Jesse Naidoo heads new Centre for Household Finance
In January, Jesse Naidoo joined the Department of Economics as Senior Researcher responsible for establishing a new Centre for Household Finance. We spoke to him about his move to the Winelands.
Welcome to the department! Could you tell us a bit about your academic and professional background and what inspired you to pursue a career in economics?
Thanks! I'm very glad to be joining the department and I'm excited to contribute to its future.
I'm an academic for what I think are the typical reasons: I like reading and writing and arguing about ideas. I've been interested in the social sciences since I was a teenager, and economics in particular has a combination of analytical precision and a lack of romanticism that suits me. I studied math as an undergraduate, and I liked it, but at some point I decided I probably didn't have what it took to make much of a contribution there. Economics seemed like a place where I could make a bit more of a difference.
What specific areas of economics are you most passionate about, and how do you hope to contribute to research and teaching in these fields?
I think I can appreciate almost all areas of our discipline, even if I myself am not working in them. (Someone once told me "you should judge a field by its best work, not its worst," and I think that's a good perspective to take.) I always enjoy the style of economics I like best involves a simple model that gives you lots of new insights into an empirical phenomenon - think of Krugman's "Increasing Returns and Economic Geography", Sherwin Rosen's "The Economics of Superstars", or most things that Gary Becker wrote. People often call that "applied theory", which isn't a very descriptive name.
Closer to the work I'll be doing in the Centre for Household Finance, I love it when people can figure out a way to measure something difficult in an indirect way, or to overwhelm the measurement problem with brute force. I remember seeing Peter Ganong's work on consumer spending during unemployment and then his paper on mortgage default using the JP Morgan Institute data and thinking "this is incredible".
As the new Director of the Centre for Household Finance, what are your main goals for the centre, and how do you envision its impact on research, policy, and households in South Africa?
I'm trying to keep an open mind about which topics are most important for us to work in.
I guess at a very abstract level, there are certain measurement questions where there's a lot of answers floating around and being reported very credulously by the local media. Think about the articles you read in the newspaper about how consumers are doing X, Y, and Z and then when you look closer, it's totally unclear what the data source is or how representative it is. Then the next day there is another article making the opposite claim, and we go on none the wiser.
If we can force some rigour onto at least some of that discussion, I'd consider that a win. And on the policy front, at a similarly abstract level, I'd be happy if we can tilt those discussions away from the language of rights and prohibitions and have more policymakers thinking in terms of relative costs and benefits.
I always prefer to be concrete rather than abstract, so let me say a little about the specific topics we'll be working on. In the short term, we'll be working on a project about the mortgage market, and we hope to do some descriptive work about consumer spending and the demand for unsecured credit using bank transaction records. In the medium term, we'd like to evaluate the effects of the new "two-pot" system of deferred taxation for retirement savings - did it actually lead to lots of withdrawals? Were those withdrawals reinvested or consumed? Did the reform have any effects on job mobility? (Before, you had to quit your job to access the savings; now you don't.)
As for policy and households - there will certainly be some policy relevance to the work we do, and with that the potential to make the lives of South Africans a little (or maybe a lot) better. But, I wouldn't like to speculate right now about what form that might take.
What do you see as the most pressing economic issues facing South Africa today, and how do you think economists can play a role in addressing them?
Unemployment is, obviously, the most critical problem we face. The poor performance of the education system is another, equally obvious obstacle to growth, although one that will take longer to fix. While I'll be working on questions related to consumer financial markets, I don't want to lose sight of those big-picture problems.
I think a lot of the big economic policy ideas in the national conversation right now - make sure the railways and ports function, ensure electricity and water supply are reliable, don't create extra obstacles to importing skilled labour - are clearly good ones, and I think we can expect them to pay off if implemented.
But these ideas have been in circulation for at least the whole post-apartheid era. I once made a table comparing RDP, GEAR, ASGISA, and the 2019 Treasury white paper, and indeed these various "economic strategies" have a lot of overlap. Now was that because they were never tried, or because they were tried but didn't work? My money is on the former.
These types of reforms, while obviously good on their own merits, are shaped by the constraints of our politics. More radical approaches to deregulating labour markets or privatising certain SOEs are not on the table, even if they might be beneficial in aggregate, and we all know why.
Coming back to your question about the role of economists, I think we can do a few things. One is to provide careful, unbiased empirical work on topics of policy interest. However, doing good data work isn't a skill unique to economists (although we can be proud of our discipline's high standards here). The thing economists bring to the table that others don't is an analytical framework that recognises that social outcomes - what we call "equilibria" - are often different to what any one party intends. You can't legislate your preferred outcome into existence without causing people to react, and we have a better start than other social scientists at thinking carefully about how to predict and evaluate the welfare consequences of those reactions.
So, that's a very long way to say "cost-benefit analysis is good" - and that's especially relevant (and hard) in "second-best" situations like the ones we face in our policy environment.
Outside of your academic work, what hobbies or interests do you enjoy that help you maintain a balanced and fulfilling life?
Well, I'm not sure that I'm living a balanced life, but I do find it fulfilling! I love spending time with family and friends, and having just moved back to the Cape Town area after 15 years away, it's been wonderful to reconnect with many friends from earlier in life. Again, now that we're back in Cape Town, it's been a real joy getting to take our daughter to walk in the forest or to the beach. I enjoy (but am not good at) playing squash. I'll always defend the value of video games as an artistic medium, or the virtues of peated whisky.
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