Adam Smith the foremost forebearer and key proponent of Free Market Economy propounded the concept of invisible hands at play in determining the demand, supply and price equilibrium point for a commodity or service in any economy free of government interference. He defined the invisible hands “as the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically without any form of direct interference by the managers of the economy”. Pulls exerted by the forces of demand and supply determine prices.
Adam Smith introduced the phrase invisible hands in his book ‘The Wealth of Nations”. He assumed that an economy can work well in a free market scenario where everyone will work for his/her own interest.
He explained that an economy will comparatively work and function well if the government will leave people alone to buy and sell freely among themselves. He suggested that if people were allowed to trade freely, self-interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand.
In a free market scenario where there are no regulations or restrictions imposed by the government, if someone charges less, the customer will buy from him. Therefore, you have to lower your price or offer something better than your competitor. Whenever enough people demand something, it will be supplied by the market and everyone will be happy. The seller ends up getting the price and the buyer will get better goods at the desired price.
Nigerian economic model does not fit into a strait-jacket Adam Smith’s invisible hand that determines the traction and trajectory of demand and supply equilibrium –not with the dubious narratives of subsidies, price regulations and partial/full deregulations in the key sectors of the economy. One thing is clear however, that there is always a semblance of reaction of the economy to those unseen hands of demand and supply. Distortions occasioned by poor policy formulation and execution and indeed corruption –often referred to as the ‘Nigerian factor’ all combine to make the country’s shape look obtuse and imperceptible; a situation that has driven the Nigerian economy into the present dire state of stagflation.
Stagflation refers to an economy that is experiencing a simultaneous increase in inflation and stagnation of economic output. Stagflation was first recognized during the 1970s when many developed economies experienced rapid inflation and high unemployment as a result of an oil shock. It is a seemingly contradictory condition described by slow economic growth and relatively high unemployment, or economic stagnation, which is at the same time accompanied by rising prices (i.e. inflation). Stagflation can also be alternatively defined as a period of inflation combined with a decline in gross domestic product (GDP). It could be caused by cost-push inflation. Cost-push inflation occurs when some force or condition increases the costs of production. This could be caused by government policies (such as taxes) or from purely external factors such as a shortage of natural resources or an act of war. The prevalent Covid 19 pandemic presently ravaging the entire mother earth, no doubts triggered the current bout of stagflation in NIGERIA.
1 thought on “STAGFLATION: PRESENT DAY MACROECONOMIC REALITIES IN NIGERIA”
This is a very good writeup. We are the way we are because the country’s leadership is in a state of chaos. Politicians are pillaging the country, pastors are milking the poor and buy private jets when their congregation go to bed hungry. Stagflation will continue until we learn how not to depend on dollars and foreign goods. When the leadership understand the need to empower and encourage local industries, the country will be better.