Japan and the Velocity of Money

On 27^th August 2010, the Japanese government released data which showed that the core consumer price index, a weighted basket of goods which excludes volatile food prices, had fallen by 1.1% in July from a year earlier – the 17^th straight month of decline. This decade-long trend of falling consumer prices has happened despite the government’s efforts to prevent the deflationary spiral.

In the wake of the recent results, the Bank of Japan (BOJ) is mulling over whether to return to quantitative easing (which involves flooding markets with extra cash under a liquidity target) – a policy which had little effect in tackling deflation in the early 2000s before it was terminated in March 2006. Simply pumping cash into the economy didn’t work then and won’t work now as consumers look to defer purchases in expectation of lower prices in the future. Rock-bottom interest rates of 0.1% (the benchmark rate) have been equally unsuccessful in shaking off deflation. Clearly increasing the money supply has failed.

The quantity theory of money states that:

M*V = P*Q

where M is the money supply, V is the velocity of money, P is the price level, and Q is an index of the real value of final expenditures. Of these terms, three are fairly self-explanatory though the definition of the ‘velocity of money’ may need some clarification. The velocity of money is the average frequency with which a unit of money is spent in a specific period of time – the number of times a unit of money changes hands in, say, a year. The question for the Japanese government is how to increase the value of P.

As increasing M (money supply) has failed to cause inflation, by this equation, the government is left with two other options – to decrease Q or to increase V. It is quickly obvious why reducing Q to cause inflation is a bad idea. Given that P*Q can be defined as the nominal value of output, reducing Q would reduce output. While this may lead to higher prices in the short run as the supply curve shifts inwards, in the (slightly) longer run, lower output would mean lay-offs which, in turn, would cause the demand curve to shift inwards as well – causing the price level to fall once more.

Because decreasing Q is out of the question, Japan’s only remaining option is to increase the velocity of money (also known as the velocity of circulation). In order to increase the velocity of circulation in an economy, there must be a strong multiplier effect – in other words, there must be as little leakage as possible from the flow of money within the country. One of the most significant ways in which money is leaked out of a country is through imports. It follows that Japan must try and reduce imports. An extremely strong yen, which hit 15-year highs this week, is therefore ominous for the Japanese government as it reduces the competitiveness of exporters and makes imports more affordable, helping to keep overall prices low. It is extremely important that Japan reduces the value of the yen in order to channel consumers’ money away from imports and towards domestically produced goods – spurring a multiplier effect.

Decreasing the value of the yen should, according to the quantity theory of money, help increase the velocity of money and hence, cause healthy inflation. However, in the long term, a structural change involving the reduction of inequality may be needed to keep imports in check. Inequality in Japan is higher than in India (Source: Gini coefficients, CIA World Factbook 2010), meaning that there are plenty of rich Japanese who probably love imported goods. Taking some money away from the upper echelons and diverting it to the poor (who would save little and spend on domestically produced goods) may be the best way to go in the long run.

Deep Vaze

28/8/2010

Levi’s new brand Denizen a Warning to Foreign Firms

On August 18^th, jeans-maker Levi Strauss & Co. announced the launch of a new line of jeans called Denizen. The Denizen jeans range will initially be sold in China, South Korea and Singapore and is Levi’s attempt to corner the jeans market for 18-29 year-olds in Asia. Denizen jeans will be priced at US$40-60 – half the price of Levi’s jeans currently sold in China.

While this news may excite college students in Shanghai, it is also a vivid example of the income disparity in China. Levi’s latest move reflects the difficulty they faced selling their original jeans in China which were too pricy to qualify as inexpensive casual wear yet too cheap to be a luxury good. In other words, even a global jeans giant like Levi’s was unable to derive profit from the ‘middle-ground’ segment of the Chinese consumer market – the segment which is rich enough to want to wear better jeans than bargain, local-made brands yet who can’t afford top-end jeans. The reason for Levi’s failure to do so is simple – the ‘middle ground’ segment doesn’t exist.

The Chinese Gini coefficient (a commonly used measure of income inequality) reached 0.47 in May 2010 (Source: China Daily, 12/5/2010), surpassing the global warning level of 0.4 (a Gini coefficient of 0 indicates perfect equality and a value of 1 indicates perfect inequality). Li Shi, a professor on income distribution and poverty studies with the Beijing Normal University, said the top 10% of Chinese earners had incomes 23 times that of the poorest 10% in 2007. In 1998, the top 10% earned only 7.3 times what the bottom 10% did. Clearly, China is made up of those who are very rich and those who are very poor – there is no (significant) middle ground.

This glaring and worsening disparity in China doesn’t bode well for foreign firms looking to set up in the Middle Kingdom. To make it worthwhile, these firms will have to adapt their mid-price-range products so that they are either targeting the low end of the market (as Levi’s have done) or the exorbitantly expensive end. However, such modifications would entail significant investments. What’s more, many firms simply won’t be able to adapt – after all, the brand image of Diesel can’t change into something equivalent to Gucci overnight. These troubles may put off many foreign firms who aren’t large enough to afford such an adaptation. Evidently, if China wants to boost domestic consumerism, inequality is an issue they must deal with.

Note: Having said this, some people may argue that Western firms won’t actually have to adapt their product range that much. After all, America’s Gini coefficient was 0.45 in 2007, up from 0.41 in 1997 (CIA World Factbook). Even the UK’s Gini coefficient is quite high at 0.34. The key reason why China can’t be compared with the likes of the US and the UK is that the poorest people in the latter two countries are much richer than the poorest in China. According to the IMF, the US’ GDP per capita at purchasing power parity (PPP) was $46,381 (in International dollars) compared with China’s which was Intl. $6,567, about seven times less. Clearly, while countries in the West may have inequality comparable to China’s, they are still much richer. Therefore, Western firms will have a tough time adapting to the polarised Chinese market and hence, China must tackle its inequality problem by pulling millions out of poverty.

The Neo Neo-Colonialists

Neo-colonialism is the term given to the involvement and dominance of modern capitalist businesses in nations which used to be colonies. Typically these were large corporations from the developed world taking advantage of resources and labour in the developing world. This, however, isn’t the trend which we are seeing today. What we are seeing is China’s largest firms becoming the first neo neo-colonialists – a developing nation’s firms dominating the economic affairs of other developing economies.

I’ve written before on how rising inflation in China caused by the increasing prices of factors of production (namely labour) represent the nation’s approach to the steep end of their long-run aggregate supply curve (see below) where any increase in output will result in a significant rise in the price level (see article: ‘China’s inevitable inflation’). Indeed, the reason for China’s foreign scramble for resources is obvious enough. China’s third-largest steel maker Wuhan Iron & Steel Group is in talks with ArcelorMittal, the world’s largest steelmaker, to develop overseas mining projects which would make Wuhan Steel less dependant on expensive imports of iron-ore. This is the latest in a string of moves taken by Wuhan Steel to achieve iron-ore self-sufficiency in ‘three to five years’ (Deng Qilin, chairman of Wuhan Steel). Wuhan Steel has acquired stakes in iron-ore mining firms from Brazil to Venezuela.

Wuhan Steel isn’t the only large Chinese firm with a voracious appetite for foreign firms. PricewaterhouseCoopers (PwC) said in a recent report that Chinese outbound merger and acquisition deals for the first six months of 2010 are at record highs, up by more than 50% over the same period last year. The report also said that the main targets of mainland firms were industries involved with natural resources – a trend that supports the view that the mainlanders are aggressively trying to shift their LRAS curve outwards to curb inflation.

The rate of growth of Chinese interests abroad is only quickening. In 2000, China-Africa trade surpassed $10 billion, this year it is likely to cross the $110 billion mark. The Chinese government is a vocal supporter of this neo neo-colonialism – on August 16^th 2010, the Ministry of Commerce launched the China-Africa Research Centre which will (among other things) ‘help Chinese firms planning ventures in Africa with consultancy services’ (Fu Ziying, vice-minister of commerce).

The rest of the world should be at least a little concerned at this growing trend. With China snapping up foreign resources at breakneck speed, other countries’ firms may be cut off and face decreasing competitiveness due to the higher costs of imports of raw materials. This could have serious unemployment repercussions outside of China and could stunt the growth of other developing nations by giving China an absolute advantage in manufacturing. The only upside is that we’ll continue to be able to buy cheap goods from China. In light of these implications, perhaps the West shouldn’t be so aggressive in urging China to raise the value of the yuan – an action which would certainly expedite China’s rise as the first neo neo-colonialist.

Genomics

Genomics is a fledgling industry – its barely four years old. It is also an industry with a lot of potential. By analysing customers’ genes, those in the field can predict (with increasing accuracy) the likelihood that the customer will suffer from a disease in the future. Clearly such ability has the power to change the medical world – people will be more informed as to what medication to take (as they will know the side-effects they are likely to get from various different treatments), and high-risk customers will be able to mitigate their health risks by taking preventative medicine and adopting healthier habits.

Though currently only those with plenty of cash are capable of sequencing their entire genome, prices are falling fast. A decade ago whole-genome sequencing cost a billion dollars (Source: The Economist). In 2007, genome-sequencing firm Knome charged $350,000 to sequence a genome; today, they charge $40,000 and by 2015, that figure may well be down to $1000.

Franklin D. Roosevelt said that with great power comes great responsibility. The same is true with genomics – governments have the responsibility to regulate the industry so that consumers aren’t taken advantage of in this particularly technical field. Indeed, a report by America’s Government Accountability Office (GAO), a watchdog, found that much of the information given to consumers who had their genes analysed was ‘misleading and of little or no practical use to consumers’. Some firms currently claim to be able to know what sports kids will be good at from their genes alone – a claim that the GAO called ‘complete garbage’.

Because consumers are so vulnerable to false information in this industry, the regulation of tests for things like the probability of contracting an illness and the probability of suffering side effects from drugs is highly likely. More frivolous tests like ancestry checks look set to be left unregulated. This is wise as the whole point of this new technology is to make consumers better informed, not to give doctors another chance to swindle money from their patients. I would go as far as to suggest that consumers should be prohibited from getting medication or receiving treatment from the same institution that sequenced their genome. That way, the firm that actually sequences the genome doesn’t benefit from the sales of drugs and treatments that take place as a result of the genome analysis. Because of this, the sequencing firm will have no incentive to give wrong or misleading information to the consumer. Through regulation and the industry structure I’ve outlined above, the true potential of genome sequencing can be harnessed.

The Arrival of 3-D Movies

In 2010, the median number of days between the US release of a movie and the release of a pirated version was just 21 days (Source: www.waxy.org). Every year, piracy costs the movie industry billions of dollars, costs governments hundreds of millions of dollars in tax revenues, and has resulted in the loss of thousands of jobs. With such rampant piracy and recent difficulty in getting financing for their movies, Hollywood has had a tough few years.

However, with the arrival of 3-D movie technology, things don’t look up for piracy. Because the 3-D experience is so unique, movie pirates aren't enjoying much success in selling 2-D copies of 3-D hits. In other words, the cross elasticity of demand (XED) value of 2-D pirated copies in relation with 3-D cinema tickets is a smaller positive value than the XED value for 2-D pirated copies in relation with 2-D cinema tickets. This means that, in the equation below, an increase in the price of 3-D cinema tickets will bring about a less than proportional increase in the demand for pirated 2-D copies as the two are more remote substitutes than 2-D pirated copies and 2-D cinema tickets were. An example of this lower XED value is the fact that 2-D copies on file-sharing sites didn't hurt Avatar's box-office sales 'at all' (Source: The Economist, 3/8/2010). This clearly shows that those copies were no substitute for the real thing.

XED = Percentage change in quantity demanded of X (pirated 2-D copies)

Percentage change in price of Y (3-D cinema tickets)

This said, as going to watch a movie in 3-D is a luxury, it follows that the price elasticity of demand (PED) of 3-D cinema tickets is elastic. Hence, if the premium of 3-D cinema tickets over 2-D movie tickets was reduced from the currently hefty $3-5 (Source: New York Times), movie-makers' revenues would increase and the demand for 2-D pirated copies would be squeezed further. With technicians in the movie industry becoming more familiar with 3-D equipment and a deluge of new 3-D screens popping up to increase supply, The Economist notes that '(3-D) cinemas could charge a lot less'. When that happens, movie-makers will be laughing all the way to the bank.

Alacarte Aviation

First-degree price discrimination is where the seller gets each consumer to pay the highest price he or she is willing to pay. In doing so, the seller maximises revenue from each customer. In the diagram below, rather than simply getting revenue equal to the light green square, through first degree price discrimination, the seller gets a revenue equal to the light and dark green areas. Airlines tried to do this initially through the different ‘classes’ of seats (eg. Economy, Business, and First class). In this way, for the same journey from city A to city B, travellers could pay three different amounts.

Nowadays, airlines are looking to take first-degree price discrimination to the next level. On top of relatively low base rates, airlines charge a host of additional fees for minor luxuries like checked-in baggage and alcoholic drinks. Some airlines are even considering a toilet charge for short-haul flights. The result is that airlines have improved their ability to derive the maximum possible revenue from each passenger.

While it may sound rosy for airlines, it’s not. By even considering levying tiny fees for things like going to the loo, airlines are on a slippery path. The reason being that the additional administrative cost of levying such fees (eg. Staff for money collection, staff for accounting of extra fees) will eat away at the revenue itself. The more tiny sums they charge, the higher the administrative cost.. a classic case of diseconomies of scale.

While I agree that levying a few extra fees that bring in substantial enough revenues per passenger would be a wise thing to do for airlines, it is important that they don’t go too far. I fear that the recent frenzy to charge additional fees is a sign that airlines are falling into the trap of targeting revenue-maximisation rather than profit-maximisation.

Note: Price discrimination is when different prices are charged for the same product. Hence, the above is only a valid example of price discrimination if you define ‘the product’ as air-transportation from city A to city B.

Keynesian LRAS: China's Inevitable Inflation

Lately the media has been flooded with news of China’s workers demanding higher wages. A spate of strikes at factories has forced firms to raise the wages of their employees. In Guangdong province alone (the manufacturing hub of China) there were 36 strikes in 38 days (Source: The Economist, 31/7/2010-6/8/2010). All this has rightly lead to speculation that there will be cost-push inflation in the near-term in a range of consumer goods as firms raise prices to maintain already low profit-margins.

Explaining this recent rise in wages is a simple case of supply and demand. With China having adopted the role of the world’s workshop, demand for its goods (and hence, its workers) is high. On the other hand, China’s ageing population means that the aggregate supply of labour is shrinking. It follows that in such a scenario, the wage level should rise.

As mentioned above, rising wages equals higher costs for firms, contributing to cost push inflation. When taking a long-term view (see graph below), we see that China’s inflation has only really picked up in the last seven years or so. Another observation that can be made from that graph is that it has a striking resemblance to the Keynesian Long-run aggregate supply curve (see top diagram). We can see that at all points to the left of Y1, output (x-axis) can be increased with minimal effect on the price level. This is because factors of production (labour, in China’s case) were so abundant that it was relatively cheap to employ them and hence employing more factors hardly changed the price level. This phase is reflected in the time span from about 1950 to 2000 in China’s history. However, now with a shrinking supply of labour, it has become more expensive to employ labour and any increase in output has an inflationary effect. By noting the steep price level rise that accompanies an increase in output from Y1 to Y2, we can see that China’s future growth will lead to even more inflation.
Worryingly, it seems as if China is reaching the Y2 level of output – it’s maximum. At Y2, output cannot increase any further and any outward shift in demand will have a purely inflationary effect. The implications of this are serious. By looking at the recent wage rises and historical inflation rates in this way, one can conjecture that China’s role as the world’s manufacturer may be under threat in the not-too-distant future. The only way to avoid the seemingly inevitable inflation is to shift the aggregate supply curve (LRAS) to the right. Unfortunately, with the supply of labour dwindling this is looking increasingly difficult to do.

How to Get the Chinese to Spend More

It is commonly accepted that, in order for there to be global economic rebalancing, China must shift its focus from exports to domestic consumerism. Doing so would benefit China as it would no longer be dependent on unpredictable foreign demand.

In the wake of the global financial crisis and the correlated fall in demand for Chinese exports, the mainland recognized the need to boost domestic spending and introduced massive subsidies to achieve that end. One industry that benefitted from the subsidies was the auto industry. Car sales on the mainland grew 45% last year and 48% in the first half of 2010 - a reflection on the massive extension in demand caused by the equally massive subsidies. However, as the effect of the subsidies wears out, demand will inevitably contract. In fact, mainland car sales may contract by as much as 20% in the second half of this year. Clearly the use of subsidies to spur demand is unsustainable and is in no way a long-term solution.

One of the key reasons for the current low share of domestic consumption as a proportion of GDP is the high household savings rate. China's gross national savings soared from 39.2% of output in 1990 to 53.2% in 2008, way beyond the American savings percentage which was only 12.2% in 2008 (Source: Agence-France Presse, 9/8/2010). Luckily for China, this dizzyingly high savings rate looks set to reduce. Indeed, between 1995 and 2005, workers saved a large proportion of income just in case they got fired. Those were the days when China seemed to have a limitless labour supply. Those were the days that correspond to the horizontal part of the Keynesian long-run aggregate supply curve (see diagram below). Now, however, with labour becoming increasingly scarce, workers will feel less uncertain about their job security, hence, they will save less and spend more.

Unfortunately, rising worker job security alone won't be enough to set China on the right track. Inequality in China is also preventing demand from being what it should be. In April, government affiliated experts said that the Gini coefficient (a commonly used measure of income inequality where a value of 0 is equivalent to perfect equality) had reached 0.47 - above the globally recognised warning level of 0.4. The income of China's richest 10% was 23 times that of the poorest 10% in 2007, while in 1998 the gap was only 7.3 times (Source: Li Shi, professor on income distribution and poverty studies, Beijing Normal University). In other words, the rich have too much and can't spend all of it (and therefore save some of it) and the poor have too little and wish they could spend more. A more progressive taxation system should be adopted whereby the richest got taxed more. The extra revenues would be used as transfer payments to the poorest (which they would readily spend). It is common knowledge that the poor spend more on domestic goods while the rich spend a larger share of income on imports. Hence, if a larger share of spending was done by the poor, the benefits to China would be greater as there would be fewer leakages and a stronger multiplier effect.

If China were to adopt this more progressive tax scheme, it would not only be in line with the fundamental values of the CCP but would also result in more sustainable growth. If China doesn't act quickly, it may have to face overinvestment and the misallocation of capital - the same perils that haunted Japan in the latter parts of the 20th century. If that happens, it will be to no one’s advantage.

Jobless Recovery: A Necessary Evil?

Lately, there has been plenty of worry concerning the so-called ‘jobless recovery’ in America. While the fortunes of American firms have been looking up, there hasn’t been anything near the proportionate increase in employment that many expected. Instead, American firms have proven to be reluctant to hire, preferring to make their workers slog out longer hours. The result has been that employment levels are actually slightly lower now than they were 12 months ago when the U.S. broke free from the recession. While many lambast these firms for crippling the recovery, I believe that, in the long-run, the U.S. will be thankful that they didn’t rush to hire new workers.

The key reason why I hold this view is the theory of neo-classical economics. Neo-classicals (also known as free-market economists) believe that long-run aggregate supply can only be increased (i.e. an outward shift in the LRAS curve shown top) if the quantity or quality (productivity) of labour is increased. From the population graph above, it is clear that, since the 1940s, America’s population has grown by about 25 million every decade. Assuming that its population is currently 300 million (for the sake of using a round number), an increase of 2.5 million in one year equates to a paltry 0.83% rise. Clearly, this figure for the percentage increase in population will only diminish as the ‘base population’ gets larger. If productivity remains unchanged, it follows that the U.S. would only grow at 0.5-1% every year from here on in – a pathetic growth rate compared with the double-digit heights currently achieved by emerging giants like China.

Hence, it is clear that the U.S. will not be able to increase its output (by shifting the LRAS curve outward) by relying on population increases alone. With this in mind, the neo-classical economic theory outlined above dictates that increasing productivity is the only way to go. It is for this reason that I believe that the increase in American productivity that we are witnessing is a good thing as it will allow output to rise and keep up with demand, preventing inflationary pressure in the long-term.

Wheat Price Rise

This week, Russia announced that it would ban the export of wheat between August 5^th and December 31^st citing the need to keep domestic wheat prices down. The theory is that, despite the drought and bushfires that have destroyed millions of hectares of crop, by not allowing wheat to leave the country, the supply of wheat in Russia won’t dip and so the price will remain steady.

Some say that the implications on the rest of the world will be grave. Russia’s wheat exports account for 11% of the world’s total. With all that gone, the supply curve should shift inwards resulting in a higher global price. This would lead to a rise in revenues for wheat exporting firms as wheat – being a necessity – has an inelastic demand curve.

Despite these pessimists, others say that because of a bumper wheat crop elsewhere in the world, the supply curve won’t shift inwards and therefore prices will remain steady. However, I feel that this will only happen if governments release some of their stockpiles. This is because private wheat exporters have no incentive to sell their surplus to make up supply. As mentioned, firms benefit revenue-wise from higher prices. Unfortunately, the chances of governments taking any meaningful supply-side steps look bleak. Wheat prices have risen 90% since June – governments haven’t really tried to use their stockpiles to ensure price stability in the last two months, so logic says that they won’t do much to prevent the price rise that will follow Russia’s ban.

With wheat prices rising, there will be cost-push inflation in consumer foods like breads and pizza as food processors pass on their higher-costs. The market is already reacting – shares in firms like Nestle and Carlsberg have tumbled. Substitutes like rice and potatoes may also see a rise in demand though even their prices are rising. Hence, what we may see in the near future is substitutes like rice and potatoes behaving as Giffen goods – in other words, their demand may rise even as prices rise (so the demand curve looks like a supply curve).

Gas vs Oil

The shift from oil to gas is predicted partly due to the increasing scarcity of oil fields. This scarcity has been brought about because of the fact that national oil companies are sitting on up to 90% of ‘easy oil’ (oil that can be extracted with little expense or hassle). More often than not these national oil firms aren’t allowing foreign firms a slice of that oil. This is making oil firms look for more unconventional and trickier sources, especially deepwater oil fields in the Gulf of Mexico and the West Coast of Africa. Even Canada’s tar sands are being seen as a new source of oil. This increasing scarcity of obtainable oil is bound to raise the cost of oil extraction, making gas, a substitute, relatively more attractive.

Oil is also riskier business – firms have to make ‘binary decisions’ about whether to invest tens of billions in an oil field when the price of oil in five years is unknown. With gas, there is less risk – it only takes US$5 million to set up a shale-gas well. This represents a shift in the business models of big energy firms from few, large projects to many, small shale wells. The big advantage of shale wells is that energy firms can easily alter their output (by drilling more wells) in response to changing demand and prices. Shorter response times are good for the industry as a whole as it means that supply-demand equilibrium will be reached faster.

Despite the fact that building a LNG (liquefied natural gas) export plant could cost as high as US$20 billion (similar to the cost of an oil well), the structure of the gas industry is such that new LNG plants only go ahead after the developer has secured long-term contracts of even 20 years or more. Again, this mitigates the risk of even costly gas plants.

With growing demand for electricity in the developing world, there is likely to be a rise in the number of gas fields. The largest (and, some analysts say, only) barrier to pumping gas to areas like China is the infrastructure – the pipes to pump the gas.

Another reason why gas is an attractive prospect is imminent government policy. Carbon taxes are likely to be imposed in the near future as governments try to reduce the welfare loss caused by polluting oil wells. A $30/tonne carbon tax would make gas cheaper than oil for power stations – gas is half as polluting as coal. Double the tax and gas could compete with nuclear and wind power.

What the specialists say: oil consumption will rise only 0.5% annually to 2030; gas consumption will be 55% higher in 2030 than now.

Luxury Durables do well in Uncertain Times

In economics lessons we are taught that, in a recession, the aggregate demand curve shifts inwards as consumers skimp. Specifically, we are told that the reason for this is that consumers spend less on luxury goods, purchasing only what they need. However, consumer behaviour following the recent downturn challenges that view. High-end electronics manufacturer Apple saw its net income jump by 94% in the last quarter and Mercedes-Benz is experiencing a record sales year with sales up 15.2% from a year earlier. Other luxury car manufacturers like Lexus and BMW are experiencing similar gains.

What seems to be happing is that consumers are investing in durable goods which will give them tangible joy. As Dan Ariely, professor of behavioural economics at Duke University says, “If they lose money by spending it on something, at least they have something to show for it.” Consumers are confused by the recent capricious state of international markets with news of booms in some sectors contrasting with warning signs in others and fears of a double-dip recession. Ariely says that such gyrations in the market make people want to spend on goods rather than bet on mutual funds.

Funnily, while people are splurging thousands on cars, top-end toiletries are suffering. This only supports the view that consumers place great value on durable goods in uncertain times. The outlook, therefore, is great for top-end durable goods manufacturers. Not only do they capitalise on greater incomes in boom times but on uncertainty in less bright economic conditions too!