Let me let you in on a little secret: most economists don’t know what they are saying.
Putting it more kindly, economists are far from certain about the explanations and predictions they put forward. For example, economists long warned about the dangers of high minimum wages. According to the standard textbook, high minimum wages worsen employment because they discourage firms from hiring. Likewise, most economists would once have seen the quantitative easing techniques rich-world central banks have used to expand their money supply as a sign of economic Armageddon.
Some takeaways:
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The same policies that Nigeria deemed too painful in 2016—floating the exchange rate, permanently removing petrol subsidies, etc.—made it more difficult for policymakers to respond to the pandemic. Meanwhile, Egypt thrived in their freedom from making these painful changes.
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The Egyptian pound has appreciated by 20% in the last five years, and the naira has depreciated by 25% in the same period. Egypt floated its currency in later-2016; Nigeria did not.
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The Egyptian economy is doing much better than Nigeria’s because they endured the temporary pain of important structural reforms between 2017 and 2019. By eschewing similar reforms, Nigeria has avoided short-term pain favouring long-term malaise.
In both instances, the textbook was wrong. Higher minimum wages do not routinely cause more unemployment, and quantitative easing has not led to rampant inflation in the developed world.
Don’t blame economists, though; they get things wrong so often because they rarely get the chance to test their theories
