Ronald Reagan is known for Reaganomics, Margaret Thatcher is known for Thatcherism, and this fundamentally-flawed economic thought leadership for free market fundamentalism, which destroyed public services.
The government of South Africa, however, shall not, be bested by these two former heads of state: President Cyril Ramaphosa has introduced a new theory of economics, whereby supply destroys demand and demand as a consequence destroys supply. The question is, what does this imply for supply-based demand? Is Say’s Law about to be unseated with Ramaphonomics?
In classical economics, Say's law, or the law of markets, claims the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand.
To engage this topic, we look at the case of electricity in South Africa. Current policy proposals include, first, shutting coal-fired power stations and, second, introducing smart metering. These challenge not only the laws of demand and supply from, first, the perspective that demand creates supply, but, second, that supply creates demand. These perspectives are theoretically pro-growth and hold an opportunity for development.
However, the current policy position Ramaphonomics drives is, first, that supply should destroy demand and, subsequently, demand should destroy supply.
This economic proposition is anti-growth by design and definitely anti-development. This is because without growth you cannot develop. Ramaphonomics proposes new horizons in economic and development theory and this should unseat Reaganomics and Thatcherism. It should mesmerise economists for as long as this non-theory holds in the new laws of motion of economics. This can only happen in South Africa.
While economics teaches us that demand is what creates supply, Say’s Law says the opposite. Colloquially, it concludes that supply creates demand.
There are consumption items that fit this bill of supply creating demand. By and large, all public services can be considered to meet the prescripts of this law.
Government policies are designed on the precept that presumably defines what a good society is. Government would argue that such a society is one that enjoys good health and education.
If we would consider these two, education and health, government intentionally put an additional supply incentive, such as a feeding scheme and vaccination. The feeding scheme attracts children to school and subsequently in order to achieve universal school attendance and, ultimately, universality of education among the population through the stimulus of higher attendance.
Higher attendance as a demand effect creates a further supply incentive of health. Vaccines get distributed at schools to achieve universal immunisation as a demand side effect. Left to the market for demand to meet supply, neither would society achieve universal education or health as a demand-based market outcome. But certainly, as a supply-driven demand, these two objectives are achieved.
What does this perspective then hold for Eskom? Before we analyse the Raphagonomics of supply destroying demand followed by demand destroying supply, we need to inspect what Smutsogonomics in 1923 were based on.
Much earlier than Keynesian economics, General Jan Smuts understood the effect of sustained supply side economics to stimulate demand and by this token he understood Say’s Law of supply creating its own demand.
President Smuts had hardly undertaken an analysis of what the market economy demanded. But he understood what developmental states should act through on the supply side of the laws of motion of economics. To this end he recruited a chief scientist, Johannes van der Bijl.
His chief scientist identified two critical supply side instruments that would stimulate demand and spur industrialisation on a grand scale. These two were energy, in the form of electricity and steel. Like the Qin Dynasty in 2000 BC, Van der Bijl deployed that which is heavy to shoot at that which is light. By so doing, he proved beyond doubt that Say’s Law applied effectively in a developmental state.
What then is the converse of the dual laws of demand creates supply and supply creates demand under Ramaphonomics law? The converse of these two propositions of the laws of motion of economics are undermined first by destroying supply of electricity that has killed demand.
Now that the supply is low and the grid is constrained, the Ramaphonomics takes the second most crucial step of destroying the dead demand. This is done by introducing smart meters that aim to reduce consumption of energy.
The big economics is that all this downward spiral, happens in the context of the Economic Recovery and Reconstruction Plan, and the District Development Model, which are expected to generate some mysterious growth.
I have read Reaganomics and I have read Thatcherism, but Ramaphonomics deserves a Nobel Prize in this foray of mysterious economic thought. It can only happen through South Africa’s exceptionalism.
Dr Pali Lehohla is the director of the Economic Modelling Academy, a Professor of Practice at the University of Johannesburg, a Research Associate at Oxford University, a board member of the Institute for Economic Justice at Wits and a distinguished Alumni of the University of Ghana. He is the former Statistician-General of South Africa.