Are Greed & Stupidity Causes of Recession?

Yesterday, read the below story on social media about greed and stupidity causing recession. In economics, a recession is a business cycle contraction when there is a general decline in economic activity.  

We have seen just as the market can become overwhelmed with greed; it can also succumb to fear. Just as greed dominates the market during a boom, fear prevails following its bust.

Banwarilal was a samosa seller in an Indian town. He used to sell 500 samosas every day on a cart in his locality. People liked his samosas for the last 30 years because he cared for hygiene in preparation and selling, would use good quality oil and other ingredients, and provided free chutneys with samosas. He would throw all unsold samosas to poor people, cows, dogs etc. and did not sell unsold stale samosas to people the next day.

Banwari earned a good reputation and enough money from samosa sales, and he never faced a downfall in his sale in the last 30 years. He was able to fund his son’s MBA education in a famous private college in Noida out of his earnings.

Recently his son Rohit completed his MBA and came back home as he could not get an appropriate placement. Rohit started taking interest in his father’s samosa business. He had not been involved in his father’s business earlier as he considered that to be an inferior job.

During his MBA, Rohit read a lot about the recession. He read that it is coming up in the global economy and how it will affect job prospects, increase unemployment etc. So, he thought that he should advise his father of the risks in the business of samosa selling on account of the recession.

He told his father that the recession may cause a fall in the sale of samosas, so he should prepare for cost-cutting to maintain the profit. Banwari was glad that his son knows so much about business and taking interest in his business. He agreed to follow the advice of his son.

The next day, Rohit suggested using 20% used cooking oil and 80% fresh. People did not notice the change in the taste and 500 samosas were sold. Rohit was motivated by the profit made by these savings. The next day he suggested increasing the share of used oil to 30% and reducing the quantity of free chutney. That day, only 400 samosas were sold, and 100 samosas were thrown to poor people and dogs.

Rohit told his father that the recession has really set in as predicted by him, so more cost-cutting is to be done and they would not throw stale samosas but would fry them again the next day and sell them. The quantity of used oil will also be increased to 40% and to make only 400 samosas to avoid wastage.

The next day 400 samosas were sold but customers were not feeling the good old taste. But Rohit told his father about savings because of his smart planning. Father told him that he may know better, being educated.

The next day Rohit decided to use 50% used oil, do away with sweet chutney and provided only green chutney, making 400 samosas. That day only 300 samosas could be sold as people started disliking the taste.

Rohit told Banwari “Look, I had predicted a great recession is arriving and sales would fall. Now, this is happening. We will not throw away these 100 stale samosas but would fry and sell them tomorrow.” Father agreed to his MBA son.

The next day, 200 fresh samosas were made with 50% used oil, and 100 stale fried samosas were offered for sale but only 200 could be sold as people sensed the drastic fall in quality. Rohit said that the recession has really set in and now people have no money left to spend so they should make only 100 samosas and recycle 100 stale samosas and stop giving paper napkins.

After this only 50 samosas could be sold. Rohit told his father “Now the recession has taken people in its grip. People have lost income. So, this business will be at loss, and they should stop selling samosas and do something else.”

Now his father started shouting, “I didn’t know that they teach cheating in the name of an MBA. I lost my money in getting your MBA education. In the last 30 years of samosa selling, I never had a recession but your greed for profit and stupidity brought recession in my business and caused the closure. Get out of my business and I will get it back to an earlier level. If you want, I can hire you for washing dishes as that is the only thing you can do despite being MBA educated.”

Thereafter, Banwari started following his age-old wisdom and fair practices in business. Within a month his sale reached 600 samosas.

According to many scholars and economists, the recession is nothing but the greed of big businesses to be more profitable by reducing quality and using unfair practices and also of careless arrogant employees giving pathetic service as long as profits are coming.

Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope… You can’t legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk.

Former US Treasury Secretary, Timothy Geithner

In one of my earlier posts in the year 2017, I discussed the financial crises. It is often said that those who do not remember the past are doomed to repeat it. With economics it’s no different, considering the world has experienced dozens of crashes and recessions, undoubtedly caused by acquisitive traders and lawmakers with few memories of the past. And if you analyze these crises, you will find that these are due to greed, stupidity, and recklessness.

16 thoughts on “Are Greed & Stupidity Causes of Recession?

  1. Hahaha! Nice story. But it’s quite true that greed has forced the world into recession. We have seen this both in the dot com crisis as well as the 2008 financial crisis.

    Liked by 2 people

    1. Thanks, Sir. The economy goes through cycles of highs and lows, much like a wave in the ocean: when it grows, its crest comes to a peak, declines and then starts to rise again. Recessions are parts of the warp and woof of a dynamic economy, albeit unpleasant ones. The terms “recession” and “slowdown” are a bit confusing and often used as synonyms. The growth indicators in a recession are negative but positive in a slowdown albeit at a slower rate than in the previous quarter.

      In an economic boom, companies tend to increase production to meet consumer demand. When demand peaks and starts to decline, the excessive supply of goods and services that aren’t consumed can lead to a recession, with companies producing less and downsizing while people lose purchasing power and consumption continues to fall. Then not knowing how the economy will change makes business decision-making riskier. In general, economic bubbles form when the price of something suddenly rises due to speculation, market trends or consumer confidence and these are driven by greed.

      Like

  2. You have described a complex issue in a very simple way. Once I felt that I was reading the story of Panchatantra, remembered Vivekananda’s point, there is beauty in simplicity itself.

    Liked by 2 people

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