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Repeating our past mistakes

Written By: - Date published: 2:35 pm, December 23rd, 2009 - 18 comments
Categories: economy - Tags:

Since Marty’s away, no pretty graphs.

There’s not much Christmas cheer in the new GDP numbers I’m afraid. The economy grew at just 0.2% in the September quarter (the forecast was 0.3%). That’s below the rate of population growth, so economic output per person continues to fall. GDP per capita is down 5%, $2000 a year, from the peak and back to 2003 levels

Just as concerning is the source of this mediocre growth. Manufacturing is still falling, so is construction. All the growth is in the finance sector; the rest of the economy is still shrinking. Investment in new capital (houses and business capital) is still falling while private consumption is up.

Put that all together and it adds up to a simple and unsettling statement: we’re consuming more but not producing more, and we’re not investing in a more productive future. We’re buying more stuff (from overseas), spending more to buy existing houses while not building new ones, and we’re borrowing to do it.

The pitiful growth we are experiencing is not the export-led recovery our do-nothing government promised it was working towards. It is the beginning of a return to the same pattern of borrowing, housing speculation and over-consumption that got us here in the first place.

[so what about the good current account numbers yesterday? Turns out its thanks to the $1.3 billion in stolen tax we got back from the Aussie banks, not some exporting miracle]

18 comments on “Repeating our past mistakes”

  1. “export-led recovery”

    Why would anyone care about exports? The implied “exports good, imports bad” thinking in this is just mercantilism all over again. I have made the point Imports good; exports bad before.

    • Bright Red 1.1

      That’s because you’re a tool, paul. A tool of a failed ideology that has just seen your heroes, the money-men, become the biggest welfare queens of all time and thrown millions of ordinary people worldwide into poverty.

      A country simply cannot continue to buy more than it sells forever. To finance that it has to take on more and more debt, and sell its assets. We sent over $7 billion a year to our foreign creditors and owners in the last year, and that number was smaller than usual because of the recession, the previous year it was $13 billion. We’re talking 4-7% of GDP here. It’s like the country is already entirely foerign-owned and they’re creaming off a healthy annual return from our labours.

      Continue to import more than we export and the investment position gets worse until it all comes tumbling down when the credit dries up or the debt bills get too big. Down that road lies Iceland, Ireland, and Greece.

      • Paul Walker 1.1.1

        So? Current account deficits/surpluses are self correcting.

        If you are so worried about the balance of payments between NZ and the rest of the world, are also worried about the BoP between the South Island and the North? If not, why not?

        • Bright Red 1.1.1.1

          “Current account deficits/surpluses are self correcting.”

          Yeah, like Ireland’s is eh, Paul? 12% unemployment, 11% GDP decrease. Two years of recession. Slashed public services.

          Oh I do love the invisible hand at work. It picks you up and then slams you down. But hey, you end up where you started, so it’s self-correcitng and that means its OK.

          This is the problem with you and your entire ideology. You can’t see the human cost of what you’re saying. You see a correction, not the human misery that entails, or you do see and you don’t care because it’s not measurable, you can’t put it on a spreadsheet nice and easily, you can’t count it in dollars. That’s the bankruptcy at the heart of your worldview – you think the economy exists for its own sake, not for humans, we’re just cogs in its wheel to you.

          And if you don’t understand the difference between capital flows within an economy (within a currency, within a tax base, within a single regulatory system, under a single government etc) and flows between economies you really have a problem.

          • Paul Walker 1.1.1.1.1

            “And if you don’t understand the difference between capital flows within an economy (within a currency, within a tax base, within a single regulatory system, under a single government etc) and flows between economies you really have a problem.”

            There are no economic differences between the two, that is the point. We don’t know what the state of the capital account is between the North and South Islands, and we don’t care or need to know. In exactly the same way we don’t need to know or care about what the state of the current account is between us and the rest of the world.

            ‘Exports good, imports bad’ (non)thinking in this is just modern day mercantilism.

            • prism 1.1.1.1.1.1

              The state of our earnings from exports versus our spending on imports is surely one of the things that the rating agencies look at. We can’t take a holiday from the rating agencies judgements.

  2. tsmithfield 2

    Not that easy for exporters when our dollar has been artificially pumped up by the carry trade in the US dollar.

    Also, productivity per head of population will decrease as unemployment increases. Hopefully, now the economy is starting to turn around the unemployment trend will start reversing. Having said that, there are a lot of places in the world that have faired much worse than we have.

    • Bright Red 2.1

      ts. Productivity per worker rises with unemployment.

      The point in the post is obviously that while there is economy growth, it is below the rate of population growth. Sure, the pie is growing but the number of slices is growing faster.

      • tsmithfield 2.1.1

        I didn’t say per worker. I said per head of population. So, I what I said is correct.

    • “productivity per head of population”

      Can you explain what you mean by that. I don’t get it. For example GDP per worker is often used as a measure of labour productivity. Do you want GDP per worker per person? I really not sure what that measures?

  3. Pascal's bookie 3

    Paul, in your post that you link to (which, while interesting is not about the topic of this post), you explain yourself why “Why would anyone care about exports”.

    They are what we use to pay for our imports.

    Where there is a deficit we are consuming all that lovely consumption, but not paying for it yet with exports. That means we have to service that debt from somewhere else.

    Perhaps you could explain why all the credit ratings agencies care about current account deficits, a question you never got around to answering the other day.

    Maybe you are right and they are wrong, and a current account deficit is nothing to worry about in and of itself. But that doesn’t matter, because it’s them what sets our credit ratings. A downgrade in our credit ratings all by itself, is a reason to not be unconcerned about running up a huge current account deficit. Surely?

    • “They are what we use to pay for our imports. ”

      Exactly. We only export so that we can import. Exporting for the sake of it makes no sense. Importing is what makes sense.

      “Perhaps you could explain why all the credit ratings agencies care about current account deficits, a question you never got around to answering the other day.”

      My guess is they don’t care about current account deficits per sec. They use them as an indication/signal that something else in the economy is wrong. They will then go looking for that something.

      When thinking about why the current account deficit may not be a problem, remember it means investment is greater than savings, so what? Take the example of Singapore, which run a current account deficit averaging 10 per cent of GDP for 20 years from 1965 to 1985. Look at their growth rate during this period. Canada ran a deficit which exceeded 5 per cent of GDP for most of the time from 1870 to 1913. Again look at their growth rate over that period. So a current account deficit, as such, does not have to be a problem.

      But it may also signal that something else is wrong in the economy. So you have to look at the real problem, not the signal.

  4. burt 4

    Eddie

    The pitiful growth we are experiencing is not the export-led recovery our do-nothing government promised it was working towards. It is the beginning of a return to the same pattern of borrowing, housing speculation and over-consumption that got us here in the first place.

    Let me guess Eddie, you had already forgotten that the little pimple domestic economy of NZ went into recession ahead of the sub-prime credit crisis and the global recession? You berate little growth after cheering the team that slid us quietly into negative growth while the world was still basking in the final days of the golden summer.

    Status quo was a failure Eddie, the team that stopped the bus and took a nap don’t have the wheel anymore so get over it.

    • Zetetic 4.1

      NZ went into recession same quarter as US. Q1 2008.

      Fucken idiot.

      You’re an embarrasment to yourself.

    • Pascal's bookie 4.2

      He also forgets that our RB act means that unlike the Fed we didn’t have helicopter Ben priming the pump for most of 07.

  5. jcuknz 5

    >>>That’s below the rate of population growth,<<< Well we just need to stop having babies, there are enough of us on this one and only planet as it is.

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