“Price stability contributes to the well-being of the public, efficiency, sustainable economic growth, and employment…” – The Central Bank of Portugal.
How did we get here? Why are prices of food, commodities, and services rising every day? Why has the cost of fuel become the invisible hand deciding the commodity market operations in the Nigerian economy since 1999? Why has the President remained logically firm on not reversing the subsidy on fuel? Can’t the President come out and make a national broadcast fixing the price of fuel permanently so that we can have economic stability or can’t the President direct the Minister of Information & National Orientation to go on air telling Nigeria when to fix the price of fuel so that there will be less hurdles on paying school fees, rent, transport fares, hospital bills, utilities, toothpaste, groceries, etc.?
All these are questions and opinions coming from the people. So, what exactly is happening? Is the Renewed Hope government working very hard to change the pace? Are the people listening or been distracted despite all the consistent efforts of the Renewed Hope administration to ensure the economic crisis is addressed? Once again, how did we get here?
There are many more questions about the economic life of the country and how inflation has become a ‘mafia’ threatening every branch and segment of our social economy, trade, and market. The Nigeria inflation albatross has led me once again to revisit Lord Keynes, a doyen in classical economics and the functions of the Central Bank as an agent of stabilization or as a compass and the chief risk ‘economist’ that must educate the political class, the National Assembly and the electorates using simplified economics to help in creating a popular comprehension on monetary and fiscal policies of the government. How did some decisions come to be and where exactly the economy is heading?
Democracy has become a difficult form of government in some emerging economies because the electorates are yet to understand the position of the Central Bank in the middle of a crisis and the Central Bank inversely has sometimes found it difficult to connect with the microeconomic expectations of the people, thereby creating a stormy romance between a welfare state mindset and liberal capitalism.
Bringing into context, Robert Skidelsky’s, “Money & Government: A Challenge to Mainstream Economics”, managing expectations plays a key role in Lord Keynes’s scheme of monetary therapy. The Central Bank must create a confident expectation that the price level will not move more than a certain percentage either way from the price of composite commodities. The message was clear: he who would control money has to control expectations about future prices; macroeconomics is about money and government, and their relationship; people accumulate money rather than spend it because they regard the future as uncertain and therefore hoard money as security against uncertainty.
If the future were perfectly known, there would be no rational as opposed to a psychological-neurotic reason for holding money, or indeed for money at all; if liquidity preference rises, a higher rate of interest will be required to induce lenders to part with money (or traders to freely fix prices without fear of uncertainty which moved them to re-fix prices, causing inflation in the market system) and this will prevent the interest rate falling sufficiently to restore a full employment level of investment.
Many will wonder why we got here suddenly, like a shock that came without reasonable notice. There was a conspicuous notification of this crisis since 1999, but the elements of politics and power couldn’t allow any President to carry out the decision at that time.
Another reason why past administrations could hold on to the subsidy was not far away from the fact that population and socioeconomic challenges do not have a wider landscape as it is now. For example, the 2023 budget for the security of over one trillion naira is almost 50 percent of the proposed aggregate expenditure of N2.3 trillion for the 2007 budget.
President Bola Ahmed Tinubu can decide to pay for this subsidy and keep fuel price at N250 or N300 per litre and win all the supposed political encomium that will come with it. This will mean complicating and widening the scale of the crisis at the same time while deferring it to the detriment of the next President who will come after him and put Nigerians into more trouble situations when the next President tries to provide serious clinical economic solutions to the subsidy imbroglio by removing it at last.
Any economic prosperity emanates from an economic policy and all successful economic policies emanate from an economic idea. The idea of paying subsidy is not a free idea that exists in a vacuum, it is part of a larger economic policy under public finance that is aimed at stabilization.
Skidelsky wrote that economic ideas penetrate much more deeply into economic policy because economic policymaking is largely in the hands of professional economists. Most of them work not in universities, but in treasuries and central banks. Here, the decision to remove or leave subsidy to play on the Nigerian economy would still be an expert economic decision that would not emerge out of political euphoria or a populist agitation, but from piecemeal economic engineering.
When the global economy plunged into crisis in 2008, the scale came as a surprise. Many saw it coming, while many did not. Why did no one see it coming? Asked late Queen Elizabeth II of a group of economists at LSE in October 2008. It is natural to start with financial institutions, wrote Skidelsky, which egregiously over-borrowed and over-lent, and which were heavily into all kinds of fraudulent practices.
Securitization, which is the process of transforming non-marketable assets into marketable ones led to a continuous lengthening of the chain of indebtedness. This ‘financialization’ of the economy, the growing share of the money being made from purely financial institutions was praised as making capital allocation more efficient. Business School professors set up their hedge funds to test their theories. In the name of these ideas, finance was allowed to spin out of control, and its implosion produced a world depression.
It looks nice when toxic ideas produce economic wealth, but it becomes a problem when good ideas are working to rectify economic crises, especially when the rectification comes with some heat that is unusual and thought-provoking. We are not going to remain in this economic situation forever, the Renewed Hope administration will keep working assiduously to ensure the economy is repositioned to bring happiness, prosperity, and stability to the people. We are not only in an economic crisis but at a moment where different economic ideas are struggling to find common ground, a consensus in the interest of the people and the Federal republic.
So help us, God.
Ahmed is a Technical Assistant, Research & Strategy to the Honourable Minister of Information & National Orientation.