Peace
Frederick Bastiat, the 19th century political economist, once wrote that there is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be forseen. Perhaps like the difference between a good and a bad cop. Bastiat thus implicitly argued that a good economist must have foresight. Good economists, using sometimes basic and universal economic fundamentals, have often used experiences to predict the many consequences of an economic act or behaviour. When short of experience, good economists use past but similar occurrences to predict expected consequences. This approach has served the world well in great respects and has helped improve global economic standards, more than ever before, notwithstanding interruptions in growth that we are currently experiencing.
In the piece, Bastiat went ahead to note that there is a tremendous difference between good and bad economists. And I agree, as Nigeria exhibits the greatest difference between good and bad economics, consequences of practice by bad economists. The vast poverty and unemployment in our midst is as a result of only one thing, bad economics. However, we have not always practiced bad economics.
In the last decade, although sometimes forced by expediency, there has been an array of good economics. For instance, within period, we have done the telecoms economics, the economics of debt cancellation, the economics of banking consolidation, and very recently, the economics of reserve accumulation.
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As Bastiat rightly suggested that good economists could forsee many effects of a policy, we are now witnesses to the many consequences of the good telecoms economics. Communication has improved the way business activities are conducted, made business activities more efficient, and reduced the cost of doing business in general when compared to the long-term costs before the reforms. All these in addition to the fees that the government picked up, but practiced bad economics when it did not use the fund for infrastructure backbone purposes. I have added the dimension of bad economics to demonstrate that the effects of good economics can be limited by successive bad economics.
Because of debt cancellation, we have re-entered the international capital market, capital flows to the country have increased, international investments have gone up etc. I consider debt cancellation good economics because bad economic arguments were also made against it, since it was not outright cancellation. And of course, we have become very familiar with the consequences of good economics in banking consolidation. And in the last nine months, good economics in reserve accumulation has prevailed over the bad economic arguments of some governors that excess crude should be spent before the global economic crisis arrived.
In the last week, two figures emerged that signal very much that the global economy is stabilising. Oil price rose above $60 dollars for the first time in six months. This is significant to the extent that there was no news of supply interruptions. It also emerged that the US experienced growth in its trade deficit for the first time in five months. This is the clearest evidence yet that consumer confidence in the world’s largest economy is returning.
What does this mean for us? If, by all best estimates, global growth resumes in the first quarter of 2010, it will dawn on us that our economic problems preceded the global economic crisis. When global growth resumes, we will still be faced with vast poverty and unemployment, non productive oil sector, poor power supply, low yield agricultural produce, the most decadent infrastructure of any aspiring economy, a calamitous manufacturing industry, and a very uncompetitive general economy.
Why are these problems still with us? What good economics can be practised that will have different consequences? Government has the responsibility to find answers to many of our economic difficulties. The whole essence of this piece is to let my readers know that as the global economic crisis nears its end, whether our economy comes out positively from now on is a matter of good or bad economics and not global meltdown. Nevertheless, as Bastiat concluded in the piece that he would investigate the consequences of several economic phenomena, contrasting those that are seen with those that are not seen, let me do so for two economic issues in our economy.
First, on deregulation of the downstream oil sector. After deregulation, I expect that significant importation of fuel will continue. The immediate and visible effect that bad economists have confined themselves is the increase in price that will follow deregulation. However, after a while and subsequent good economics on production and investment, there will be setting up of refineries. If it is profitable to refine and sell here, why will the import continue? If there are no significant margins to be made, why will an importer be bothered with international logistics, clearing, and shipping risks etc. The losses on petroleum products importation last year was because oil price fell very rapidly while products were at sea. When produced at home, the time difference and risk of loss will be minimal if crude oil price should fall that rapidly again. And I see investment, production, jobs, income, improvement in many lives, and economic growth. These are beyond the immediate pains of price increase.
Second, I also think all cheques should be crossed. The immediate and visible effect is the inconvenience that will arise. However, after practice, because all cheques will go through clearing, it will increase the need for more people to have such accounts. It will also minimise the carrying of cash, as it forces more cash payments through the system. It will improve record keeping and improves individual discipline. The benefit for the banks will include that it will minimise the craze for deposits (imagine the cash outside the system), and thereby increasing the potential for more lending. And because of all these, it will minimise corruption. Trust me, I am only trying to be a good economist.
