Executive Pay: The Curious Case of Carlos Ghosn’s Arrest
February 12, 2025
How Automation Benefits the Logistics Sector through Efficiencies and Synergies Automation benefits the logistics sector in many ways. Right from order booking and package handling in warehouses, including transit and shipment that is enabled by automated modes, and tracking and delivering the materials, automation can increase the efficiencies and synergies of the entire supply chain. […]
“Knowledge should be shared. It only grows by sharing.” This phrase finds its importance in today’s highly competitive and economically turbulent business world. Unless knowledge is shared among employees, it doesn’t take an organization anywhere. It’s important to share and manage it, in order to foster innovative thinking, develop and train employees and evolve into […]
Globalization has not only expanded the product markets. It has also made organizations geographically more dispersed. Therefore, the way the business is done and decisions are made has also changed significantly. Collaborative decision-making has become more valuable than ever. This is why there is an increased emphasis on developing and implementing communications-driven group decision support […]
Using Gateways Gateways can split your processes into multiple paths. This is because the path which the process will take at execution is based on conditions at execution. It cannot be defined while designing. Gateways thus model all the options that the process has i.e. all the possible paths that can be taken by a […]
Why Data is the New Oil Data is the New Oil, proclaimed, India’s Richest Person and the one of the World’s leading Businessperson, Mukesh Ambani. He was referring to the fights over data in the digital age being similar to the battles over Oil in the Industrial Age. As Oil was the Lubricant that made […]
The IMF recently asked the Philippines to take measures to rein in its overheating economy. This is not the first time the IMF has made such a statement. In fact, IMF commonly asks countries to take measures to prevent “overheating.” However, the problem is that there is no standard definition which defines the phenomenon of an overheating economy. This is the reason why different nations interpret the IMF’s warnings in a different manner and take different steps.
In this article, we will make an attempt to define the phenomenon of overheating formally. We will also list down some of the symptoms which are commonly associated with the overheating of any economy.
The term “overheating” has been borrowed from automobile engineering. In the automobile field, when an engine overheats, it ends up using too much energy to generate excessive heat at any given point of time. This increase in heat causes long-term damage to the engine.
Similarly economic overheating refers to the presence of excessive economic activity at one given point of time. This excessive economic activity happens because of overly optimistic expectations by investors and businessmen. However, the economy is not capable of consuming the goods and services produced because of this high level of economic activity. As a result, a recession takes place. Just like the automobile example, excessive economic activity in one particular period leads to deficient economic activity in the following periods.
In order to understand the concept of an “overheating economy,” we first need to understand the concepts of actual GDP and potential GDP. The actual GDP is the sum total of the goods and services that were actually produced within a country in a given year. On the other hand, potential GDP is a hypothetical total of goods and services which could be produced in an economy in a given year, if the resources were fully utilized at an optimum level.
The technical definition of an overheated economy is when the actual GDP of a country is more than its potential GDP. Hence, if the human, as well as natural resources of a country, are being utilized more than they actually should be, then it can be said that the economy is overheated.
Some of the common features of an overheated economy are as follows:
Hence, if we see interest rates which have been artificially kept low for a prolonged period of time, we should be cautious about the possibility of an overheated economy. The record of economic history is absolutely clear. Once the interest rates bottom out, they tend to go higher.
When the supply of money is artificially increased over a long period of time, the housing markets tend to get overheated. This means that the prices of houses rise way beyond the reach of the common man. In this situation, even the most skilled workers find housing and rents unaffordable. This situation is currently happening in many parts of the world. A report released by HSBC recently ranked cities in terms of their housing markets.
With the notable exception of Chicago, all major cities in North America were thought to be overheated. The housing markets of many cities like Toronto are at their 30-year peaks. Since housing affordability is explained as a ratio between housing prices and median income, poor housing affordability means that the housing prices are rising unilaterally without any corresponding increase in incomes. This is a classic sign of economic overheating.
There is a direct correlation between the level of household debt and what now in hindsight appears to be irrational exuberance on the part of several economic actors.
To sum it up, economic overheating is not something that happens overnight. It is a long process which takes place because of several inappropriate economic policies which have been continued for extended periods of time. Also, there are clear-cut indicators which signal that the economy is overheating. These indicators have been mentioned above for reference.
Your email address will not be published. Required fields are marked *