Source: Editorial Comment: What kind of economics is Mthuli practising? – NewsDay Zimbabwe February 9, 2020
FINANCE minister Mthuli Ncube seems to like quoting economic principles found in textbooks.
But, for some reason, the Treasury boss forgets the most basic economic principle: economic growth is driven by consumer spending. No consumer spending means no economic growth.
According to American financial literacy website, Investopedia, consumer spending is “the total money spent on final goods and services by individuals and households for personal use and enjoyment in an economy.”
Many economists, especially those in the tradition of John Maynard Keynes, a renowned 20th century economist whose ideas shaped economics, believe consumer spending is the most important short-run determinant of economic performance and is a primary component of aggregate demand.
As such, consumer spending is the largest component of gross domestic product in any economy and the target of Keynesian fiscal and monetary policies in macroeconomics. Keynesian economics is an economic theory premised on total spending in the economy and its effect on output and inflation.
The reason we digress is to show that consumer spending essentially drives economic growth.
However, in Zimbabwe consumer spending is falling and is falling fast.
Ncube seems to have forgotten the five components of consumer spending, namely, disposable income, income per capita, income inequality, household debt and consumer expectations.
And where Zimbabwe is involved, these five components are all down.
Disposable income is shrinking because of a devaluing ZWL that is eroding wages. Income per capita is being determined by hyperinflation against shrinking salaries and income inequality is growing as the gap between the rich and poor is widening.
The “learned” professor should also note that household debt is rising as families or individuals are getting into more debt to meet rising costs. Lastly, consumer expectations are down because simply put, there is no confidence in this government.
Despite stopping the publication of annual inflation reports, the truth is the devaluing ZWL has forced businesses to change their prices almost on a daily basis to protect the value of their goods or services.
As a result, most consumers are unable to afford a lot of goods in the hyperinflationary environment, with individuals and families living way below the poverty datum line.
The devaluing ZWL is also eroding the wages to a point where a person’s salary has lost a significant amount of its value by month-end from the start of the month.
So, zero consumer spending means zero growth and the sooner Ncube realises this the sooner the economy can grow.
Or maybe, just maybe, the time has now come for Ncube to resign and retire to his “theories”.