•History cares little about the obstacles we face.
Its concern is whether we overcome them
This column has frequently examined the economic hugger-mugger now buffeting the North Atlantic community. I have done this because what happens in that region bears heavily on Africa in two ways.
First, the economic health of Africa still depends on the fate of its former colonial masters. Political independence was granted a half century hind. However, the economic umbilicus has yet to be severed. Africa still feeds from the fetid conduit that should have been severed and replaced by something more equitable years ago. We a fifty year old man dressed for the evening in fine suit and sparkling attire yet who persists in sucking his thumb and mumbling about the whereabouts of long-lost Santa Claus.
Second, the North Atlantic’s economic trials offers a real-life laboratory to test the validity of long-established economic ideas and postulates that hold sway in developed and developing nations. It is a rare occasion when traditional roles are reversed. Instead of Africa being the testing ground and Africans literally being guinea pigs for any number of crackpot ideas and unsure products, Africa can watch the West inflict the harsh experiment on itself. As compassionate human beings, this gives no cause for celebration; we fellow humans will suffer needlessly in the process. However, the reality of human nature is such that, no matter how loving one might be, we always feels the profoundest relief when the hangman passes us by to select another as the subject of his deadly vocation. It is in this manner we view the current economic trials of the North Atlantic.
Let’s see how the experiment has gone so far. On one side of the balance stand the vast horde of orthodox economists and the moneyed elite which collectively is the patron saint of the mainstream economists. These are the people who hold the professorships at the most prestigious universities and the pundits the global media pushes to the fore of your television to tell you what to think on all things economic. You have heard their voice so often and for so long, that, if not careful, you will begin to think their voice is yours without ever realizing you are thinking such a thing. You will soon hold to what they say as if you were the one who first thought it. Being duped into believing their words are your own, you invest yourself in protecting what has been indoctrinated in you through voluminous rote and media repetition. In effect, we have hired out our minds for free. That you may come to understand a relatively complex idea does not make it true. It just means you have invested yourself in learning it. The more you invest in it, the less willing you become to question its validity. This is how orthodoxy gains the adherence of generally well educated people who have not paid enough attention to economics. Having gone through the trouble of learning the fairy tales of the mainstream experts, most people reject the idea that the truth may reside in a less orthodox place.
The mainstream experts tell you to believe in unicorns. You believe them. But that unicorn they showed you is nothing but a dumb mule with a cheap horn rudely pasted on its head. In one movement, the horn falls; all is exposed for what it is. Yet, instead of believing what we see, we believe the excuse that the horn fell because the unicorn suffers a pernicious calcium deficiency weakening its bones. With a touch more exercise and tad of bitter medicine, he will be a unicorn’s unicorn in no time. Fantasies are presented to us as science. Believing it, we sit back idly and wait for the hocus pocus to produce a scientific product. I tell you, the shamans of the American Indians are more accomplished scientists than these economic mountebanks.
Now, on the other side of the great divide are the heterodox misfits who come at economics from different, often non-traditional angles. They have no moneyed patrons. Their patrons are their pursuit of empirical truth and of a certain humanitarian objective that rankles at steep social inequality. They are not invited to the studios of the international media nor will you ever hear the mouthpieces of the establishment ever refer to them as experts. The establishment prefers to tag them as renegade or irresponsible so that you will be frightened of what they say. Yet, the elite cannot completely neutralize every platform for discourse. Thus, I am thankful for this one as I am considered among the renegades.
Let’s take score of the big issues of the day, then determine which side is more the maestro and which is more the mongrel. Almost two years ago, the orthodoxy economists stood before the world blurting that government deficits were monstrous; energetically slicing the budgets was the only path to sure, durable economic growth. The rationale behind this gossamer tale was the less money government had, the more the private sector would have.
Thus, the private sector would enjoy a happy expansion, leading all peoples to free-market paradise. This might have been ascent to the plains of nirvana as described in their economic textbooks; this fantasy had no toehold in reality. UK Prime Minister and his Chancellor of the Exchequer stood before their people, taking the silver spoon from their own mouths just long enough to spew this bunkum. They promised their budget-cutting actions would spur economic growth. They were applauded by the mainstream gallery. A gullible public accepted the policy in good faith, believing the men they had elected would not be so perverse in word and action as to state an objective only to implement a policy producing the opposite. While orthodox experts predicted azure skies and caviar nights ahead, the irresponsible progressives forecasted recession. Regular victims of this column will remember I predicted a British recession. Sure enough, an unnecessary double-dip recession tore across hoary Albion this year. Zero for the mainstream, one for the renegades.
EU nations were placed on the same miracle diet of “the less you eat, the faster you grow.” They predicted austerity measures would force Greece to pull itself up by its bootstraps. Similar austerity would bring zephyrs to Spain, Italy, Ireland, and Portugal. Progressives raised the warning flag. The flag was not even torn down. It was simply ignored. Let’ review what happened.
Struggle as it might, Greece could not pull itself up by the bootstraps because the severe austerity imposed on that ancient land forced her to mortgage her last boot and the straps along with it. Progressives foresaw depression in Greece and Spain and the depressions have come. We predicted recession for the rest of Europe. Recession now hovers over most of the EU.
Nonplussed how their glistening theories turned to dross, orthodox experts now y point to tiny Latvia as evidence of a nation that has undergone austerity to achieve impressive growth numbers. However, the conservatives sweep something important under the Latvian carpet. Roughly one-third the nation’s young adults have migrated because the austere conditions were too onerous. This departure created more economic space for the more sedentary victims of the inhumane policy. Such emigration is possible for a small nation. However, on the grander scale of Spain, Italy or even Greece, a comparable migration would rip the whole of Western Europe from its very moorings.
The lone mark against my predictions came with the United States. I predicted a recession by the middle of this year. I erred in thinking the budget-cutting grand bargain would have taken place late last year. It did not. Because the American government was so fractured on party lines, the two political parties refused to reach an agreement on cutting the budget although both sides believed the crude hair shirt should be worn. In this instance, inadvertent inaction was the best policy. Thus, America continues to grow tepidly while Europe wrings its hands and wracks its brain how such an exquisitely conceived policy would prove to be a costly ticket to the torture chamber at the Masochists’ Carnival and Sideshow. However, if America eventually signs a budget-cutting deal consonant with the magnitude of cuts now being discussed, the recession vaticinated in 2012, will arrive but one year later.
Take a quick view of the scorecard. Orthodoxy was wrong at each instance regarding the big question. Meanwhile, heterodox progressives were correct in almost all cases. (Not all progressives made the errant assumption I made regarding the US.). Based on this predictive record, which group should be drinking the champagne and which should eat the cork? Who is the maestro and who is the mongrel? Thus, the next time you see an establishment pundit on television maundering about the economy, regard it as entertainment, not news. You are watching the elaborate spectacle of a now trained, but once wild canine adorned in a suit and baying at the moon, all from the comfort of an indoor studio.
Unfortunately, the flood of conservatism that engulfs the world augurs poorly for African development. Good economic policy cannot answer everything, but bad economics can surely destroy it.
Africa’s greatest challenge is to loose its people from the grip of their grandfather’s destitution. Penury has been around too long, like the mendicant relative who brings his luggage inside and refuses to leave after the party is over and the food is gone. When most Africans are poor to the point where daily survival is a test they must pass and not a basic social guarantee, we all should go into our private space and shed as many tears as this inequity deserves. Afterward, we must come out and fight it. Our antecedents did not suffer the indignities of colonialism and slavery that we may wallow in poverty. At some point, something has to break. Either it will be Africa’s future or poverty’s back. I know which rupture I prefer.
Conquering poverty will not happen according to the precepts in a textbook just as wars are not one by generals who tepidly follow the tactics learned in the military classroom. A wise general knows his enemy is equally versed in the same knowledge. He can only outdo his adversary through new tactics. In economics, the situation is worse. Most economics books are written by those whose interests are best served if Africa’s interests go unattended. There are a few important concepts we must fully comprehend. If the economic statistics are accurate, most of Africa suffers chronic economic depression. While this might seem obvious, it needs to be stated because the policy implications flowing from this reality are less than obvious. When the 2008 financial crisis and recession hit the mature economies, governments rushed to salvage their banking systems and whole economies with deficit spending. The Great Depression of the 1930’s was defeated by active monetary policy and even more aggressive fiscal policy characterized by government deficit spending to build infrastructure and provide employment. Sadly, much of the spending was directed toward the militaries due to the antics of the mustached Aryan Bushman of Berlin. Yet, the larger point is that government deficit spending directed at productive endeavors is the most prudent route from depression. The only other alternative is to hope the people are sufficiently hardy to endure the deluge. This latter option shall not be deemed a policy as much as it shall be called by its proper name: indifference.
When their private sectors go off the rails, governments of developed nations come to the rescue, albeit some faster and with more purpose than others. If strong economies need government subvention to overcome temporary downturns, how much more do African economies need government help not only to get on the rails but to build rails in the first place? African must reappraise its adoption of austerity first, the people second economic policy. It appears that we misconstrue and underestimate the role of government as currency issuer.
What follows is as important an economic concept as any you shall hear: To the extent a nation’s debts are denominated in the currency it issues, that nation need not worry about its ability to pay the debts. The nation cannot go bankrupt in the currency it issues. With regard to these expenditures, inflation is the greater concern. Talk of insolvency in this instance is but vapor. Conversely, a nation handcuffs itself when it incurs foreign debts without having assured itself a supply of that alien currency in sufficient quantities to pay the debt in a timely manner.
This point is important because history shows that a nation can only rise from the lower economic rungs by wise and significant government intervention in the economy. This is how America grew. It is how China now grows. But Africa has been warned off this approach by the very powers that took it themselves. Sadly, we have taken the inaccurate warning to heart. We thus follow the economic orthodoxy that reduced government expenditure means more money in private hands. The opposite is true. Government deficit spending means government gives out more money than it receives. If government gives more than it gets, the beneficiary of this is an expanding private sector. Reducing deficit spending means government is taking in more than it gives out. This government “relative or actual” surplus necessarily means a private sector deficit. Thus, the private sector shrinks because its money has been depleted. If the private sector deficit is steep enough, depression results. Thus, we must ask which sector, government or private, is the agent that can most afford to run a deficit? If government runs the deficit, the private sector has the opportunity to expand as long as deficit spending is used for constructive purposes. At the same time, the deficit does not imperil government solvency because government cannot go bankrupt in its own coin. Conversely, if government runs a surplus, it gains nothings from such a position. The ocean becomes no greater if one pours an ounce of water in it nor does a baker commend the person who gives him a loaf of bread. Such gestures are futile in the extreme. However, the ounce of water or loaf of bread can resurrect a dying man or a prostrate economy.
In conclusion, if African nations are to escape the gravitational pull of underdevelopment, they must eschew orthodoxy. Its theories were postulated not to help enrich Africa but to induce Africa to labor in ways that enrich the writers of such things. Thus, we labor hard to be poorer still. Let no one deceive us that we shall soon drink the wine of prosperity only if we do what they say more efficiently.
That which we do is error to begin with; an error performed more competently is prone to do more harm than one done incompletely. If we are to be foolish, let it be the foolish that we author not one somebody made us listen to. Even better, let us be wise enough to learn from actual history and not from the book of economic fables, tall tales and assorted canards. This means that the educated class must better educate themselves about economics. It also means that we will begin to demand that African governments assume the vital role as platform for our vault from economic depression instead of governments shrinking from this most important date with our collective destiny.
Next week we will examine the fallacy of comparative advantage, the pratfalls of free trade and other issues.
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