Eating a 750k VND bowl of Pho - What are they doing and what are you thinking?

Perhaps you all know about the 750k VND bowl of Pho. It’s somewhat shocking to know that there is a bowl of Pho that costs nearly 1 month income of a normal worker. And it’s more astonishing that many people have tried it.

Some people have criticized eaters of that bowl. Their main point is that there are many poor people out there, and 750k VND will help the poor much. They consider the eaters as selfish and devil. But are the consumers that bad?

It’s true that 750k is not a small amount of money. Compared with the GDP per capita of Vietnam in 2009 is just 1,100 USD, 750k VND is over 3% of the GDP. The basic salary, regulated by the government, in some regions, is just 830k VND per month.

In fact, if we look further, we will realize that eating that bowl of noodle is not different from buying a RR or a Ferrari. How can we get mad at the consumers of that bowl while at the same time admiring the drivers of these expensive cars?

Let’s consider 2 possibilities:

Case 1: The Government decides to prohibit the consuming of these luxury products. There will be no Bentley on the road. No more iPhone [for god’s sake, 600USD is half of the PPP]. No more super-expensive noodle bowl. Instead, the government increases the tax from the rich, and then uses that money to help the poor. Such tax is called Robin Hood tax. What happens? The rich can’t buy what they want. Their hard-working money is taken away to help the no-working people. They can’t find the meaning of working. They lose the motivation and barely want to work hard like before. And when this happens, the economy will suffer from a loss of productivity. Then, the society witnesses a decrease in living standard. Who loses? Everyone, not only the rich. The poor may, in short-run, win when they have more money to spend. But then, they will soon realize that there will be no more goods to buy when the highly productive labors stop workings.

Case 2: The Government decides not to intervene. The rich have every right to do anything with their money. Yeah, the society will get mad. The poor will protest against the government. Inequality causes social evils. Some people swear to revenge. Some will become jealous. Then, everyone has a motivation. What will we do if we don’t have enough money to consume like them? We will try. We will work to death. And If everyone does that, the whole society benefits.

Wait a minute! Do you notice that the situation in case 1 is somewhat like the Communism, to equal everyone?

The most important principle of Economics is the trade-off. We can’t simultaneously have guns and butter. The economy can’t grow well without a little inequality. It is the nature of Capitalism, the Market mechanism, to allocate the limited resources in the most effective way. If you want everybody to focus on helping poor people, not to drive expensive cars, you’d better go to North Korea or Cuba, the only 2 Communism countries in the world. Notice how poor they are. At the moment, Capitalism makes its people unequally rich, while Socialism makes its people equally poor. Which do you prefer? Efficiency or Equality? The market mechanism doesn’t offer the amount of food equally for everyone like Socialism, but it offers the opportunities fairly.

One of the most arguing policies under President Bush term is the tax cut for the rich. It means the rich will get richer and richer. And the gap in income between the rich and the poor will become wider. It is, at first, quite shocking because we are taught to help the weak, to take from the rich and donate to the poor. We all know the Robin Hood tax, not the converse one. But there must be reason why the leaders of the greatest country in the world agree to remove the Robin Hood tax. Keynesians believe that demand is the main factor of the economy. A tax cut for the rich will increase the aggregate expenditure, while a tax cut for the poor will only raise the investment ratio. An increase in aggregate demand will lead to a new higher level in aggregate supply [potential level], which means the economy is now producing more than before.

So, if the greatest minds in the world have allowed the rich to spend as much as they want, why should we go against?

If you want our country to move on, please don’t criticize them. Their only fault is that they’re increasing the trade deficit which is not good for the economy. Ideally, they should consume domestic products instead of the foreign ones [for more details about trade deficit, wait for the next posts].

Many of you perhaps are spending quite much. Don’t feel guilty. You are helping the economy. What you should do is limiting your spending with the money you parents give you. And if you have earned some money, burn it! Because it is the best way to contribute to the society: to circulate the money.


Kz