A Gambian Macroeconomist

 I am a Gambian macroeconomist. I worked at the fiscal department of the country, and I am presently employed at the monetary department. Both departments work closely to manage the macroeconomics. Well, State departments have small differences; they all pursue one objective – macroeconomic growth; so, I will tend to analyze the activities of the two departments jointly.

It is a macroeconomic question that a fiscal policy creates growth. It is a macroeconomic question that a monetary policy creates growth. It is an assumption that ceteris paribus fiscal policies can stimulate aggregate demand. It is an assumption that ceteris paribus monetary expansion policies can stimulate aggregate demand; while monetary contraction policies can reduce inflation.

Fiscal department is an institution that manages the government expenditures and revenues. Because expenditures always exceeded revenues it was decided in 1951 to separate the excess expenditures from the total expenditures and call the excess development expenditures. The remaining expenditures were the ordinary expenditures that have to be squeezed within the capacity of the ordinary revenues. The donors and creditors were then asked to  sponsor the development expenditures, while any additional excess in the ordinary budget (ordinary expenditures more than ordinary revenues) had to be footed by the government using some legal tender.

It was later discovered that donors have diminished and got tired; so, the government has been called upon to shoulder the excesses in both development and ordinary expenditures.

One way to finance the increases in the expenditures is to maintain the equation between expenditures and revenues. That is, any increase in the total expenditures must be matched by an equal increase in the total revenues. This equation has long been broken, and it is unlikely that it can be brought back into equilibrium. The fiscal department has tapped fully the taxable capacity of the economy. Unless additional taxable capacity is created, there is nothing more to be taxed. Taxes can be levied only on output; I am afraid the real output has dropped and continues to drop. Look at the spread between the lending rate and the deposit rate, the increase in this spread corresponds to falls in the purchasing power and real output .

On the other hand, expenditures must increase because of too many works in progress, like who will be a President next year, too many unemployed youths, too little water and power. May Allah forbid to have too many gangs who have started sending signals in Tumana, and May Allah forbid to have too many locusts. Also, the expenditures must increase because of too small remittances. Maybe, I am wrong in stating too small remittances, it seems as I follow the Paul Commission even ministers are now getting rich through relatives and friends in the Diaspora.

 Nevertheless, the expenditures must increase. But how? It is simple, if taxes cannot meet, I take debts. Debt means ‘ promise to pay ‘. But will people and institutions accept the promises? And how long will they accept your promise and not demand you to fulfill? It is simple. If those I promise to pay are foreigners, I will ask them to re-schedule and promise to pay them more, if they refuse, I will warn them that I have an ability to take the whole country as credit to offset their debts – May Allah forbid. If those I promise to pay are domestic citizens, I will ask the monetary department to institute laws that can prolong indefinitely the acceptance of the promises and ask other departments to be vigilant lest any citizen questions my credibility for fulfilling the promises. This is how the process works, the monetary department will ask the financial institutions to accept and hoard increasingly ‘ promises to pay ‘ through capital and reserve requirements; and open market operations will be conducted to ask the economic agents to accept and hoard ‘ promises to pay ‘. In this way, the promises to pay will be held and hoarded indefinitely, and they will not be presented for redemption. There will be no more economic crisis, particularly inflation, the one you all fear very deadly. The economy will grow happily with no pain; the aggregate demand will shift outwards indefinitely because the government can finance the expenditures by issuing promises to pay, which are in turn held and hoarded indefinitely by economic agents.

I am finished with my macroeconomics, do you have questions?

Yes, I have questions.

Question number 1: what is the fate of the increased capital and reserve requirements and the funds collected through open market operations?

Question number 2: as promises to pay are hoarded increasingly and indefinitely, money will be scarce and the price for money will soar up. Which particular interest rate will soar up?

Question number 3: if deposit rates do not increase, do you believe all the increases in the quoted lending rates are attributable to increases in real rate not inflation?

Question number 4: what will happen to the private investment? Can it stand the activities of hoarding and increased lending rate?

Question number 5: you did not mention the exchange rate and the balance of payment issues, are they not a macroeconomic issue?

Question number 6: but you see, your policies can cause your currency to appreciate, will that not hurt your export competitiveness?

Question number 7: you mentioned that when the monetary department tightens the inflation drops. Do you believe inflation is a monetary phenomenon, and that after monetary tightening there will be no other leakages for the general price increases?

Question number 8:  in your whole presentation you never flashed equations, figures and graphs, is your analysis a macroeconomic one?

Question number 9: you talked about instituting laws, policies and forcing people to meet minimum requirements and hoard promises to pay. Does this has anything to do with economics of Adam Smith, which says final decision lies with the ‘ invisible hand ‘?

Question number 10: how efficient and productive are your policies?

 

Question number ..  hold on, please hold on. I can’t take up any question any more. I know you want to ask microeconomics questions, like the impact of my policy on a rice farmer in Sampu and a fisherman in Ghana Town. There are Micro-finance department at the Central Bank and SPACO at Marine Parade, these two departments can handle your microeconomics questions. I am concerned with the big picture, even though I don’t have a helicopter to take the big picture; I will ask NASA to give me a satellite image of the big picture, and that is enough.

Now, let me attempt your questions.

Answer number 1: if those who issue ‘ promises to pay ‘ later feel shy to issue additional ones or the foreigners insist on partial fulfillment of the promises, I will let the issuers to temporarily use the idle capital and reserve requirements and the funds collected through the open market operations. After all, these funds are my promises, what is wrong if I myself consume my promises?

Answer number 2: Every interest rate will increase except payments for hoardings. Why should I pay them for hoarding my promises? That will increase the costs of my promises, limit my capacity to make additional promises and I will not be able to sponsor my expenditures, and thus the objective of my macroeconomic policy will be defeated.

Answer number 3: I don’t know. What I know is that when we tighten, inflation should drop; and that is good news, even though I do not know the weights of the tradable and non-tradable goods in my basket.

Answer number 4: let them crowd out. They are family enterprises; I am concerned with public.

Answer number 5:  you know there are closed and open macroeconomic models. Exchange rates and balance of payment always bring the foreigners into the picture and open the economic models. I will close my models and ask the guards to watch any foreigner entering and leaving the country. After all, who cares what takes place outside my models?

Answer number 6: which export? I once had two export industries, GPMB and Jahal Pacharr  rice project. One of them gave birth and the child later passed away; and believing that it would not give birth again I divorced it. The other one could not conceive. I am not sure if the Chinese herbalists can cure it. So right now, there is not an issue of export competitiveness. In fact, competitive against whom? Don’t tell me foreigners. Answer number 5 has taken these foreigners out of my way – closed model.

Answer number 7: metallic theory of money believes inflation is a monetary phenomenon; while credit theory of money believes inflation is a budgetary phenomenon. If money is a commodity, Metallic theory will hold; while, if money is credit, credit theory will  hold. To know which theory holds, take the Dalasi bill back to the Central Bank, and see whether you will get 0.426562 gram of fine gold or they will give you  another bill. Look, what should happen to your net worth if your liabilities exceed your assets? Will you not be disgraceful?

 

Answer number 8:  because it is a common sense.

Answer number 9: Don’t worry. My economic policies will get hold of that so-called invisible hand. In fact, I believe, it can work properly only in microeconomics.

Answer number 10: it depends on your definition of efficiency and productivity. What I know is that efficiency means doing things right or with minimum costs. My policy indefinitely means doing things right, and is there any cost less than not paying anything on my promises to pay? Finally, to my knowledge, productivity means output divided by input. It is simple to keep this ratio or increase it. If the numerator does not increase per denominator, I will hold the numerator constant and then reduce the denominator. My banks know very well how to do this. They over-employ few salaried inputs to keep the measure growing.

Thank you for your time. This is how I worked as a fiscalist at the fiscal department, and this is how I now work at the monetary department. I have to accept, it is a daunting challenge. God Bless Gambia.

 

Bukhari Sillah

Kiel, Germany.