Monday, January 26, 2015 2:36 pm
* This is the second economic prescription by Bola Ahmed Tinubu to the Nigerian government on how to manage the Nigerian economy to the benefit of the people, at a period of dwindling oil income
Reason for Macroeconomic Policy
This serves as a companion to my recent commentary on slumping oil prices. I would like to expand the discussion from the recessionary effects of decreasing oil prices to a more general discourse on macroeconomic policy and the main objectives of said policy. Several reasons spur me in this direction.
First, falling oil prices constitute a clear and present danger. This alarm should wake us not only to the proximate threat but also lead us to reappraise government macroeconomic policy anew. Even outside the challenge of lowering prices, our economy is characterized by idle capacity, unemployment and poverty. Second, the different policy directions that are possible must be starkly placed before the Nigerian people that they may decide upon which path they would place their economic destiny. (Read the first article on the economy here: http://staging.thenewsnigeria.com.ng2014/11/18/way-out-of-nigerias-economic-crisis-bola-tinubu/
In this regard, we must define the objective of macroeconomic policy then determine the best policy mechanism to reach the desired point. This delineation is essential. Because when always talk about the economy, we assume everyone desires the same outcome. This assumption is part naïve and part dangerous.
Economics is not a science in the same degree chemistry or physics is. A human invention, economics is shaped more by the ebb and flow of human nature than by unbendable natural laws. Economic policy is more a matter of subjective preference than of inexorable conclusions. Conservative mainstream economists tell us differently. They want us to believe their prescriptions are the only plausible ones. Only one road exists: theirs. They don’t want us to seek alternatives because they are afraid of what we might learn and how that might affect our heretofore-blind obedience to the subjective biases they parade as objective science. They are afraid that if we reject their economic model that they may lose their elite position.
Difference Between Progressive and Conservative Economics
I believe the highest objective of macroeconomic policy is to provide all people the basic necessities of life, then to progressively improve the lot of as many people as possible through broadly-based wealth creation by all segments of society and an equitable allocation of the fruits of the increased wealth to all, from those who labor to those who invest or supply capital. All must be duly rewarded. Balance must be maintained in the political economy so that no class becomes so powerful and affluent that it can bend the entire nation to its undue benefit. This is the progressive’s macroeconomic creed. Conventional neoclassical economists believe something different.
They believe the economy should be left to the rich and powerful. As the elite carve the economy in their own image, residual benefit will trickle down to the rest of society. Implicitly, they think those with money have earned or purchased the right to shape society without having to listen to others. Stripped to the bare essence, their sophisticated economic models and philosophy are but a pagan adoration of money. This is the way of the IMF and other global financial institutions. It is the creed of Reagan and Thatcher who did so much economic damage in the 1980s. It is the gospel of the present government. They are Nigeria’s Tories, Nigeria’s conservative Republicans. If the choice came down to the choice between saving money or people, a progressive would advocate saving the people by spending the money. The conservative would say expend the people yet save the money at all costs.
Against the backdrop of slumping oil prices, a picture of this difference has been placed before you. To avert the approaching recessionary storm, I espouse a countercyclical fiscal policy. This policy entails expansionary deficit, but non-debt, spending at the federal level. The spending must be aimed at public works, infrastructural projects that are needed in any event as a foundational prerequisite for economic growth. This nation can’t grow beyond the capacity of the infrastructure to service it. Now is as good a time as any to take on this overdue mission. Moreover, by providing tens of thousands jobs, this strategy will make productive now idle human capital. The wages these new employed earn will be used to consume goods and services, further spurring economic activity. In that wages will be relatively modest, their consumption will favor local goods and services, more so than do the consumption patterns of the affluent.
Because the federal government has the sovereign power to issue our national currency, this can be done without risking insolvency or further debt. Inflation not insolvency is the constraint. The major concern will be ensuring that inflation does not rise above limits acceptable to our specific political economy. This can be done by making sure expenditures are limited to those projects that increase productivity and have the positive economic multiplier effect we seek. This will be a hard but not impossible feat. Harder would be to allow the nation to fall into steep recession and cause the masses to suffer unduly. However, laying the welcome mat for recession is at the top of this government’s policy menu.
The Finance Minister has stated that government will follow a pro-cyclical tact. Instead of avoiding a downturn, they will intensify it by cutting federal spending and increasing taxes. This mean gruel is straight from the IMF pot right into the beggar’s bowl the IMF would have us hold. It is a clarion for a deflating economy. Yet, this fate seems not to unduly bother the government. Global big money will applaud this government as one to liking. But what they do will distress poor Nigerians.