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Nats have held us back for four years

Written By: - Date published: 7:47 am, May 8th, 2013 - 20 comments
Categories: debt / deficit, economy, national, spin - Tags: , , ,

It has always been clear that the NZ economy would get back on its feet one day. Thanks to the previous Labour government’s prudence (zero net government debt) we weathered the global financial crisis in good shape and were out of recession in the June quarter of 2009, before the Nats’ first budget.

We should have taken off again then, like Australia, but Australia had a plan and we did not. We had the Nats. Their misguided “expansionary austerity” budgets stifled the recovery. Instead of “roaring out of recession” or the “aggressive recovery” that we were promised, we have just limped along – because the Nats cut when they should have (like Australia) stimulated the economy.

The evidence for the foolishness of austerity measures is growing ever stronger, as Britain (where the Tories are the leading proponents of this nonsense) has gone to the brink of a triple dip recession. Paul Krugman has been leading the criticism:

Paul Krugman’s call to arms against austerity

An interview with the Nobel prize-winning economist, whose book roundly attacks the ‘delusional’ deficit-reduction strategy

…More than four years on, austerity is being questioned as never before, not least because most countries implementing a deficit-reduction policy have failed to grow. Krugman, his blog and comments on Twitter, have become the focal point for objectors worldwide.

Speaking to the Guardian to publicise the second edition of his book End This Depression Now, he argues that his battle will go on until policymakers realise that their reliance on deficit reduction is a “delusional” misreading of basic economics. But despite his persistent criticism, austerity remains the default position for most western governments.

Here in NZ our own Bernard Hickey is the voice of reason (though he could learn a thing or two about snappy headlines!):

NZ PM Key defends government drive to return to surplus and start reducing debt despite doubts overseas that ‘expansionary austerity’ is actually working

Prime Minister John Key has defended the government’s focus on returning to budget surplus and reducing the government’s debt load, saying it made sense to strengthen the nation’s balance sheet through government debt reduction, given households remained indebted and foreign debt was still high.

He also warned that higher debt could trigger credit rating downgrades that increased New Zealand’s interest rate premiums.

His comments followed intense debate over the last month in Europe and the United States over a strategy of reducing government debt to improve economic growth rates.

The strategy has relied on academic research by US economics professors Carmen Reinhart and Kenneth Rogoff into the connections between government debt and economic growth, in particular in this academic paper ‘Growth in a time of debt’ published in 2010. It suggested a tipping point was reached when government debt rose over 90%, significantly reducing growth rates to below zero%.

However, those conclusions were questioned last month in another academic paper which said the Reinhart/Rogoff was based on a spreadsheet error and was skewed by the omission of data on episodes of high debt, including, most importantly, in New Zealand from 1946 to 1949, when our country showed both high growth and high debt. …

However, Key said the government remained committed to its strategy of returning to surplus by 2014/15 and then reducing debt from almost 30% of GDP in 2017 to 20% of GDP by 2020. The Reserve Bank pointed out in its March Monetary Policy Statement that the government’s austerity strategy was driving a tightening of fiscal policy equivalent to 3.2% of GDP over the next four years, which was a factor dampening momentum in the economy.

Well we’ve been here before, but currently we have  another round of “green shoots of recovery” type stories, and talk of an optimistic budget.  No doubt we’ll be hearing a lot more of this spin, but keep in mind that the bulk of those “green shoots” are due to factors beyond the Nats’ bidding (the stimulus of the Christchurch rebuild, and the good performance of old Labour-built assets the NZ Super fund and ACC). Unfortunately as Russel Norman points out, the real economy of the jobs market and the tradeable sector is still getting worse.  

We will get there in the end no doubt, but it will be in spite of this bungling Natational government, not because of them. All National have done is hold us back for four years.


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20 comments on “Nats have held us back for four years”

  1. Draco T Bastard 1

    But despite his persistent criticism, austerity remains the default position for most western governments.

    Yeah, and the reason why that is so is because austerity helps transfer the communities wealth into the hands of the few. Stimulatory policies, like raising taxes on the rich and increased government spending, do the opposite.

    Prime Minister John Key has defended the government’s focus on returning to budget surplus and reducing the government’s debt load…

    So, how much per week is this government presently borrowing?

    What we really need to do is drop the delusional economics system and the theory that supports it. Until we do that, our society will always be held back and poverty will be rampant.

    • One Anonymous Knucklehead 1.1

      “…do the opposite.”

      Are you sure? My impression was that austerity gives them (the “few”) a larger percentage of a much smaller pie, so they end up worse off in real terms.

      Probably just faulty memory on my part.

      • Pascal's bookie 1.1.1

        Over the long run. But given the marginal utility value of a dollar when you are pulling in millions of the damn things, the only thing that counts is the relativities. Real terms doesnae get a look in, the numbers are as arbitrary as a role playing game’s ‘Experience points’ score.

      • It is the creation of a crisis that is all important. Once the crisis is going they then have to hock all of the state assets off to their mates. Then they just sit back and wait for the money to start rolling in …

        • Draco T Bastard 1.1.2.1

          +1

          Exactly and that is what this government are doing. Create or use a crisis to sell off the states assets making the people poorer but a few very much richer as they now own and control the resources that the many need – the resources that the many once owned.

        • Rich the other 1.1.2.2

          Why don’t you buy a few shares ?, there’s still time to become one of their mates.

          • Murray Olsen 1.1.2.2.1

            Why not? Maybe because I believe society exists and those who want all the wealth for themselves are parasitic scum. Maybe I know that a rising tide lifts all boats, but many of my fellow humans have had their boats taken off them, or have never had one. Maybe I’m just choosy about my mates.

          • Mike S 1.1.2.2.2

            Yeah, I agree, he should eat cake too.

            twat

  2. Pascal's bookie 2

    Remember when English step-changed the economy away from the housing sector and towards productive ‘proper’ jobs by slashing the shit out tof he top marginal tax rates?

    Remember when after that, when it didn’t seem to be working, he defended himself by saying that the low unemployment under Labour led governments was fake because it was propped up by house price inflation?

    Now watch this drive. *schwing*

  3. Colonial Viper 3

    Outstanding (though US-centric) documentary on massive inequality, the attitudes and people which have brought it about, and what to do about it.

  4. ianmac 4

    National has mis-managed the Economy for Fourrr Loooong Years and ……..

  5. DH 5

    Nats might be crap but this guy doesn’t inspire any confidence either;

    “David Parker: The rights and wrongs of regulation”

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10882038

    Parker is saying he wants to remove a lot of the existing regulations in the ‘competitive markets’. Nice one, an open invite to every white collar crook in the country.

    • Draco T Bastard 5.1

      Yep, just as it was in the 1980s and 1990s. The reason why the 5th Labour government actually started putting that regulation back.

    • Enough is Enough 5.2

      I have often qustioned Parker’s commitment to the labour movement. He loves the politics of opposing the Nats but I quite often think he would be better suited in their camp.

      I don’t think he will advance the movement in a way a labour finance minister should.

      • DH 5.2.1

        He does give that impression. These free market theorists just don’t seem to grasp the fact that business attracts a lot of ethically challenged people, they’ve got this bizarre notion that competition keeps everyone honest. Nothing could be further from the truth.

        The easiest way to be ‘competitive’ in business is to bend & break the laws. If we don’t have strong regulation, and even more important robust enforcement of regulation, then we end up with the wrong people dominating the business sector. That’s pretty much the scenario we have now and he wants to let more of them in.

        • Draco T Bastard 5.2.1.1

          +1

          Without regulation we don’t have a market – we have a free-for-all with the biggest and meanest sharks ‘winning’.

  6. Grantoc 6

    “The real economy of the job market…..is still getting worse”

    Really.

    If Norman is referring to unemployment, this is currently around 6.9% in NZ and predicted to drop to 6.8% in the very near future. During the whole of the GFC period it’s remained well below 10%, a regular level for most other western countries,.

    Australia and the US currently enjoy similar unemployment rates to NZ.

    Most European countries still experience unemployment at 12% or above. It was a lot higher during the period of the GFC.

    The basket case economies of Greece and Spain (maybe Ireland too) are in the 25% -30% unemployment range. (Partly as a result of the growth of the state at the expense of the private sector).

    By contrast NZ has done very well both economically in general and in the job market in particular.

    Norman either doesn’t know what he’s talking about, or he’s making it up for political reasons.

    • Mike S 6.1

      Or maybe you don’t understand how politicians arrive at an unemployment figure in this country?

      If it wasn’t for all those people moving to Aussie and all the jobs needed for rebuilding Christchurch, even the official figure would be horrendous.

      But you hit the nail on the head in regards to the direction of this article. European countries are practicing austerity and have high unemployment. The basket cases have extreme austerity and extreme unemployment.

      Austerity does not (and has never in the history of economics) worked.

      • Grantoc 6.1.1

        Mike

        I note I was conservative in my assumption about how much unemployment would drop by in NZ; as you will have heard its dropped to 6.2% according to the latest figures. I also note that the number of new jobs has increased. These are official figures; not those spun by politicians.

        I’m ambivalent about the austerity verses throwing money at the problem argument. I suspect that decisions on this should be made on a case by case basis.

        In the case of Greece in particular austerity is inevitable because of the way that government and that society recklessly spent and squandered borrowed money. In their case most of the borrowings were spent on such things as unrealistically generous superannuation plans; a bloated public service (public service jobs for life/salaries significantly higher than the private sector etc), massive tax avoidance and so on. Little if any of the borrowed money went on stimulating the productive sector of the economy – which is the point presumably of “throwing money at the problem”.

        Greece and, I suspect, Spain’s extremely high unemployment rates are an outcome of this economic behaviour; austerity is the consequence not the cause.

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