeful of a turnaround maybe in the first semester of 2021. The household income may follow the coattails of this hoped-for rise.
As some have pointed out, we are in the same storm but not in the same boat. Even those in the same boat may find that not all passengers are in the same condition. Many are seasick, but a few are still robust, waiting for a safe harbor… where they can spend the money still in their pockets.
Tony Samson is Chairman and CEO, TOUCH xda.
