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Rod Oram on the Brash report

Written By: - Date published: 9:00 am, December 7th, 2009 - 20 comments
Categories: articles, monetary policy - Tags:

All the arguments in one handy location – thank you Rod Oram, who in his SSTimes column says:

…All it [the report] can say is: we’re not sure what the problems are or what we can do about them. But much lower taxes, government spending and regulation will do the trick. It offers no evidence or modelling for its lazy conclusion. Instead it devotes, for example, more than 30 pages to regulation, 100 times the space it devotes to human capital and skills.

The taskforce is devoid of new insight or useful new recommendations because its chairman’s skills are so limited. Brash is a very macro economist and, worse, one who is often highly theoretical.

Nonetheless, he and his political colleagues have done us a great service. They have shown they have nothing useful to say to people trying to progress New Zealand. Instead, they have locked themselves in the Isolation Booth and thrown away the key.

I just wish that their arguments were stuck in that isolation booth, never to see the light of day again!

20 comments on “Rod Oram on the Brash report ”

  1. Draco T Bastard 1

    Likewise, it makes no attempt to analyse the strategies of Australia’s businesses and government. Yet, we need to know what we’re chasing. Australia plans to be in the top five of the OECD by 2025.

    As a result, the report’s quality of analysis is appallingly low.

    It could be a clever undergraduate’s review of 1980s and 1990s economic literature. But it would get only a D because it is shallow and historic, rather than deep and current. This is particularly evident in the report’s attempt to explain why we are so far behind Australia in GDP per capita terms. It considers 15 factors, ranging from isolation from markets and commodity exports, to regulation and cost of capital. On 14 it decides that the differences between the two countries are immaterial.

    It does acknowledge a big gap on one investment and physical capital stock. It points out that our investment per worker in plant, equipment and technology is way behind. For every $100 invested per worker on average across OECD countries over the past 15 years, Australia spent $120 and we spent $70.

    This is no new insight.

    The IMF told us so seven years ago, this under investment explained almost all the per capita income gap and 75% of the labour productivity gap.

    The reason why were so far behind is because we took the race to the bottom that is the effect of the “free-market” reforms of the 1980s and 90s seriously.

    • Daveski 1.1

      That’s lazy analysis DTB

      The critical issues include:
      1. Britain joining the EEC in the early 1970’s and NZ not being prepared for this especially given our almost total reliance on this market
      2. The oil shocks in the mid 1970s
      3. Muldoon’s failed efforts

      To then blame NZ’s economic performance on what happened in the 1980’s and 90’s is a case of blaming the medicine not the underlying problems.

      However, a couple of areas where we have undoubtedly failed is the area of R&D and education – we don’t encourage our albeit largely small firms to invest in R&D nor do we ensure that the right skills are coming out of our handful of universities.

      • Bored 1.1.1

        You might want to consider that the medicine of the eighties did not cure the affliction, it actually got worse. Which in medical terms might indicate that the either the prescription was wrong, or the patient’s condition so moribund as to make treatment impossible.

        I can state that the Keynesian economics that underpinned the social consensus of the post war years was definitely broken by the end of Muldoon’s time, I remember it well, stagflation, export market problems, rising unemployment etc. Enter Roger and total deregulation, end result no improvement except for those closely associated to the finance sector, and a state sector fire sale that to this day exports resultant capital profits from monopolies, impoverishing us further. Classic failure, from both the Keynesians and the Chicago school.

        To argue for one school of failure versus the other school of failure strikes me as lazy analysis at best, blind faith and ignorance at worst.

        • Daveski 1.1.1.1

          Quite different things bored.

          To blame policies from the 1980s and 1990s to explain why we are so behind Oz ignores the economic and political realities of the 1970’s. We put our eggs (and dairy and wool) in the one basket and paid for it. Muldoon made things worse.

          But you can’t blame the policies of the 1980s and 1990s for what happened in the 1970s.

          • Bored 1.1.1.1.1

            You miss the point, the policies of the 80s and 90s did not improve on matters, they were as dismal a failure as the prior policies, except perhaps in the way they made the rich richer. To me the widening of the income gap between the haves and have nots was the defining characteristic of Chicago school policies, classic drip up economics.

      • Draco T Bastard 1.1.2

        You forgot to mention that the post war boom was collapsing and started to in the 1960s. The problem we had was that we went with policy from the 4th Labour government on that rewarded people for cutting spending. That is an inevitable effect of free-market policies as profit will be cut under competition. To boost falling profit wages, capital investment and R&D were cut forcing us to depend upon out of date technologies and agriculture to try and maintain our living standards. As these couldn’t cope with the demands made of them we borrowed instead.

        To bootstrap ourselves back up we need to stop borrowing and stop selling off our successful businesses and our resources to foreign ownership and start investing in ourselves.

        • Daveski 1.1.2.1

          Actually, the issue of a post war boom ending is a valid point altho with due respect supports my point that the major long term issue has our long standing focus on primary production.

          Brash himself made some valid comments that our size, level of resources etc aren’t an issue.

          • Draco T Bastard 1.1.2.1.1

            The problem I find with the ending of the post war boom is that it seems that no one got around to figuring out why it ended and, IMO, it’s fairly obvious why – it ran out of market. Huge productivity increases, rising wages and everybody got what they wanted. Unfortunately, especially for a market economy, once everyone has what they want they don’t need, or want, to continue shopping and there was no point in exporting because all the markets that were available couldn’t afford to pay. At that point, profit declined, loans couldn’t be repaid and the Keynesian aspect of debt fuelled economic policy couldn’t keep the economy going (stagflation).

            The market should have been allowed to slow down, working weeks dropping in hours so that repair and replacement could continue but that couldn’t be allowed to happen because most people live at subsistence level and on time wages so their very livelihoods would have been endangered. There would have been a revolution fairly quickly. On top of that, the wealthy would have lost a lot of money as loans were defaulted upon and, as it’s the wealthy that rule, that couldn’t be allowed to happen.

            We went through a decade of bad economic policy in the 1970s trying to shore up decreasing markets. Then we went into disastrous economic policy by trying to increase the size of the market by the free-market reforms 1980s by competing with countries that were poorer than us.

            Brash himself made some valid comments that our size, level of resources etc aren’t an issue.

            They are and aren’t. We have the resources needed to support ourselves but we’re to far away to compete effectively in the markets that we want to export to. On top of that, we’re sending a lot of the profits from the resources that we do use to foreign capital because we sold all the good stuff.

            • Zaphod Beeblebrox 1.1.2.1.1.1

              Why did the post-war boom end?

              How about lower govt spending in the US , UK and elsewhere, lower govt investment and increasing income disparities that began in the 1980s.

              The middle classes invest in consumer goods, services and manufactured products whereas the upper classes use the benefits of lower taxes to speculate on the share market, property and holidays which does little to encourage employment and so reduces the wages of the working and middle classes further.

              In the US especially decreasing levels of education (and increasing ghettoisation of the inner cities) contributed to rsising crime as well as lower national productivity.

              • Draco T Bastard

                No amount of government spending can maintain a market that is already saturated.

              • Quoth the Raven

                Zaphod – The post war boom ended in the early 1970s not the eighties. US government spending kept on increasing post war until the 90s not the eighties. Government spending actually rose under Reagan. Here’s a graph.

              • Bored

                Theres also a few extraneous issues that played to exascerbate the end of the post war boom. One primary factor was the cost of the Vietnam war and the resultant move by Nixon to break the international currency arrangements with a floating exchange rate. The merits can be argued but for small countries this has usually meant that their currencies become very vulnerable to speculation and exploitation.

              • Zaphod Beeblebrox

                True Quoth Reagan did not cut GDP spending like he said he would (he did cut taxes which had devastating effects on the current account), But what did he spend the money on- creating a new arms race.
                Government spending only helps the economy if it helps reduce social problems (like crime), helps educational outcomes (and worker productivity) and gives the middle class security to invest in educating their children and starting new businesses.
                Investing in the military and arms technology only really helps arms dealers and these living in the vicinity of military bases and arms factories- it does not have any long term benefits for the productive capacity of your economy.
                I see the beginning of the long decline coinciding with the decline of the the welfare state and the state as provider of infrastructure, education and health services This process did begin in the late 1960s when governments in the West started to invest in military technology which as the Cold War reached its peak.
                Meanwhile Japan and Germany did the opposite and started investing in education and technology, which coincided with the rise of their economies. Later the Scandinavian countries followed their lead.

        • prism 1.1.2.2

          DTB – Investing in ourselves. I thought that government was positive to an idea that I think Jim Anderton had about having venture capital funds to buy NZ businesses and keep them locally owned and here. That’s very roundabout but I haven’t heard much about it in recent times. I think one fund was to be called the Greenstone fund. Does anyone know what happened to this idea?

          Seems a good one. We could perhaps buy government bonds from central government suitable for ordinary citizens, or have local authority bonds that could help with infrastructure. I still like the idea of channelling some gst to the area where it was paid for this purpose.

  2. I disagree that such views should be “stuck in an isolation booth, never to see the light of day again”.

    While I totally disagree with the taskforce report, I think it is better for such views to be out in public so that they can be debated and discredited. I also think it is useful for the public to see what the agenda of the right is in this country and why it is so wrong on so many levels.

    I would like to see some compentators attack the whole concept of “closing the gap with Australia” though. Why has that become the measure against which we judge our success or failure?

    • r0b 2.1

      I would like to see some compentators attack the whole concept of “closing the gap with Australia’ though.

      Yes but not yet! National lived by that particular sword. Let them die by it. Then we can put it away.

    • Nick 2.2

      Because countries compete for people. It’s that simple. If all our people go to Australia we have no tax revenue; and therefore no public health, no public education and no nothing.

      Of course we can encourage immigration to stop the loss – you know Somali refugees and Iraqi taxi drivers.

      • felix 2.2.1

        Can you please go back to the other thread and reply to my question before you get banned for where you’ll inevitably take this one?

      • snoozer 2.2.2

        That Aussie report last week showed that it’s people from low skill jobs that go to aussie. If we want to keep them, we need to increase wages at the bottom end, not cut taxes at the top.

      • prism 2.2.3

        Somali and Iraqi would probably work just as hard as NZs, harder even. Not all Somalis will go over the top and attack someone. The woman who did that well you don’t know if she saw her parents murdered at age 5 and was raped at age 8 etc. I was just reading about Russians who managed to escape the great death and men became chauffeurs though they were better trained, linguists etc.

        NZs have been going over to Oz for ages and nothing will stop them except closed borders. The opportunities will always seem better over there because they have a bigger population. They would have the same opportunities per 1000 people as we do but there are just more people. Also our highly trained people can’t always get jobs to use their expertise, or companies are not willing to offer decent pay or permanent tenure.

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