Doubling Down on Nonsense!

So the pretense to analysis by business reporting in the Daily Nation continues. My views on this are, I presume, known. As a financial institution, you simply cannot be borrowing so as to meet some regulatory capital requirement; you can only be able to borrow if your regulatory capital requirement so allows. But guess what, some reporters and/or editors at the Daily Nation will want you to think so.  Incredible!

It's Not About Love

In popular perception any overture from major external economic players is seen with the lens of how it will benefit us. There are instances when even external policy decisions are assessed in terms of how they will positively affect us. 

We obviously will be wrong if we swallow line hook and sinker all that those courting us tell us. in any case, as Adam Smith popularly quipped,  “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”.

That is the case I make in my essay published in today's Business Daily, where I argue that we are masters of our destiny therefore we need to build our institutions as a way of assuring our future growth. We simply can't outsource institutions.     

Seeing A Thief Behind Every Bush!

Are there "Chinese Walls" that separate the Daily Nation from the Business Daily? Do the reporters - especially business reporters - working for these publications have any discussions on what they are working on? Even at the cafeteria? Do such discussions entail deep perspectives?
I ask all these questions because in many instances where the two publications cover the same story and one (usually the Daily Nation) takes a mischievous, often erroneous, angle and the other (the Business Daily) takes sober and analytical angle.
Take today's example. The Daily Nation has a piece on how Cooperative Bank  "borrows" KES 6.4 million to meet Central Bank of Kenya (CBK) rule". To a non-suspecting member of the public, there is nothing wrong with the story. But even a casual reflection by anybody with basic understanding of finance, banks and how they are regulated, this story is misleading right from the caption.
The innuendo is that Cooperative Bank is in trouble as is close to violating some CBK rule that the reporter is either too busy or too lazy to specify. Then, the bank goes on an external borrowing to enable it meet the rules. The innuendo ends there. This is characteristic of sensational reporting, especially on finance; and the usual narrative is that if banks are not out to "rob" you with high interest rates (seeing a thief behind every bush!), then they are in trouble - or about to be - one way or the other.
The rule that that the reporter was too busy - or too lazy - to specify is that from from 2015 banks are meant to maintain a core capital to risk weighted asset ratio of 10.5 percent from the current requirement of 8.5 percent.
Where is the problem with the story? One, the reporter doesn't seem to understand - at least that is not evident - what a balance sheet is. Otherwise there could have been an appreciation that when Cooperative bank borrows KES 6.4 billion (a liability) it will create an asset (loans to its customers) of an equivalent amount.
In basic arithmetic, for you to increase Core Capital/Risk Weighted Asset Ratio, you do not increase the denominator (which the Daily Nation story erroneously indicates is the case with Cooperative Bank's move). Instead you increase the core capital at a faster rate than you increase the assets. That is the correct  story that the Business Daily is telling us.
Interesting; isn't it?          

So We Take A Break on Monetary Policy?

I pose the question chiefly to fellow economists because a piece by prominent economist, David Ndii  has made a proposition whose conclusion simply drops the question mark. David's commentaries usually persuade the conclusions they make.
This one, unfortunately doesn't. What could have helped lead to a somewhat different conclusion is left out for another day. That is why David readily accepts the Sargent-Wallace theory of 'rational expectations' and makes a blanked conclusion that "monetary policy may not be fit for purpose".
I disagree. Both demand-side and supply-side are important. If government borrowing goes towards sorting out supply, then the Central Bank should watch demand pressure on inflation. To argue otherwise is to imply that the so-called core-inflation - non-food-non-fuel - is not binding on Kenya, which is not the case.
Even Milton Friedman's critique of monetary policy, which provided an entry point for the Sargent-Wallace argument, wasn't unqualified. To Friedman, monetary policy is a "string" that you can pull to sort out demand challenges (together with fiscal policy, if we were to bring Keynes into the debate); but you "cannot push on the string", meaning it cannot be monetary policy alone. This is the argument in Friedman's 1968 American Economic Association Presidential address that I could have liked David to bring into the essay.         

An Imaginary Equity-Growth Trade-off.

I have had to read Prof. Joseph Kieyah's piece in today's Business Daily three times for me to figure out what its core message is. It is not because I wasn’t concentrating on my first attempt; it is because its approach easily endears itself to one tripping on once own intellectual shoe laces.

First, it espouses an argument that the President is not in control of policy. Yes, it does; I you do not believe me, let the Prof. speak for himself:

 "The president’s efforts to roll out his transformative economic agenda are being frustrated by policy makers and civil society, including the Judiciary, who seem clueless on the gravity of the economic problem facing the country"

 In other words there are people called economic policy makers who are not in the executive arm of government. This is new to me.

Second, it argues that there is a problem with the pursuit of equity. To put it differently, it assumes that there is a trade-off between economic growth and distribution. This can only be his illusion - the two are not a zero sum game.

I can only resist the temptation of loudly singing the great Fela Anikulapo-Kuti's master-piece 'Teacher Don't Teach Me Nonsense'; but I cannot resist the temptation of prescribing to the Prof. some reading. Let him try the latest rock buster on the world of economics, Capital in The 21st Century, by Prof. Thomas Piketty.

If he does, he will get an appreciation that inequality can frustrate growth sustenance. In case the book is too heavy (nearly 700 pages), then there is a shorter version in form of a recent compelling IMF Discussion Paper that bears the same message. 

"Trust-Me-I-know-what-I-am-Talking-About": The Carol Musyoka Edition

Facts and logical arguments are the arsenals on any discourse, especially if the subject entails matters of public concern. That was the basis of my recent article in the Business Daily where I was basically making my contribution to a debate on an issue where those who purpot to be experts only spew prejudiced views without substantiation; and they largely go unquestioned.
I thought that the Carol Musyoka piece that I was debating was a demonstration of a weak argument - so weak that one couldn't expect anything lower than that. But hey, trust Ms. Musyoka to beat her own record! For her latest piece, purpoting to respond to my arguments, is a dissaster to say the least. More than 99 percent of the essay is Ms. Musyoka's resume. I know why this is the approach: when the facts and logic do not support your case, you deploy a strategy called "trust-me-I-know-what-I-am-talking-about".
Oh, to be fair Ms. Musyoka spends 1 percent of her essay seeking to address the subject of the debate. And this is what she has to say:

 "Why have I quibbled so much about bank pricing, which I already hemmed and hawed about three weeks ago?  This is because my sentiments on the new Kenya Banks Reference Rate (KBRR), which come from actual practice rather than theoretical posturing about macroeconomic gobbledygook, have received some criticism as being the rambling justifications of an armchair analyst".

Now you get the drift. My argument is theoretical posturing; and hers is a manifestation of actual practice. On this I will delegate to John Maynard Keynes to respond, for he says in the concluding chapter of the 1936 seminal book, The General Theory, that:

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

I rest!

Attitudes in Search of Justfication

I have to admit that I do not enjoy being a debunker of bad ideas peddled by self-proclaimed experts. But it becomes necessary to do so as is the case in my latest piece in the Business Daily of  July 30, 2014.  
Like the football “experts” on television or radio who have never kicked a ball, Carol Musyoka’s article in the Business Daily of July 14, 2014 on the cost of credit is an exemplar of how armchair analysis can go wrong. So does the piece by Scott Bellows in the Business Daily of July 18, 2014 . 
When one front-loads emotions ahead of analysis, the result is a prejudiced view. But hey, I know how this stuff works; if you want to claim expertise in a subject where you are ill qualified, you need to sound profound in your pronouncements. But that will not take away the fact that to jaundiced eye everything looks yellow.