Charlie's chocolate factory, part 2

Two week's ago we left Charlie with rising costs of production, decreased sales, and some tough choices to make. He must find a way to restructure his chocolate factory in a more profitable way.

Just imagine what would happen if the ruler of that land, King Hussein, decides to protect the jobs of union workers at Willy Wonka Inc. (and accidentally boosts the profits of his college roommate Charlie). Let's say that his royal highness has decided to stimulate the domestic economy with unconventional Keynesian policies. Hussein tries to boost demand by injecting cash into his royal bank. The new currency will be loaned out at special low interest rates to those patriotic citizens who want to support the national economy by buying more chocolate from Charlie.

Now the management of Willy Wonka Inc. need not worry about research and innovation to cope with its falling market shares. Instead of adjusting to real changes on the supply side, people all over that fairyland will alter their behavior under false signals from the demand side. Artificially boosted demand for chocolate will temporarily increase the return in all related industries. Prospects of higher profits will mislead farmers in Narnia to switch from growing peanuts to planting cocoa trees. Investors will divert resources to building new chocolate factories in Calormen to compete against Charlie. Students in Archenland will abandon their engineering and medical programs and transfer to business departments for degrees in muffin management, candy marketing, and cocoa bean accounting.

The chocolate bubble will fool banks all over the world to jump into this moneymaking bonanza. Someone will become aware of the higher degree of instability in the financial system. This will incentivize him to spread the risk by designing new investment tools that are not covered in the current regulations. Everyone will try to strike it rich, quickly and without effort.

But the new money injected by Hussein will spread to other sectors of the economy. Prices of peanuts, healthcare, and other goods and services start rising relative to the prices of chocolate products. Investors panic, the bubble bursts, the economy goes into recession. Now it is up to us to decide if we want to let Hussein play another round of the game.