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.  

Monetary Policy, "Prof". Julius Bitok, and Sam Cooke - A case of "Don't Know Much About History"!

Don't know much about "Prof". Julius Bitok. My first encounter of his thoughts is a commentary he published in the Standard on Saturday (April 26, 2014) on the Draft CBK Bill 2014. He may well be a Professor of Finance, but obviously not at a prominent address (from the by-line in the commentary, that address is Cooperative University/ JKUAT - wherever that is).
It is not that the address matters if the arguments are solid, but my reading of the commentary confirms the pedestrian nature of not just the address but the views. There is no sense of the history of successful monetary policy conduct; the basic grasp of monetary economics is not evident.
Oh, I understand: "monetary economics" - where monetary policy is thought in great depth  - and "finance" are grossly different.
My own views on the same subject are published by the Centre for Research on Financial Markets and Policy. You can be the judge as to who is more persuasive; but I fear for "Prof" Bitok's students, if they are unfortunate enough to have him teach monetary economics, or at the very least monetary policy conduct!

We Now Have a "Debate" - Or Do We?

I have a simple measure of knowing when one has been effective in passing a message that may be compelling but which needs to be delivered in a provocative manner so as to have the intended impact. That measure is seen in the manner of response what tells you that somebody has really gone under somebody's skin!
A case in point is the "debate" that economist David Ndii's essay on the so-called "wage bill crisis" has ignited. The response from the Ann Waiguru, Cabinet Secretary for Devolution and Planning, depicts  just that; its tone is almost one of desperation.
May be I expect more from a rebuttal. It cannot simply be a case of trying to prove that somebody didn't get the numbers right - even then that is  not the case here because I am more inclined to Ndii's intuition than Wauguru's ranting.
To me it is more of the context that you bring out on the numbers. While in Ndii's essay one could see an invitation to  engage on the subject of the economics of fairness, in Wauguru's "rebuttal" (I am still looking for the right word, for the response doesn't actually fit the rebuttal bill)  one could see an invitation to perpetuate the linear thinking underlying the "thrust-us-for-we mean-well" attitude.
Let me start with the latter, which has been evident from the "self-audit" that was displayed in the ineloquent account of the first year in office of the Jubilee government.
If you are the one to believe the everything that the government tells you, and therefore not in demand for accountability, then the performance of the Jubilee government, one year down the line was at best mixed - some things accomplished, and others - perhaps many - not. If I was to be extremely generous, that is how I will assess this year's State of the Nation Address.
Unfortunately, I am more sympathetic to the views of those who saw the address as a squandered opportunity, my generous comportment notwithstanding.
That is why it is almost laughable that we have a mixed performance at the very top and a stellar performance at the cabinet level.
Now to the former. I argue that those in denial that wage disparity in the civil service is an issue are simply turning a blind eye to the reality that our society has always been home to an entrenched crony capitalism where - in the words of Raghuram Rajan - the current Governor of the Reserve Bank of India “too many people have got too rich based on their proximity to the government”.
Unless we are willing to confront that reality, we will continue having a society where instead of the government pledging to perform and be ready to be accountable, it will seek the drive expectations in the direction of confusing accountability with trust.
That is why it is tempting to imagine that Wauguru is debating Ndii while that is far from the case!

Fuzzy Math - The Kenyan Version

In 2001 economics Nobel laureate Paul Krugman published an interesting book titled 'Fuzzy Math: The Essential Guide to the Bush Tax Plan'. This small book came to mind when I read David Ndii's compelling commentary on how the numbers used to back the excuse for a possible wage purge do not add up. My own view on the wage bill debate is that the "sudden realisation" that the wage bill burden is weighing heavily on the economy's growth potential is the epitome of policy hypocrisy.

The Sudden Realisation - The Wile E. Coyote Moment!

I call it the "suddenly" moment. This happens so often in the Road Runner Show when Wile Coyote finds himself running a few steps on thin air after the cliff upon Road Runner pulling a dummy on him by turning the corner; upon looking down Coyote finds no ground to run on, and then starts the process of steeply falling. Is Coyote a hypocrite? Probably not; naive is more like the character.
But not all Coyote moments are a manifestation of naivete more than they are a signal of hypocrisy. A case in point is the urgency to tackle the "wage bill problem" that the Kenyan leadership has suddenly discovered. One of my friends and high school classmate calls the move by President Kenyatta and Deputy President Ruto to "voluntarily" take a 20 percent pay cut and then demand of others in the civil service ranks to take a similar cut an  act “love for country” and all its starving children!         
I know people express their love differently, so the President and his Deputy are within their rights to express theirs by way of symbolism – for their proposal is simply that and nothing more. Is that a strong basis for policy? I say no, because a good starting point would have been to crack the whip on the ghost workers who cost tax payers KShs 1.8 billion annually.  When the president revealed that we have ghost workers in January this year, rational people imagined that there would have been a follow-through. Now that I have seen none on the ground, I could assume that the President wants the Ghost workers to take a pay-cut too. That will “save” us some money, you know!
How about rationalising the civil service such that we have what the government needs; no more, no less? Well, there was a team that was set up to rationalise state owned corporations (parastatals). It came up with a good report – not perfect, but one that provides a god starting point. It entailed merging a number of such entities whose roles are duplicating. What happened next? There was a sudden realisation that jobs of CEOs, board chairmen/women and board members – which are doled out as political favours – were to shrink.
I am sure many have forgotten the wave of appointments (some of which illegal - recall the appointment and disappointment of a guy by the name of Dida?) that happened in total disregard of the sound recommendation of the team’s report.  Oh, I get it. The logic is simple: appoint as many CEOs to these entities, some of whose survival depends on the continuous patronage of tax payers, and then force then to take a “voluntary” salary cut.
The question I will ask you now is: are we going to see the salary cuts go all the way down or the line will be drawn somewhere. I guess you know something called “inflation tax” where your real income is reduced by the factor of inflation as it erodes your spending ability. I also guess you know that if you reduce the so-called nominal income for the same person, then you are squeezing him from both ends; and his spending ability will be affected and this will affect the broader economy because expenditure is growth boosting – unless you imagine that John Maynard Keynes was an idiot.    
How about Parliament – both houses – which threatened to sack the chairperson of the salaries and remunerations commission which declared then state officers (for that is what they are; forget about this hon. nonsense) and proposed their pay-cut in a legal manner? Of this was no big deal to my high school friend and many others because those whose love for country they represent were quiet, lest they stir the hornets’ nest. Now they are busy trying to legislate against their being classified as “state officers”.
Ultimately, it all boils down to Edmund Burke’s apt observation that “to tax and to please, no more than to love and be wise, is not given to men”. As I said earlier, people have a right to choose how to express their love for country. But the love expressed in the manner of the recent proposal for salary cut comes with a small problem: it interfere with any logic that will indicate that the latest move is simply tokenism and does not amount to serious policy thought-through process nor does it indicate consistency in pronouncement.
Does this make my argument idiotic? Well, not if you share the view of those who consider the latest move as totally lacking  even in basic math, as David Ndii does. For if indeed there was seriousness about addressing the economy's fiscal challenges, then this is not the time to act populist and promise favours to every busy-body politicians such as Members of the Country Representatives with goodies as the president has done even after lecturing the country about the dire need for belt tightening.
Ultimately, we are now experiencing - or so are we made to believe - a Wile E. Coyote moment, but one underpinned by hypocrisy and not naivete!

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!