Keynes to the rescue: Why Adeosun said we will spend ourselves out of recession

 Consider that you live in a small community which suffers from a number of economic hardships.  But most importantly, unemployment became lack of money and that resulted in lack of business for the tailor, food seller and market women. The community leader said he knows the magic solution to this problem: spending money.  “If my […]

 Consider that you live in a small community which suffers from a number of economic hardships.  But most importantly, unemployment became lack of money and that resulted in lack of business for the tailor, food seller and market women.

The community leader said he knows the magic solution to this problem: spending money.  “If my leadership committee spends money within the community, the economic hardship will disappear,” he says.  How will he do that?

“We’re practically the government in this village,” the leader says, “so we’re going to build bridges, roads and dig wells.  We’re also going to renovate the community mosque and the church.  These are called public works.  And we’re doing this not necessarily because our people need roads, etc., our main objective is to generate employment.   Masons, carpenters, painters, tilers, labourers, plumbers and so forth are going to be employed and they will use the wages received for their labour to go to the market.  For example, the plumber would realize that he needs a new cloth and would therefore go to a tailor.  After collecting money for his services, the tailor would also come to a realization that it has been a while since he ate beef, so he goes to the butcher.  The woman that supplies food to the labourers at project sites also goes to the butcher, the vegetable seller and other shopkeepers,” the leader said.

  These projects that the leadership committee initiated, kick started economic activities and generated employment in the village.  So everyone is happy.  This is a simple high-level idea behind Keynesian economics.  But there’s even a simpler one.  Ms Kemi Adeosun, the finance minister, echoed it recently:  Pay one labourer to dig a hole, pay another one to fill it back.  Salient in this example is the objective of creating employment and income, for the labourers, not the necessity of the hole digging – which is actually a useless endeavour.

That is why the minister said we will spend ourselves out of recession.  And in spite of criticisms, it’s my opinion that Kemi Adeosun communicates well with Nigerians.  She writes articles, appears on TV and most importantly, we understand what she says.  That’s more than one can say for many government functionaries.  It’s on account of this attribute that she informed us at the beginning of this administration that the government of President Muhammadu Buhari would adopt the Keynesian approach to economic matters.

This is a school of thought established in the 1930s by the British economist, John Maynard Keynes. He believed that the market needs government intervention and manipulation by spending when times are hard and reducing spending when times are better.  This idea stood opposite to those of his colleagues who believed that market mechanism produces efficient result.  

“But John Maynard Keynes, looking back onthe Great Depression, argued against this, “Donald Marron wrote. “He said that aggregate demand-the totaleffective demand in an economy-was a key driver of the business cycle. During adownturn, aggregate demand tended to drop, which made the cycle worse, leading toprolonged periods of unnecessary unemployment. This idea then led Keynes and hisfollowers to conclude that by manipulating aggregate demand, governments might beable to influence the business cycle, smoothing it out and reducing the volatility ofcapitalist development.Business cycles are driven by how much people are prepared to spend. When demandfalls, recessions follow.”

Keynes himself said: “The outstanding faults of the economic society in which we live are its failure to

provide for full employment and its arbitrary and inequitable distribution of wealthand incomes.”

It’s been argued that the demand-side economics as advocated by Keynes, although significant, can’t account entirely for how economicsfunctions; innovation and investment, for example, also matter.  There’s also a spot of bother about how the government should intervene: monetary policy (controlling the amount of money in circulation through interest rates, etc.) or fiscal policy (increasing or decreasing government spending).

The classical economists are of course in direct opposition to Keynes.    One of the giants in this school, Henry Hazlitt, wrote in his classic, ‘Economics in One Lesson’ that the belief that government interventions in the economy engender relief is a misconception; especially if those interventions only focus on the short-term and address only a special group of people.“This is the persistent tendency of men to see only the immediate effectsof a given policy,” he writes in his book, first published in 1946,“or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups. It is the fallacy of overlooking secondary consequences.”

However, if economics is the study of how societies manage their resources, as Gregory Mankiw says (in his Principles of Economics, probably the most accessible economics text around), then I think the Buhari administration’s adoption of Keynesian thinking is appropriate for our situation.  The fact that we lack critical infrastructure is an opportunity for government to engage in public works and generate employment to boot.

There’s however, a problem.  The implementation of the projects the government promised has been quite slow.  For example, out of the 500,000 teachers to be employed, not one has received an offer letter.

PTAD pay my father’s pension

I’ve visited PTAD’s office a good number of times.  The first time, I visited, I actually succeeded in finishing the verification for him, but not before I went back to Bida to print account statements of many months and brought other credentials.  So we were told to wait three months and my dad would automatically resume receiving his pension.  Nothing happened.  Since then, every time I’m told that a verification of some description was happening by state or zone and to wait the turn of Niger State.  Since it was a national project, I waited.

Then I realized that since I started visiting PTAD’s office two years ago, submitting one paper or the other, they were actually verifying pensioners individually, putting them on their register and paying them their monthly pension.  Now I desire that my father should be treated the same way.

He retired from the Federal Ministry of Agriculture in 1999.  Since that was before the Contributory Pension Scheme (CPS), he qualified for the Defined Benefit Scheme.  

At the time of retirement, my father had no trouble collecting his gratuity and the pension came monthly and regularly.  It was sometime in 2009, that it stopped coming all together; and it hasn’t resumed since.  That means for six years he hasn’t been paid anything.  

Seeing that my previous method of visiting PTAD hasn’t worked, I decided to employ another method.  I’ll be appending this appeal to my column (and social media postings) regularly, with the hope that the new PTAD boss, Madam Sharon will do something urgent and positive for federal pensioners all over Nigeria.