We are quick to point to the “economy” whenever we notice something worthy of mention, but not that quick to question those behind the economy and influencing it.
For instance, all around the world, it is very common to find column inches in newspapers, as well as radio and television discussions devoted to economic topics.
The economy is everything, the economy is rebounding, the economy is hard, and so on, are common phrases that I am sure you are very familiar with.
In fact, the economy is so dominant in our daily lives that politicians always use it as a point of contact with the electorate: he who promises the best economic conditions is likely to get the nod from voters!
But have you also ever wondered, in the context of all the debates about the economy, who the economic agents are?
I am sure you can point to the sum, that is, the output of economic agents, as something that would impact a country significantly, if asked to.
But who are those behind this?
The answer is a simple one. You. Yes you. Your inaction and actions all contribute to economic outcomes.
So, the economic agent could be an individual, a business or a household. What we do, and do not do, influences the economy. Consider this example: What do you think will happen if all the people within a country lay down their tools and decide not to work?
That will be suicidal, wouldn’t it? The sick will not find the doctor to attend to him or her, the farmer will not find the transport service that will send his produce to the marketplace, and the government will not have the money, through taxes, to provide the public services that are so essential to our well-being.
That is why economic agents, including you and me, are important to the spinning of the wheel of the economy.
For this reason, there is a strong linkage between economic activities.
Now, this is an interesting one. If you have followed the drift thus far about the role of economic agents, would you expect economic agents to behave the same way?
The textbook answer is that to influence economic outcomes through policies, you should have some rational expectations that economic agents would behave in a certain way when certain incentives are applied or when some conditions exist.
But that is not always the case because economic agents would not always fall in line with the rational expectation theories.
There are situations where, despite all the persuasions, economic agents will act contrary to sound doctrine.
I will explain this further with a simple analogy. Some years back, regulators in the country provided all the proof and the warning signs that the operation of a certain financial institution had the hallmark of a scam.
Yet, potential clients were lured not by the advice of the regulators, but by the promise of a higher return on investment.
In the end, it all went south for those who had ignored the sound warning and invested their money with the company. I am sure in the mind of the regulator, once people are made aware of the pitfalls of an investment option, they will stay away.
But as you can infer from the example given above, it did not fully work according to plan. Some might have stayed away, no doubt, but a good number got their fingers burnt in the deceit.
The message here is that because of the way economic agents behave, economies are never deterministic; therefore, economic problems cannot be solved with neat equations.
Yes, you can leave those deterministic values to physics and not economics.
So how can economic agents support the growth of an economy? Well, in many ways than one, and I will set off on this path burnt in the deceit.
The message here is that because of the way economic agents behave, economies are never deterministic; therefore, economic problems cannot be solved with neat equations.
Yes, you can leave those deterministic values to physics and not economics.
So how can economic agents support the growth of an economy? Well, in many ways than one, and I will set off on this path using another simple example that you can easily identify with. The example is about non-performing loans. How much do you know about them?
Non-performing loans are that part of the loan book of a bank or any finance company in the business of lending that is not “performing”.
And why won’t a loan be "performing"? A loan will not be performing in the books of the credit provider when the borrower stops servicing it.
Simply put, when you take a loan, in most cases, you sign an agreement with the lender, normally along the lines of accepting the facility with the conditions attached.
The conditions are always tailored to reflect the length of time you must finish paying back the principal (the initial amount you borrowed) and the interest attached to it.
The loan agreement will also detail the penalties if you default on servicing it. With this agreement done and sealed, the loan is booked.
Over a period, when you stop performing your part of the agreement, you literally cause the loan to be non-performing too.
Of course, even with the best of intentions to pay back the loan, you could run into difficulties servicing the facility. That is understandable. But you don’t run away from the lender when you run into difficulties.
A listening lender will know who a habitual loan defaulter is and agree to a restructured deal with you when you hit that spot of bother.
But when the loan is past due, and the borrower is nowhere to be found, in credit management, the institution would have to create that non-performing loan portfolio with some provisions, too.
This may sound like too long a story and not the typical bedtime one that you would like to hear.
But my interest here is to point out that the non-performing loan situation that affects credit expansion within an economy is caused by you and me, the economic agents.
Both borrowers and lenders may be at fault here, but on this occasion, I want you to appreciate that the non-performing loan situation need not be several thousands of monies borrowed from the bank, but the little 100 cedis and 200 cedis that we fail to pay all add up to it.
If a million people decide not to pay the 200 cedis that they have borrowed from the bank, won’t it add up to 200 million cedis in loan losses?
Economic managers rely on the goodwill of economic agents; therefore, we must all act right if we want the best macroeconomic outcomes.
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