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After the Bell: The rational necessity to occasionally panic about the state of the economy

After the Bell: The rational necessity to occasionally panic about the state of the economy
(Graphic: iStock)

I think we are well past the point where we should have started to panic about the state of the economy. Even more, I can’t help wondering why it is that so few people are panicking now that we find ourselves in a situation that obviously requires dramatic, immediate action.

Recently, I’ve been thinking about hyperbole, or overstatement. If you are trying to convince someone of something, does it help (or hurt) to become frantic, emotional, angry or panicked? Or does it help (or hurt) to be steadfastly rational, thoughtful, fact-based and dispassionate?

Most people, I suspect, would prefer the latter. It just seems more adult, more mature and more constructive. I agree, of course, that it is, in most circumstances, but what if that doesn’t work? What if a rational approach inadvertently suggests the problems are not quite as bad as they actually are? What if you are making it worse by being inappropriately sanguine?

The master of overstatement in the entertainment industry is Rowan Atkinson, whose TV shows Blackadder and Mr Bean are filled with analogies and comparisons that are so extreme, so wildly irrational, they are just hilarious. For example, a rational person might say that Blackadder’s imbecilic side-kick Baldrick’s brain is “undersized”. But Blackadder says, “Baldrick, your brain is so minute, that if a hungry cannibal cracked your head open, there wouldn’t be enough to cover a small water biscuit.”

Thinking of criticising leadership? Some might say that the government has made “an unfortunate policy choice”. Blackadder says, “There hasn’t been a war run this badly since Olaf the Hairy, king of all the Vikings, ordered 80,000 battle helmets with the horns on the inside.”

And then, of course, there are always ways to escape a tough situation, sometimes known as “subtle plans”. However, Blackadder is picky: “Baldrick, you wouldn’t recognise a subtle plan if it painted itself purple and danced naked on a harpsichord singing ‘subtle plans are here again’.” Classic.

Anyway, the question arises because, frankly, I think we are well past the point where we should have started to panic about the state of the economy. Even more, I can’t help wondering why it is that so few people are panicking now that we find ourselves in a situation that obviously requires dramatic, immediate action.

Worse than that, some economic actors in South Africa are actively arguing that people are trying to manipulate the situation by panicking, most notably, the Treasury. In fact, the situation is, you know, not perfect, but generally it’s fine. And they have numbers.

The best example is a paper put out last week by the fiercely left-wing Institute for Economic Justice (IEJ), asking, in reference to the Medium-Term Budget Policy Statement to be released early next month, whether SA is heading for a fiscal crisis. 

The answer they come up with is “no”, and those calling for fiscal restraint (they would call it “austerity”) are needlessly and callously trying to do physical harm to the poor of South Africa. The fools! This is the Treasury of the national government they are talking about.

The Treasury itself, the IEJ says, concocted this so-called crisis by budgeting badly, particularly by not including a large public sector wage increase in its plans. 

“National Treasury should have budgeted for items included in the overspend and if this overspend is a ‘crisis’ then it is one entirely of National Treasury’s own making,” the paper says. I am not making this up.

The group does agree there will be a huge expenditure overrun this year of about R68-billion. But, it says, this is absolutely in line with historical overspends. That just cracks me up. Think of the logic. Because this overspend is similar to previous overspends, it’s not a problem. Magic! Where is Rowan Atkinson when you need him?

No amount of international comparisons, dubious data, or numeric shenanigans can hide the fact that there is a big, big problem here. Over the past 15 years, the SA economy has been growing at barely 1% a year and its population has been growing at about 3%. We are all getting poorer.

Of course, SA did have isolated years of under-budget expenditure, particularly when commodity prices were running. However persistent and large over-budget expenditure is a very distinct feature of the Zuma and Ramaphosa administrations, which point to a government that fundamentally misunderstands the economy and is losing financial market credibility. You can see that most obviously in the roughly 20% increase in the cost of government debt in just three years! 

The IEJ claims SA’s debt-to-GDP ratio is not out of kilter with those of a basket of developing market countries. Maybe, but concern over debt levels is a function of economic growth. If SA was growing at, say, aggregate African levels of growth, you could argue SA should take on even more debt. But we are not. SA’s growth rate is less than the developing markets in Asia, Africa, South America and the world average, etc. This fact doesn’t feature in their analysis at all. 

So, I come back to my question: Why are all of SA’s plethora of economists, most of its policy wonks, and definitely anyone associated with the government, not panicking? I think they actually are, but just can’t say anything publicly. 

If you live in a single-party dominant state, openly disagreeing with the government is extremely risky. You have government sign-offs to worry about, licensing regulations, and you rely on the government to provide infrastructure. You have to ask, how will my criticism improve things? And that’s a very hard thing to rationally argue, because this government is going to be the next government and the one after that, and so on.

To put your position in peril by telling the truth could be irresponsible to your shareholders. So you make suggestions. You try to help. You engage. And hope. You certainly don’t put your head above the parapet.

But behind the scenes, quietly, you are panicking. DM

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  • David Walker says:

    The ANC is clearly the root cause of our economic woes. It does, however, concern me that if they are voted out next year, they will blame all the ‘austerity’ and sorely needed, but painful adjustments, on the new government instead of the ANC having to deal with the inevitable collapse in public finances. But, then again, will we have an economy left by 2029?

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