The “Unknowns Unknowns’’ has presented today’s economic crisis, which is mainly attributed to COVID-19 pandemic ‘a priori’ recession, unemployment, low wages, fiscal deficits etc.
The effect of this global pandemic is insurmountable with similar economic weakness witnessed during the Great Depression of the 1930s which saw the stock market crash, the financial crisis in the 1980s which was a banking crisis, and the 2007/2008 financial crisis.
In reality, the causal agents are distinct in each period of the economic crisis.
In 2004, Governor Ben S. Bernanke delivered an Economic Policy Lecture at the Washington and Lee University, Lexington City in Virginia, which he indicated that the stock market crashed in 1920 leading to the great depression which helped forge a consensus ad idem.
The situation led to the Government’s decision to stabilize the economy, restructuring the financial system and offering welfare assistance to businesses and people affected by the economic downturns. It also saw the implementation of the demand-side economic ideas as a measure of intervention.
The policy metrics of increasing government expenditure, tax reduction, and boosting demand for goods and services helped to revive the economy from the depression.
After decades and during the era of President Reagan (US) in the 80s, there was a banking crisis that affected the global financial system. The banking failure was as a result of huge long term investment made by the savings and loans institutions into the fixed-rate mortgages. Thus experiencing the effect of funding long-term fixed-rate assets with short term liabilities.
This negatively affected the global economy and led to the culmination of Reaganomics. In order to reduce the effects on the US economy, Reaganomics adopted the supply-side economic ideas.
Which helped to introduce the metrics of tax reduction measures, deregulation of the market, effective monetary policy measures and the reduction of federal domestic spending; driving the economy towards trajectory growth. The 2007/8 financial crisis is similar to the 1980s banking crisis.
Pressing down to 2011, where Japan experienced the Great East Earthquake (Tsunami) inflicting its befallen economic woes of deflation, non-regular employment, stagnant wages, unsustainable fiscal trajectory, constraints on monetary policy and many more.
Shinzo Abe’s election as Prime Minister in December 2012 and his economic reform initiatives “Abenomics” marked an important milestone and a clearer policy direction for the Japanese economy. Since the Tsunami was a country-specific risk, it was necessary to have intervention metrics to mitigate and alleviate the effects of the earthquake on the economy as well as the people of Japan.
Abenomics proposed the application of three metrics including Monetary easing, Fiscal stimulus and Structural reforms, for getting the Japanese economy back on track.
The bona fide issue is; what is the way forward for Covidnomics taking inspiration from these economic perspectives. Where the Great Depression, Reaganomics and the 2007/8 Subprime mortgage incidents are all financial crisis with the exception of Abenomics.
In the second paper of Covidnomics titled, “Ken Ofori-Atta and the Future of Ghana”, we placed emphasis on boosting the economy through the NBSSI programme. The caveat of our writing being advisory and non-binding is applicable to the model or metrics proposed.
Covidnomics Metrics Model
The urgency of the economic situation amidst the pandemic requires a drastic and thought through mechanism of processes to navigate the economic fortunes of Ghana and to keep generations afloat.
Risk has also presented us with a number of possible outcomes but we are uncertain which will occur. However, the outcome may be worse or better than expected vis a vis the second wave of COVID-19.
Abenomics was a country-specific risk and not a financial crisis. It is important to note that covidnomics is also a country-specific risk and therefore must be guided by the World Bank and UNDP Covid-19 business tracker.
At the “Asaase Business Round Table” discussion [ref. Radio 99.5], I provided the context of the crisis and the need to combine key components of economic variables to drive the development and growth of the economy.
In this direction, I selected a component from Reaganomics and two components of Abenomics and modelled together with Risk and Policy. This is expected to give us five metrics of Covidnomics which comprises: Fiscal stimulus, Quantitative easing, Tax cuts, Risk, and Policy
These five (5) metrics are the driven components for economic sustainability under COVID-19 pandemic either in the short or long term. It is therefore imperative for Ken Ofori-Atta and managers of the global economy, researchers, and academia to understand, consider and adopt the proposed Covidnomics metrics components at these extraordinary times to facilitate growth and development.
Notwithstanding, taking into consideration the strict and continuous adherence to the Covid-19 protocols provided by the World Health Organization (WHO). Since we all can attest to the fact that even with the huge investments made by nations like the USA and UK to sustain their economy under the covid pandemic, they still experienced unprecedented recession within the second quarter of 2020. These countries have adopted, formulated and implemented measures coupled with economic metrics to revive and sustain their economies from further contraction.
Due to this development of fiscal stimulus, the IMF article titled, “Corruption and Covid-19” reiterate the position that “nations must spend whatever they need but must keep their receipts”. Thus, Ken Ofori-Atta investing through NBSSI to sustain the Ghanaian economy is a step in the right direction but should have in mind the risk and social gains as the receipts.
It is necessary that such a model is proposed to serve as a guide “ad rem” to ensure effective and efficient implementation of the earmarked policies towards the creation of wealth and prosperity to the people of Ghana. As such there is the need to work hard to adapt to events, new ideas, and changes in the economic, health, and financial environment during this pandemic. It is further said, “It works well today, there is no reason to disrupt that model’’ by Mr. Andrew Bailey, the Governor of the Bank of England.
By Samuel Okyere Donkor & Atta Takyi