Protesting higher prices by obstructing productivity will only send up prices. Understanding the circle of economics; costing & pricing, all inputs are outputs, profits finance development and people are both producers and consumers, will help generate the best solutions to get value for money.Costing can be as simple as adding the values of all the inputs used to produce a product inclusive of direct and indirect human and time inputs. Pricing, which must be greater than the cost, can be much more complex; market driven like an auction, demand driven where it is a necessary input or supply driven where there are too many in stock.
Mining or drilling operations in the business of selling natural extracts, used to further produce other products, must buy heavy ground moving equipment made of and powered by some of the same extracts. The company may provide its work force with meals while on duty; this is an indirect input which cost has to be covered by the price of the extract. Hence, goods; mined, grown, processed, packaged, transported, marketed are all inputs into the costing & pricing calculation.
Many think that profits, which is the difference between the price and the cost, is money pocketed by some evil being. Profits or earnings are accounting measures that define (tax liabilities) how much you owe the government of the territory you operated in and (management performance) how well the business is doing when compared to its competitors, both over a precise period. After taxes profits are re-invested, in the same business as expansion or in other activities as debt or equity funding, which adds to further development.
The people that made profits from business operations have to face the same increased prices and are all hoping for increases in take home pay. But if salaries and wages rise across the board development will be slowed, profits will decline and prices will increase further and if production is blocked demand will increase pushing pricing up even further. Also there is a clear over supply of skilled people, as a result of freedom of movement policies, who are travelling to city centre seeking the few high paying jobs and leaving many areas void of the necessary skills.
As a result of “get rich quick or die trying” thinking, many financial houses have encouraged their young brokers to take more risk. This has manifested itself in various financial products; sub-prime lending, double borrowing and now commodity speculation. Climate change has given uncertainty to many markets. Will there be droughts or floods in farming areas? Will there be a long winter or more storms this year? This allows brokers and traders to buy and sell the hope.
A simple example is that six months ago, a licensed commodity trader bought an oil supply contract for US$65 a barrel and sells that same contract to a refinery for US$130 today, make a 100% profit in only six months. Tomorrow the trader buys at US$135 and in the next six months expects to sell for US$270 per barrel. Hence, doing and saying anything to drive up the price. Neither these licensed brokers nor their regulators can presently see the effect their greed is having on the world.
Speculation on the future pricing of any widely used commodity will result in cost of living increases and less value for money.
Rationale
T.A.J & Associates Company Limited uses this occasion to comment on topics that have been covered, both academically and by the mainstream media, to add its opinion and point out investment opportunity, not to invoke any social action.
