Yesterday’s Men
27 September 2007
The New Zealand economy is suffering badly at the hands of old men who have not noticed the massive economic sea change which has happened since they were at school. Until the mid 80’s New Zealand’s economic history was one of intense government control.
Our borders were once fiercely patrolled to restrict and control the inflow and outflow of capital, labour, goods and services.
The raising of capital from foreigners was always the sacred duty of the government of the day (or the government owned banks) whether cap in hand to the Bank of England, the London market, Belgium dentists or the IMF.
The Reserve Bank guarded our prudent reserves (gold and sterling being favoured quite early on) and the government decided how much we should have of the world’s goods and what was good for us.
Tractors for farmers and bulldozers for dam builders were sort of OK but wicked pleasures like cars, TV’s, boats and alcohol for the workers were blacklisted.
And the government’s own bank (the Reserve Bank) controlled the financial institutions meddling daily with their borrowing and lending (especially to each other) so that New Zealander’s could only borrow so much and for whatever purpose the greater minds and morals of Government thought they deserved.
So being in government gave you this wonderful power to push and pull all sorts of levers (the Communist dream). To justify that role the government needed an extraordinary amount of information hence our highly complex and expensive system of public statistics — most of it not worth the paper it is written on; seldom read (except by a few boffins in the Treasury, researchers, journalists and a gaggle of squawking bank economists) out of date and often reliant for accuracy on far too busy private sector executives.
(This theory was floated to your Editor late one night by Bruce Anderson on a trade visit to Malaysia ten years ago—thanks Bruce).
Its purpose (lever pulling) means our statistics system is far past its use-by date.
You see, whether the young economists of the 1970’s (like Dr Bollard) realise it or not macro-economics is bunk — globalisation means small island economies like New Zealand are being tossed around like wine corks (and smelling like one) in an ocean of world liquidity.
The electronic revolution, the explosive growth of world trade and international banking has destroyed any concept of financial borders.
The prices for our goods and services are so driven by the international market.
Our currency has a mind of its own.
The market knows our true level of inflation (the Statistics Department is yesterday’s guesswork) and it forces economic adjustments (in incomes, prices and resource allocation) to suit.
In every conceivable market in which we operate there will be winners and losers all guessing in aggregate (a lot better than the Treasury) what prices should be.
Sometimes in a market there will be lots of winners (home owners in the last decade) and maybe lots of losers (perhaps homeowners in the next decade).
But for heaven’s sake stop meddling — you can only screw up for a short time the inevitable.
The best any public influence can ever do for inflation or any other statistic which keeps Wellingtonians from sleeping at night is to remove every possible obstacle to the free working of all markets (and in the end that may mean people, immigrants — although there are some of us who probably don't’ want our TV rugby commentaries in the main New Zealand language of the future (with English sub-titles).
Comrades Cullen and Bollard have much in common; they went to school in an era when governments (all socialist) fretted about what people spent their own money on (so think if they spent at least half of it for them —government is now nearly half of G.D.P. — then at least half the problem would be solved).
Now farmers are told not to spend “foolishly�, the government owned airline has to cut back on flights and raise prices to our enemy, Fiji, and property owners are insulted every day for daring to try and recoup the cost of building regulations and scarce government approved land for building and enjoy their national pastime (DIY).
And regulations come at a massive direct and indirect cost.
In the medium term the only effect this meddling can have is to wreck any hope of achieving our potential.