Economist Tasks FG on price control, says this is bad time to print money
Due to rising cases of coronavirus and activities lockdown, an economist has said that Federal Government should consider price control measure to reduce burden on the citizens.
MarketForces gathered that prices of household goods have been skyrocketing at early time of lockdown imposed by states governments.
Food prices have been on the increase, rising by as much as 25% in early day of economic lockdown despite the fact that there is no respite in view.
In his view, Dr. Bongo Adi, a Keynesian Modern Monetary Theory and senior lecturer at Lagos Business School said he expected FG to consider price control at this point.
He made the statement at “Staying Safe Series”, a virtual chat organised by Better Civic International Foundation (BCIF), Lagos on Sunday.
He said the greatest danger to the world economy and ours in Nigeria right now is the pandemonium created by COVID-19.
According to Dr. Bongo, this is an unusual economic and financial calamity of sort referred to as a “black swan”.
He said the ugly thing about this current situation is that it is not a static, one-off event unlike other economic and financial distress we have witnessed.
“Here we have a situation that is still unfolding, dynamic and to a very large extent, intractable”.
“Everybody is paranoid with fear, apprehension and uncertainty.
“As a result, demand has suddenly outstripped the supply of many commodities to that deadly racketeering that thwarts every economic policy”, he said.
Dr. Bongo explained that producers of common staples have been turned into monopolists overnight.
“They have no other incentive than to jerk up their prices. Panic buying begets price gouging”, he elaborated.
He explained that the market system collapses under the heavy weight of panic behaviour.
“Left to its own devices, producers or suppliers of few essential commodities whose elasticity have suddenly become 0 – morph into blood-sucking witches.
“This is the classical market failure”, he added.
Dr. Bongo explained that sixth principle of economics is the market is a good way to organize economic activities.
He added that the seventh qualifies it that government can sometimes improve the market outcome.
“I had expected Buhari, in his speech, to bare his fangs by unleashing the dogs of price control.
“This would have been half the palliative the poor and vulnerable need under this unfolding “day of the jackals.”
He stated that without government intervention, there is going to be massive distortion of the market and the poor will expectedly die of starvation.
“Price control should be primary on the government’s intervention mechanism at this time”, he emphasised.
Related to panic is the Keynesian “paradox of thrift.”
Bongo said everyone is holding tight to the little or huge savings they accumulated and no one is willing to spend on non-essential.
“This is a circular behaviour – everyone behaves the same. As a result, we have the recipe for a recession.
“With spending down, inventories accumulate in firms, margins disappear with revenue, jobs evaporate and we all come home to roost.
“Four weeks of quarantine will throw us all out of the economy – the firm, the household and the individual. No argument about this”, he added.
He held that the situation has unmasked Nigeria’s wretchedness in health policy making and disaster preparedness.
“No hospitals, no ventilators, no beds, no drugs, no doctors, no nurses….
“We will need to equip as many hospitals if we are to save 2% of what Italy has managed to save”, the scholar added.
Bongo asked that where is the money going to come from now.
He explained that if private citizens do not step up their philanthropic gestures, many of us will contact the virus and die in our homes and on our beds.
“This is the simple truth because the social distance thing; contact tracing cannot work and hand washing with running water is a contradiction with the level of our infrastructure”, he said.
However, Dr. Bongo listed indirect consequences of the pandemic to include supply chain disruption, evaporation of current account, funeral of the Naira and Debt Burden.
Bongo said with border closures and quarantines, many or most businesses have all but gone into hibernation.
The Economist at LBS said as a service based economy dominated by trade, China has been our largest trading partner.
“Now, we can’t get things from them. Many inputs to production cannot also come as a result of the controls. Many industries in Nigeria will be facing bankruptcy in the next few months”, he noted.
He however recognised that some government policies seem to have anticipated this situation. He mentioned the 41 item ban and the encouragement of backward integration and import substitution.
“This means that for many fast moving consumers good, FMCGs, the situation would not be that bad.
“Agriculture will not be affected. This is one of the reasons I think the government needs to be very draconian in controlling prices as a temporary palliative”, he stressed.
He further stated that real estate is going to be badly hit.
“Note that the economy had started showing signs of life beginning from late last year and realtors became very bullish.
“Except they leveraged equity and patient capital, the situation is going to be quite dire.
“Banks and financial institutions are already in a very bad situation – no need to elaborate as that would be flogging a dead horse”, he remarked.
Bongo said as a result of supply-chain disruptions, we are going to have unsold barges of oil.
“I read somewhere today that 70 barges of Nigeria’s oil are without buyers even when government discounts at $5.
“The fear right now is that should oil price decline further – which is likely in the event that both US, Saudi Arabia and Russia begin to struggle with their own domestic COVID-19 conflagration – Nigeria will be left in tatters.
“Our cost of production is $17/b. If oil falls to $20, there is doubt that the International Oil Companies (IOCs) would be incentivised to go ashore.
“But that is the least of our worries”, Bongo explained.
He said the bigger pain is that gas comes from oil production as “associated” gas.
“So, if there is no production of crude, we may also be saying bye-bye to “NEPA”.
“Our generation companies (GENCOS) prioritized combined-cycle of gas and fuel to thermal or hydro.
“So, without oil production, there is insufficient gas and we may even go back to the stone age of cooking with firewood! Am I paranoid? Maybe”, he said.
Evaporation of Current Account
He said evaporation of current account is a trivial issue. With no export of crude and little import as a result of restrictions in the rest of the world, our CA disappears.
“That is the death knell sounding for naira. We will attend his funeral to be presided over by Central Bank of Nigeria”, Bongo stated.
Moreover, he remarked that external reserve will go by June if current scenario persists.
“Suppose we also become COVID-19 incapacitated by then, then Armageddon is the scenario. We are already heavily indebted. The structure of the debts doesn’t help us much”, Bongo remarked.
Should FG print money?
Speaking on whether government should print money to solve myriad of economic issues before it, Bongo said this is a bad time to print money.
“The money seigniorage will worsen the situation.
“I had advocated in 2018 that government should aggressively expand its public spending – printing money – to fund infrastructure.
“But it didn’t happen. Now that production is low and everybody is out of work, printing money is just pushing inflation.
“Allow the market to drive key economic aspects. Nigeria’s economy still remain largely a private sector economy; the government has traditionally constituted a cog in the wheel”, Dr. Bongo said.
He noted that printing money cannot help when the country imports most of the technology and inputs necessary to rebuild the economy.
Dr. Bongo said I have been a champion Modern Monetary Theory in Nigeria.
“Every economy – US, China, Germany, and Scandinavia – were using it: printing money or leveraging to grow their economy under various guises.
“We refused to fully deploy it but rather opted for a more measured policy mechanism of interventionist monetary policy.
“Spending our way out of recession can only work when we get out to work and the fear and pandemonium have dissipated”, Bongo said.
The MMT – Keynesian scholar said: “If I were the CBN governor, in 2018 I would have forced government to expand the budget to ₦20 trillion and directly supervise the implementation of that budget”.
Japan did this in the late 19th century. That was the groundwork for Japan’s subsequent rise to economic power, Bongo said.
Economist Tasks FG on price control, says this is bad time to print money