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Savings based recovery nonsense

Written By: - Date published: 3:38 pm, November 18th, 2010 - 47 comments
Categories: bill english, Economy, national - Tags: , , ,

Bill English is always busy trying to put lipstick on the pig of our moribund economy. We’ve told him off before for fiddling his figures. But now he’s transcended mere lying with numbers. Now he’s invented a whole new economic theory:

English: Savings-Based Recovery Set To Pick Up In 2011

A sustainable economic recovery is underway and will pick up momentum next year as the Government continues to roll out its economic plan, Finance Minister Bill English says. … “This trend towards increased household saving creates a strong platform for faster economic growth in the medium and longer term. That is the only way we can create the jobs, higher incomes and the better living standards Kiwis deserve.

Savings based recovery? Savings based recovery? I’ve never heard of a savings based recovery — have you? I ran it through Google first thing this morning and the phrase generated exactly 5 hits. It’s generating more now (15) as coverage of English’s announcement spreads. In short, it looks like the double dipper has invented the whole notion of a “savings based recovery” all by himself.

I wondered if Google was being unfair to Bill, so I wandered off the check the academic literature with Google Scholar. A bit of messing round showed that phrases relating to X based or led growth or recovery were most productive, where X was replaced by various words of interest. (The exact queries entered, including quotes, were for example “export (based OR led) (growth OR recovery)”, “investment (based OR led) (growth OR recovery)”, and so on.) Here are the results:

  • export — 19,500 hits
  • private sector — 1,510 hits
  • investment — 1,500 hits
  • demand — 1,190 hits
  • knowledge — 1,110 hits
  • finance — 668 hits
  • trade — 515 hits
  • productivity — 330 hits
  • tourism — 249 hits
  • industry — 183 hits
  • savings — 8 hits

So – export based or led growth or recovery the clear winner. Private sector, investment, demand, knowledge, also seen as very important factors in the academic literature. Savings? Bill English’s new theory? Not so much. 8 hits. And most of those are reference to foreign savings. In other words, in terms of economic theory, English’s idea of a “savings based recovery” has a fan club of one.

What’s really going on here is another coat of lipstick. English is trying to make excuses for the fact that due to his brilliant handling of the economy, no one has any money to spend. Those that do have a bit of excess are desperately trying to pay down debt in these uncertain times. He’s tried such tactics before, arguing that anaemic growth and falling household spending on big ticket items are actually good things.

Enough with the lipstick. English needs to face up to his miserable economic record. And stop making empty promises. From the first quote:

A sustainable economic recovery is underway and will pick up momentum next year as the Government continues to roll out its economic plan…

What economic plan? What momentum? English has been promising “jam tomorrow” since before the election. He is never going to deliver.

47 comments on “Savings based recovery nonsense”

  1. Draco T Bastard 1

    The spin goes like this:

    1.) Point out the lower spending
    2.) Suggest, without any evidence, that this lower spending is from higher savings
    3.) ???
    4.) Profit

    So, what he’s trying to spin as good news is the falling wages which is the real cause of the lower spending. And I suppose it is from NACTs PoV – they did, after all, promise to lower wages. And, hey, at least the banks have record profits….

  2. Macro 2

    “And, hey, at least the banks have record profits….”
    and that’s all we need to know!

  3. Jeremy Harris 3

    I find the duplicity on this site curious to say the least…

    The message seems to be contradictary:

    1). Consumption is killing Mother Gaia – we must force people to stop
    2). English didn’t give tax cuts to people to consume – it’s his fault the economy is kaput

    I personally think introducing a tax free threshold was right move, not percentage based tax cuts – I think consumption is good – but seriously which is it; tax cuts should have been for consumption or Mother Gaia is dying..?

    • r0b 3.1

      Can I rephrase slightly?

      1). Overconsumption is killing Mother Gaia — we must convince people to change.
      2). Actually no I can’t rephrase 2, I can’t make sense of it.

      So big picture, yes, we need to change the fundamentals of the economy to something much greener and more sustainable. That’s what I want to see both major parties working towards. National are never going to do it. Labour I still have hope.

      But that’s a bigger topic than this post. The point of this post is that even by their own standards National are useless, and making excuses for being useless. Once we get rid of National we can start work on what the new, better standards on which we judge an economy should be.

    • Bunji 3.2

      One may not think that growth is the only way forward and indeed we need sustainability, but when the government’s only economic plan is:
      1) tax cuts
      2) ???
      3) Growth!

      it’s surely fair to point out that 1 & 2 aren’t working.

      I’d rather they worked on a sustainable, happy future for all of us (which may include some economic growth, but not growth in our consumption of resources), but if they can’t even give us their promised increased wealth with their consumption is the way to happiness philosophy I don’t think we should hold back from pointing that out.

    • Lanthanide 3.3

      I think it goes like this:

      National promised X. We don’t particularly agree with X, but National promised it. X comes at the expense of Y, which we actually wanted to keep and don’t like National cutting it. Now National are failing to deliver on X and have still slashed and burnt on Y as well, so all the pain for none of the gain.

    • Pascal's bookie 3.4

      Cites for either 1 or 2 would be nice. Presumably from the same poster, unless you think it is duplicitous for people to disagree with each other.

  4. Carol 4

    I think it became evident somewhere recently, that when the government talks about a savings-based recovery they tend to refer a lot to savings the government makes by cutting back on the public sector. But then they blur this kind of saving, with statistics about individuals saving more in their bank accounts etc.

  5. burt 5

    Yes it’s so much easier when Labour are in charge, Tax the rich pricks and stop them saving so the govt can have a surplus and spend it on…. middle class welfare for the people you tax so heavily they can’t save…. Oh yeah – churn baby churn. Churn our way into the hearts and minds of the people who have never saved – that will fix the economy.

  6. burt 6


    One more thing, remind me again how although NZ was in recession before the global crisis how it wasn’t Labour’s economic policies that caused the trouble we now have.

    • nzfp 6.2

      Hey burt – talking about when NZ went into the recession – have a look at Wikipedia – but be prepared to laugh your socks off.

      Wikipedia have an entry for “The Great Recession” under “Late-2000s recession”

      Wikipedia states:

      The late-2000s recession, or the Great Recession,[1][2] was a severe economic recession that began in the United States in December 2007[3] and ended in June 2009 (as determined by the U.S. National Bureau of Economic Research).[4]

      … “ended in June 2009” … what a laugh – tell that to the people going through FRAUDclosure, the QE2, the Irish bailout, the riots in France, Germany, UK, Portugal, Spain, Greece…

      However, all that aside it should be noted that according to the New Zealand Treasury Department:
      The recession in New Zealand began in the March 2008 quarter, before any OECD nation, as a result of domestic factors.

      Which is odd, because according to the OECD:

      The United States, along with 19 other countries, signed the Convention founding the Organisation for Economic Co-Operation and Development on 14 December 1960, thereby pledged its full dedication to achieving the Organisation’s fundamental aims.

      So someone is telling porkies, because according to a December 1, 2008 article by Bloomberg:

      The U.S. economy entered a recession a year ago this month, the panel that dates American business cycles said today, making this contraction already the longest since 1982.

      The declaration was made by a committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

      Which means the US entered the recession well before we did, and since the gobal crisis was caused by Wall Street, that means the global crisis started before we went into the recession.

      • Pascal's bookie 6.2.1

        And we’ll not talk about how the US staved off recession for so long leading up to the downturn.

        What was fed reserve doing Burt?

    • roblyn 6.3

      Burt, you should stop looking to the past and think a bit more about the future. The global recession was exacerbated by the neo-liberal monetary consensus that existed prior to 2008. Labour was signed up to that consenus along with National. The challenge ahead of us however is moving away from that crisis prone paradigm to creating a more stable economic model. National is determined to try and replicate the failed model. Labour at least is prepared now to step away from the failure and debate what a better model must look like. That is why Labour represents a far brighter future than National can, unless it too is prepared to jettison failed neo-liberal ideology.

  7. Pascal's bookie 7

    Does anyone care to defend, or even explain Mr English’s ‘savings based recovery’?

    • Lanthanide 7.1

      There is a little bit of logic in it. That once households have paid back debt, they’ll be in a better position to increase consumption again. If you’re not paying $50 on CC interest any more, you can save $20 of that and spend $30 on a dinner out, for example.

      Of course if the economic environment isn’t right, people won’t spend that extra $30 on dinner, instead they’ll save it. That’s assuming they are still earning that $50 anyway – they might be down to $30 because of job loss.

      It seems more like firming up the foundation for future growth, but the not the impetus for growth itself, IMO.

      • r0b 7.1.1

        If it was genuine savings I would agree that it was a good thing — a useful contribution. But savings alone will never be enough to cause recovery or growth. For that the savings must be put to good, productive use, they must be part of a bigger economic picture, and that simply isn’t happening.

        Also, I’m not convinced that we are in fact saving. We’re not spending as much, but then we’re not getting as much income either. And as for debt reduction – a drop in the bucket. We’ll be many a long year if we wait for a “debt reduction based recovery”.

        I stick to my theory, we’re stalled, and English is looking for new ways to explain it away. We need a new, sustainable. green economy, and the Nats are never going to deliver it.

        • clandestino

          Are you advocating for people not to pay down debt, but to allow the government to take that money and invest on our behalf in…..?

    • Jeremy Harris 7.2

      Savings are important for productivity gains, a country where indivduals aren’t saving cannot increase productivity, efficiency or compete without selling assets (where we are now)…

      But a strategy for a quick recovery it is not… I think if this saving trend continues that’s great, Chinese residents save up to 40% of their salaries…

      • Colonial Viper 7.2.1

        There is a little bit of logic in it. That once households have paid back debt, they’ll be in a better position to increase consumption again.

        So somewhere between 5 and 10 years then? Another ‘lost decade’ in the making.

        (Sorry Jeremy this was supposed to be in reply to Lanth)

      • Maynard J 7.2.2

        Wow, Jeremy, I think you’re right.

        This is English’s new ’10 Year Plan’. Next he’ll tell us to melt down everything we own to make iron, and we’ll have a Smelting Based Recovery, followoed by a Great Leap Forward!

      • Jeremy Harris 7.2.3

        My spidy sense is picking up traces of sarcasm…

        I don’t think English meant for an increase in savings or that what he has done is a good plan or even a plan at all…

        So not really sure what your cheap dig is trying to prove… That English is a c*mmunist..? He maybe many things but c*mmie ain’t one of them…

        That savings are essential for future growth and prosperity shouldn’t really even be an issue for debate though, just an obvious truism…

  8. jcuknz 8

    Bill English may well be telling porkies, but it is in a good cause. If he can convince us to save more, that is either knocking down our credit card totals or actually putting some money in the bank or savings union if it is a small amount. I doubt if anyone in the country couldn’t save, even if only a few cents a week, by forgoing something that is not absolutely essential.

    Politicians often tell us what they hope is happening and sometimes it happens. It is disgusting that people have nothing better to do than make fun of those trying to lead the recovery.

    I think it is, or going to be, a hard row to hoe … the adjustment which keeps the consumption of earth’s resources down without putting even more people out of work. I doubt if capitalism will survive the process but it has got to happen if the human race is to survive. Other earth type planets are a long way away and could only be reached by a select few, so the rest of us have to learn to survive on Earth with what is here.

    • Colonial Viper 8.1

      It is disgusting that people have nothing better to do than make fun of those trying to lead the recovery.

      I think its OK to make fun of people leading us around the merry-go-round however.

      the adjustment which keeps the consumption of earth’s resources down without putting even more people out of work.

      Didn’t you notice? Capital markets have no interest in whether or not people are out of work. It is irrelevant as the only matter of importance is the rate of return on investment. If pushing more people out of work generates an improved return on investment and improves the financials, that is what the capitalist system will do.

      I doubt if capitalism will survive the process but it has got to happen if the human race is to survive.

      What a frakin joke, capitalism != human civilisation. Check out the Romans, the Greeks and the Mesopotamians for starters. Trading yes. Capitalism as a form of government, no.

    • r0b 8.2

      It is disgusting that people have nothing better to do than make fun of those trying to lead the recovery.

      How is English trying to lead the recovery jc? What is he doing? Economically, the Nats are a one trick pony. Tax cuts. They did it. Didn’t work. Now what? What are they doing?

      • jcuknz 8.2.1

        It is creating an attitude to life and it took me a long time to learn it despite it being ancient history and related in a popular book of a previous century with a Mr McKiber going own about “Income one pound … spend 19/6d is happiness, spend 20/6d is misery”. It is as true today as ever in history and other nations seem to have got the message while Kiwis are spendthrifts as ever. You don’t need a wage rise to correct matters just some self discipline.

        What is the point? capital gives one a feeling of security, and everything is relative to one’s position in society. A few cents over time becomes a few dollars which helps when one is at or near the bottom of the pile … been there … so save those idiot’s remarks about me being all dollars and no cents. Blogs are full of smart alex’s with limited intelligence.

        CV … I think you mis-read my comment, I had a feeling that some might.Try the other that we have to find a system that doesn’t include capitalism.

        • Draco T Bastard

          You don’t need a wage rise to correct matters just some self discipline.

          You do if the amount you’re getting isn’t enough to live on which is where most people in NZ exist. No amount of self-discipline can change that.

          But in that is the problem .. we don’t want more consumption, wasting earths resources. We have to work out a way of improving peoples lives without increasing consumption.

          This bit I agree with. I think a well defined Renewable Resource Base that everyone then has an equal say in how it’s used would be the best option.

      • jcuknz 8.2.2

        rOb … perhaps if you stopped to think for a moment about what I suggested you would appreciate that English is trying to lead New Zealand out of its spendthrift ways by suggesting something which may not be true but would be good if it were true and definitely doesn’t deserve your ridicule. But such is the stupidity and petty mindedness of our politicians and their lapdogs that it is the norm rather than exception. I’m sure that you got considerable enjoyment from your research and writing the article but you missed the final important stage of asking yourself was it reasonable to publish.

        While just about everybody got a tax cut, or an increase in their pension, it was not targeted to do the most good. To do this it should have been given to those with the least, because they would spend it quicker. But in that is the problem .. we don’t want more consumption, wasting earths resources. We have to work out a way of improving peoples lives without increasing consumption. I don’t know the answer but I hope others will find it, and it certainly isn’t by poking fun at Bill English which helps nobody.

        • r0b

          English is trying to lead New Zealand out of its spendthrift ways by suggesting something which may not be true but would be good if it were true and definitely doesn’t deserve your ridicule.

          That’s the lamest attempted rationalisation for incompetence that I’ve ever heard. Plus, Bill double dipping English is the last one to have any credibility preaching restraint. That hypocritical idiot deserves all the ridicule he gets.

    • Marty G 8.3

      you just can’t bear to hear the truth about the losers you worship.

    • pollywog 8.4

      I doubt if anyone in the country couldn’t save, even if only a few cents a week, by forgoing something that is not absolutely essential.

      dunno bout that eh…

      …and whats the point in saving a few cents a week ?

    • handle 8.5

      “make fun of those trying to lead the recovery”? Only if not doing anything counts as ‘lead’

  9. ghostwhowalksnz 9

    Looks like English will join Ruth Richardson and become a one term Finance Minister.

    And after all the trouble he went to to engineer Don Brashes downfall ( leaked emails ) and save his career, he wasnt up to the job and will get dumped by Key, who will give the job to Joyce

    • Marty G 9.1

      I think the govt’s agenda would grind to a halt without English. He does all the heavy-lifting for the half-wits like Tolley.

      Joyce is capable and English’s record on finance is awful but could Key really afford to lose English’s ability and leave him embittered on the backbenches (and talking to mates like Nick Smith)?

      For mine, the housing rort issue showed how indispensable English is. He got no reprimand at all for far worse than what got Wong the shove.

  10. roblyn 10

    I attempted to put the comments from English in some context, for my own understanding, this afternoon. English seems to trying to take claim that the govts tax cuts is moving us toward a ‘recovery based on savings and investment rather than borrowing and consumption, the present economic slow down was because people are moving from a consumption based phase to a saving based phase and that this switch to savings will provide higher economic growth’.

    That seems like a really desperate attempt from English to try and extract any good news out of a dire situation. I would strongly suggest that the present lack of spending is not due to savings but rather people paying down debt. This has little to do with what English has attempted and much to do with the high debt levels people have taken on.

    What the government has done is push through a round of tax cuts that will fill the pockets of high income earners but do not very much at all for lower income earners. That was the whole aim of the exercise, to cut taxes. Any perceived automatic flow on through to higher savings and higher growth is a matter of neo-liberal ideological faith rather than empirical fact. Treasury themselves state that any economic growth, as a result of the tax cuts, is margin of error stuff.

    If English seriously did want to move from a consumption based, speculative based economy to one based on savings there were a range of options he could have chosen such as a CGT and progressive improvements to Kiwisaver. Instead he wanted, for largely ideological reasons, reduce tax rates for the high income earners.

    The result is the government books in a worse state and borrowing for the tax cuts.

    • NickS 10.1

      You know it might be an idea to not use your email address as a user-name as even with a decent anti-spam system, you will still get swamped if the bots can find it. And screen-names are very, very visible…

      Not to mention ye olde flood of gay horse pr0n, lemon party (google not, since I wont give you eye bleach), [insert favourite shock image(s) here] as soon as someone takes a disliking to you* **…

      *welcome to the internet
      **I’m a bio-geek, and thus immune to even the all-glorious “offended” page, your reactions may vary though …

      [Agreed – tidied up the username(s) – thanks. — r0b]

  11. djp 11

    More savings means there is more capital available for “investment” in “private sector” “export” industries? (which ticks the top three in your google scholar list)

    • Colonial Viper 11.1

      There will be no more capital available for investment as you described UNLESS the banks get it into their heads to lend to startup businesses operating in the ‘real (tradeables) economy’ instead of always lending to people trying to build the next apartment block or flip an investment flat.

  12. prism 12

    I like to refer to my economics textbook by Blaumol and Blinder 4th edn – handy to keep grounded. In their section on the Paradox of Thrift –
    “This last example of multiplier analysis teaches us an important lesson. It shows that an increase in the desire to save will lead to a cumulative fall in GNP. And, because saving depends on income, the resulting decline in national income will pull saving down.”

    English must know this – wasn’t he the clever farm boy who got into Treasury. Cullen was always on about saving too. Neither of them seemed to care enough to back their empty words with encouragement like stopping double taxing on people’s savings, first on the original earnings and then from interest paid, taking even single cents from the miniscule amount that small savers manage to earn. Is it total wage taxing, first on a percentage of wages (say 20%) second on spending GST (15%), and third on interest if you have any left over with just a few items GST free. Seems quite heavy tax if you’re low waged.

    It’s not a simple solution to having more national investment. And when there has been investment by NZs’ with some wealth, the government haven’t had sufficient nous to encourage it to productive entities rather than consumer ones, with spectacular magic shows of disappearing money. It seems that more savings and liquidity may result in negative total investment and unhealthy growth for the economy because of spending on personal indulgences.

    I’m just a learner but experts don’t seem to make their theories work for our good so maybe my ideas are as valid as theirs.

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