Pick up the paper. The stories are ‘consumer confidence recovering’, ‘house prices stablising’ etc. These are taken as indications that the recession is close to over. Probably right. Weak growth in December. But that weak growth will be built on the same foundations that crumbled here and abroad sending us into recession in the first place.
Last thing we need is more consumerism and another property bubble. Build on the same foundations, they’ll just collapse again. Worse the second time.
Even English sees that. Not going to do anything to stop it happening though. Political imperative is to have the recession over by whatever means asap. So that “lagging indicator”, jobs, starts coming picking up before the election. But he knows a recovery that’s not built on sustainable infrastructure and exports is Clayton’s recovery. It’ll come back to bite us through bugdoning trade deficits and private debt. Basically, that’s what Fitch was trying to warn us about.
Brian Fallow got it right in Granny:
There is a danger that people treat this recession as viral, something that we suffer through then can shake off and carry on as before. It is much more like a first heart attack, a serious wake-up call to change our ways on a sustained basis, or the next shock will be much worse.
We need to be realistic about how compressible Government spending is in a democracy.
The message about living within straitened means applies as much to the household sector as to the Government.
And the message about raising productivity applies as much to the business sector as to the public sector. Almost a third of Government spending, around $20 billion, is classified as income support, transfer payments to super-annuitants, the unemployed and so on.
At some point the entitlement side of the superannuation scheme will have to be tackled but in the meantime both major parties are treating it as a “third rail” issue: touch it and you die.
So how much fat is in the remaining two-thirds?
We have been ‘trimming fat’ from the public sector for the last 20 years in an effort to make up for our under-performing private sector. It’s the tradables sector, the exporters, who went into recession first. The blame for that can’t be laid at the government’s door. Wouldn’t credit the government for private sector growth. If we want real growth, it will mean the private sector getting its house in order.
But saying ‘our exporters are under-performing because we’ve got an under-educated boss class who are just interested in getting the SUV and the McBach in Whangamata’ is not politically viable. Nor is saying ‘you can’t go back to getting rich selling each other houses and borrowing to buy X-boxes’.
So. It’s blame the bureaucrats. Rebuild the economy on sand. Pray it holds two more years.