Behavioural economists use the term “availability bias” to describe our tendency to be overly persuaded by near-term information. What has happened most recently dominates our thinking about what is likely to happen next.
A road exploding in central Johannesburg shifts our view about the quality of metro maintenance of infrastructure and governance. A coin landing on tails shifts our view about the likelihood of the next flip (a bias also called the “gambling fallacy”).
Availability bias is having a large-scale effect on the national conversation. Read our Sunday newspapers and you have to conclude everything is going to hell.
Construction mafias are openly extorting businesses and local authorities. Police stations are being robbed. Vigilantes are taking things into their own hands. Politicians are openly fanning the flames of xenophobia. A misguided national health service is driving medical professionals to emigrate. I could go on.
Stock market analysts are well familiar with availability bias and the effect it has on trading behaviour. “Momentum” is the notion that a share price trend will continue its trajectory, down or up, as investors are overly persuaded by recent performance. Contrarian investors see such trends as an opportunity.
They invariably lead prices to become overly inflated on the upside or overly discounted on the downside, creating opportunity.
SA’s national mood is driving a momentum to the downside across swathes of the country. Social media, which is itself plumbing new lows of utility and nonsense, seems to have formed two consensus groups — one that says everything has been on a downhill trajectory since 1994, and another that says nothing has changed since 1994.
Both are inaccurate, yet in our febrile atmosphere every new item in the news is grabbed to confirm biases.
Two clichés of market analysis are worth keeping in mind, however. “Everything returns to the mean” is one. “Everything is a buy at the right price” is another.
Many commentators are so overwhelmed by their availability bias that they forget history. They forget the bankrupt apartheid state, a global pariah, that could not even collect taxes due to it. They forget its lack of investment grade and inability to even get meetings with global investors.
The ANC in 1994 took on the task of rebuilding the public service into one that could implement its democratic mandate. It built new institutions — the National Treasury, the Constitutional Court, among others. They forget how the economy was repaired and recovered, that corporation tax was cut from 35% to 30% (and to 27% since), that the personal tax top rate fell from 45% to 40% (it had been 50% for most of the 1980s).
Despite tax cuts (and to some extent because of them) the national revenue service (built out of the ashes of the apartheid-era department of inland revenue) was so effective that by 2007 the government was able to run fiscal surpluses, raise debt at three notches above investment grade, and simultaneously create the world’s biggest welfare state to deal with the legacy of poverty left by apartheid. And that while the economy was growing at more than 5% a year.
We reached a climax in 2008, when the twin calamities of the global financial crisis and the Zuma presidency abruptly changed things. The global crisis inflicted a severe economic recession while the Zuma administration hugely degraded the apparatus of the state. The latter has constrained our recovery from the former, and despite the end of Zuma’s presidency, recovery has continued to elude us.
But today’s commentators, encouraged to pursue narratives that inflame particular political factions, get it all wrong by being overly persuaded by the near term. Our problems are not ones created by the democratic state. They have been created by particular people within it. The state itself has been capable of remarkable administrative success, and in diagnosing its ills, we must not conclude it is not capable of better. It is, and it has done it before.
For market analysts who aim to overcome availability bias, the question is when momentum might shift and the economy take a turn towards the mean. The obvious trigger, one that was not available before 1994, is elections, and those will happen in 2024.