More facts on the table

Written By: - Date published: 12:00 pm, July 24th, 2009 - 41 comments
Categories: economy, wages, workers' rights - Tags:

Now, yesterday a couple of righties didn’t want to believe the evidence in front of their eyes that the GDP per person gap between Australia and New Zealand doubled during the neoliberal economic revolution. They got upset at my conclusion that repeating those same policies (which is what Don Brash’s 2025 Taskforce will inevitably recommend) would, therefore, be pretty dumb if the aim is to catch up to Australia’s income levels.

‘Pfff’, they said ‘GDP per capita what’s that? Only the premier measure of the amount of economic activity per person in a country. We refuse to accept that as evidence of the income gap and demand more indicators.’ Well, the advantage of writing for a blog that has been covering these issues in depth for nearly two years, is I can easily oblige:

earnings 450 gap 450

(source: Treasury)


(sources: Aus, NZ)

Now, obviously the wage gap is most pertinent, showing massive growth during the second half of the neoliberal revolution, but the others show how that came about: lower wages in NZ, a lower share of GDP for Kiwi workers. There are plenty more graphs in the archives showing things like how the poorest 40% of Kiwis got poorer in real terms between 1998 and 2001, while they enjoyed the largest percent gains in wealth under Labour, how National let the minimum wage fall, how median hour earnings fell with the introduction of neoliberalism. There’s a real treasure trove in there for anyone looking to get informed – the wages and workers’ rights categories especially.

41 comments on “More facts on the table”

  1. Ianmac 1

    Brian Easton wrote a few years ago in the Listener, about the savageness of the “adjustments” carried out in the late 80’s and through the 90’s. I think he was saying that the changes were necessary but the associated cuts caused the plunge and because of this the adjustment back to parity never happened. We fell behind and stayed behind. (I’m not any sort of economist but in a simplistic way that makes sense to me. Baby with the Bathwater ….)

    • Draco T Bastard 1.1

      The reforms were supposed to do that – capitalism requires that most people live at subsistence levels and that a large percentage live below poverty level so that a few (<1%) can live the high life. The reforms set up lower wages so that profits could be higher – there is no other reason for them.

      • Tom Mathews 1.1.1

        “capitalism requires that most people live at subsistence levels ”

        it’s not doing a very good job then… Even if we took away welfare, the amount of people living at subsistence levels in the entirety of the developed world wouldn’t even come close to being a majority. I can’t think of a way for you to possibly salvage that claim – it’s just bizarre.

        • snoozer 1.1.1.1

          Median weekly income is $519 a week – $26,000 a year. Not exactly wealthy.

          And remember that there are 300,000 people on benefits, 500,000 on super, and 300,000 on minimum wage. If capitialism were allowed to run free, if there was no state socialist intervention, all of them would lose most or all of their incomes – and their competition would in turn drag down wages for others.

          You don’t see how nasty capitalism could be because it is partially restrained by socialism. Even so, it’s still pretty nasty – 10% of households (not individuals, households) have an income below $19,000

          (numbers from Stats and MSD)

        • Clarke 1.1.1.2

          You’re ignoring the trans-national effects of globalised capitalism. A large number of people live at subsistence levels so that developed nations can have an affordable coffee, for instance. Or do those people in the Third World not matter?

          • Phil 1.1.1.2.1

            What? I was unaware these people were living in high wage countries until they started selling their coffee to people in developed countries.

            • Clarke 1.1.1.2.1.1

              So is there a specific reason why they should continue to live in poverty, instead of participating in the benefits of globalised capitalism like the rest of us in the West?

            • Draco T Bastard 1.1.1.2.1.2

              Actually, they were living comfortably until we screwed things up for them a couple of centuries ago. The problem with colonialism is that it tends to destroy infrastructure and institutions that evolved to work in the local environment.

  2. JustRight 2

    How about you pull out the tradeables sector versus non-tradeables sector in the Labour years. What I suspect you will see is non-tradeables wage growth (ie Government spending on wages) was the only area where Workers incomes as % of GDP grew. The rest of Labour’s policies effectively killed off any growth in the tradeables sector through being inflationary – causing exchange rate issues through higher interest rates.

    • Daveo 2.1

      Ah the EPMU’s 5% in 05 campaign was in the private sector. Ran right through the CTU as well. Same goes for Supersize My Pay. Labour’s minimum wage increases (70% over 9 years I think it was) also mainly benefited the private sector workforce.

      You don’t know what you’re talking about mate.

    • Clarke 2.2

      My cousin works as a farm worker on a dairy farm in the Waikato, and he says his wages went up 30% in the last four years. I think he’s convincingly in the tradeable sector, and I don’t think a single dollar of that increase was due to a Labour government paying teachers and nurses properly.

  3. So Bored 3

    Well done Marty,

    If I was critical yesterday it was because the evidence was not explicit enough to stand up alone, all four graphs start to tell a sorry tale of woe. What you can now expect is for the usual suspects to tell you that despite all evidence to the contrary that the New Right deforms were a success, or that up is down, black is white etc.

    Where the proponents of the Neo Libs may be very correct about the success of their agenda is also evident….their intention was to make the rich richer, and they have succeeded beyond their wildest dreams. That does not prevent the avaricious tykes wanting even more. And it wont stop the chearleaders of the wealthy from trying to dress this sordid outcome up with spurious justifications.

  4. chris 4

    Nice marty, but I wouldn’t defend GDP too heavily. There are other, much better measures for real economic performance out there than GDP, not that any of the wingnuts proffered for any of them, of course

    • snoozer 4.1

      I like GPI – Geniune Progress Indicator – but Marty’s right that GDP is the premier indicator, it’s got the history, it’s used by everyone and there are robust standards. Of course, it’s just an indicator of economic activity, not standards of living or wealth or utility gained outside the formal economy (from unpaid activities, nature, and black markets.

  5. Mark M 5

    The graph on workers income as % of GDP is interesting but it can be interpreted in several ways .

    You could argue that the period marked current Govt simply shows that New Zealands wages were a greater % of GDP because the economy was stagnant and our wages were growing much faster than the general economy , hence lower productivity ,which I assume is what the treasury secretary was saying this week.

    The Australian graph is probably turning down because there economy has been very sucessful over the last decade and the growth in the economy has far outstripped the growth in wages and is an improvement in productivity.

    The logical conclusion with this graph is if we keep going with the growth in wages as a %of GDP do we eventually get to the point where wages take most of GDP and leave nothing else.

    If so is this good or bad

  6. Zaphod Beeblebrox 6

    Would be interesting to chart productivity of Aust vs NZ during the same period. I think you will find they closely match. Higher wages= a healthier, more educated and qualified workforce, a more motivated workforce with more spending and saving power for your dometic economy.

  7. pantson 7

    I don’t want to get bogged down in jesuit like arguments on both sides of the debate but it irks me to see the lack of economic common sense displayed on both sides of the debate here. I’m not going to “prove” either thesis here, but perhaps point out some of the difficulties making such heroic assumptions as appear above. GDP is ok as a headline indicator but it has a lot of potential traps too – bear in mind what GDP is (apologies to any former 5th former that sat school C economics)

    GDP = C + G + I +(X-M)

    Clearly the components of GDP growth are important. It is obviously very easy for a government to “game” GDP in the short term. Marty your analysis would be more robust if you actually looked at the underlying components of GDP and compared those. The things that really count for the sustainable (lets not try and define that) growth of an economy are firstly I and X, then M, then C and lastly G. But all 5 of those factors have way different lead time effects and efficiency in leading to further, later GDP growth.

    GDP is also widely acknowledged as having some serious shortcomings as a sensible measure of an economy’s progress – sure, a like for like comparison between two countries is less dangerous but ponder these shortcomings:

    GDP
    – does not measure anything to do with quality of life, environmental sustainability
    – makes no prediction of future GDP sustainability
    – adjustments for product or service quality improvement
    – genuine discrimination between real wealth production and wasteful spending (ie building a 100m high gold sheep counts the same as the equivalent amount of milk powder exports)

    There are plenty of other more sensible comparisons to make between the two countries to prove or disprove your point. For instance the comparison I’d like to see is between government spending as a % of GDP (won’t prove anything but would be interesting.) I’d suspect under first 7 of the last 9 years of Labour that would look quite good – but clearly doesn’t prove increased govt spending leads to increased GDP as their are plenty of other independent factors (mostly the global commodity boom) that you need to control for.

    My view on the Labour Govt reforms of the 80’s and the Ruthenasia of the 90s- both were necessary in terms of curing massive structural faults in the NZ economy due to the crazy extreme socialism of Muldoon, but I think we did get carried away with the pace and suddenness of those reforms. And I would also posit that the most important factor in NZD GDP growth in the short to medium term is import demand for commodities from our trading partners. Policy makes bugger all difference in the short term – its a 10 year plus game that should really only have an impact on investment levels..

  8. vto 8

    Dont want to ruin the party marty but you’ve done it again. Those graphs are just more figures. They show no link between the fact of an increase in the gap and the reason for that increase in the gap. They are useless.

    That was the whole point yesterday – nobody doubted the figures showed movements in the gap but plenty doubted your claimed reasons for those movements.

    You said those movements were all due to the neo-lib policies. When it was suggested that various other factors can influence it, such as labour govt response to 87 sharemarket crash, or winston peters, or a weather event etc, you scoffed and said no no no it was all caused by the neo-libs, the lot of it.

    But then, later, on the “Show Pony” thread you said “there was a drought, a bursting housing bubble, a global spike in oil and food prices in the first half last year. They caused the recession, not Labour.”

    .. so which one is it marty?

    And now today you post up another bunch of grapes, I mean graphs, which are exatly the same as yesterday’s in their uselessness. They show no link between the gap and its reason.

    • vto 8.1

      marty, I’ve put the above to you three times now and you have not provided even an attempt at an answer. On your own threads.

      I will take that as an admission of uselessness.

      sharpen up.

      • Pascal's bookie 8.1.1

        Could be he’s looking away out of politeness.

        • felix 8.1.1.1

          awwwkward….

          • RedLogix 8.1.1.1.1

            vto,

            If the graphs showed completely different results that confirmed what you believed, you would be chortling on about how wonderful they were.

            Instead Marty has done the work to give you four different ways to measure the trans-Tasman wage gap… and you literally stick your fingers in your ears and go nahnahnaha.

            • Tim Ellis 8.1.1.1.1.1

              The graphs don’t show any causative relationship though, Red. As VTO has pointed out, they don’t show any of the global or domestic events that may affect different economies differently.

              Marty used these graphs in order to prove a political point. Yes a lot of people do this, to prove a political point, but let’s not mistake it for rigorous economic analysis.

            • felix 8.1.1.1.1.2

              Marty took a bunch of stats and formed a hypothesis from some of the patterns he found.

              Tim has an alternate hypothesis which better explains said patterns and I’m sure he’ll tell us when he’s good and ready.

              There you go Tim, don’t say I never stick up for you.

              edit: I see Tim has already been asked for his hypothesis below. Shouldn’t be far off, he’s nothing if not a diligent worker.

  9. tsmithfield 9

    Marty, your own data demonstrates that the widest the wage gap has ever been has been under the previous Labour Government.

  10. RedLogix 10

    The graphs don’t show any causative relationship though

    Data is never the same as ‘causitive effect’, rather the ‘rational scientific method’ depends on using data as evidence to support the hypothesis of one.

    New Zealand notoriously implemented the most radical and searing version of hard-right neoliberal economics, policies that were unquestionably the dominant driver of social change in this country during the period under discussion.

    And by golly gosh these graphs demonstrate the results. From which Marty and others have drawn the fairly obvious and quite reasonable hypothesis that neo-liberal economics does not work as advertised.

    The problem is not with the data, it is simply that you do not want to believe the causitive hypothesis we are making. That’s fine, just say so. But I’m going to stick with my view unless and until you can propose a better, more convincing hypothesis that fits the data.

  11. Tim Ellis 11

    And by golly gosh these graphs demonstrate the results. From which Marty and others have drawn the fairly obvious and quite reasonable hypothesis that neo-liberal economics does not work as advertised.

    I don’t think it’s an obvious or quite reasonable hypothesis redlogix.

    Government policy is only one of many factors in overall economic performance. If government policy were the only factor, and if the economic consequences of government policy changes were immediate and direct, then yes you could probably come up with a pretty graph that could be used as reliable causative relationships between government policy and economic performance.

    I think you would be stretching to suggest this is the case.

    Secondly as vto has pointed out, the major contradiction in marty’s argument is that he accepts that there are other major economic factors in play to explain times of low growth under a Labour government, yet attributes all of the low growth periods under a National government to government policy. It doesn’t matter what side of the debate you’re on. That position really isn’t sustainable.

    • RedLogix 11.1

      I don’t think it’s an obvious or quite reasonable hypothesis

      Great. I can see why because it contradicts what you believe. So what alternative hypothesis do you propose?

      • Tim Ellis 11.1.1

        Yes it contradicts with what I believe but that was not the point I was making Red. Go and read my comment again.

  12. pantson 12

    The problem is that Marty is clearly not an economist (or if he is he went to Waikato university 🙂 ) and his arguments/evidence in this case particularly are so general as to be irrelevant – as further evidence I suggest his post ‘Frontline’ cut for phantom savings’ as well as perhaps the best example of dodgy economic analysis.

    There may well be an effect here as he claims but the data he shows does not come close to proving it either way. Both sides of the debate can “prove” their point based on the above graph. Look to productivity measures, real investment levels, control for govt spending growth and allow for existing structural differences in the make up of each economy. Then you might be getting somewhere. If you do want a facile, easily digested data series to compare and contrast – that is slightly relevant and objective than GDP – look at after tax, private sector, average wage growth adjusted for inflation.

    • RedLogix 12.1

      Great. So if you are such a competent economist I look forward to your non-facile (but still easily digested please) contribution to the debate.

      • Tim Ellis 12.1.1

        The guts of it is Red that if you were to do an analysis of the drivers of economic growth in Australia over the last twenty years, they may be very different drivers as have been experienced in New Zealand over the same period.

        Some of the drivers will be short term and localised (local drought, apple moth affecting exports of one product to a couple of markets, dairy prices boom, mineral prices boom, etc). Other drivers may have longer-term consequences (stability of the banking system, capacity for ongoing, sustainable growth in key sectors, exchange rate volatility, etc). Some of the drivers will affect different economies completely differently.

        Marty seems to accept that there are many drivers and factors that have different kinds of impact on economic performance to explain away poor performance during a Labour government. He doesn’t accept that government policy is just one of many factors driving economic performance under a National Government.

        • RedLogix 12.1.1.1

          I’m short on time right now Tim, so I haven’t got any data to point to, but from memory Australia and New Zealand generally tracked each other for many decades right through the 20th century. This suggests that whatever the different ‘drivers’ on their respective economies that you allude to… overall both economies tended to behave fairly similarly.

          The big divergence happened when NZ went down the neo-liberal track, and Australia didn’t.

          Unfortunately the data series Marty has given doesn’t go back far enough to demonstrate my point. Maybe later.

        • r0b 12.1.1.2

          Redlogix: And by golly gosh these graphs demonstrate the results. From which Marty and others have drawn the fairly obvious and quite reasonable hypothesis that neo-liberal economics does not work as advertised.

          Tim: I don’t think it’s an obvious or quite reasonable hypothesis redlogix.

          Don’t be daft Tim. It’s so obvious and reasonable that it’s the broadly accepted explanation. What you mean is that you don’t agree with it.

          Tim: Yes it contradicts with what I believe

          See, that’s what you really mean.

          Government policy is only one of many factors in overall economic performance.

          So I’ll join the chorus asking you to identify those other factors that were more significant than neoliberal government policy and the massive social reorganisation that it caused, and happened to exactly correspond to the same timeframe as our neoliberal governments of the 80’s and 90’s. What were those more significant factors Tim?

          If you can’t identify them your continued adherence to counterfactual beliefs is rather worrying don’t you think?

          • Tim Ellis 12.1.1.2.1

            I hate to disappoint you, but it’s not a chorus r0b. It’s a solo. Yours is the only voice and it’s out of tune.

            • r0b 12.1.1.2.1.1

              Your reply was everything I expected it to be Tim.

            • felix 12.1.1.2.1.2

              Come on Timmeh, time to shit or get off the pot.

              What were the other factors which are more important than those identified by Marty’s hypothesis?

              No more fucking around please.

  13. pantson 13

    Red – I told you where to look – what else do you want? Show some entrepreneurial spirit rather than waiting for a free hand out.

    If I’m going to write research (which I do) I’ll continue to do it in the forum where I get paid for it…….

    • RedLogix 13.1

      It was you making the claim that the ‘after tax, private sector, average wage growth adjusted for inflation’ data series was relevant … so put up or shut up.

      Besides, it is you who is the competent, non-Waikato U qualified economist.

  14. pantson 14

    Thank you for calling me competent and correctly assessing I did not go to Waikato. Look, I’m not trying to start a war here – I think I have been very helpful. I haven’t focussed on what the right answer is – to be honest I don’t know as I haven’t researched it myself or read other research. What I have done in a long post is point out why GDP is a flawed measure for some purposes. And I have pointed out a reasonable, easily found data source that will provide some better insight into the hypothesis Marty made. It may well provide additional support to his hypothesis – I don’t know. But just because someone has the “correct” ideological viewpoint doesn’t mean their analysis will be foolproof, as it clearly is not in this case and many other Marty cases.

    If I were to try and prove/disprove Marty’s hypothesis I would plan on spending a not inconsiderable amount of time reviewing literature and about the same time again analysing data and writing it up. And quite frankly, I’d rather go and sort the garden out on a remarkably pleasant weekend (for a change). But I would urge you to spend some time digging into data and posting a more defensible view (whatever it is) than the crapola above.

  15. Anthony Karinski 15

    Nothing new in this really. Same thing happened in the former USSR states in the early 90’s. Russia went free market deluxe under Jeltsin, orchestrated by American economists who oversaw the fire sale privatisation. GDP, unemployment, crime, social ills – you name it took a massive turn for the worse. In fact Russia has just recently gotten back into the same GDP figures as they had before the iron curtain dropped. As for NZ, the ordinary men and women in the streets of Moscow didn’t like the reforms much and thus we now have strongmen like Putin who for better or worse stamped his authority on the country and wrestled back some control over the economy.

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