Pitfalls of teaching economics

Pitfalls of teaching economics

Being an ex-banker, I teach banking and other related subjects like economics to young professional bankers in my academy. My daughter, Tina, a voracious reader herself, assumes that I know everything and keeps testing my knowledge on subjects as diverse as falling rupee to masala bonds.

Not to disappoint her, I pretend I know something about every subject and try to clarify her doubts to the best of my ability and patience. So I was pleasantly surprised the other day when she asked me whether unclaimed corpses could reflect the state of an economy and predict whether it is going through a period of boom or bust!

Holy cow! I had heard about the financial meltdown of 2008 in the US and also vaguely remember reading the Big Mac Index. But unclaimed corpses and their relationship with economic activity? Swallowing my pride, I told her that I was busy with some academic work and would tell her everything about it the next day. The fact was, I didn’t know anything about it!

So off I went to the ever-reliable Uncle Google and found that the dead corpse indicator was a freak economic indicator that captures the mood of the economy. When an economy is not doing well, aggregate demand goes down and companies start laying off people leading to rising unemployment. During such periods, it was observed that the number of unclaimed bodies went up at morgues. Family members never claimed the bodies of the deceased as they didn’t have the money to pay for the high funeral costs.

The governments had to pay for the funeral costs of these unclaimed corpses. This was more evident in the US during the financial crisis of 2008. The city of Detroit had a massive increase in the number of unclaimed bodies at its morgue. When I told this to my daughter, she said how economics can be so dismal or freak. Hmm. This may happen in America, but not in India I consoled myself.

The dead corpses indicator led me to unearth many more fascinating but freak economic indicators like the Big Mac Index which uses purchasing power parity to explain whether the currency of a country is undervalued or overvalued. Or the Lipstick Index coined by Leonardo Lauder, then Chairman of Estee Lauder during the recession of 2001 when he noticed that the sale of lipsticks increased as women facing an uncertain future found comfort in cheaper beauty products as they couldn’t afford expensive items like handbags.

Or the Hemline Index, first observed by economist George Taylor in 1926, which suggests that shorter the hemline of women’s skirts, the better is the shape of the economy! Taylor justified his theory explaining that women could afford to wear silk stockings with shorter skirts when the economy was doing well but couldn’t do so when the economy was going through a slump and, hence, the hemlines got longer!

One of the many such freak economic indicators is the Consumption of Beer Index. This theory states that during depression, the consumption of beer in hotels and restaurants falls as people find it cheaper to have beer at home instead of in restaurants as they can save on the costs.