Tinubu: Chance of prosperity vs. poverty of austerity
THIS serves as a companion to my recent commentary on slumping oil prices. As hoped, that prior intervention helped stir discussion on the critical issue of our economic wellbeing and the best policy direction to take in order to ensure that well-being. 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 the 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 aptly characterized as a surfeit of 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.
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 we always talk about the economy we assume everyone desires the same outcome. This assumption is in equal parts naïve and dangerous.
Economics is not a science in the same degree chemistry or physics are. A human invention, economics is shaped more by the ebb and flow of human nature than by unbendable natural law. 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 labour 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 they can bend the entire nation to their 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 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 those now unemployed earn will be used to consume goods and services, further spurring economic activity. In that wages will be relatively modest, their consumption will favour 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 in 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.
Hyperinflation Scare: Conservative PDP Fear Mongering
The Finance Minister and other conservatives have responded to my suggestions not by a critical analysis but by flippantly concluding that ruinous hyperinflation would result. This is an old trick of the conservative elite. Their ploy is to frighten the people from the very ideas that will benefit them. They want us to recoil from what might be our very rescue. Because their conservatism is also the economics of the global corporate media, this mythology dominates the airwaves and permeates our economic thinking. People generally have heard but one side of the story. Repeatedly given only one account, they assume that the truth lies in the tale repeated. This article is an attempt to sweep away some of the myths by which the elite steer us from an understanding that befits the national economic interests instead of theirs.
The Finance Minister claimed my prescriptions would lead to situations that existed in Weimar Germany post-WWI, and Zimbabwe and Argentina. I can categorically state the faithful rendition of my suggestions will never lead to such a condition. Numerous countries have walked this path and never came close to gross inflation. America did it in its formative years. It was also this route that led it from the Great Depression in the 1930s (The same with Germany). China walked a similar path in the 1990s when it began to record its unprecedented growth rates. Meanwhile, each nation that has committed itself to the policy approach of this government has jumped straight into the mire for several years before desperation or common sense forced it to redirect itself to a path more aligned to the one I have drawn.
The examples the Finance Minister offered against my recommendations were a bit odd. A person is unwise to draw analogies to the past without having sufficient historical grasp of the prior situations. The analogies will be prone to be off centre as in this instance. The three circumstances she cited are far removed from what I advocate. Either the Finance Minister was being glib, woefully ignorant or both. If her intervention is indicative of her knowledge of history, our economy will be sorely pressed because her knowledge of the past will prove too superficial to do much good in the present.
• Tinubu, a former governor of Lagos State, is National Leader of the All Progressives Congress (APC)