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National has blown it

Written By: - Date published: 2:22 pm, April 23rd, 2009 - 37 comments
Categories: economy, national/act government - Tags:

National cannot be blamed for the current financial crisis and recession of course. But they can be blamed for their short sighted and inadequate response. Stuck in old ways of thinking (cut spending, cut jobs, sell stuff) they have done nothing to stimulate the economy. All their talk of extra spending turned out to be just rebranding existing spending (see here and here), or moving money from one project (public transport) to another (more highways). The talk-fest jobs summit resulted in nothing – a token cycleway (now axed) and a nine day fortnight plan (going nowhere). Where was the leadership? Where was the vision?

Well, the chickens are coming home to roost. Borrowing and hoping not an option, says English:

Finance Minister Bill English is setting the scene for a grim Budget next month with the likely cancellation of personal tax cuts in 2010 and 2011. … Government spending growth cannot continue at this rate, particularly with revenue falling so significantly in the current environment.

Govt looks to bite bullet and cut debt:

Next month’s Budget looks set to be a grim affair focused on reducing the country’s ballooning debt and eschewing any major prime-the-pump spending initiatives. … “The preliminary forecast has shown such a strong increase in debt that we don’t think there is room for any significant fiscal stimulus at the moment,” he [English] said.

National should have acted sooner and stronger. Instead of going on holiday after the election, or rushing through their own narrow agenda under anti-democratic urgency, they should have been addressing this crisis while there was still time. They had it wrong then, and they still (according to the IMF) have it wrong now:

It [the IMF] again spelt out the case for a strong fiscal policy response, with the Government acting as the “spender of last resort” to break the negative feedback between weaknesses in the financial sector and the real economy.

National had their chance, and they’ve blown it for all of us..

37 comments on “National has blown it ”

  1. gingercrush 1

    What a stupid guest post.

  2. Pat 2

    I agree, Guest Poster! They should have done all the things you said, which were … um … sooner … stronger …

    By all means attack the colour blue, but maybe put forward some fresh ideas.

    • BLiP 2.1

      What? You want anti-National people to put up fresh ideas – why’s that? Are you another National Party policy wonk scratching around at The Standard for fresh ideas to take to the leader as he sits jabbering and twitching in the corner while the economic depression rolls in the front door.

    • Quoth the Raven 2.2

      Pat – Many ideas are thrown around, you just have to look. The idea of the post was not to put forward new ideas it’s just providing a criticism of what National has done or hasn’t done, however the case maybe. I don’t agree that a big spend up is what’s needed, but there are things National could have done differently. For instance, if they had targeted their tax cuts to those on low incomes instead of towards the rich, as many people have said here and as many economists can attest, it would’ve provided greater stimulus to the economy.

  3. Pat 3

    Trust me, BLiP. No-ones ever gonna steal YOUR ideas.

    • ripp0 3.1

      “steal” is it..!

      always wondered what happened to all those submissions folks made public…

      I suppose the point about.. right now.. is the pre-empted stuff is pretty useless.. when the call to responsibility strikes…

  4. bobo 4

    When will the media start using the words “broken promise” over using the current line of “modify their policy in the current economic climate” ?

  5. Bobo – not a good idea to bring up flip flops anymore. It seems to have been catching.

    One of the problems – ignoring of course the scale of the problem – is that while Labour did much good in paying off debt, the same can’t be said for Govt expenditure.

    The following quote comes from the Stuff linked referenced above:

    He said Government spending growth had to be reined in: Crown spending in the year to June 30 was expected to be $63.5 billion up $21.6b or 51 per cent from five years ago while the economy grew by only 23 per cent.

    Now based on the fact that another Standard post appeared to blame Key for the doubling in his PM salary, I can only assume that the increase in Crown spending can now be blamed at Key.

    • Maynard J 5.1

      I would probably blame the stats there – WfF and Kiwisaver are included in there. If that spending isn’t being cut (and it isn’t. well, KS is being cleaved asunder. but the Independent Earners’ Credit would make up for a good chunk of that) then any spending cuts will be disproportionally large. If they’re based upon flawed logic like the statement you mentioned from Bill.

      Pity the Government won’t consider borrowing to sitmulate the economy – debatable whether there’s a case for it, but the IMF and the rest of the world thinks so – and will only borrow to stimulate their ideology.

  6. gingercrush 6

    Pity the Government won’t consider borrowing to sitmulate the economy – debatable whether there’s a case for it, but the IMF and the rest of the world thinks so – and will only borrow to stimulate their ideology.

    Why can’t you grasp that New Zealand is already at its debt levels just maintaining current services how the hell are they expected to borrow and stimulate the economy. When there is no evidence that the countries that did stimulate their economies in terms of stimulus packages. The US, Great Britain, Australia are not working.Japan too is stimulating their economy by borrowing billions. It isn’t working and it didn’t work in the 80s either.

    To answer you Kevin. The post is stupid because it completely misses the point of this recession and further to actually believe one could spend billions and somehow the economy would be fixed is an absurd assumption.

  7. So ginger… the Herbert Hoover approach rather than the FDR approach?

    • gingercrush 7.1

      No one is doing a FDR approach. Anyone that seriously thinks any plans by any country mirrors what FDR did are smoking something. Likewise, no one is doing the Hoover approach either. Both of those approaches were problematic. No doubt about it. But this recession isn’t the same as that one hence why we shouldn’t be looking back to the 1920s/1930s.

      Don’t get me wrong. I have nothing itself against stimulus. Its rather healthy. I just don’t believe the plans as implemented by many countries are any good in the short or long term. And I worry that the american stimulus package will cause more problems than solve them in the long term.

      —-

      The OCED said we were already at our limits for stimulus and they recommended we did no more. Or do we just ignore that report because it doesn’t tell us what we want to hear? Yes its neo-liberal and some of the proposals in it were pathetic. But they had some truth to them. Health is and will be a problem long-term. I just don’t think privatising it is the solution (as the OCED report recommended). But it does tell us is that changes in health will be necessary in the future. National Radios Nine to Noon had an excellent story with Brian Rudman. Hardly right-wing. He too says there isn’t much New Zealand can do. I just wish people would realise that.

      We either ride the recession out and supply some stimulus while reducing or at the least maintaining debt or we take a far-left regime of dismantling capitalism. In my eyes, those are the only two solutions New Zealand can do. I know which one I would go for.

      • jarbury 7.1.1

        Good post ginger. As has been said before, you’re certainly a cut above most right-wingers in how you put forward your arguments.

        Certainly there is good stimulus and bad stimulus. Some of the efforts made in the USA are good – like the high-speed rail proposals that will put a lot of people to work (even in simply designing them) and will also assist the USA in the long-term future. However, there was certainly a lot of stupid ‘pet projects’ that made it into the stimulus package. The same with Australia really, some good moves but also some stupid stuff – like giving people a lump sum payment of money (which of course most used to pay down debt or they saved).

        I fail to really see what stimulus has happened in NZ so far. A few roading projects were brought forward, money was shifted from public transport to road construction…. a couple more schools were built, 60 odd state houses (whoop de doo, Labour has pumped out 1000 a year). Tax cuts, though they weren’t even really additional spending, just money shifted from Kiwisaver (and most of the extra money went to those rich enough to save it or pay off debt).

        Regarding what you say about the health system, I couldn’t agree more. In the long-term we’re screwed. Why do you think the Green Party is into banning unhealthy food from schools and other health promoting policies? They realise that in 20-30 years time we’re going to be up shit creek regarding the costs of our health system versus the tax dollars we’ll be able to afford.

  8. Nacts ( by association maori & the greens) -Three strikes, you’re out.
    You over-egged the bribe/promise pudding to buy this election you mutts.

    I’m sorry, we were about to have a cleansing ceremo…i mean Change the government just now But Due To A Technical Fault we will have to keep bringing you this sorry lot for the next year and a half.
    Over to you John. Keep going John. John?
    could you please push… oh good, here we go.

  9. outofbed 9

    Nacts ( by association maori & the greens)
    Why the Greens ? are you an idiot ?

  10. Greg 10

    When did we come to the conclusion that fiscal stimulus was a good response to the current crisis? The economists out there seem pretty divided on the issue. Therefore any stimulus seems like a very big lottery to me.

    • Pascal's bookie 10.1

      I’m not quite following the logic there Greg. Surely if the economists are divided then either way is gamble. The bigger gamble would be going with the minority opinion I suppose. Most economists seem to be saying that stimulus is needed as part of the response.

      Many of those ‘most’ are nobel winners and/or people that have been saying the system was heading for trouble. Many of those opposed to stimulus are neo liberals that have lead us down a path of deregulation and so on. on the basis that the market can regulate itself, that the market can discipline actors, and the rest of the supply side axioms. TINA we was told. And here we are.

      TINA is back in town perhaps, and she’s wearing a new dress.

  11. mike 11

    What a pathetic post
    The obama method of throwing billions down the shitter is being critisised more each day as drowning the future generations under a mountain of dept.

    Come 2011 Key’s brilliant vision, pragmatism and restraint will be hailed and the dirty socialists banished for another term or two.

  12. r0b 12

    What a pathetic post

    What a compelling counter argument. Not.

    The obama method of throwing billions down the shitter is being critisised more each day as drowning the future generations under a mountain of dept.

    Yes, Obama has the wrong model and is wasting his billions propping up failed banks. He’s not being criticised for spending, he’s being criticised for spending in the wrong places (“wall street” not “main street”). We don’t have failed banks here, so the Nats can’t make that mistake. Their mistake is that they’re doing nothing at all. Nothing.

    The IMF and most major economies agree that increased government spending softens the impact of the crisis and speeds recovery. Yes it increases dept in the short term, but if it heads off the downward spiral and the economy recovers that debt gets paid back. If you do nothing the downward spiral gathers speed, which is where we seem to be in NZ.

    As for suggesting alternatives, how about this. Cancel the April tax cuts, or redirect completely to low income earners (who will spend it and actually stimulate the economy). Institute capital gains tax. Cancel the useless broadband spend up. Borrow some if necessary. Invest in real infrastructure: (1) proper public transport – not a piddling cycleway but light rail mass transit systems in and around as many major cities as possible, and (2) renewable energy sources, sun, wind, tide. This would bring the short term benefits of “fiscal stimulus” and the long term benefits of reduced carbon emissions, more liveable cities, and less dependence on declining world oil supplies.

    But no, the Nat response is to ignore the international consensus, do nothing, and hope for the best. They can and will be blamed for the disaster that follows.

    • Pascal's bookie 12.1

      I bet Bill English is thinking about what happened to the tory vote after they let Richardson loose. MMP is not as forgiving. I’m not expecting anything great from him, but I think the more fervent righties are going to be far more disappointed in him than I.

      Which itself might have electoral implications.

      If 18 or so months from now, ACT polling starts going up at National’s expense, National could start losing voters from the centre as well, who will be worried about a stronger ACT presence. that’s the problem with Key’s borg style of government. You are making a coalition out of people with fundamental differences, and the centrists will be asked to choose…

      • gingercrush 12.1.1

        PB – The far right fanatics are already pissed off with the John Key government. They’re already expecting the worse. Nothing will please them until Roger Douglas is made Finance Minister. Though one of those fanatics think the solution is making Judith Collins leader of National.

        Such people are likely already voted Act and will keep voting Act or there is about 2% of the voting public out there for them. I honestly don’t believe the fervent right-wing blog readers represent much of New Zealand whatsoever. I would contrast that with some of the people here at The Standard that have far-left views that don’t exactly reflect the left-wing vote either. I do believe Act are capable of reclaiming 5% and I think that would be quite healthy.

        I don’t believe a stronger Act represents any danger for National and the centre. National is far more likely to lose the centre to Labour themselves as they eventually get some traction again. Something that they just have to wait for.

  13. BR 13

    “Stuck in old ways of thinking (cut spending, cut jobs, sell stuff) they have done nothing to stimulate the economy.”

    The best way to stimulate and economy in good times and bad, is to slash government spending and slash taxes. This will put more money back into the pockets of those who have earned it, and give them the options of spending their own money how they see fit instead of having someone else spend it for them.

    When you spend your own money on yourself, you care how much you spend, and how well you spend it.

    When you spend your own money on someone else, you care how much you spend, but don’t care how well you spend it.

    When you spend someone else’s money on yourself you don’t care how much you spend, but do care how well you spend it.

    When you spend someone else’s money on someone else you don’t care how much you spend, or how well you spend it, and this is the reason government spending is so inefficient, wasteful and obstructive.

    Who needs crap government services anyway. Apart from a few core functions, I sure as hell don’t.

    Bill.

    • DeeDub 13.1

      Bill: “Who needs crap government services anyway. Apart from a few core functions, I sure as hell don’t.”

      … and YOU’RE all that matters, eh Bill?

      Screw everyone else then?

  14. outofbed 14

    I think BR would be more at home in Somalia No Gov Services whatsoever
    I’ll contribute to his fare

  15. Greg 15

    “‘m not quite following the logic there Greg. Surely if the economists are divided then either way is gamble. The bigger gamble would be going with the minority opinion I suppose. Most economists seem to be saying that stimulus is needed as part of the response.

    Many of those ‘most’ are nobel winners and/or people that have been saying the system was heading for trouble. Many of those opposed to stimulus are neo liberals that have lead us down a path of deregulation and so on. on the basis that the market can regulate itself, that the market can discipline actors, and the rest of the supply side axioms. TINA we was told. And here we are.

    TINA is back in town perhaps, and she’s wearing a new dress.”

    But it ain’t a minority opinion, not in the economic world at least. Yes Paul Krugman is a vocal supporter of stimulus and did win a nobel prize, but others (like Greg Mankiew for example) have a similar background and similar experience and come to a completely different conclusion. If anything it would seem that the minority opinion in the economic world is against the stimulus.

    If you get it wrong you burden future generations with debt for no gain and essentially completely screw over the economy (kinda like what Muldoon did but on a much larger scale).

    And you cannot be convinced without a doubt (whatever your political beliefs) that stimulus is the best way to go, not once you’ve read the robust debate going on between economists at the moment.

    • Pascal's bookie 15.1

      Thanks for the reply Greg.

      I think we may be talking past each other a little, or I may have misinterpreted your comment that I replied to.

      In that comment you seemed to be saying that the idea of stimulus per se was controversial. This is sort of carried on in your latest comment, but when offering support by the way of Mankiw it becomes “the stimulus” (presumably Obama’s), before reverting back to general stimulus in your last paragraph.

      Mankiw has his opinions, and he certainly doesn’t like Obama’s package, but to claim that he is against govt stimulus at all would mean that he has apparently changed his mind since Nov:

      http://www.nytimes.com/2008/11/30/business/economy/30view.html?_r=1

      IF you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront.

      You don’t point to any other supposed anti stimulus folk, and yet I guess you meant to say that they are actually the majority. I don’t follow the debate intently, but I do follow it. Most treasuries around the world are fiscally stimulating. The RB’s are using monetary policy to stimulate, the world bank and the IMF are urging stimulus. As well as Krugman there is Stiglitz and Galbraith who are all also critical of Obama’s package, for different reasons than Mankiw of course. And Mankiw at least in the above piece doesn’t offer an alternative to Keynes, but says he is the man ‘you would look to’.

      Mankiw was one of Bush’s chief economic advisors no? I think it would be fair to say that his record is mixed.

      I think Muldoon is a red herring to be frank.

      The last global depression was eventually fixed by massive government spending. Yes this generated a lot of debt. After wwII most countries had enormous debts. It took a long time to pay that debt off, and yet the period from 1950 to the mid 70’s (under Bretton woods) saw the fastest economic expansion probably in history. They were doing something right. take a look at the graph at the bottom of page 6: (warning pdf)

      http://www.imf.org/external/pubs/ft/weo/2000/01/pdf/chapter5.pdf

      I’m not saying that this or that stimulus package is foolproof, or that any given package is uncontroversial, but only that some sort of stimulus package is being recommended by a seeming majority. Which is what you questioned in your first post quite strongly.

      Everyone recognises that there is a price to pay for that in terms of debt, but what I’m not hearing is the counter risks involved in doing nothing.

      I don’t know why you think I should be ‘without a doubt’. That’s a remarkably high bar don’t you think? All I am saying is that it as least as much of a gamble to do nothing, a point which you haven’t here at least, addressed.

      • RedLogix 15.1.1

        Problem is PB, is that New Zealand’s total debt is already at the maximum can be sustained. Sure our public debt is low (and if that were not the case we would already crashed and burned big time)… but our total private and business debt is far too high (aprox $180b) and worse still 60% of that is ‘hot money’ being rolled over short-term by our banks overseas every 120 days or so. Anymore debt and our credit rating gets hammered, and cost across the board rise. Gets worse than that and no-one will lend to us at any price.

        Not too many commentators have realised the significance of the $50 billion dollar ‘hole in govt accounts over three years’ announcement this week. That is roughly $17b pa… or about 34% of core govt expenditure.

        Overseas lenders look at our total debt profile, our volatile currency risk, the huge global uncertainties…. and Bill English going around with cap in hand is not the first man on anyone’s dance card. The fatal mistake was that he has painted himself into a corner by politically committing his Party to PAYE tax cuts at a time when GST is falling (in line with dropping GDP and increased repayment of debt) and Company tax receipts falling into the toilet .

        There will be no ‘stimulus’ here in NZ . English has no choice but to cut expenditure… and massively.

        • r0b 15.1.1.1

          There will be no ‘stimulus’ here in NZ . English has no choice but to cut expenditure and massively.

          English had a choice though, and he blew it. Even now he could reverse / rearranges the tax cuts in the budget. But National lack the will to do what is required. Instead they will sit and watch it all fall apart.

  16. jarbury 16

    Seems like private debt is the huge problem here. Why is it so big and what can be done about it?

  17. RedLogix 17

    Why is it so big and what can be done about it?

    Finally someone asks the right questions.

    Why is it so big? Because a greedy, de-regulated banking industry realised that the best way to rack up huge profits was to lend out massive amounts of credit. They did this by reducing LVR ratios and relaxing income history requirements. (So called ‘lo-docs’.) If two people with say $100k of equity are bidding on the same house; one of them has a bank that does a traditional LVR of 80%, then he can bid to a maximum of $500k on the house. The woman next to him has a bank that will go to 90% LVR. She can bid up to $1m. Of course she does go that far, she only has to go to $501k and she wins the bidding.. and of course the vendor happily takes the cash.

    It was the banks that irresponsibly drove the property bubble, competing for ever bigger slices of a hugely profitable business. It is the banks that should take the pain of cleaning up the resulting crisis… not us.

    Ask the right question, the answer is obvious. The banks must be nationalised, their shareholders and bondholders told that they have lost their money; the senior layer of management sacked and the rest of the business (the daily main-street branches, ATM’s and regular, prudential mortgage and business lending) kept running with direct Reserve Bank oversight, backing and Govt bonds.

    Then every mortgage is reset by $200k, back to sane sustainable levels. That’s right, wipe the credit off the books. It was only printed out of nothing in the first place, it can be made to go away in the same fashion.

    Of course NZ probably would not, could not, pursue such a strategy on it’s own. But eventually the rest of the world will have to. They will try everything else first, there will be 20-30% unemployment, the global economy will be in ruins… but finally they will have no choice but to break the power of the banking oligarchy who have held a gun to our heads and demanded we fund their failure, their losses, and their fraudulent ponzi schemes.

  18. jarbury 18

    So most of our private debt is mortgages I guess…. balanced by house prices that are probably 25% over-valued (at least).

    Hmmm… and here I was hoping that we’d seen the worst of things.

  19. Greg 19

    Pascal.

    You raise some interesting points, rest assured a response will come, its just a little late right now for me to find the necessary evidence to back myself up! Check back tomorrow.

    Also, thanks for managing to disagree while remaining civil!

  20. Greg 20

    Pascal,

    Your right, I have inter-changed ‘stimulus’ terms a bit. To clarify: I am making the assumption that those who promote a stimulus plan in NZ promote one broadly along the same lines as the Obama plan. Ie massive increases in government debt to an unprecedented level in order to increase spending and theoretically ‘stimulate’ the economy. The is where Muldoon comes in ( and your right, I did not justify myself that well here) in the 1970’s he borrowed heavily from overseas to fund ‘Think Big’. A concept that was intended to curb unemployment and therefore stimulate the economy. Broadly along the same lines as Obama plans to. He just about bankrupted the country.

    On Mankiw,

    I take a different reading of the article you refer to. In my opinion he is applying Keynesian theory to the current crisis, not promoting it. Indeed in the conclusion he states:
    “The fly in the ointment — or perhaps it is more an elephant — is the long-term fiscal picture. Increased government spending may be a good short-run fix, but it would add to the budget deficit. The baby boomers are now starting to retire and claim Social Security and Medicare benefits. Any increase in the national debt will make fulfilling those unfunded promises harder in coming years.’

    This is Mankiw’s self professed own opinion on the subject: http://www.nytimes.com/2009/01/11/business/economy/11view.html?_r=1&partner=permalink&exprod=permalink

    He seems to be claiming that this stimulus is a massive gamble.

    Yes Mankiw was one of Bush’s economic advisors. However it would not be fair to say that all economic policies come directly from the advisors. Indeed Bush’s economic policy was by no means the major criticism of the Bush administration.

    On other economists:

    Here are a few that disagree with the idea of stimulus: http://www.cato.org/special/stimulus09/alternate_version.html

    Krugman himself acknowledges that many of the worlds top economists disagree with him: http://krugman.blogs.nytimes.com/2009/01/19/economists-ideology-and-stimulus/

    “What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion. You’ve got John Taylor arguing for permanent tax cuts as a response to temporary shocks, apparently oblivious to the logical problems. You’ve got John Cochrane going all Andrew-Mellon-liquidationist on us. You’ve got Eugene Fama reinventing the long-discredited Treasury View. You’ve got Gary Becker apparently unaware that monetary policy has hit the zero lower bound. And you’ve got Greg Mankiw — well, I don’t know what Greg actually believes, he just seems to be approvingly linking to anyone opposed to stimulus, regardless of the quality of their argument.’

    On other countries:

    I would be very weary of justifying stimulus with the argument that “everyone else is doing it’. Politicians often choose the wrong path the incentives are in the wrong place. Their number one goal is to stay in power and therefore will put in place what sounds good to the general public. Who was it who said “the worst thing a politician can do is to do nothing’. A stimulus plan sounds good and is easy to sell. Economists on the other hand a solely concerned with maximising utility (or welfare) thats why we should be worried if a large number agree that the stimulus plan is not going to achieve this (and will probably do the reverse).

    On looking to the past,

    I would contend that it was not the massive government spending that fixed the last global depression oil played a much bigger role. There will always be ups and downs, but there is a difference between falling down and falling flat on your face this is what Obama’s stimulus plan risks.

    To conclude,

    If we do nothing we will pay the price we have to pay and no more. Stimulus could well lead to us paying a much higher price. Personally I would advocate slashing government spending and cutting taxes (but that’s just me and a whole different kettle of fish).

    I set the high bar because the costs of getting it wrong are so high. If the stimulus plan doesn’t work you have massive government debt for no result this could ruin an economy.

    I guess what I’m saying is doing nothing may not be the best option but it is better than the gamble on the stimulus.

    I look forward to your reply.

  21. BR 21

    >>Bill: “Who needs crap government services anyway. Apart from a few core >>functions, I sure as hell don’t.’

    > and YOU’RE all that matters, eh Bill?

    >Screw everyone else then?

    That is a ridiculous comment. If you want to use any government service that not everyone has an equal stake in, it should be paid for separately.

    Bill.

    >I think BR would be more at home in Somalia No Gov Services whatsoever
    >I’ll contribute to his fare

    Where I have ever supported the view that there should be no government?

    Bill.

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