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Spinning while the economy burns

Written By: - Date published: 1:12 pm, September 23rd, 2010 - 53 comments
Categories: bill english, cycleway, Economy, spin, tax - Tags:

The latest GDP figures are awful. the Reserve Bank had predicted 0.9% growth in the June Quarter. It came in at 0.2% – far worse than anyone expected and slower than population growth, so economic production per person declined. Revisions out previous data show the recession was 0.15 deeper than thought and the recovery has been 0.1% weaker. We don’t know the impact of the Christchurch Earthquake, that’ll be included in the September Quarter figures out in December.

The Key government’s reaction? Peddling more spin on cyclepaths that have been re-announced time and again, and simply don’t constitute a serious response to our economic crisis. A government that wanted to continue to impove the livings standards of its people would not have the delusion that international tourists are going to flock to here to ride on cyclepaths as its central economic policy. Cyclepaths are awesome but they are not an economic plan.

GDP per capita is still 4.2% below where it was when the recession started and has recovered a meagre 0.6% since the recession officially ended a year and a half ago.

Normally, economies bounce back out of recession as quickly as they went down, making use of idle capital and labour to regain lost ground. That’s not happening because the underlying economic problem – peak oil – is a new kind of constraint, one that this government is unwilling to address or even acknowledge for ideological reasons.

A clued-up government would be looking at the oil price trajectory, looking at the trajectory of transport demand and canning all new motorway projects now. It would then put the money into public transport, rail, more efficient shipping, renewable energy, and energy-efficency while we can.

Update: Bill English has tried his hand at some spin too, saying 0.2% growth is a good thing.

“Statistics New Zealand GDP data issued today shows the economy grew by 0.2 per cent in the June quarter. This took annual real GDP growth to 1.9 per cent – its highest level for two years.”

Nope. The annual growth rate is the year to June 2010 vs the year to June 2009 and that was 0.7%, below population growth. English’s 1.9% is the June Quarter 2010 vs June Quarter 2009 – he’s selected it because it looks good but it’s misleading to compare two quarters in isolation and it’s not annual growth, as he claimed.

“Total domestic spending fell slightly. By contrast, export volumes have increased 7 per cent from their lows of 2008 and they had their second strongest quarter on record… This trend towards saving and exporting more, and spending and borrowing less, is what New Zealand needs to build stronger long-term growth.”

See New Zealand, you’re getting poorer but it’s a good thing. Actually, gross national expenditure went down because inventories were run down, not because we consumed less – we exported more but also consumed more and and didn’t produce much more, making up the difference by running down inventories and importing more.

Finally:

“The tax changes will boost New Zealand’s longer-term growth prospects”

And what’s the source for that? Well, there isn’t one. It’s just a claim English made up. The Tax Working Group report makes no statement on any enhancement to growth from the tax scam.

53 comments on “Spinning while the economy burns”

  1. Zaphod Beeblebrox 1

    What was Australia’s GDP forecast? Nearly 4% as I recall. As a poster on Red Alert commented yesterday- we are likely to become the new Tasmania- that quaint island off the coast where you holiday and some of our friends retired parents live.

  2. roger nome 2

    I’m in retail, and i’m not old enough to remember it being this slow. National could stimulate spending without fear of dangerous inflation. But that’s never been what it’s about to the Nats – that’s obvious now. It was always about giving the already rich a bigger share of the pie.

    • bbfloyd 2.1

      Roger… you would have had to be old enough to have lived through the thirties to remember times like now.

      i know tradesmen in their fifties and sixties who are saying that they havn’t ever been so slow as now.

      homelessness in auckland is the worst i’ve ever seen it. most of them had jobs and homes two years ago.

      • Loota 2.1.1

        Sigh bb.

        The US is going to drag us kicking and screaming back into the 30’s, and the National Govt, prized for its (self-proclaimed) business focus has absolutely no idea what to do about the coming firestorm. Except to shoplift as much stuff as possible out of the store before it hits.

  3. AndyB 3

    sorry if this gets posted twice. my post didn’t show up and i have a feeling that i messed up the link. so here goes again:

    With regards to tax cuts; A review of monetary policy over the past 30 years in all countries by Alberto Alesina at Harvard University clearly shows that Tax cuts stimulate the economy far more effectively than any spending stimulous. It seems at odds but cutting tax actually increases the tax take.

    Link to PDF

    So it would seem that not everybody thinks tax cuts are bad.

    • The Baron 3.1

      You’re not gonna last long here, my friend.

      • AndyB 3.1.1

        he he, thanks for the heads up 🙂

        • Zaphod Beeblebrox 3.1.1.1

          Doesn’t the gov’t claim that the Oct 1 cuts will be revenue neutral when it is argued that they will increase government debt? If so, where is the stimulus? Or is English just desperate and spouting BS?

          If the reduced taxes creates more taxes magic pudding were true why wouldn’t every government have flat 10% taxes. Surely somewhere in the world, this experiment would have worked, at least once.

          Under certain circumstances what you say might be true- but I would think taxes that contribute to R and D or education may have an even greater effect upon GDP and tax take. To say tax is inherently good or bad and public sector spending vice-versa is a bit of a generalisation.

    • Bored 3.2

      Having not come down with the last shower and being a little cynical and long in the tooth inclines me to say about Harvard economists “well, they would say that would’nt they”.

      I recall another eminent economist (Galbraith) mentioning the linkage between peoples opinion and those of the people who paid them to express it.

      Fortunately without reading dry literature from “Think Tanks” and “business schools” that is inclined towards a reality that chooses selective information to back a set proposition, I have a background in history. It too is all very interpretative, lots of schools of thought so a little prudent navigation is needed.

      So what do I remember from history that actually happened….the Great Depression..tax cuts and cost cuts in government were the policy of the day, and they failed to revive the corpse that was free market capitalism. What did revive the economy was spending stimulous, higher taxation and income redistribuition. So where the hell have the Harvard boys been looking if they can so conveniently mis this example?

      Back to Galbraith on Keynes..paraphrased he described his policies as “for a time, but not for all times”. I think Galbraith had the wisdom to see that no one “cure” works all the time or has exclusive “truth”. I always ask qui bono (who benefits)? It serves me well in identifying self interest and paid charlatans.

    • comedy 3.3

      Your are a RWNJ quoting RWNJs unless of course you produce a paper that shows the opposite in which case you’re a fine level headed chap and vice versa of course if you post on a “rightish” blog

    • Mr Magoo 3.4

      “So it would seem that not everybody thinks tax cuts are bad.”

      Thanks for that. A great chuckle for the day. Unlike some ‘others’ on here I know you are taking the piss. Good on you.

      Other pearls of wisdom:
      – Not everybody believes in global warming e.g. oil companies
      – Not everybody thinks the Nazis were wrong e.g. neo nazis
      – Not everybody believes R. Douglas was wrong e.g. R. Douglas.

    • r0b 3.5

      AndyB – see Krugman here and the paper he cites.

      In general I’m afraid the whole “tax cuts cause growth” argument runs up against some pretty major counter evidence from history:

      Tax cuts don’t cause growth

      • AndyB 3.5.1

        i guess it doesn’t matter who we cite, or what documents we find, there is always another person that has an answer to it.

        This is why we will never all agree on anything and why left and right are doomed to squabble for all eternity because they both believe they are correct and neither party will back down or accept they are wrong.

        • Bored 3.5.1.1

          Which is why I ask qui bono???….nobody has an exclusivity on the “truth” (what ever that means)….but somebody always stands to benefit.

          • Carol 3.5.1.1.1

            But watching Parliament question time right now, NACT is spinning so much they are making a big hole in the ground. In answer to opposition questions, NACT just keep attacking the last Labour government’s record. Lockwood keeps pulling them up and telling them to answer the question.

            So, basically, I don’t believe that NACT even believes half of what they say. So it’s not so much a case of competing truths, as one side deliberately distorting and diverting from the “truth” or reality.

        • r0b 3.5.1.2

          i guess it doesn’t matter who we cite, or what documents we find, there is always another person that has an answer to it.

          Yes, which is where the balance of evidence, and the consensus of expert opinion comes in. So for example one can find plenty of climate change denier stuff – but it’s all nonsense.

          Economics is more complicated because there is far less consensus to rely on – Economics is hardly a science at all. So rather than one off studies (which can conclude anything) I always try to look for the broad historical trends over decades – hence my post linked in my comment above. Over decades of some pretty major historical experiments that argument that tax cuts cause growth holds no water at all.

          neither party will back down or accept they are wrong

          That applies to some within each camp, but then there are some who can be persuaded by evidence (they just don’t tend to rant as much on blogs).

          squabble for all eternity

          Nope. Nature is going to hand out a pretty major ass kicking because of the kind of lack of consensus you describe on climate change and sustainable living.

        • bbfloyd 3.5.1.3

          actually andy… people of all ilk can, and do manage to agree on many things. i’ve seen it on this site. it’s only when someone assumes a rigid position that doesn’t allow for interactive dialogue that rejection will follow.

          if you are unable to accept that your arguments, or the opinions you quote aren’t regarded with the same faith you show in them, then possibly you should listen, then consider whether your faith misplaced or not. simply decrying dissent as partisan politics is disingenuous.

        • Pascal's bookie 3.5.1.4

          Well here’s the first sentence from the pdf:

          “As a result of the fiscal response to the financial crisis of 2007-2009 the US will
          experience the largest increases in deficits and debt accumulation in peacetime.”

          Right off the bat, I’m seeing some rather large things that the authors appear to have missed. Can we agree that this sentence does not bode well for the piece?

          • Lanthanide 3.5.1.4.1

            I thought the US were in two wars or something?

            Come to think of it, when are the US *not* in wars of some shape or another, for any sustained period of time?

            • Pascal's bookie 3.5.1.4.1.1

              Yeah, you’d think they mighta noticed at least one of them. 😉

              Not to mention the effects of Bush’s tax cuts and various spending policies on the budget, or the effects of the GFC itself. But no, the deficits are the ‘result of the fiscal response to the financial crisis’.

            • Loota 3.5.1.4.1.2

              The US military industrial complex demands wars. They are a great way of shifting tax payers funds into private corporate hands. And getting rid of some poor folk.

          • Blighty 3.5.1.4.2

            And wasn’t there the worst recession in generations? I think that might result in large deficits.

        • The Baron 3.5.1.5

          See, I warned you Andy. You’re running up against some of the most inflexible fanboys in NZ here – and you think a simple link would be good enough.
          That’ll learn you for bringing a contrary position to a discussion site. All we wanna hear here is “hear hear”.

          • r0b 3.5.1.5.1

            Don’t be a dick TB. You implied that Andy would be kicked off the site for raising an unpopular point of view – which is of course bullshit. People here are keen to debate.

            No, a simple link is not good enough, if you want to make a point you need to be able to defend it. Lots of people lined up to engage with Andy on the topic (politely and constructively) – and you’re whining about it? Perhaps you’d prefer a nice safe hobby like stamp collecting.

    • Bunji 3.6

      The paper you cite gives examples of successful tax cuts including NZ’s 1993 & 1994 tax cuts. Given how well the 90s worked out for most of us (when most of the GDP gap with Australia opened up, the massive increase in inequality and the dropping of most people’s incomes in real terms), one would have to question how they define “success”.

      If you want more examples of the incredibly conservative Harvard economy faculty spinning things their way (particularly on a tax cut or stimulus to move out of recession context), try this:
      A respected economist found a very particular sort of tax cut had a surprisingly large stimulus effect, ergo Harvard economist concludes all tax cuts are good. But that sort of tax cut only worked at time of great growth, not when you’re struggling…
      So unless history shows it to be wrong (and r0b’s link below suggests otherwise) maybe we should stick with the simple Keynesian logic of: government spends $1 in stimulus, $1 is spent, and added to GDP; tax-cuts of $1 – some is saved and less than $1 is spent and added to GDP. Which is more effective, if you want government (rather than private) stimulus?

    • Blighty 3.7

      the ‘tax cuts boost tax revenue’ crap was proven wrong in the 1980s and 1990s.

      worth looking at Zandi’s testimony on the stimulatory effects of different government actions.

      Click to access Senate_Budget_Committee_11_19_08.pdf

      and Marty’s right. Where is the evidence that this tax swap (remember, it’s mostly a swap from income tax to GST with an extra billion borrowed) will boost growth?

  4. Sanctuary 4

    The bottom line is that Labour’s tax cuts were unaffordable, and National’s tax cuts a disaster. By slashing government income to give tax cuts to his rich Tory mates, then pursuing a dry as dust economic orthodoxy of cutting spending in a frantic attempt to vaguely balance the books, Herbert Hoover (err, I mean the double dipper of Dipton himself – Bill English) has given us the worst of both worlds – spooked consumers in an economy where spending by it’s biggest player is contracting rapidly.

    it is the utterly predictable economic prescription of an unimaginative rural nincompomp of a finance minister, suckled on Treasury voodoo economics, and it giving us an utterly predictable outcome.

    The parallel with New Zealand’s “lost decade” of the 1990’s is eerie. Just as the world strongly recovered from the Asian financial crisis, an unimaginative, rural, neo-liberal fool of a finance minister (Bill Birch) in conjunction with a fanatically neo-liberal governor of the reserve bank contrived to stomp on the throat of the NZ economy to detriment of many and benefit of a few…

    Tories don’t change. They are as lethal to the economic prospects of ordinary, hardworking Kiwis now as they were in the 1990’s.

    • comedy 4.1

      ding ding history rewrite in progress

    • Mr Magoo 4.2

      But it was what the greedy little piglets (aka: most NZ voters) wanted while they were busy in a feeding frenzy at the trough of foreign debt?

      Labour denied it at first and tried very hard to show why it was a bad idea to much howling then finally caved. National used it to get elected and stay popular.

      Are you now advocating that politicians should have ignored the will of the people?

      Interesting argument…

  5. Carol 5

    Methinks, Blinglish is losing the plot. In response to Cunliffe questioning English’s figures in the house just now, Blingish began, “Let me explain again to the Minister….” English already conceding the next election?

    • Jim Nald 5.1

      Could be a psychiatric condition?
      Trying to explain to himself … trying hard to convince himself …

  6. burt 6

    So Labour managed the economy into recession and were called prudent, National suffering from the failed policies of the 00’s drag it slowly back to growth and Marty-G thinks they are a failure.

    That Marty-G must love falling productivity and welfare dependence.

    Yet, it’s obvious I’m reading the standard.

  7. bbfloyd 7

    Drawing straws again C?

    • comedy 7.1

      Sucking on politicians turds again bb ?

      IrishBill: dull, poorly punctuated and unpleasant. Keep this up and you’ll be banned.

      • comedy 7.1.1

        “dull, poorly punctuated and unpleasant”

        Eh what ? Surely that should qualify me to be an author on this blog !

  8. roger nome 8

    comedy – is it supposed to be laughing with, at or both? It seems to be mostly the second…

  9. bobo 9

    What I don’t understand is how tax cuts are being touted by Bill English in the house yesterday and on multiple occasions as “encouraging savings”, when they were last in government in the 90s weren’t tax cuts used to “encourage spending” ?? 0.2% GDP is within a margin of error so technically were probably still in recession..

  10. Outofbed 10

    encourage savings by hiking up gst?

  11. Andrew R 11

    Back to the English claim that real GDP growth for the last year was 1.9%.

    Calculating from the Statistics NZ June 2010 GDP tables I get real GDP growth to the year to June 2010 at 0.66%, and real per capita GDP growth for the same period as -0.57%.

    Is the Bill English maths the standard that is found of all ex-Treasury sorts I wonder? Or maybe national standards in maths should be trialled by cabinet?

  12. Roflcopter 12

    Never fear, we’re about to have a new flagship gov’t owned organisation to bring us back from the brink, by putting into practice all those productivity and business plans Labour had saved up for years but never got a chance to realise … NZ Post!

    Grats Mr Cullen, time to put into action everything you’ve been mouthing off about for years…. show us the light, show us the way!

  13. jcuknz 13

    Since increased GDP means more of the earth’s resources being used up then this small figure is good … as far as population increase is concerned that needs to be brought back to zero growth or less as quickly as possible .. people need to use restraint or condoms.

  14. jcuknz 14

    Since increased GDP means more of the earth’s resources being used up then this small figure is good [I fear you lefties are thinking like righties on this matter, quite humorous 🙂 ]… as far as population increase is concerned that needs to be brought back to zero growth or less as quickly as possible .. people need to use restraint or condoms.

  15. Kleefer 15

    Sanctuary, your ignorance of history is frightening and dangerous. Herbert Hoover dramatically increased government spending and ran unprecedented deficits, causing the Great Depression but not in the supposedly “free market” way you imply. Franklin Roosevelt made things even worse with bigger deficits, more government spending and more idiotic policies.

    In 1920 when there was a recession even sharper than the one after the 1929 stock market crash the US government balanced its budget and the Federal Reserve kept interest rates high at 7% and the economy recovered to full health within three years. The politicians of today have chosen to emulate the policies that caused the Great Depression and should be tried for treason as a result.

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    4 days ago
  • New District Court Judge appointed
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    4 days ago
  • $206 million investment in upgrades at Ohakea Air Force Base
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    4 days ago
  • Review of CAA organisational culture released
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    4 days ago
  • New Board appointed at Stats NZ
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    4 days ago
  • New Principal Environment Judge
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    5 days ago
  • Digital connectivity boost for urban marae
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    6 days ago
  • Govt increases assistance to drought-stricken Hawke’s Bay farmers
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    6 days ago
  • Investment in New Zealand’s history
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    6 days ago
  • Driving prompt payments to small businesses
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    6 days ago
  • Rotorua tourist icon to be safeguarded
    Maori Arts and Crafts will continue to underpin the heart of the tourism sector says Minister for Maori Development Nanaia Mahuta.  “That’s why we are making a core investment of $7.6 million to Te Puia New Zealand Māori Arts and Crafts Institute, over two years, as part of the Government’s ...
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    6 days ago
  • $14.7m for jobs training and education
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    1 week ago
  • Is it time to further recognise those who serve in our military?
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    1 week ago
  • Paving the way for a fully qualified early learning workforce
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    1 week ago
  • Sport Recovery Package announced
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    1 week ago
  • Major boost in support for caregivers and children
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    1 week ago
  • Great Walks recovery on track for summer
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    1 week ago
  • Māori – Government partnership gives whānau a new housing deal
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  • Keeping New Zealanders Safe In The Water
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    1 week ago
  • Legal framework for COVID-19 Alert Level referred to select committee
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    1 week ago
  • New Zealand condemns shocking attacks on hospital and funeral in Afghanistan
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    1 week ago
  • Government to close tobacco tax loophole
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    1 week ago
  • $62 million package to support families through the Family Court
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    1 week ago
  • Tailored help supports new type of job seeker – report
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    2 weeks ago
  • A modern approach to night classes
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    2 weeks ago
  • Christchurch Call makes significant progress
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    2 weeks ago
  • Christchurch Call: One year Anniversary
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  • Budget 2020: Jobs and opportunities for the primary sector
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    2 weeks ago
  • New registration system for forestry advisers and log traders
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  • Finance Minister’s Budget 2020 s Budget Speech
    Mr Speaker, I move that the Appropriation (2020/21 Estimates) Bill be now read a second time. From its very beginning this Coalition Government has committed to putting the wellbeing of current and future generations of New Zealanders at the heart of everything we do. There is no time in New ...
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  • Finance Minister’s Budget 2020 Budget Speech
    Mr Speaker, I move that the Appropriation (2020/21 Estimates) Bill be now read a second time. From its very beginning this Coalition Government has committed to putting the wellbeing of current and future generations of New Zealanders at the heart of everything we do. There is no time in New ...
    BeehiveBy beehive.govt.nz
    2 weeks ago