Economists’ narrative easily swayed
In the politics of South Africa and the rand, the experts would rather forgo truth, writes Yonela Diko
In October 2012, Michael Lind, author of Land of Promise, said this of The Economist publication: “My problem with The Economist is not with its reporting, but with its doctrinaire libertarian editorial slant.
“The editors of The Economist are sophisticated enough to know that they need to moderate their free-market utopianism with the occasional nod to government’s role in R&D or the legitimacy of concerns about inequality.
“Even so, the intellectual orthodoxy of the magazine reflects in origins in the Victorian heyday of classical liberalism, when utopian expectations for free markets inspired the slogan ‘Free Trade Is the International Law of God’. The name of the magazine should be the Victorian Economist.”
He continues to say: “During the heyday of the Bubble Economy of 1980-2008, reading The Economist might actually have made you dumber. Its editorial writers mistook, as the dawn of a golden age of globalisation without barriers to trade, goods and the flow of people, what was in fact an unsustainable bubble caused by the toxic interaction of Asian state capitalism and mercantilism with debt-driven growth in the increasingly unequal, overly financialised US economy.”
Then he goes for the kill. “I have a confession to make: I quit paying attention to The Economist more than a decade ago. I am not tempted to resume reading the London-based publication, even though every few years a columnist, invariably on the centre-right, touts it as the world’s greatest magazine.”
On March 23, the rand picked up at R12.48 to the US dollar, its strongest exchange trading value since mid2015. In 2015, the rand value reached its weakest level of R14.50, something The Economist attributed to the firing of then-finance Minister Nhlanhla Nene and accompanying political instability.
With the rallying of the rand on March 23 and months before then, one would expect that this in some way spoke to a more stable political environment (at least one without political shocks) which is increasing both the demand for our currency, in goods and services and in foreign-direct investment.
A politically stable environment, however, does not satisfy the profitable narrative of many experts, a country in perpetual political uncertainty under a black government. The experts would rather attribute the strengthening of the rand to a weakening of the dollar as a result of uncertainty with Donald Trump’s policies, two months into Trumps presidency. Are you kidding me?
To link the least turbulent time in the highly turbulent presidency of Donald Trump as responsible for the weakening of the dollar, just to avoid looking at local reasons, among which is a positive political environment, for the strengthening of the rand is mischievous and dangerous. But how do economists find themselves in this position?
This is why former Federal Reserve governor Alan Greenspan told of a time when economists were regarded no different to astrologers, something other people found unfair to astrologers.
I must state it categorically, like Michael did, that I have stopped taking economists serious. They are a bunch of private individuals with private interests, not interested in the truth but in their own quasi-progressivism.
This reminds me of the words of the economist Paul Pfleiderer (BA, MPhil, and PhD degrees, Yale University) who said: “Every economist agrees that conflicts of interest were highly problematic for the scientific integrity of their field…
“In economics and finance, if I’m trying to decide whether I’m going to write something favourable or unfavourable to bankers, well, if it’s favourable, that might get me a dinner in Manhattan with movers and shakers. I’ve written articles that wouldn’t curry favour with bankers, but I did that when I had tenure.”
In an article by Zubin Jelveh, Bruce Kogut and Suresh Naidu, titled “Economists Aren’t As Nonpartisan As We Think”, they researched whether economists’ political leanings were associated with their professional work. And the answer was yes.
The writers built an algorithm that discovered the relationships between political leanings and word choice in about 18 000 academic papers written by a sample of economists.
They found that an economist’s research area is correlated with his or her political leanings. In fact, leading economists like Jeremy Bentham and John Stuart Mill were proud imperialists when it came to India, and Bentham’s idea for a Panopticon prison was a model of state-sponsored surveillance, argues Tyler Cowen.
This clearly means economists are not the dispassionate, fact-based and scientific group they always claim to be. At best, they always make (quasi) scientific conclusions heavily influenced by their interests and values.
On March 30 this year, the president of the Republic, Jacob Zuma, decided to use his prerogative to reshuffle his cabinet, removing both minister and deputy minister of finance, along with 18 other persons from the cabinet. Understandably, the markets went on a tailspin.
The JSE lost 6% in value, and other investment assets lost between 3% and 6%. What surprised many economists was that the rand, relative to other currencies, did not shift by much. This was a huge shift in politics, but the rand did not seem to be on a free fall.
One economist threatened that the rand was still going to fall, markets were just doing a wait-and-see. As the days went by, the predicted doom just failed to materialise.
What the economists were not brave to admit was that the investors knew Malusi Gigaba, the new finance minister, and they knew him as a man of high performance, in almost all the previous cabinet posts he has held. But there was no economist who was bold enough to admit this.
Financial journalist Patrick Cairns told us that as a result of the firing of finance minister Gordhan and replacing him with Gigaba, the yields on three-year South African government bonds moved from 7.520% to 8.065%, while fiveyear yields rose from 7.660% to 8.175%.
Although these moves are significant in such a short space of time, Cairns told us, they are not nearly as large as those seen in December 2015 when Zuma replaced Nene with the unknown Des van Rooyen. There, the weekly move in yields was 172 basis points.
This is as close as they admitted that the free fall that was anticipated had actually proven to be manufactured hype.
The narrative of an unstable political environment used to frustrate even Thabo Mbeki, who would occasionally call into his office some of the chief executives who, when listing in the New York Stock Exchange, would cite political instability as the reason for their move. Even when our country was at its best, the narrative of political instability has always been like a religious edict by some economists. This country, and the world, needs a new economic thinking.
It’s not all lost, however, with the emerging of economists like Trudy Makhaya, who will let you know her driving mantra immediately – “Be nobody’s darling”. Makhanya will tell you that economists must reject the current limits and narrowness of the profession and overturn conventional wisdom.
The Zuma administration has had its fair share of political shocks, but in-between there has been moments of stability and growth, and fairminded economists must be able to acknowledge this.
Diko is ANC spokesperson in the Western Cape