In the last two weeks, the recurring question I have been receiving is to predict the economic outlook for 2020. My response has been consistent that economics is not a field of prophesy, as well as it is not the field of predicting the future.
What economists actually do is to forecast creating feedback that cancels their effect, something called the Lucas critique named after economist Robert Lucas.
Prominent scholar and statistician Nassim Taleb in his book ‘‘The Black Swan. The Impact of the Highly Improbable’’, observed that after reviewing articles and working papers in economics he found that they collectively showed no convincing evidence that economists as a community have an ability to predict outlier events since history is dominated by improbable events.
And even if economists have some ability to predict, their predictions are at best just slightly better than random ones. His conclusion is that economics is the most insular field; one that quotes least from outside field perhaps making the subject with the highest number of philistine scholars who are hedgehogs rather than foxes with an open mind to predict outliers.
So just like how the Romans judged their political system by asking not whether it made sense but whether it worked, economist also analyse what is not working in the economy and prescribes the relevant policy remedies that possesses the needed effect to make the political and economic system work.
Economics is not a field of predicting the future, like predicting a coming recession or who will win the next election, as it is always told.
A good example we can canvass is the year 2019 where the fundamentals of the economy pointed towards the Kenyan economy gravitating towards tough economic terms and so was the case. But no economist saw it coming that 2019 would be the year the interest rate cap would be repealed.
As economists, we have only been giving the policy recommendation that its in the interest of the economy to have the rate cap repealed because it was the wrong remedy for its intended purpose.
Post-repeal there is slow build-up of private sector growth and the Nairobi Securities Exchange which has been experiencing a liquidity problem has seen its banking sector counters busy that there are no sellers.
That is not an outlook any economist predicted despite recommending for the repeal because the craft is not about betting on the right horse.
After declining to be predictive about the country’s economic outlook, I try to discuss what ail the economy followed by why government doesn’t seem bothered in addressing those problems.
The salient economic issues are obvious; high tax regime, high debt servicing burden, increased cost of doing business and unfavourable regulatory environment even captured in the Building Bridges Initiative.
Now the starting point in fixing this is government significantly reducing budget expenditure to ease taxpayers from aggressive tax collection which almost half of it goes to servicing loans, then renegotiate and re-schedule debt obligations, and this will give govt room to incentive private sector investment growth realigning the economy back on its tracks.
The quick rejoinder is always “you mean no one in government can see it as simple as you have put it?” Yes! If we are to borrow from the medicine world, it took a long time to realise that when a patient shows up with a headache, it’s much better to give him aspirin or recommend a good night’s sleep than do brain surgery.
Instead, the government has actually increased spending going by the last supplementary budget with another supplementary budget expected in March. The government continues piling up public debt whilst the Kenya Revenue Authority’s collection targets remain the same despite missing targets due to the contraction of the economy. And that is my economic outlook for 2020.