By Muhammad Sagir Bauchi
Stabilization of prices and achieving full employment are among the core goals of every economy in their macroeconomic policies. In this case, there are two main approaches to curtail inflation, recession, unemployment and other negative macro-economic phenomena. These approaches are monetary and fiscal policies. While monetary policy refers to the central bank activities which are directed towards influencing the quantity of capital (money) and credit in an economy, fiscal policy refers to the government’s decisions on taxation and spending. Both monetary and fiscal policies are used to regulate economic activities over time. They can be used to accelerate growth when an economy starts to slow or to moderate growth and activity when an economy starts to overheat. In addition, fiscal policy can be used to redistribute income and wealth.
The overall goal of these monetary and fiscal policies is channelled to the creation of a healthy economic environment that could sustain economic growth, facilitate positive employment and stable inflation rate.
In a plain language, the main aim of these two policies is to steer an economy in the sense that the economy does not experience economic boom that could be followed by high period of low or negative growth, high level of unemployment and unstable price. In this situation, people can feel safe in their consumption, savings and investment decision and government could concentrate on economic decision making. And this is where the idea of Monetarist, Classical and Keynesian Schools of Economics come to play, where they have different views in respect to the effectiveness of the two policies.
PHILIPS CURVE FROM A SHORT GLANCE:
The issue of inflation and unemployment is not a new concept in the realm of economics and it’s one of the concepts that reflect the science of economics as a true reflection of reality, since that, almost everyone is feeling the impact of either of the two.
The history of Philips Curve can be traced to the research findings of A.W Philip, an economist who analyzed the relationship between unemployment and the rate of change of money wages in the United Kingdom in the years 1861-1957. At the end of his findings, he suggested that there is an inverse or negative relationship between wages and unemployment. In simple term, he meant that whenever there’s growth in unemployment, there would be a low level of inflation. And the rationale behind the justification of his idea is that wherein there’s employment, people have more money, which leads to high demand for goods and services, and eventually pushing prices up. On the other hand, when there’s a rise in unemployment, INFLATION will go down since there will be low demand for goods and services as there’s less money in circulation.
Philips and Other Economic Perspectives: there are different opinions with regards to the application of the curve and the measures to contain the phenomena.
According to Monetarist School, the issue of unemployment is a supply side phenomena, therefore, demand side measures cannot be used in curtailing them, and even if it occurs, it can be for a temporary and will accelerate price instability at the end. While to the Keynesian school, they argue that there can only be “demand deficient unemployment” And in the time of recession, demand side measures can reduce unemployment for long-term with little of inflation.
Nigeria’s Economic Reality:
In Nigeria, since its independence, unemployment and inflation are among the major distractions in the growth and development of the nation’s economy. This is evident as we are all witnessing a scenario where too much money is chasing few goods and another case of high supply of labor with low demand of it. According to data from the National Bureau of Statistics NBS), Nigeria’s inflation rate has been consistently high, averaging around 11% in the past decade. The high inflation rate can be attributed to a number of factors such as the devaluation of the Naira, increase in the cost of imports, and a rise in fuel prices.
In an effort to curb inflation, the Central Bank of Nigeria (CBN) has introduced and implemented a number of monetary policies, such as the recent cashless driven economy module; through daily and weekly money withdrawal limit, increasing interest rates, tightening liquidity, devaluing the Naira, etc. However, all these policies have not been entirely successful in bringing inflation under control. Additionally, the Nigerian government has also implemented fiscal and monetary policies such as capping government MDAs cash withdrawals limit to minimal amount, increasing taxes and cutting government spending to curb inflation, however, the effectiveness of these policies remains uncertain and challenging. Same goes to the apex bank ongoing monetary policy, especially the weekly withdrawals limit policy, which is an unprecedented threat to urban and rural businesses due to poor mobile/internet banking mechanisms in the country. As such, the apex bank must address these concerns through shifting the effective implementation date until all the proper mechanisms required to operate a cashless economy are put in place. This can be done if the CBN reasons and constitutes a committee that includes technocrats, bankers and internet service providers, which will make sure that effective moblie/internet services are made available to cover the whole country before the policy kicks off and kicks up.
In conclusion, the relationship between inflation and unemployment as represented by the Philips curve is a complex one that is influenced by a variety of factors. The Nigerian economy is facing significant challenges in terms of cashless economy application, high inflation and unemployment rates, and finding effective solutions to these issues will require a rigorous political will and careful consideration of both monetary and fiscal policies. It is important for the government and the central bank to continue to monitor and analyze economic data and make adjustments to policies as needed, in order to create a stable economic environment that supports growth and employment.
Muhammad Sagir Bauchi, is a graduate of Economics from Sa’adu Zungur University, Gadau, Bauchi State. He can be reached via email@example.com