Few short remarks on “The Rich Expand, the Poor Contract.

The Paradox of Macroeconomic Policy in Ethiopia”

While I agree with some of the facts, the paper is misguided on the following issues:

Ethiopia is not a representative country for the case at hand (due to economic structure and current macroeconomic environment);

The main contributor to inflation is not (only) a ‘price-pass-through’ but a maltitude of factors in which imported inflation is only one;

The factors that motivated western countries to expand are non-existent in countries like Ethiopia ( with a different economic transmission mechanism);

 “Fiscal expansion is incorrectly seen as adding to demand”? Why incorrectly?

Is that to mean, the housing boom, infrastructure and social expenditure which consumed a larger bulk of the fiscal expenditure in Ethiopia did not contribute to an increase in aggregate demand?

“The Ethiopian economy, beyond external factors, is suffering from a failure to stimulate the supply side, mainly agricultural productivity”. I agree in the factual nature of the point, but then: (a) the problem is to focus on the supply side and the demand side policies which you advocated or what the western countries hope to stimulate their economies by jump-starting the supply will  breaks down in this case; and (b) the role you assigned to interest rates and the financial sector in general is ‘bookish’, to say the list, in the Ethiopian case.

And finally, I beg to differ on the motivation, functionality and, hence, relevance of the statement ‘Whereas trillions are earmarked for the various stimulus packages and bank bailouts in the rich countries, the poor are condemned to settle for a new brand of the Washington Consensus”. Well we don’t have banks that have failed and we don’t have an economy that responds to demand stimulus! So brother, go easy on the unwarranted jealously of stimulus packages! If at all we definitely don’t need the type of stimulus that is being thrown at banks in the US or the UK.

By Embzaye