By: Midmark Onsongo
Worth Noting:
- One of the most persistent economic challenges is inflation. Inflation occurs when the general level of prices for goods and services rises, eroding purchasing power. In Kenya, inflation has become a hot topic, especially as it relates to food prices. For example, the price of maize flour, a staple food, has seen significant fluctuations in recent years due to droughts, global supply chain disruptions, and political instability.
- These price hikes disproportionately affect the most vulnerable in society, particularly those living below the poverty line. As inflation eats away at disposable income, people are forced to make tough choices, such as cutting back on essential services like healthcare or education. Inflation is not merely an economic statistic; it has real-world consequences that can alter the quality of life for millions.
Economics is often seen as an abstract and complex subject, far removed from our daily experiences. Yet, it is the invisible force guiding every decision we make, from the price we pay for groceries to the interest rates on our loans, and even the job opportunities available to us. While many people might assume that economics is just a subject confined to textbooks and financial analysts, it is, in fact, a dynamic and living entity that intertwines with every facet of our lives. To fully grasp its power, one must understand the fundamental principles that govern it: demand and supply, opportunity cost, inflation, and market equilibrium. However, what makes economics even more fascinating is how these principles manifest in ways we may not expect—subtle yet profound impacts on human behavior, society, and the global landscape.
At the heart of economics is the relationship between supply and demand, the two forces that determine prices. If there is more supply of a product than demand for it, prices fall, and when demand exceeds supply, prices rise. Take the example of housing in Nairobi, where rapid urbanization has led to a significant increase in demand for residential space. With land being a finite resource, developers are forced to compete for the same plots, leading to skyrocketing property prices. This increase isn’t just a number on a piece of paper; it trickles down to the average person in the form of higher rents and mortgages, making housing increasingly unaffordable for a large section of the population. It also impacts construction jobs, mortgage lending institutions, and the government’s tax revenues.
However, economics is not just about numbers or the movement of goods and services. It is deeply tied to human behavior, both rational and irrational. The concept of opportunity cost is one such principle that sheds light on the trade-offs individuals and societies make. Opportunity cost refers to the value of the next best alternative that must be foregone when making a choice. For instance, when a person decides to spend money on entertainment instead of saving or investing, the opportunity cost is the potential interest or profits they could have earned. Similarly, a government that prioritizes infrastructure development over education may enhance transport and trade but risks stunting human capital development. Such decisions, whether made by individuals or policymakers, highlight how economics is not just about wealth but also about the choices we make and their long-term implications.
One of the most persistent economic challenges is inflation. Inflation occurs when the general level of prices for goods and services rises, eroding purchasing power. In Kenya, inflation has become a hot topic, especially as it relates to food prices. For example, the price of maize flour, a staple food, has seen significant fluctuations in recent years due to droughts, global supply chain disruptions, and political instability. These price hikes disproportionately affect the most vulnerable in society, particularly those living below the poverty line. As inflation eats away at disposable income, people are forced to make tough choices, such as cutting back on essential services like healthcare or education. Inflation is not merely an economic statistic; it has real-world consequences that can alter the quality of life for millions.
In a broader sense, economics plays a crucial role in shaping political decisions. One glaring example is the debate surrounding Kenya’s national debt, which currently stands at over 10.2 trillion KES. Economic theory suggests that high levels of government debt can lead to increased borrowing costs, crowding out private investment and slowing economic growth. Yet, politicians often face a dilemma: borrowing can finance essential infrastructure projects that boost productivity in the long run, but it also burdens future generations with repayment. This balancing act between short-term gains and long-term consequences is at the core of economic policy, and it forces citizens and leaders alike to consider the trade-offs inherent in every decision.
Economics also dictates the job market, determining which sectors grow and which ones falter. Technological advancements, for instance, have created a shift in demand for certain types of labor. While traditional manufacturing jobs are on the decline, industries like information technology and data science are booming. This shift presents both opportunities and challenges. Workers in declining industries may face unemployment or be forced to acquire new skills, while those in emerging sectors enjoy higher wages and greater job security. This changing landscape illustrates a key concept in economics: creative destruction. As innovation drives new industries, it renders some skills and businesses obsolete, but it also paves the way for more efficient and productive systems. Those who adapt thrive, while those who resist change are left behind.
Globalization is another economic force that has significantly shaped the modern world. The integration of international markets has made goods cheaper and more accessible, but it has also led to job losses in certain sectors. For example, many manufacturing jobs in Kenya have been outsourced to countries with lower labor costs, like China and India. While this allows businesses to reduce costs and offer cheaper products, it comes at the expense of local employment. This phenomenon reflects a larger global trend where economic decisions made in one part of the world can have ripple effects across continents, illustrating the interconnectedness of our global economy.
Yet, despite its complexities, economics is, at its core, about solving the problem of scarcity. Resources are limited, and economics provides a framework for understanding how societies allocate these scarce resources to satisfy competing needs. From healthcare to education, defense to infrastructure, governments and individuals alike must decide how to distribute finite resources. This process inevitably involves trade-offs, and the study of economics helps us understand the consequences of those decisions. By understanding these trade-offs, we can make more informed choices, whether at the individual or societal level.
One of the most fascinating aspects of economics is how it reflects human nature. We are driven by incentives, both positive and negative. Incentives shape behavior in profound ways, influencing everything from consumer choices to corporate strategies. For example, if the government offers tax breaks for businesses that adopt environmentally friendly practices, companies are more likely to invest in sustainable technologies. Similarly, individuals are more likely to save if there are attractive interest rates on savings accounts. These incentives shape the economic landscape, guiding decision-making at every level.
Economics is not just a dry academic discipline; it is the silent engine driving our world. From the prices we pay at the supermarket to the jobs we seek, from the policies governments implement to the choices we make in our personal lives, economics is ever-present. Understanding its principles allows us to see the world more clearly, making sense of the complex interactions that shape our daily lives. By grasping the invisible forces of supply and demand, opportunity cost, inflation, and market equilibrium, we gain insights into how the world works—and how we can navigate it more effectively.
This article was scripted by;
MIDMARK ONSONGO
(Sustainable economist, Geopolitics strategizer)
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