Recently I heard the story headline in the news about income inequality gap is widen and again the same line repeated that I hate most ' Rich gets Richer and Poor gets Poorer '. If you find the same then you are also in the same mindset which I was back then 2 years ago.
Most of us already know the trade Cycle but for convenience, we will brief you about it. Generally in daily activities, we make transactions to complete daily necessities. Now transactions have been done in various mediums while money works as an intermediary to these transactions most of the time. Trade Cycle is where value is being transferred in every transaction. But wait here Is the problem nobody knows the true value of things then how transactions should happen ideally (same value exchange transaction)? That’s where the terms like profit and loss enter into the cycle. Sometimes it’s needed to generate value to avoid a credit crisis but at the same time, it has inflation risk. This way primarily trade Cycle works. If you dig deeper you will find more interesting facts and also you can contact me. We will explore more.
Sometimes value is transacted towards a few people and as value transfer occurs there is a formation of a gap in between those communities, economically it is referred to as the Income Inequality Gap, The origin of the phrase " Rich gets richer here". But in my perspective, it is context-based. If you analyze it in terms of years you will conclude that the gap exists, but if you broaden your analysis for centuries you will know that it is just a small transaction. Pause and think for a minute. The best example of this is Nijam Empire. Nijam family acquired the wealth between 1724-1748. The same inequality gap you will find if you analyze the situation in 1740. While In terms of centuries it was just transactions and now today it has no significant wealth.
Now in today’s world, it’s not about empires it’s about families. The main reason for this things is the Capitalistic Approach. Compounding Effect works for capitalists while average people get stuck between fulfilling basic needs and so they don't think of investment. Therefore for a smaller context, it’s right to say that 'Rich gets Richer while Poor gets Poorer'.
What should be the solution to the Inequality gap?
It might be possible to destroy the whole value of money but it’s ineffective and will lead the community two centuries back. Another possible effective solution could be increasing the speed of the transactions. Fast and easy circulation of value may dilute the concentration of value from the community.
This will help to balance or to reduce the inequality gap. It didn’t involve inflation risk as another effective option creates, unlike the risk created by new value by printing currency. You can relate to today’s situation.
How corona outbreak resisted the transactions speed which led to a credit crisis and income inequality gap and corona booster packages led us to inflation.
How to use Trade Cycle Theory in our life?
Create some channels that deliver you an undetermined value. Find the inflows and try to compound them rather than utilize them. Even if you find 2-3 underestimated value chains you are successful.
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Active Analytical Thinker, Currently working on financial literacy.
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