We’ve heard often over the past few years that cost of living has been increasing and that the Government needs to do something quick to address this problem.
However, the real issue is not the cost of living: it is an issue of the Quality of Life. In short, our Quality of Life has not kept pace or improved as compared to the cost of living. Why do I say this? Well, in simple terms what matters is whether our income exceeds our costs. In reality, costs will always increase, it is a fact driven by increasing demand for scarce resources. So the key is whether (a) we are earning more to cover these costs; and (b) whether the costs we’re paying for is something we value and improves our lives.
Being too focused on the cost of living (and anchoring the political rhetoric on this) is a dangerous path as it would indicate that the obvious solution is to reduce costs, and this tends to be very short term in focus because of the political pressure. Typically, the initiatives to reduce costs will be through a combination of the following approaches:
- Price Controls: This requires strong enforcement, but when the market (and Global dictates) conspires to drive costs upwards – enforcement will always lag behind. Boosting enforcement will become a costly burden to the economy with more enforcers, processes, Government price interventions, which creates the right conditions for unscrupulous parties to circumvent these controls.
- Subsidies: Subsidies are costly and unsustainable for the Government and the economy simply because it will have to come from somewhere – either in the form of higher taxes, borrowings, or some other reluctant players in the economy. Subsidies also create severe distortions in the economy and result in incorrect price signals and allocation of resources. In the end, society will suffer as a result.
- Cost reduction initiatives: In order to further drive down costs, the economy will cut corners; find ways to reduce wages; sacrifice on social, environment and safety standards; sacrifice on quality; defer investment in technology & upskilling, and other long term damages to the economy, society, and environment. Some of this will negatively impact benefits to people.
This is not to be dismissive of the rising costs of living. I acknowledge that the increasing cost of living is real. After all globally, costs have generally gone up. That is the way of things works as population increases, demand increases, yet resources become more scarce. Cost of living obeys simple laws of supply and demand.
So what should be done if not try to reduce the cost of living? Like anybody who understands a profit and loss account – what matters is the bottom line, the profit line, or the amount where your income exceeds your costs. In this case, I call this bottom line the Quality of Life.
The goal and (political / policy) narrative should be on increasing the Quality of Life. Depending on economy and maturity of the society given the increasing costs, Quality of Life can come in the form of higher income, better infrastructure, better living standards, safety & security, better health care & education, better social mobility and social inclusion & participation in the economy and many more, and perhaps in some cases reducing costs (e.g. corruption, red tape, procurement).
So shall we start the conversation and narrative of boosting our Quality of Life? I aim to write about my thoughts on boosting the Quality of Life in coming blog posts.