Saturday, October 31, 2009

How not to run a country or economy

'In the case of a hyperinflation, essentially, the government gets a slight discount, based on the fact that it knows how much money is in existence, and you don't. It prints the dollars, and uses them to buy goods, and then the oversupply of dollars pushes up prices still further. But the discount is actually pretty small, and hyperinflationary seignorage turns out to be a very inefficient way of generating tax revenue, especially in a world where there are modern financial markets monitoring government behavior. The much maligned Laffer Curve is actually a pretty effective model at describing hyperinflation; it's very easy to get on the wrong side, where inflationary expectations and deadweight loss start killing the revenue you can raise. It is possible to end up in a place where, as with the Zimbabwean dollar, your monopoly right to print your currency becomes worthless, because the demand for that currency is essentially zero--no one will give you goods and services in exchange for your paper.'

Which incidental mention of Zimbabwe brought on these thoughts... I recently read "Dinner with Mugabe", a terribly written but moderately interesting psycho-social analysis of Robert Mugabes personality. The author is brimming with hatred for the now non-existent white Rhodesians, and constantly throws supposedly damning allegations at them throughout the book. One is that they provided no education for black Rhodesians- a patent and easily refuted falsehood. Which brings me to my real point. There was lots of classroom education in Rhodesia- too much in fact. What black Rhodesians really needed to know was how to rebuild an internal combustion engine, how to manage a large farm, how to run a bus company, how to start and run a small business, how to manage an economy and how not to completely devalue a currency.

Many times I've watched Zimbabwean ministers on TV. They are, to a man, well spoken, craft their sentances beautifully and use very long and impressive words. They sound, if anything, like academics. Unfortunately, that does not make them good ministers. They have collectively presided over the complete destruction of the Zimbabwean economy and currency. They literally don't know how to run a country. Which is unfortunate because they nevertheless have to. Their learning curve is extremely shallow too, from all appearances...

Long before America had vast quantities of college graduates, it had hard-headed businessmen, engineers, stockmen, inventors and farmers. They were the people who built and maintained the important America. The frilly niceties came later. Zimbabwe has a shocking, indeed diminishing number of the former, but plenty of English Literature graduates. Mugabe has three degrees. Three. Yet he is not even marginally economically literate. The skills that Africa needs are not the ones delivered to it in large part. And now they have chased away the white Zimbabweans to a very large extent, Zimbabwe has no one to learn the skills from.

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