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The new images portraying an apparent rebirth of Lebanon’s economy are today’s antidepressants. People often exclaim: “But the restaurants are all full to the brim!” It’s our own Richter’s scale for measuring the magnitude of economic earthquakes, with epicenters in Mandaloun, Abdel-Wahab, or Skybar, depending on affinity and the age category. What is really happening, and how to explain this phenomenon, beyond seasonal relief brought about by the occasional expatriate?
– The first reason has already been explored – and analyzed – by the World Bank: the US Dollar has become the main currency for revenue and money exchange, amounting to half of the GDP, and resulting in higher purchasing power in general. This was expected, and inevitable, except for civil servants who are still drowning in a pool of grossly devaluated LBP.
– The second reason is linked to the fact that it is possible to spend all earnings because, very simply, most households no longer have credits.
A few years ago, a third of young households’ monthly revenue was paid as a house loan or a different kind of debt. Now, these loans are no longer worth anything in LBP; all credit has been liquidated in the blink of an eye. This has cost banks billions of dollars, but no one seems to care much…
– The third reason is unquantifiable: velocity of money. Authorities in this country hate statistics, so what does this mean in literary terms? The velocity of money is the speed at which money is exchanged, or the number of times a single monetary unit is passed over to another economic agent at a given time.
The fact is that most people have their money frozen in banks, and they have been forced to sacrifice a lot these past three years. Now, they want to be done with all these austere measures and spend as much money as possible.
Cash dollars, once hidden under the pillow, have now been dusted off, spent, and passed over from one hand to another, thus generating a much higher velocity of money, and the illusion of a healthier economy.
– As for the psychological and sociological aspect of the economy, economists don’t believe in it, including the ones who work at the World Bank or the IMF. They rarely bring this up in their reports, as they would rather solve 14-variable equations and curves on a 4-coordinate plane. Yet, we did not invent the concept.
This discipline exists and has been written about since it was coined by Gabriel Tarde, a 19th century sociologist. Among the many works written on this subject, one can recall The Psychology of Money, a best-seller by American economist Morgan Housel that was translated into 53 languages. In France, there is such an institution as the “Economic psychology laboratory,” and on a global level, the “International Association for Research in Economic Psychology.”
What does this discipline teach us? First, that in real life, we do not always rely on coordinate planes for financial decisions, but rather on a process that includes the financial situation and the current mood. Not to mention that such decisions are not always rational.
Other phenomena play a role, too:
1- Mimicry: Why is my neighbour better than me? Why can’t I go to Skybar? All my friends do, USD 60 for an entrance fee shouldn’t be an issue.
2- Why mimic when you can do better? The (old) upper class wants to stand out from the rest. If the basic population is going to Turkey for a meager USD 300 trip, we’re going to Portugal. More money circulates that way.
3- Why save money if it will end up stuck in a bank account? This trauma is pushing people to “seize the day” since, in any case, it is near impossible to predict the unpredictable.
4- If there is not enough cash, one can always unearth some. What was once unthinkable has now become quite familiar: more people are selling their homes to rent others, then use the remaining money to live better – and spend more. Real estate, a capital that has been frozen for years, has now become cash money supply that can be circulated on the market.
Chicago-based economist and 2017 Nobel prize laureate Richard Thaler has spent forty years studying behavioural biases. He is known for having shed new light on human behaviour. He describes it as unpredictable, prone to error, and often irrational. This new definition is a more realistic one.
While a classic economist would talk about rationality when it comes to economic decisions, Thaler would postulate, with a good deal of humour, the following magic formula: “The difference between our models is that he considered that the characters in his model were as intelligent as him, whereas I supposed that they were as dim as I am.”
5- From an investor’s standpoint, things are not much different. We create societies without enough visibility, in a country where all projections are far-fetched. Naturally, entrepreneurs calculate risk, but they often have a hunch, and know the local psychology well: “The Lebanese like to go out and party” seems to be the main argument of an F&B businessman who just invested USD 500,000.
It is true that they also got rid of their debt, at the expense of depositors (they were depositors, too). It is like shooting yourself in the foot… but carrying on with the other.
This month’s issue of the economic magazine Lebanon Opportunities is titled “Hundreds of new companies” and features a detailed report on the most coveted fields. If one asks the people whether they are afraid of failing because of political and financial uncertainty, the answer would be an obvious one: “Been there, done that.”
Lastly, allow me to shed light on one last phenomenon. The people, consumers and entrepreneurs alike, used to rely partly on the State for help. Now that the State no longer exists, they have rid themselves of this burden. Sometimes, out of sheer curiosity, they look at the people “in charge” who seem to be erecting buildings with tiny matchsticks.
“I wonder if they are free on Wednesday night, it’s just for a dinner…”
nicolas.sbeih@icibeyrouth.com
