Nigeria, Paradox of Thrift, and Covid-19, 2020

Huge fan of South Park over here. Spoiler alert, this is not a comical, or slightly funny post, at all.

So there was an episode about the economy crashing. Randy Marsh believed everyone shouldn’t spend money, they should wear bed-sheets as clothes, and ride horses as transportation as this is what will save the economy. Kyle, the Jew, however became the saviour (read Jesus/ Messiah) who gave everyone money to pay their bills and debts, and almost died while at it. His tenet was, for the economy to survive, it depended on people spending. And it really does. You see, if we all stopped spending and started being frugal, all at the same time, there will be a recession. The second effect will be, people in the business of non- essentials would lose their source of income and in turn will not be spending any money.

John Maynard Keynes called it the paradox of thrift. The concept lies in the fact that while saving (being thrifty or frugal) is definitely beneficial to individuals, it should only be gradual, but when a large group of people all save at the same time, this becomes detrimental to the economy as a whole and in turn, the individuals. In a recession, we often see this ‘paradox of thrift’. Faced with the prospect of recession and unemployment, individuals and households take the reasonable and expected step to increase their personal savings and cut back on spending.

“One man’s spending is another man’s income” – Saul Eslake, chief economist.

There’s already a cut back in spending on TVs and gadgets and games, holidays, dining out, furniture, and certain clothing. No more concerts, clubbing and bottle popping, staying in hotels, or buying fancy items at Miniso. Every worker in these industries are currently affected.

In 2020, the economic shutdown will lead to an unprecedented rise in savings. Partly because people are nervous about the future economy, mostly because opportunities to spend are even very very limited. But on the other hand, people who experience a drop in income will have to dip into their savings and borrow to stay afloat. So you’ll think it should balance out. Banks will have more deposit to lend with but, they’re sceptical about lending, and also, no company is eager to take loans right now.

Nigeria has not fully recovered from the 2016 recession. It is now being threatened by the COVID-19 pandemic and an associated sharp fall in international oil prices. South Africa was sliding into a recession as at last year. Angola is already in recession but with oil prices, it will get worse. By IMF’s estimations, Nigeria could sink into a recession that will last till 2021. Nigeria’s credit rating has further dropped, but the IMF and World bank are taking steps in helping out the sub saharan African economy so Nigeria is still getting some dough. In case you are still wondering why the lockdown was abruptly lifted, it is not necessarily because the government cares about who lives or who dies or to compare themselves with Italy, but because the economy needs to keep running. People must be buying and selling. Transporters and fashionistas must earn some dough. Economy cannot afford to economise.

Economists will say it, CNN, IMF, World Bank will say it, you will read it all over twitter, but do you really understand what is about to hit you or will you keep acting surprised about price hikes, job losses and increased begging?

While I will not and cannot be asking you to be thrifty/frugal or to spend and save the economy, you can do what fits you. Be Kyle, or be Randy. What I will do is, I will be sharing tips for financial responsibility for an adult Nigerian human being, and should you choose to be frugal, I will also be sharing tips on cooking the most low budget efo-riro that could send your taste buds dancing.

Stay tuned, follow/subscribe so you can get it in real time, or even read from your mail.

Stay Uninfected. Don’t touch that fine face. Xx.

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