A Drowning Argument: The Upton Sinclair Candidate

Just like a drowning man will clutch at a straw, a drowning argument will clutch at a  committee. That drowning argument is precisely what Jaindi Kisero is consistently flogging on the subject of interest rate. His latest on this is simply a tirade of desperation.
As I have already argued, consistency is clearly not one of Kisero's attributes while the demeanour of seeking to endear himself to those who can potentially look in his way with a favourable disposition seems to be his  core  competency,  at the very least on this subject.
Kisero's latest rant is a further demonstration,  for those who need one, that his grasp of even the basics on this subject is wanting. Let me give a just two examples.
One, Kisero insinuates that his beloved  committee must have been held hostage. His evidence: he doesn't know its members, and its deliberations are likely to be held in camera. He then posits that "clearly, this is not how to conduct public policy". 
If I understand him, he must  meaning that this committee should at the very least operate like the police vetting team - where deliberations get live television coverage! - but ideally be subjected to a national referendum. After all, in his words, "the issue at hand is so critical for the development of the economy".
I agree that this is a critical issue,  but there are so many other critical policies that are formulated and effected without playing to the gallery, e.g. tax policy, monetary policy among others. The public is simply informed of the basis of such formulation.
Secondly, Kisero asserts that the rules of supply and demand does not apply in a market that is segmented. I can only infer one thing from this assertion: basic economics is much more difficult than being a card-carrying columnist (ironically on economics) for the Nation Media Group. It  obviously does not speak of the Nation Media Group (alone); it speaks of economic punditry in general. This is a point I have made before.  
Then fact that a market is segmented or imperfect hardly means that the law of demand and supply has been overthrown. It simply means that the level of price that the market clears - in this case the interest rate - may not be be socially optimal. In this case, the price - which is merely a symptom - should not be the policy focus; instead all the efforts should be trained on the structural factors that speak to the segmentation or imperfections of the market. And you do not need a committee or a referendum to address these issues.
To non-suspecting members of the public, Kisero sounds very clever, even revolutionary, by observing that "you can not talk about supply and demand in such a segmented market, where liquidity cannot spread between all players".  We have known all along that there are efficiency challenges arising from the segmented inter-bank market. This we know from proper rigorous studies and not hearsay.
If Kisero was the reading type, he could have known this from a study  - Segmentation and Efficiency of the Interbank Market in Kenya - published in December 2012 by the Kenya Bankers Association Centre for Research on Financial Markets and Policy. This study makes very bold observations and conclusions.
It posits that the segmented nature of the inter-bank market has constrained banks' liquidity management strategies. According to the study, the efficiency of the inter-bank market can be enhanced through developing products with maturities of more than one day so as to have a term structure; increase the number of currencies traded; developing benchmark interbank rates; and enhancing linkages with other money market segments and monetary policy.To a lazy pseudo-analyst, the problem cannot be with any other party than banks.
Clearly if Kisero had read that piece of work, then his arguments could have manifested some depth. There can be two reasons why he evidently has not read this and any other analytical work that has been done in this area: One, he believes that any economist working for the banking industry (read yours truly) has a haughty attitude.
Two, he is most likely the type that Upton Sinclair was talking about when he quipped that "it is difficult to get a man to understand something, when his salary depends on his not understanding it", only that I will paraphrase it to read: "It is difficult to get a man to read something, when his salary depends on his not reading it."
If the mission of Kisero's latest commentary - cleverly captioned "What team must do on interest rates" - was to prescribe any solution, then it fails miserably. All it tells us is that the Nigerian Central Bank "took bold action, decreeing that all commercial banks must develop and implement a risk-based pricing model". If only he knew what risk-based pricing model is all about then he could have known that it is already happening in the Kenyan Market.
It gets more interesting when Kisero says that he "read somewhere that banks there have been made to compute  each cost element of their prices and to publish them". I will ask: read where? I will then proceed to prescribe for him some reading.
The document to be read is called the Central Bank of Kenya Prudential Guidelines. in line with this guidelines, banks have been disclosing the total cots of credit and giving loan repayment schedules since the beginning of 2013. Will I be asking for too much? Well, I thought so too. All hopes are now on the committee,and in any case Kisero has already "read somewhere"!

Speaking from Both Sides of One's Mouth

I recently published an essay in the Business Daily where I argued that the logic of Jaindi Kisero, a columnist and senior Editor with the Nation Media Group in whose stable is the Business Daily, on the subject of interest rates is at best flawed and at worst a representation of attention-seeking pretence.
As I suspected, there had to be a response. Predictably, the response is shallow, full of unsubstantiated assertions and can be debunked by my earlier essay, even without changing a word. Kisero talks of data that he does not give in his commentary. I suspect that he does not have the data, but he is trying to hoodwink his readership that his is fact-based.
Here is my take of the style that Kisero espouses: If one has a vested interest or is seeking to draw the attention of some politician(s), then one must seek to sound knowledgeable and authoritative. When the case being argued cannot be taken to bed purely on clear thinking argument, then the refugee will be some committee that is expected to swing a policy surprise - may be some price controlling legislation.
Why else should there be a reference to the much-discredited so-called Ndonde Bill that essentially was seeking to cap interest rates and you have pretended to be a believer in markets? Oh, I know. It is called perfecting the art of speaking from both sides of one's mouth!
 

Debunking the Pretence

I recently made an argument on how economic policy discourse is characterised by pretence. The one area where that pretence is glaring is on the subject of interest rate. The arguments on this subject by both punditry and pseudo-punditry often play to the emotions of people; sometimes the narrative is framed as if it is seeking political favour. I am not taking about straw-men here.
Look at Jaindi Kisero's two recent commentaries - one seeking to insinuate bad faith on the part of the Central Bank of Kenya on the whole issue of trying to come up with a "solution" on "problem" of interest rates spread and the other seeking to give a false impression that somebody somewhere has an immediate solution.
Both of Kisero's commentaries are at best peddlers of assertions. That is why somebody had to debunk the assertions. An that somebody was yours truly. I argue that not letting prejudice interrupt a good story amounts to intellectual dishonesty. I am waiting, and ready, for a push-back.  

Faking it Through and Through

We relish any opportunity to tell all who want to listen that we are a frontier economy. We are doing great when it comes to GDP growth, and this we are reminded by any "international partner" is in town to hobnob with leadership. Remember when Christine Lagarde was in town to tell us how well we are doing and how that is a strong basis for 'doing business?
To spice it up, we are now looking East - damn the consequences if by so doing we grow fast. And on this hypocritical stance, we are not alone; even the developed world is playing ball with the East while in the same breath pretending to be taking a high moral ground. But at least the developed world realises optimal job creation.
In our case, we fake it; at least that is what a recent study tells me. Firms in Africa are simply not creating enough jobs. Why? Wanting policy regimes; constrained financing; and we seem to assume that it is no big deal. Oh, and we are doing fine, or so our "partners" tell us!

Public Exchange on Economic Policy: The Right to Pretend

It is extremely difficult at the very best, otherwise impossible, to have logical discourse on economic policy matters in the Kenyan media. Why is that the case? Simply because expert opinion has been crowded out by the posturing that we see on display everyday (Oh, and nobody for instance tries to correct the fast-talking TV business newscasters who on a daily basis confuse the money market with the foreign exchange market! "And now the money market report. Today the Kenya shilling was trading at X shillings per US$, bla bla bla..". If you think I am joking, try to endure the business news tonight).
Admittedly, when it comes to strong opinions in the media, economics and economic policy prescriptions are ahead of views meant to help people loose weight or "projections" on which team is going to win an English Premiership football match and by how many goals.
Take the case of Mitiga Murithi's argument in a recent commentary. It's Murithi's considered view that for us to attain the "miracle" status that East Asian economies, our countries must be led by regimes that are close to dictatorship. That way, their benevolence will lead to fast growth.
And how was the "miracle" manifested? Of course in fast growth, arising more from heavy government investment - not household or firm. That is the trap that the World Bank fell into when in a report published in in 1993 - The East Asian Miracle: Economic Growth and Public Policy - it celebrated victory too soon. Only four years later, when the "miracle" culminated in the Asian financial crisis, did those who looked at the whole episode from the lessons of elementary economics and concluded that the growth was ordinary-garden-variety (if you invest more, then you grow more! But that may not be sustainable unless that growth is associated with productivity growth) almost chanted that: 'we told you so'! But that is retrospect.
It is no wonder that some people in positions of responsibility - legislators especially - feign a lack of appreciation of detail in the current controversy surrounding the standard gauge railway and its costing and retort that they only care about the end product regardless of how much it 'costs'. Such attitude can only make sense if one has never heard of the phrase Economic Rate of Return; for if we invest in the railway at any cost, it will result in high growth during the investment period, but because the viability is compromised it will compromise other areas of economic management - e.g. our debt sustainability, given that the investment is debt financed.
Do we expect our economic pundits and their pseudo-pundit cousins to  put a spotlight on the economics of such investments? Well, I almost give up on them. Such intellectual engagement competes for space and airtime with posturing - the right to pretend and be heard pretending.
The end result is that interesting and deep public exchange on economic policy is rare, if at all. And  in the recent past the best we have had, in my view, is the exchange between David Ndii and Nyaga Munyi.But such exchange often ignored or even misunderstood by those card carrying pretenders to expertise.