There are many jokes told about an economist. One of the most common is that, to economists ‘yes’ and ‘no’ are both right answers to a question.
The other is about holding all the other variables constant and observing only one in a given situation. The uncanny quip so far is that when the economists are about to give their advice, the only variable they hold constant is their brain while they run a regression on all other variables.
Well, there are many jokes about economists some quite hilarious and others that are outright ridiculous and unfair. When you sit with economists in a conversation, you cannot help but wonder whether economists are not different species. If you ask me, they might as well be; especially when they are having their academic arguments on which economic school of thought is good or bad.
While at university for my undergraduate studies some decades ago, every professor I met in the lecture theatre belonged to a different school of thought and had no kind word for the other. In the early nineties, at the end of the cold war, our Marxist firebrand lecturers seemed to have lost steam, Keynesians were long dead, their death prosecuted by the energy crisis of seventies, paving the way for the neoclassical re-ascendance in the eighties who, this time around acquired a different glass-house labelled neo-liberal or more extreme Reaganomists.
For a layman in economics, this may seem irreconcilable different opinion and may call the whole science of economics to question. Like my Japanese colleague, he likes to say “no, so!” there are indeed differences but they are not as bad as they seem.
Human behaviour is more complex than a simple econometric inquiry that may exclude bits and pieces of critical information. That is perhaps why; we can still feed our families, without having to grow food ourselves.
That is not to say however, that they do not make mistakes, nor are they exempted from economic policy failures experienced in the last three decades.
Any body reading newspapers today will be familiar with what has been called the African disaster, the Asian miracle, the sub-prime effect and many others in the economic jargon. In fact at one time, a news paper ran a series on the Asian miracle, which in my recollection did explain what made the tigers roar, but very little on what sent the tigers tumbling during the East Asian Financial crisis.
This is the best thing about being an economist, you don’t have to answer all the questions and if hard pressed, you blame it on the data.
Both the African Disaster and the Asian Miracle of the eighties and the nineties have something to do with economists and the way they view “economic growth.” It would serve very little purpose and is way too boring to go into details here.
It is worthy noting though, that both the disaster and the miracle had something to do with which side you were on or who in the economic sense of the word, made more sense than the other.
There is this other joke that says, one economist was asked to say the grace at dinner, but he just muttered some words, and then included supply and demand before finishing the grace with a loud amen. It may as well be true if you consider the centre of disagreement between economists.
When you exclude the social theorists “Marxists,” the other two belong to two boxes, one marked the supply side economists and the other which is obviously the demand side.
The supply side to economists has existed since the mid seventies, they advocated free market, no government intervention to regulate markets and their major focus was the financial sector. Now, they are right in one thing, markets are infinitely important in economics, but as the African disaster, the Asian miracle and the sub-prime effect has shown lately, markets are not definitely all that economists should think about.
Well as the supply side to economists advocates for governments to open up markets and desist from getting involved in investment, the demand side thinks this is foolish for businesses that have neither the capacity nor the will to invest in the public goods which are usually the backbone of the economy.
However, latest empirical evidence shows that economies that have experienced sustained growth over the years, such as those in South East Asia, have had to employ a combination of free market as well as a generous level of government intervention in the market place. Governments or government agencies have subsidised industries, provided incentives for new industries, managed interest rates to ensure production costs are kept at a minimum and ensured that businesses remain profitable.
Another major strategy has been to move away from commodity export, support export oriented manufactured goods, invest heavily in high quality human capital and new technologies through research and technology transfer agreements. Almost all of them, especially those that were able to cushion themselves against the financial crisis and created had capital and exchange rate controls.
They borrowed locally from internal catchment sources, balanced their current account and did not care whether the capital account was in balance or the deficit was skyrocketing. The only thing that seemed to make sense is that they were creating jobs big time and igniting unprecedented levels of mass consumption.
Now, for them the sky is the limit and it doesn’t look like they are about to stop.
Then why are we being told that only markets can shove us out poverty in Africa? The truth is that something has gone seriously wrong with our sorcerers. They have run out of new tricks and do not own up.
They cannot reconcile logic with economic modelling and kitchen sink econometrics seems to have taken over the minds of economists in the developing world that nobody is thinking any more.
Or is it that there is some vested interest somewhere, when the whole world has lost the Asian market, Africa should be the next market for every one to dump their wares.
The million dollar question is who will buy and with what money?
From the outlook, there will be too few people to afford anything anyone wants to sell in Africa in the near future. Whether trickle down economics is good for us or not, the answer may as well be yes and no.
The writer is a Quantitative Economics of Development Fellow at the Institute of Social Studies at The Hague, Netherlands.