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Playing technocratic gymnastics with the sliding dollar

Raulston
Nembhard

Wednesday, August 29, 2018

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Technocrats who are safely and comfortably ensconced in air conditioned offices are not always mindful of the pain that the ordinary citizen has to endure as a result of governmental policy. They look at figures and often do not appreciate the connection between the alignment of figures to achieve desired ends and the misalignment and pain that often occur in the lives of the most vulnerable as a result of these policies.

This observation is made in the context of the devaluing dollar and the seeming insensitivity of the technocrats and the minister at the finance ministry. I do not know Dr Clarke and from what I have seen from his pronouncements in public and his pursuit of financial policy I would not charge that he is an insensitive person or that he is unaware of the suffering of the poor because of the sliding dollar. But he is clearly a technocratic person with his eyes glued to a computer.

Indeed, his professional training is as a mathematician, which means, among other things, that he should have a keen sense of how figures should work, how equations are balanced and what theory best explains the deductions at which one arrives.

But it is a different matter when mathematical theorems are applied to economics. Economics, like all other social sciences which seek to assess human behaviour, is not a pure science. It is subject to the vagaries and unpredictability of how human beings behave and often psychology that drives such behaviour. So all economic theory is just that — theoretical.

One may come to a certain conclusion based on the manipulation of a set of figures and build neat compartments in which to place them, but human behaviour in the production and consumption of resources cannot be so easily compartmentalised or neatly defined.

So Dr Clarke and the technocrats at the Ministry of Finance and the Central Bank are pursuing a theory that a floating exchange rate is best for the Jamaican economy at this time. This is a break from his predecessor who was committed to a stable exchange rate in which the Government would intervene from time to time to preserve stability.

The Government seems to have concluded with the International Monetary Fund that this is not workable and so has adopted a floating or flexible mechanism for the dollar with a targeted inflation rate of between four and six per cent. As the theory goes, if the dollar is floated, by the time the targeted inflation rate is reached, whatever the exchange rate is at that time is the determined market rate for the dollar.

This seems to be a convoluted and unclear policy as the Government has not spelt out precisely the policy it is pursuing. There have been statements from the governor of the Central Bank, Prime Minister Holness, and Dr Clarke, but what they are trying to achieve is not clear. One is not sure that it is clear to them either. It is a quilt-like exercise where the concerned public is left to put the pieces together. Talking to individual groups is helpful, but the rest of us who are not in any group must be told the policy with relevant explanations to justify it.

The problems with theories like these and any economic theory for that matter is that they never can be relied on to get the best results for the economy. Economic theories are often trumpeted as facts and one can be so committed to one's “facts” that they become a self-fulfilling engagement with unreality.

I am beginning to think that neither Dr Clarke, the technocrats at his ministry, the governor of the Bank of Jamaica or his technocrats have the faintest clue what the rate of the dollar will be if and when its targeted inflation rate is achieved. And I say “if”, because they cannot present any certainty that it will ever be reached if not surpassed.

What is more certain is that you can expect more pain and suffering by our more vulnerable brothers and sisters. What is more certain is that small businesses will be closed as they are forced to price themselves out of business. The dislocation in our fledgling, non-growth economy will be immense as the shocks of an erratically sliding dollar picks up pace and is absorbed.

When it comes to targeted inflation rates Dr Clarke and the Government would do well to study the experience of their neighbour to the north, the great USA. For years it pursued a Zero Interest Rate Policy and Quantitative Easing, a euphemism for the printing of money. The targeted inflation rate was two per cent. For almost a decade the pushing of easy money in the economy did not spur the kind of growth necessary to spur inflation.

Growth in the economy remained sluggish, at best registering an average two per cent. It is just recently in the last quarter that growth has been at four per cent and yet the inflation rate is still below the two per cent target at roughly 1.8 per cent.

And this in the number one economy in the world. It is not an economy that suffers the imbalances and internal contradictions as does the Jamaican. They can afford to play all kinds of technocratic gymnastics with their economy as they are large enough to absorb any shocks, foreign or domestic. They can print money, we cannot.

My own non-econometric instincts tell me that what the Government is pursuing is a dangerous game that is going to heap too much unnecessary suffering on our people. To allow the dollar to devalue because you want to achieve some equilibrium when you reach an elusive inflation target seems to me to be foolhardy.

The truth is that we are not producing enough in the economy to subject it to this kind of technocratic wizardry. Our macroeconomic numbers are trending in the right direction but this of itself cannot leave us comfortable when we consider the low productivity in the economy and the low growth we are experiencing. We have not developed the capacity to sustain the economy. Thus we have to keep the dollar under constant scrutiny with the necessary management to ensure that we do not have the kind of erratic devaluation that we have been experiencing. The Government must revisit this policy, if it is indeed a policy.

— stead6655@aol.com

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