With most of the economic policy options for the coming NZ election now in front of us, it would appear we are continuing down the route of GDP growth, low inflation, government surpluses and Triple A credit ratings as measures of economic policy success. But, these are only means towards some desired ends or ultimate goals? 

It's still the economy, stupid. So what economic offerings are in the tea leaves heading towards this year's election? We can robustly judge that the National Party is offering pretty much more of the same, while fiscal policy plans announced jointly by Labour and the Greens – and monetary policy adjustments floated by Labour – it would appear that by early autumn we already have the guts of our electoral choices.

In discussions with an acquaintance recently, we struggled to isolate the core points of difference between these competing platforms. Our discussions led us, inadvertently, to times gone by (apologies, but they are relevant).

Think back to student protests where we chanted in unison “What do we want?”  The response varied depending on the cause at the time – no nukes, gay rights, or a living student allowance (this was long before student loans). However, the critical line followed, and was always the same – “When do we want it? Now.”

Now, of course, few of my cohort of friends and acquaintances participate in such vocal activity. But, if we were to do so, I can imagine it might now go something like:
“What do we want? Affordable housing and no children living in material deprivation. When do we want it? Oh, in the fullness of time, depending on the state of the economic cycle and in line with appropriate prudential criteria, after accounting for revenue growth forecasts and meeting all due considerations contained in the Public Finance Act.”

Yes, fiscal prudence seemingly takes priority over other worthy objectives. Numerous arguably artificial constraints (e.g. debt-to-GDP ratios, tax-to-GDP ratios, balanced books) are implicitly more critical ahead of other objectives. Indeed, the commonality in the range of electoral pitches reflect that we as a nation remain wedded to goals that are assumed (but, arguably, not proven) to be inherently of some value.

So, running government surpluses is common to all party pitches. Indeed, it is highlighted as perhaps ‘the’ priority. And the consequential fiscal prudence, will no doubt be proclaimed as a desirable virtue and, implicitly, also as a goal in and of itself. Alongside that you can add other so-called goals of low inflation, high GDP growth, and a Triple A credit rating.

So what about other objectives? Well, they implicitly get put in the “when we can afford it” basket as our economic policy frameworks and choices confuse ‘means’ with ‘ends’. As the above benchmarks get mistaken for goals, the ultimate desirable objectives are side-lined.

These benchmarks are useful vehicles through which desired goals may be realised; but they are hardly goals worthy of celebration on their own.

Indeed, I find no solace whatsoever in a low inflation economy rated Triple A, with a government surplus, and strong GDP growth, if there are people sleeping in cars and children living in material deprivation. But economic policy options (aka our electoral choices) continue to be measured against these dubious inflation, government surplus, growth and credit rating benchmarks.

Managing an economy to meet a set of artificial benchmarks are, at best, a means to an end. If such means don’t seem to progressing towards the desired end(s) then we should question closely the virtue (or value) of those means. The desired end(s), or goals, need to be identified and settled (ideally as a result of the democratic electoral process).

That process should not be dominated by assumed goals of dubious or unproven value.

For me, governing an economy (on behalf of society) so that people are suitably fed, clothed, and housed is the goal for economic policy to strive for. It would be one truly worthy of celebration. Conversely, if our economic policy framework does not achieve that, then society, governments, the economy (and, dare I say, markets) have failed. 

Others will have different desired goals and objectives for economic policy and frameworks. Let’s, at the least, argue those choices. But, let’s not mistake increased outputs for improved outcomes.

However, I fear that the economic policy choices put in front of us over the next few months will continue to focus on management. And economic policy choices will continue to be benchmarked against output measures of high GDP growth, low inflation, government surpluses and Triple A credit ratings.

If the outcome of these targets, though, is one where numbers of children live in material deprivation and families sleep in cars, then any claims to achievements and economic success will, to me, be very hollow indeed.


Comments (26)

by Wayne Mapp on April 26, 2017
Wayne Mapp

There is a credible level of difference between the two governing major options. It is around $2 billion per year. National is likely to have a combination of tax cuts and new spending. Labour/Greens solely on new spending. You can do a fair bit with that amount.

However, Ganesh Nana seems to want a completely new option. Higher taxes, a lot more govt spending, a lot more borrowong (since surpluses don't matter), and no real care about inflation, which is also another way of saying a lot more government spending from borrowing.

Except of course this is not really a new option for New Zealand. We tried it from the late 1960's to 1984. Around 15 years in total. Low growth, high taxes, high govt spending, runaway inflation, constant deficits. At the end we were about to declare national bankruptcy and call in the IMF. In the meantime New Zealanders had left in droves for Australia.

So whatever the ills of the current economic paradigm, now in existence since 1984 in one form or another, to me it is a hell of a lot better than the New Zealand of prior to 1984. Only leftists of certain era seem to pine for a return to those days (albeit in a modern form).

Yes there are problems, but lets fix them without destroying the hard won gains of the last 30 years.

At least Gana manged to write his article without decrying the evils of neo-liberalism, the favoured form of insult by the left!

 

by Kyle Matthews on April 26, 2017
Kyle Matthews

I'm not sure where Wayne got his summation of Ganesh's opinion on higher taxes, more spending and more borrowing above. Clearly not from the blog post above which talks about putting ends before means as a priority and which doesn't come to any concrete conclusions on the rest.

by Simon Connell on April 26, 2017
Simon Connell

Yes, fiscal prudence seemingly takes priority over other worthy objectives... Indeed, the commonality in the range of electoral pitches reflect that we as a nation remain wedded to goals that are assumed (but, arguably, not proven) to be inherently of some value.

I don't know how you would go about proving what is inherently of value without a consensus on values.

Danyl McLauchlan, in his review of Max Harris's recent book The New Zealand Project, argues that:

Technocracy, compromise and moderation are political values. They might not seem like desirable values to brilliant, visionary intellectuals who want to conduct monumental reforms and transform almost everything about contemporary New Zealand. But they’re hard-coded into the MMP electoral system and seem to be highly prized by the voters, who have elected 18 years of cautious, moderate technocratic governments in a row, presumably because they don’t want people like Harris implementing the kind of radical change he’s advocating.

Politics is technocratic because modern societies are complex: many things could be better, but almost everything could be much, much worse, and all the high-minded values in the world are worthless if you can’t keep the lights on. It is compromised because pluralism – the challenge of different groups in society holding different and conflicting but reasonable and valid views – is the central problem in politics, and cannot be fixed by re-educating everyone. Political reform should be cautious, because outcomes are uncertain and overconfidence bias is real, especially among groups of intelligent experts who reinforce each other’s assumptions – a dynamic that often leads to catastrophic failure despite the best of intentions.

Viewed in light of this, fiscal prudence is of inherent value. It's part of the technocratic vision of how society should be governed that McLauchlan describes.

 

by Richard James McIntosh on April 26, 2017
Richard James McIntosh

Wayne - there's no prescriptive content in the post, you're making that stuff up. The question posed more simply, as I heard Ganesh say once, is: the government's books are looking great, but what's the point when the nation's books are going to hell? 

You've got it all wrong if you think that automatically means we'd best get back to Think Big. 

There's got to be a point to our strict adherence to current economic policy settings: they're simply not worthy goals in themselves.

by Ganesh Nana on April 26, 2017
Ganesh Nana

Ouch Wayne, that hurts, but not sure which article you read!?  I didn't mention a desire for higher taxes once.  And just because I had the gall to suggest that low inflation in and of itself may not be a worthy goal, does not necessarily imply that I'm in favour of runaway inflation.  I'm surprised the Weimar Republic didn't get a mention.  And more than happy to write about neo-liberalism if you like - but that wasn't topic of this article.

Put simply, I'd like a more grown up discussion about our goals - rather than just accept what economists (guilty) have assumed - i.e. go for GDP growth, low inflation, government surplus and Triple A credit ratings and then all else will automatically fall into place.  (And, yes, Simon, this is the technocratic vision of government).

But what if we go for, and succeed in, GDP growth, low inflation, fiscal prudence etc, but then all else doesn't fall automatically into place?  Then what?  Isn't it then time to seriously question the means to which we are trying to get to our desired ends?

by Andrew P Nichols on April 26, 2017
Andrew P Nichols

Fiscal responsibilty the baby of Roger and Ruth is based on a biophyical falsity...that the economy is the component of life about which all things revolve and have meaning. when in fact all it is - is the small part of the ecosystem that deals with the human moneatry exchange of ecological goods and services.  - a small subset! When we realise the truth we will replace the FRA and its flawed unscientific thinking with an Ecological Resonsibilty Act  to govern all legislation that will have fiscal responsibilty as a component to be considered amongst others like social well being, species diversity, clean air and water etc. Unfortunately money worship will continue to dominate our society so we will be heading to a very bleak future where one day someone will try and eat money.ie we're screwed.

by Simon Connell on April 27, 2017
Simon Connell

But what if we go for, and succeed in, GDP growth, low inflation, fiscal prudence etc, but then all else doesn't fall automatically into place?  Then what?

Is there anyone who thinks that these things are sufficient to address homelessness, feed the hungry, etc.? At least, maybe there is on the right but I'd be surprised if that was the case for those on the left who have expressed support for the sort of fiscal policy under discussion here.

Isn't the issue more whether they are necessary - that is, that ultimately, if you try and address other social goals without maintaining a position of economic stabiliy, you end up ruining the economy and thereby your ability to actually pursue other social goals.

by Ganesh Nana on April 27, 2017
Ganesh Nana

Simon, your whether they are necessary? question (I think) effectively rephrasing what I am asking.  What you suggest - that without economic stability we have difficulty in pursuing social goals - is essentially what economists (guilty) have always told us.  But my niggling concerns remain.  i.e. we believe (assume) that the above are necessary. But what if what economists have always believed (assumed) doesn't automatically flow through into social outcomes?

Implicit in this argument though, is a model whereby economic and social goals are separated.  This belies the observation (assumption) that an economic system tends to operate more efficiently when in a favourable social environment.  The two are related, and it is not a one-way direction of causation.  Hence the 'fix the economy first' then we can do the 'social stuff' second, is not a viable model from my perspective.

by Simon Connell on April 27, 2017
Simon Connell

But what if what economists have always believed (assumed) doesn't automatically flow through into social outcomes?

Perhaps I'm misunderstanding what you mean by the "automatically" bit here.

I wouldn't charaterise the argument for "fix the economy first" from the left as being that social outcomes automatically flow from getting the economy right. I'd imagine it's something more like you need to get the economy right to have the resources to address social problems (or, at least, getting the economy very wrong is really bad for society, and is to be avoided).

I suspect that Labour might say something like: you can meet certain economc stability targets and fail to make use of the resources generated by the economy to make a good society. This is what the National government is doing, so vote for us instead. We'll be good custodians of the economy and deliver on housing, address inequality, etc.

I agree with you that there are certain baseline standards of social cohesiveness that need to be met, otherwise we can't expect to meaningfully pursue economic stability targets. It's a bit of a chicken/egg thing, so I can see how trying to separate the two and try and work out which comes first is a problematic approach. But I don't know if anyone's arguing that you just have to get one right and the other automaticaly follows (at least, not on the left).

by Nick Gibbs on April 27, 2017
Nick Gibbs

Economists must be quite naive to believe that a sound economy inevitably leads to more investment in social outcomes. Govts can and do spend windfalls on many different things.

If these economists are unhappy with this new dawning, they should vote Green. However the general population believe that the Greens will inevitably overspend on social outcomes, neglect the economy and enlarge the misery rather than sate it. 

Maybe economist should spend more thime talking to the general public.

 

by Ganesh Nana on April 27, 2017
Ganesh Nana

Simon, the automatically is pretty much by assumption.  Or, if you like, it is implicit in our arguments.  Economic textbook models assume that individuals aim to maximise their utility (or satisfaction, or wellbeing).  Just we have difficulty measuring these things so we revert to using GDP as a proxy for wellbeing, or living standards, and assume (implicitly if you like) that as long as GDP etc are OK, all else will fall into place (we don't argue that this is automatic, but it is implicitly assumed).

And Nick, some economists do talk to the "general public"; which is one of the reasons why some of us are openly questioning the models we use; rather than accept the assumptions embedded in the received wisdom.

by Ross on April 27, 2017
Ross

For me, governing an economy (on behalf of society) so that people are suitably fed, clothed, and housed is the goal for economic policy to strive for.

It seems to me that what you're suggesting NZ needs is a commitment to full-employment. The trouble is that politicians seem to have given up on that objective, although Labour recently recommended changing the focus of monetary policy to take into account employment. Unemployment and under-employment are a huge waste of resources.

http://www.stuff.co.nz/dominion-post/news/politics/91374148/Labour-to-ad...

by Ross on April 27, 2017
Ross

So whatever the ills of the current economic paradigm, now in existence since 1984 in one form or another, to me it is a hell of a lot better than the New Zealand of prior to 1984.

Wayne, those living in motels - if not cars - will be delighted to hear that we have this wonderful new economic paradigm. Maybe instead of comparing our current economic set-up with the dysfunctional Muldoon years, we should aim a little higher. Contrary to the neoliberal mantra, there is an alternative.

by Fentex on April 28, 2017
Fentex

I didn't mention a desire for higher taxes once.

I think Wayne inferred from the criticism of concentrating on prudent fiscal policies that not concentrating on prudent accounts implies some, possibly all, of the things he listed.

You could always correct him directly by listing whihc of the things he inferred from yuo that you do not want.

So Ganesh, whoch of these things Wayne inferred you'd be happy with, do you not want (one might say you would not find the solace in you also do not find in fiscal prudence)?

  1. Higher taxes
  2. Lost more govt spending
  3. Lot more borrowing
  4. No real care about inflation

Politics is about making hard choices, so let's not be coy - what ARE your choices?

by Fentex on April 28, 2017
Fentex

Mutter mutter, wish I was a better editor and proof reader - apologies for what I hope are obvious typos.

by Ganesh Nana on April 28, 2017
Ganesh Nana

Thanks Fentex. You (and Wayne) miss my point. I'm not interested in any of your 4 choices (or their mirrors of lower taxes, less govt spending, less borrowing or higher inflation).  Putting up a straw person to knock down is a diversion.

I'm way more interested about the outcome.  All of your 4 (or their mirrors) are means towards an end - they in and of themselves give me no joy whatsoever.  The joy (or not) arises when they result (or not) in improved wellbeing across the population.

We need to argue more about the ends, and less about the means towards the ends.  Then we might realise that the means we are adopting may indeed be leading us away from the ends (outcomes) we desire.

by Nick Gibbs on April 28, 2017
Nick Gibbs

I'm still missing your point here. Yes, it is assumed that meeting the your desired outcomes demands a well managed economy. But that assumption is based on sound evidence and economic evidence.  Hard to see how a mismanaged economy will reach these goals. I imagine you are calling for a more socialist style economy and that does't enjoy a great track record. If you're not advocating that, then please elaborate.

by Joseph Cook on April 28, 2017
Joseph Cook

The significance of debt is an interesting question.  If one looks at Japan it has one of the highest national debts, and yet it is one of the most developed nations.  What does this mean, and how does one explain this, Wayne Map, Ganesh Nana?  

How about this? No interest loans.. http://www.stuff.co.nz/business/money/68092092/bnz-offers-no-interest-lo... , and this http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11634049 ...

IT IS POSSIBLE TO OFFER NO INTEREST MORTGAGES TO NEW ZEALANDERS TO AFFORD A HOME INSTEAD OF WASTING MONEY ON RENT!!!!  I CHALLENGE ANYONE TO CLAIM THAT IT IS NOT!!!!  AS WELL AS INTEREST FREE LOANS TO START BUSINESS AND CREATE ENTERPRISE!!!!  AS WELL AS COVERING BASIC NECESITIES, EDUCATION, HEALTH CARE, ETC!!!!

NOW!!! Wayne Map, and Ganesh Nana, can you elaborate on this matter!!!???

WHY DOES GOVERNMENT HAVE ONLY TAXES, INCOME FROM PUBLIC COMPANIES ( MOSTLY BEING SOLD OFF), BONDS, AND LITTLE ELSE TO COVER IT'S FINANCIAL NEEDS???  WHEN BANKS OPERATE ON A FIAT SYSTEM WHERE THEY CAN JUST CREATE CREDIT OUT OF NOTHING, AND DEMAND INTEREST TO TOP IT ALL OFF, AS IF THEY HAD WORKED HARD TO COVER THAT CREDIT, AND TIME IS SUCH A COSTLY FACTOR TO THEM!!!???

Wayne Map, maybe at least you can answer that?

Come on guys, you are the specialists on these matters, right?

GOVERNMENT MUST BE ABLE TO PROVIDE MONEY AND CREDIT BY ITSELF THROUGH THE TREASURY, AND/OR REGULATE FINANCIAL ENTITIES TO FORCE THEM TO PROVIDE INTEREST FREE LOANS, AT FLEXIBLE REPAYMENT TIMES!

 

Ahhhaaaaa, Wayne, did you even think of that?  :P

 

by Joseph Cook on April 28, 2017
Joseph Cook

I can already read the response, "no, it can't be true", "it doesn't work like that", "would create hyperinflation", and other presumptions based on ignorance and incredulity in the face of the abhorent facts of our financial systems!  We always want to assume that things are kosher, and it's all the way it should be, and surely there is some reasonable explanation to all this!  Mankind is indeed stupid!

by Joseph Cook on April 28, 2017
Joseph Cook

*Mapp, sorry, misspelled your name.  

by Joseph Cook on April 28, 2017
Joseph Cook

I contenmd that everything we know about economy and finance is complete gibberish, and puposefully flawed to protect the minority interests that own the world through the evil of fraud, usury and ignorance!

by Joseph Cook on April 28, 2017
Joseph Cook

I contenmd that everything we know about economy and finance is complete gibberish, and puposefully flawed to protect the minority interests that own the world through the evil of fraud, usury and ignorance!

by Joseph Cook on April 28, 2017
Joseph Cook

Attention Wayne Mapp:

The Government has fulfilled its promise of returning to surplus. We inherited forecasts of never-ending deficits under Labour and in 2010/11 the deficit reached $18.4 billion. Through responsible fiscal management, we turned that around to surpluses of $414 million in 2014/15 and $1.8 billion in 2015/16.

https://www.national.org.nz/10_ways_our_economic_plan_is_working

http://www.treasury.govt.nz/government/assets/saleshistory

Is this "responsible fiscal policy"?

by Fentex on April 29, 2017
Fentex

Your apparent position that fiscal prudence is pursued as an end in itself is not, I think, well supported because we have quite a bit of social spending in New Zealand which is evidently the actual purpose of fiscal responsibility - so that it can be afforded.

That is the end - a safe, stable, healthy country that is not only pursued but currently acheived (more or less, I don't pretend perfectly) in New Zealand on the back of fiscal prudence.

If you think the choices on how to govern, and provide for your ambitions, definitely aren't limited to, and possibly don't even include the options Wayne presents I think there's an onus on you to explain more.

These things present themselves as questions because of the premise that governance of a country and management of it's economy involve trade offs to avoid disaster.

If you won't address questions regarding them observers might think you're not interested in maintaining an ability to pay for anything and would be apt, if given control, to drive a country to disaster.

 

 

by Joseph Cook on April 29, 2017
Joseph Cook

Fentex,  thank you and I do take your point, a good one.  However, I would suggest that the same should be required of all parties.  It would be wrong to assume that the mainstream view, for want of a better term have addressed the questions of describing in detail the basis for validating their policies.  I don't know if your comment was actually addressed to me.  Probably not, as I have been asking questions and sharing some facts as a basis to outline these questions and the possibility of beneficial alternatives.

New Zealand is, one would assume, resonably stable from a relative perspective.  However the current condition of governance in the world is far from stable indeed.  

There is a definite problem in regards to providing health care, and housing, for starters.  I am not of the view that we should adjust our perspective to the lowest denominator either.  For a developed country, we should definetly expect a far higher standard.  

Another thing, I would recommend one visits the National Party website and see how they explain their policies.  You will find very little detail indeed, a complete failure to inform the public of their policires in an adequate manner.  So, again, we must hold all parties to the same standards, and the debate should be of a higher quality.  

I am prepared to do research to detail alternatives and demonstrate that they would be better.  Showing that providing universal healthcare of a higher standard is possible and beneficial, as well as housing and education, allowing all people to afford their own homes, be educated, have more financial possibilities open which will in turn favor enterprise and hence employment, as well as wealth.   All this without having to sell national assets and reduce the wealth of the nation over the long term and creating sources of instability and loss of sovereignty.  Here I mean the sovereignty of the people, not of the Crown, the plutocracy or another minority.  

by Andrew Hart on April 29, 2017
Andrew Hart

>>Bill English (National Party Web site) "We’ve focussed on results and are starting to address the drivers of dysfunction by investing in better public services. We remain committed to maintaining rising operating surpluses and reducing net debt to around 20 per cent of GDP in 2020".

I hate paying taxes as much as the next person but what about increasing government spending on houseing and increasing the Health Budget ( which is about 1 billion under funded).

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