Live by the stone, retreat quickly in your cozy SUV by the stone. Or something like that.

Last week COSATU’s Communist-in-Chief Zwelinzima Vavi got pelted by stones by disgruntled mine workers.  Considering the violence perpetrated by COSATU members in the past, we can at least rest assured that the law of sowing and reaping has not deserted us.

But the whole Vavi/stone thing reminded me of this November 2009 open letter to Vavi by HumanAction.co.za.

Vavi’s Stone

 

Dear Mr Zwelinzina Vavi,

We read with great interest today your (Cosatu’s) policy recommendation about what would be a more appropriate level of exchange for the Rand. According to the reports you feel the Rand should be at R10 to the USD, which would “give the manufacturing sector a breath of fresh air.”

This makes us curious: Why should we stop there? Why don’t we take it even lower, to R20 to the USD? Let’s rather give our manufacturers a breath of opium infused oxygen! Won’t this take us right out of recession?

As you say: “we are going to be seeing massive net job losses in 2009…we estimate that more will be lost between now and December to make the number way above a million.” Hmmm, mulling over this comment of yours, we can’t help but fear that if we don’t go big we should rather be going home. Perhaps we should take the exchange rate to R100 to the USD in January 2010. No! Why don’t we take it there today?

The following year we can take it even higher, we can take it to R200 to the USD, for this would surely boost growth and create jobs again. This is just genius, the faster we get the Rand to go down, the faster we can boost economic growth and create jobs. We can get exponential on this and look back at our economic growth on a logarithmic scale. If you’re not smiling with a 0.9% quarterly GDP growth rate, would a 50% monthly GDP growth rate get a crack in the cheek out of you?

Mr Vavi, what is good for the economy in small doses, should also be good for the economy when given in larger doses. This must be made crystal clear. Either you are being fed protectionist policy prescriptions by your advisors, or you don’t understand the basics of economics. You have not found the economists version of the philosophers stone. You have merely found the same stone that politicians so love the world over: their own printing press.

But as economists of the Mugabe school and the Weimar school will tell you, taking the currency lower through intervention not backed up by productivity gains will end in tears.

Yours Sincerely,

JGalt & Freeman

Human Action

When you throw the ‘inflation stone’ all you’re likely to end up getting hurled back in your direction are actual stones.