I’ve written before that I find it disturbing that Jamaica’s academic economists don’t seem to spend much time outlining to the public problems with the local economy and possible ways to fix them.
I had an exchange with a Jamaican businessman yesterday about the exchange rate, and how it is badly misunderstood by many Jamaicans, who are fixated on the nominal rate of the J$ against the US$. He added that over many years he had ananlaysed the exchange rate trends and tried to explain them. He found many politicians, sadly, out of their depth in being able to understand notions such as purchasing power parity and the real effective exchange rate. He concluded that many Jamaicans are numerically illiterate. I agreed.
One of the problems with that illiteracy is that people focus on the wrong variables, and do not understand what changes in variables tell us.
Now, being a confirmed skeptic, I do not rely on politicians to be the guiding lights for much of what I think is important, except sometimes in the negativ. If a politician. says something is good, chances are it’s the opposite. Their vested interests get in the way of honest discourse. So, I’m having to listen to politicians talk about the economy and growth and productivity, and so forth, and then take a view opposite to what they say is happening.
Right now, I’m trying to figure out why Jamaica may, one, not be growing as fast as politicians have said (just over 2 percent) and why it may be that Jamaica will grow faster than politicians have said (currently focusing on #5in4–when it’s a hashtag, it must be important :))
The slower-than-reported growth problem. GDP measures economic activity from the data on income, spending, or production. Depending on which measure is used, the story can be different. So, my argument about slower growth is about which of those measures we look at.
I think that spending will give a truer picture in a country like Jamaica, because we know that much activity is informal and thus under-recorded. That would suggest that data on income is understated in both levels and changes, especially as more information about income means more information about taxable capacity, and people dont like paying taxes. Spending data can be captured more readily and widely, even if it’s based on household surveys. Production is harder to measure, not least because many enterprises are loath to report data, so the series are often of spotty quality and less timely.We also have the age-old problem of whether the simple units of measuring output–prices–are really capturing all we want them to, especially if quality is changing.
So, my concern about how fast we are growing now is all about what do the three measures show. We could be at 2.3% quarterly growth, plus or minus a lot.
I also think that, flaky as it may seem, people’s sentiments about growth matter, and I think most people don’t feel that they are living with faster growth.
Will Jamaica grow much faster than 5 percent? Some people have noted, recently, that 5 percent annual growth is really a low bar for Jamaica. I am tending to agree. I think that there is more dynamism in the country than people seem to suggest. I also think that some of the faster growth will show up if we get better data about what’s going on. Now that is a taller order than many things, because data collection systems don’t just improve at the drop of a hat. But, here are areas where I think we need to look carefully.
1. Watch electricity consumption. This is often a leading indicator of what is going on, because almost everything in modern economies needs electrical power. Even if it’s being used illegally without payment or proper connection, the turbines are working and juice is going to all corners of the country.
2. Get a better handle on construction. My wife, who’s a pretty decent economist, said last night that construction is well-measured, because building work needs permits. I disagreed, because we know that much building goes on and has gone on without permits. We know, through the tragic deaths of workers, that a major hotel was being constructed in Negril without the requisite building and other permits. So, one can assume that data on this project was not being captured in official statistics. We can readily assume that a major project being derelict in its legality can be but the tip ofthe iceberg.
We know also that a major growth area in the corporate area, Portmore, has recently extended its building approval amnesty. So, again, we know that significant amounts of construction were going on ‘under the radar’. If we could capture that well, we could find that construction alone has been moving ahead very fast. Anecdotal evidence suggests that’s true in the corporate area, where I’ve seen over the past three years a swathe of hosuing complexes go up and also a bevy of commercial spaces being built or extended. Similar trends are evident across the island.
3. Bring more informal activity into the formal sector. Ha! Fat chance! My hunch is that this is where some faster growth may be lurking. My supposition is that, while not a ‘silicon valley’ in Jamaica, by its nature, the informal sector in its many forms has had to move faster to keep people afloat. Of course, we could find that a lot of informal activity (say, vending) is just at subsistence level. However, anecdotal stories of how people have used their ‘little jobs’ to support families, in general, and to do things like pay for children to go through schooling to university, suggests that ‘raising chcikens’ etc has provided a significant life-line. How the various activities get captured in data is a massive headache, because the incentives are strong to stay out of sight. Moves like having more taxation based on spending, rather than income, may offer a second-best way of capturing more informal activity, though.
4. Pay more attention to what income inequality tells us. This is tricky. It’s clear that those Jamaicans who live in upscale areas have done more than get by. Large houses, more cars, private schools, foreign trip, etc, all reflect a life-style that is supported by growing financial resources (whether self-generated or through credit). Whether they are reflective of the robustness of professional and business life, they have done much better than average in a material sense. It may be that they have both higher income/spending levels than average, and that these have grown faster than average. If that’s so, we then. Need to go to the other end of the scale to see how the ‘dirt poor’ (no value judgement) have fared. Maybe, the best we can do there is to get more sectoral information from the banking sector about deposit holder and borrowers.
So, let’s don some thinking caps and see what can be done to get a better understanding of this oh-so-important set of issues.