Not too long ago, two heavy weight economists of our land engaged in a professionally controlled public debate to the delight of their numerous ‘cheer-instigators’ of the political divide.
Many may have expected it to gyrate into an Azuma Nelson versus Jeff Fennech-like bruising bout, but were rather disappointed at the prematurely staged-off debate, an anticlimax of a sort.
Well, except to say it explains how these two giant economists respect each other, they were literally both right. It is often said: “When two elephants fight, the grass suffers,” but I think in this case, “when two elephants mingle, the grass gets manured.”
This is so because it was an enriching encounter, at least for the lay person who needed to follow this long-running jargon-laden discussion of Ghana’s economic woes. Also perhaps the Finance Minister and the Governor of the Bank of Ghana might have had a policy briefing in the open.
The exchanges may have been short-lived but they nevertheless point to a problem of the subject economics not being an exact science, yet most often projected as such. This kind of exchanges is also common even in advanced countries where most economic theories emanate.
They help to explain or prescribe economic pills that shape how we view and experience the world. We need to note, however, that from the classical to the Keynesian and to monetarist and now the finance point of view; economics is increasingly drifting from being exact.
Today, there are many economists in the West who until the financial market crash in 2008/9, thought they had been able to crack a code in predicting economic behaviour but are having to revise their notes now.
On his facebook page, Dr Mahamudu Bawumia contested some official economic figures (the US dollar-cedi exchange and the inflation rates), describing them as “not reliable.” Is it not fair to say, the vice presidential hopeful is increasingly being politically witty in his sound bites, arousing the attention he craves anytime he gets the opportunity?
Sometimes, it is not what you say, but how you say it. Bawumia has been delivering more on the latter lately. For example, I think saying the figures are “not reliable” seem to drum home a political rhetoric than to say, “There must be something wrong.”
For his part, Dr Nii Moi Thompson did not entirely disagree, but sought to defend a principle of the profession which was to say, ‘let’s fall in line and abide by the institutional procedures.’ 
In this sense, it is not difficult to understand why such an enticing bout will be called-off so early in the day. Analysing closely the irony is they were both right except to say their political lenses may have disguised the import of their points of view to the public. How do we reconcile their views then?
While Dr Nii Moi was not wrong to question his compatriot’s assertion that the figures were unreliable, Dr Bawumia, for his part, was not wrong in alleging the disparity in the figures, except to say, he (Dr Bawumia) was too blanket to serve a purpose. Dr Bawumia quoted what he thought were disparities between the markets’ quoted figures and the official figures.
His point of view of a mismatch cannot be untrue, but as an economist, one would have expected a more subtle expression of the situation than the blanket “not reliable” jibe.
My point comes from the fact that we all know market quoted figures in Ghana do not always trend official figures. This, in my view, is due to the phenomenon of “rational expectation.” The behavioural side of economics in Ghana is perhaps much stronger than we may want to think. In the rational expectation theory, people are expected to act rationally in response to what they expect in future.
That is to say most traders in Ghana expect prices to increase and therefore, they increase their prices accordingly, albeit in Ghana, a bigger knock-on effect. This has perhaps become an “irrational expectation.” Prices escalate unproportionally and usually never in sync with the national average.
In my view, there are two main reasons for this irrationality:
1) There is the issue of political sabotage, where it is believed some market actors knowingly escalate prices with the least opportunity to discredit or sometimes credit a government in power. In Ghana, some markets have been labelled with this phenomenon. This has the potential of wide price disparities depending on the market one visits. Although this view is contentious, it can be weighty when it comes to behavioural economics and particularly more so in the Ghanaian context.
2) Prices are usually arbitrary in the typical Ghanaian market because of the generally low inventory capacity of traders. In the developed world, where there are huge chains of homologous supermarkets, they are able to sustain huge inventory levels, thereby hedging against sudden changes in the cost factors. Price changes are, therefore, slow and trendy because of their huge inventory base which enables them to absorb marginal unplanned costs.
In Ghana, most traders have limited stock and in the case of foodstuff, it is a daily stock, hence the propensity to adjust prices arbitrarily irrespective of what is appropriate. Well, we all suffer for it.
On the dollar exchange rate disparity, I think the BoG sets its policy target as a way to influence these rates in the medium to long term. Alas! Is this not what they do as the bankers’ bank?
The truth though is that the market may not have tracked down the way BoG projected.
We carry some of the blame for the anomaly because we will all rather profiteer.
Therefore paying more attention to some of these factors which are largely behavioural may enable us to prescribe or describe appropriately what is happening in our economy, hence the right solution needed. Economics, as it is said, is not an exact science, and the hardcore economic explanations can sometimes be misleading if not placed in context.
The writer is a Policy Analyst (Economic Justice Team) with ISODEC.
