As you are no doubt aware, your recent appointment ignited a flurry of activity in our echo chambers. Along with the concern over macro- issues, a few of us, marginal acquaintances of yours, have been busy at the micro-level. For example, I was at the calling card business only to learn that both “Besto to the Chief Economic Adviser to the President” and “Friend to the Chief Economic Adviser to the President” have been spoken for. Worse, I am also unable to lean on the old boys network. Not being an Igbobian, I guess that the dibs on this category fall first to the Vice President, then to the Speaker of the House, and then the Minister of Works and Housing. Aware too that, in this country, the number of calls to one’s phone is positively correlated to one’s political clout, I can only imagine how much of a chore calling you would be now.
Kindly tell the president, therefore, that the two prices that will matter most for his party’s chances at the next election, if his party allows every vote to count, are the external and domestic prices of the naira. By now it ought to be clear to him that the good intention of the monetary authorities are not enough and that it is this government’s response function that is hurting the domestic economy…
Yet, getting through to you is but only a small part of the problem. Of greater moment is why I am looking to reach you in the first instance. “Why?” being the operant adverb in this case. Why, for instance, this upgrade? Part of this question is the acknowledgment that you were only recently the chair of the Presidential Economic Advisory Committee (PEAC) ― what becomes of the PEAC is another, no less important headache. Besides, the most perfunctory acquaintance with your work as a faculty on the Lagos Business School would leave one in no doubt of the nature of advice you would have given in your former capacity. If naught came of your previous advice, why should anyone hope that much will come of any you give in your new capacity? Then there is the small matter of the time left on this government’s watch and what you (or anyone, for that matter) may usefully do to fix the economy in the next fifteen months?
On the side where silver linings reportedly seek shelter from dark clouds, I am told that this is a higher octane role. And that in your new role, you might have your lips permanently affixed to the president’s ear on matters economic. As uncomfortable (the physical contortions this will require of you beggar the imagination) as this sounds, it might not be such a bad thing for the nation. For in truth, our bane over the last seven years is that this government continues to delude itself that its policies on the economy have worked ― and are still working. Yet, it has approached policymaking as would a Manichaean ― hounding “enemies” ― up and down, left, right, and centre.
Central to your new assignment, then, would be to convince President Buhari that undergirding his administration’s policy failures on the economy is the refusal to understand that our different people respond differently to the same set of incentives. You will also need to persuade the powers that be that our best chance of restarting the economy is the design of incentive buckets that optimise desired responses.
Put differently, if there is anything that you can do before next year, it would be to help wean the country off the notion that it is enough to wish well for policies to work. Take our approach to prices, for one. Standard economics teaches that when demand for any good goes up, without changes to any other variable in the mix, prices will rise until new sources of supply come into the market.
You would think that the implications of this for policymaking are clear. And that government will understand that the easier route to dealing with rapid price movements in either direction would be to make it easy for new supply sources to come into every sector of the domestic market. Or that it would have been self-evident that the best way to boost supply, besides improving domestic infrastructure, is to improve the legal environment in which business takes place (boosting trust) and create a large pool of qualified hands to work across the economy.
We sympathise with the government’s struggle to square its need for domestic borrowing with its poor fiscal take, and rising cost of debt servicing. But please tell your principal that an economy is like an inflated latex balloon. You squeeze air from one part ― including by decapitating a price aggregator ― and it shows up as a distortion in other parts.
On this matter of price, the Buhari administration’s take on the exchange rate, while redolent of Erdoganism, is self-evidently counterproductive. We cannot continue to reward bank deposits at less than the rate of inflation without seeing savings move towards assets with higher returns ― real estate, the greenback, bitcoin, etc. Oh, yes! We sympathise with the government’s struggle to square its need for domestic borrowing with its poor fiscal take, and rising cost of debt servicing. But please tell your principal that an economy is like an inflated latex balloon. You squeeze air from one part ― including by decapitating a price aggregator ― and it shows up as a distortion in other parts.
Failure to get with this logic explains why, over the last seven years, we have seen key functionaries of state indulge the conceit that government’s well-intended policies fail only because enemies and saboteurs undermine them. Burdened by such fiction, regulators have taken the national vehicle to the workshop and demanded that the fuel gauge be permanently fixed at the “full” indicator, the temperature gauge at “cool”, and all the fuses for warning lights removed.
Hopefully, the logic of this metaphor, would allow your employers see through the error of current policy responses. Still, whether or not they do, we hope that you may yet prevail in persuading them that prices in an economy function like the dials on a vehicle’s dashboard. They are signals of potential trouble. They signal misalignments, in supply when prices go up, and demand when prices start to fall. The policymaker’s duty is, therefore, to help boost supply responses to bring prices down, or where falling prices signal the onset of an industrial rustbelt, to drive initiatives that will make workers released by those sectors easily employable elsewhere in the economy.
In a democracy, the biggest currency is the vote ― and the most important exchange, the polling station. Parties with policies that attract voters command a higher price and vice-versa. Thus, the argument that every vote should count is as meaningful in democracies as the one that every purchase should be freely entered into is in a free market economy.
Kindly tell the president, therefore, that the two prices that will matter most for his party’s chances at the next election, if his party allows every vote to count, are the external and domestic prices of the naira. By now it ought to be clear to him that the good intention of the monetary authorities are not enough and that it is this government’s response function that is hurting the domestic economy and not the machinations of some perceived enemies.
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