Home > Economic policy, Oz Politics > Oz, NZ and the election

Oz, NZ and the election

August 5th, 2013

Following my earlier discussion of relative economic performance in Australia and NZ, I’ve been chatting with people in the NZ Treasury, and also with some of the macroeconomists in my own department. Its given me a number of research ideas I hope to pursue in the future, both with respect to possible ways the NZ-Oz gap might be bridged and more general implications about macroeconomic theory.

In the circumstances of the election what matters is the suggestion by Tony Abbott and others on the political right that New Zealand is a model for Australia to follow as regards macroeconomic policy. The key point is that NZ had a smaller stimulus than we did, and looks set to return to surplus a little earlier, though of course we know how unreliable such projections can be.

If, like Abbott, Hockey and (on even-numbered days) Robb[1], you regard budget surpluses as the paramount measure of good economic performance, there’s a case to be made here. But if you think that employment and economic growth are more important, Australia looks a whole lot better, as you can see from the graphs below.

Standard economic theory suggests that, when two countries have access to the same technology, comparable education systems, free labour and capital movements and so on, any initial differences in income levels should gradually be evened out. Instead, the Oz-NZ gap has widened since the GFC. Anyone who could seriously suggest NZ as an economic model should not be entrusted with the management of our economy.


fn1. Not to mention Peter Costello and Wayne Swan, who seemed to view the stimulus that saved us from recession as an embarrassing departure from normality.

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  1. crocodile
    August 5th, 2013 at 15:26 | #1

    If, like Abbott, Hockey and (on even-numbered days) Robb[1], you regard budget surpluses as the paramount measure of good economic performance, there’s a case to be made here.

    That’s always a good one. After all, Whitlam ran budget surpluses during his tenure. Not sure that Abbot, Hockey and Robb would place him in the category of maestro of economic performance.

  2. Rodney Topor
    August 5th, 2013 at 16:18 | #2

    Where does Australia belong in the second graph?

  3. John Phillips
    August 5th, 2013 at 16:46 | #3

    Paid Parental Leave
    this is an issue for the forthcoming election in Australia

    I believe the liberal policy is to pay I think its called Paid Parental Leave
    the amount from what I have been able to read is up to $150K per year

    beleaguered small business and tax payers in general should not be saddled with such onerous burdens
    If a person (male or female as not being sexist here) is to receive up to $3K per week,
    then its basically not just middle class welfare its millionaire and billionaire class welfare
    for example, someone like Gail Kelly (CEO Westpac) could receive it
    frankly I think that would be a shocking state of affairs and grossly unsupportable by any degree of imagination
    (should be less than $300 per week !)
    now I cannot in all honesty vote Liberal when things like this are going to happen

  4. John Quiggin
    August 5th, 2013 at 17:01 | #4

    @Rodney Topor

    I’m hoping to add that. Essentially, we start out at the same point as NZ, and diverge from about 1970 onwards in income. Our ranking declines in parallel with NZ initially, but levels out and improves from about 1990.

  5. Jim Rose
    August 5th, 2013 at 17:03 | #5

    Most of the relative decline in NZ incomes, and all of the 30% TFP decline were before the economic reforms took hold and became a credible policy regime. The relative drop occurred under the old order that opponents of reform look upon as the good old days. A good old days that saw TFP fall by 30% between 1974 and 1980.

    See http://www.econ.umn.edu/~tkehoe/papers/NZ-Switzerland2.pdf showing that from 1992 to 2002, New Zealand grew at or above the trend growth rate.

  6. John Quiggin
    August 5th, 2013 at 17:31 | #6

    @Jim Rose
    This is silly, and a misleading characterization of the Kehoe paper. I’ll respond to that paper in my own time.

    In the meantime, I’ll just observe that, if six years of mediocre policy can wreck an economy for 30 years, despite at decades of free-market reforms, then mainstream economics is in even more trouble than I claim in my book.

  7. Jim Rose
    August 5th, 2013 at 18:07 | #7

    @John Quiggin the kehoe paper asks why NZ returned to a 2% growth rate but no more after 1992 and described the lack of a rebound as a major puzzle. The Swiss performed just as poorly over the same period.

    if you calculate Oz gdp per working age person in the same way as in the Kehoe paper, it has been stable at 2% since the 1950s with swings and roundabouts around that trend of 2%! Oz have been neither catching up nor falling behind the USA since the 1960s. this failure of convergence is another puzzle.

    Canada actually fell 10 percentage points further behind the USA between the mid-1970s and the mid-1990s. Canada stopped falling further behind the USA after 1995 because of economic reforms but there was no rebound to recover the lost productivity.

    there are also wide variation in relative european growth rates depending on when a country joined the EEC. the EU late comers mostly stopped falling furthur behind.

  8. may
    August 5th, 2013 at 18:27 | #8

    off topic.

    there are,according to the ABC,100,000 plus people who have no address in this country.

    can they vote?

  9. Ikonoclast
    August 5th, 2013 at 18:32 | #9

    Has the divergance been consistently related to energy use? Even if we answer in the affirmative, is the energy use divergance the cause or effect of the economic divergance? The facts below would suggest that energy use changes would be effect not cause. NZ has no energy shortage.

    But taking a slight detour, a study by Tim Garrett, associate professor of atmospheric sciences, Utah, is perhaps of interest.

    Garrett says, “I’m not an economist, and I am approaching the economy as a physics problem. I end up with a global economic growth model different than they have…”

    Garrett treats civilization as a “heat engine” which consumes energy and does work in the form of economic production.

    “If society consumed no energy, civilization would be worthless (sic). It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources.”

    Garrett says his study’s key finding “is that accumulated economic production over the course of history has been tied to the rate of energy consumption at a global level through a constant factor. That “constant” is 9.7 (plus or minus 0.3) milliwatts per inflation-adjusted 1990 dollar. So if you look at economic and energy production at any specific time in history, each inflation-adjusted 1990 dollar would be supported by 9.7 milliwatts of primary energy consumption.”

    Garrett found this constant relationship between energy use and economic production to be true at any given time by using United Nations statistics for global GDP (gross domestic product), U.S. Department of Energy data on global energy consumption during1970-2005. He even lookes previous studies that estimated global economic production as long as 2,000 years ago.

    Now, I haven’t read his paper let alone checked his math. He is arguing for a striking constant there. It is hard to believe NZ has been energy starved so I doubt that is the explanation. NZ is rich in hydro power.

    “In 2010, hydro generation produced 88.09 petajoules (PJ) of electrical energy, representing 56.4% of the total electricity generated.” – Wikipedia.

    NZ has a national target of 90 percent renewable electricity by 2025 to be mostly achieved by the addition of wind power.

    NZ has ample coal reserves and exports twice the amount it uses domestically. In 2008, New Zealand’s self-sufficiency in oil (production divided by consumption) was 47%.

    So, to reiterate a point from the top. The facts below would suggest that an energy shortage is not the cause of the economic performance divergence from Australia. NZ has had no energy shortage over this period.

    J.Q. will say QED. But hopefully it’s always handy to eliminate a possible cause. Just because an energy shortage is almost certainly not the causative agent in NZ this does not mean that energy shortages are everywhere and always elminated as possible causes for poor economic performances in given cases.

  10. SJ
    August 5th, 2013 at 20:00 | #10

    One of Mr Rabbit’s promises is to get rid of red tape, saving “$1 billion a year” (which is of the order of 0.07% of GDP).

    That’s something that New Zealand tried.

    Changes to the approval system for buildings failed in a spectacular fashion, probably transferred a trivial sum to the pockets of varios spivs, and will likely cost about NZ$11 billion to fix (of the order of 6% of GDP).

    Even better, knowing that the NZ$11 billion would have to be spent at some time or another, one would think that the GFC induced slow-down would be a good time to start spending it. Not so. Borrowing money to repair schools and hospitals might damage the country’s credit rating.

    A sane person might question what the benefit of a good credit rating is, if you lose it the instant you try to use it.

  11. SJ
    August 5th, 2013 at 20:05 | #11

    Hmm, I’m in moderation. Could be either the link to Wikipedia, or the link to one of Rupert’s newspapers.

  12. rog
    August 5th, 2013 at 21:02 | #12

    @SJ Two links will do it, try separate posts.

  13. SJ
    August 5th, 2013 at 21:36 | #13

    (Thanks rog. All fixed now.)

  14. Mel
    August 5th, 2013 at 22:04 | #14

    Thanks for that story about the leaky house crisis, SJ. That is the sought of story that should be rubbed in the faces of those nitwits on the Right who think market forces is the solution to every problem.

    The market is a good thing but it ain’t the Holy Grail. Capitalism only works well when it is well regulated.

  15. rog
    August 6th, 2013 at 06:02 | #15

    That’s an excellent example of how, if left unregulated, free market forces are ultimately destructive.

    Uncle Milt decried building regs because they “impose costs that you might not privately want to engage in”.

  16. rog
    August 6th, 2013 at 06:20 | #16

    If you read Bernanke’s account of the great depression Uncle Milt was critical of the Fed for not stepping in and stopping private banks from collapsing. At that time the Fed had a ‘survival of the fittest’ policy

    Many Fed officials appeared to subscribe to the infamous “liquidationist” thesis of Treasury Secretary Andrew Mellon, who argued that weeding out “weak” banks was a harsh but necessary prerequisite to the recovery of the banking system..

    …Fed officials decided not to intervene in the banking crisis, contributing once again to the precipitous fall in the money supply.

    The Fed’s failure to fulfill its mission was, again, largely the result of the economic theories held by the Federal Reserve leadership. Many Fed officials appeared to subscribe to the infamous “liquidationist” thesis of Treasury Secretary Andrew Mellon, who argued that weeding out “weak” banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were relatively small and not members of the Federal Reserve System, making their fate of less interest to the policymakers. In the end, Fed officials decided not to intervene in the banking crisis, contributing once again to the precipitous fall in the money supply.

  17. Ikonoclast
    August 6th, 2013 at 10:02 | #17

    If I might make a few suggestions for Prof. J.Q. Forgive me if you have thought of all of these and more for investigation in the case of the divergance of economic performance between New Zealand and Australia. Clearly the first step is to look for correlations. This is whilst remembering that correlation does necessarily not imply causation. Overall economic performance has diverged. What else has diverged?

    First we must look at internalities and externalities (or should we can them endogenous and exogenous factors?). Externalities must be further divided into economic externalities and environmental externalities. Obvious environmental externalities could be dealt with first. Remember, negative findings narrow the field of candidate causes. Has N.Z. suffered significant material resource shortages or energy shortages in the time period under study (where Australia has not)? Are they correlated with the divergance path? We could ask the same questions about disruption to N.Z. economic life from earthquakes, major weather events, major crop failures, major stock losses and so on. These points deserve proper study even if only to eliminate environmental, weather and climate shocks as possible causes.

    With regard to economic externalities J.Q. would be aware of a longer list of things to study and compare than would I. But I guess a key thing to look at would be the trade performance and the existence of trade surpluses or trade deficits. Capital inflows as capital investment and capital outflows could be signficant one would think. Migrations patterns and so-called “brain drain” factors, if the latter can be quantified, might also bear examination.

    With the N.Z. economy and body politic one would be looking at the performance of three key areas; Government, Capital and Labour. Has there been a change in government performance? I presume the pre-1970s era say significant government (public) involvement in capital works like hydro schemes. This is only a presumption on my part. Has the post 1969 era seen a significant withdrawal of the government and government spending from public and capital works? Was the change to monetarist policy earlier and more severe in N.Z. ? Did the N.Z. government tend to run relatively smaller or relatively larger deficits (expansionary policy) than Australia during and after downturns?

    With regard to the operation of capital. When did the shift of further profit share of the economy from labour to capital begin to occur? Was it earlier and/or more marked than that shift when it occurred in Australia? Where there events or phases characterisable as private capital dis-investment or private capital strikes?

    What was the treatment of labour and the behaviour of labour? Reduction of wages? Removal of rights and conditions? Lockouts? Strikes? Management – Union conflict?

    What were the impacts of privatisations? Did privatisation failures necessitate bailouts to keep essential infrastructure and services running? Did these bailouts divert funds from other necessary works? Were profits and capital “pirated” out of the country via the mechanisms of privatisation?

    I do wonder too whether modern economies and economics changed qualitatively in the 1970s such that small economies (below a certain threshold) suffered disproportionately from diseconomies of scale after that date. Was it the case that you had to be above a certain size to keep thriving in a globalising world?

    * * *

    Finally, my impressions of New Zealand in about 2009 or 2010 when I visited. N.Z. did look a bit like the land time forgot. The car fleet was clearly smaller (even comparatively) and older than Australia’s. There were mostly old clunkers and relatively few new cars. Large cars and SUVs were very rare (no bad thing IMO).

    The built infrastucture was older and more dilapidated. Roads, especially country roads, seemed like something out Qld in the 1960s. There was considerable reliance on one lane bridges. NZ’s challenging terrain and low population clearly has a lot to do with that.

    N.Z. has fallen behind economically. Has its real misery index increased or are most NZ people happy with the way the country is? I don’t know but is economic production everything? Will NZ be better off relatively when resource shortages and conflict hit most of the world and NZ sits there still with plenty of resources for their own needs and happily far from conflict. I’d live in NZ if it weren’t for the earthquakes and the fact that my wife hates genuine cold weather. Personally, I love cold weather. Nothing beats hiking in the stinging, bitter cold. It makes one feel alive and then the day’s end refuge with fire, hot drinks and hot food in unit, cottage or hut feels that much better.

  18. Royton De’Ath
    August 6th, 2013 at 10:25 | #18

    And … providing a(nother) historical perspective of New Zealand’s “economic performance” over the long term:


    For those folk who might like to reflect on the arc of neoliberal policy implementation and outcomes the inestimable Brian Easton provides the following history. It is a cautionary tale; one well worth reading – having resonance for today and, more to the point, provides further reinforcement of PrQ’s point about “NZ as model economy”, trust and the Coalition:


    The preceding paper also provides an introduction to the involvement of – some – Treasury advisers in shaping neoliberal “policy” in NZ.

    A previous comment of mine pointed to Alister Barry’s documentary ‘Someone Else’s Country’ as a perspective on a cabal in the NZ Treasury and their strong involvement in ideologically-driven economic/social policy in NZ. Barry’s second documentary (in a trilogy of documentaries) ‘In a Land of Plenty’ provides further, digestible, information about that involvement (one scene, about the development of the “poverty line” is extraordinarily instructive – in all sorts of ways).


  19. J-D
    August 6th, 2013 at 11:04 | #19

    Yes, otherwise qualified people with no fixed address are entitled to enrol to vote.

    Information is available from the AEC website:

  20. J-D
    August 6th, 2013 at 11:07 | #20

    I have provided a link to the page on the AEC website about enrolment for people with no fixed address, but the link has trapped it in moderation.

  21. may
    August 6th, 2013 at 11:52 | #21

    that’s OK.
    my query is/was more about what looks like an invisible component in the electorate.

    before the last parliament rose a coalition member accused Winsor of looking after the people in his electorate.

    he admitted it.

    this,to me,shows how far the coalition has removed itself from the point and purpose of what a democracy actually is.

    how come we have got to the sorry state where a member can be castigated for representing his/her constituents?

    and who represents the homeless?

    the numbers of homeless people here in the west,i have heard,ranges from a low of 10.000 to a high of 18,000.
    the rent caste are complaining of vacancies.
    but who can afford,on a basic wage,nearly $500:oo a week?

  22. J-D
    August 6th, 2013 at 13:35 | #22

    Enrolment is compulsory but that doesn’t mean everybody does it, and we can be confident that the rate of non-enrolment among the homeless is significantly higher than among the homed. Anything else would be astonishing.

    However, any homeless people who are enrolled must be enrolled for a specific electorate, so they’d be just as much constituents of the member for that electorate as the homed people.

  23. Peter Whiteford
    August 6th, 2013 at 16:48 | #23

    The latest NZ income survey http://www.msd.govt.nz/about-msd-and-our-work/publications-resources/monitoring/household-incomes/ shows tha treal median incomes increased by 41.6% between 1994 and 2012; the ABS surveys show the corresonfing increase for Australia was 56.4%. Their real median income fell between 2010 and 2012, the first real fall since the 1990s.

  24. jane
    August 6th, 2013 at 19:22 | #24

    may, I think that question explains why the LNP felt no guilt about their woeful behaviour during the last 3 years.

    I believe that is why the voters of New England elected Windsor time and again; they were fed up with Coalition MPs who paid scant attention to their needs.

  25. Mr Denmore
    August 6th, 2013 at 21:13 | #25

    I’m a New Zealander. As a journalist in Wellington in the mid-80s, I covered the election that ended the Muldoon era (when the country was as regulated as Albania) and the subsequent neo-liberal era of unrestricted privatisation, deregulation and corporatisation of state-owned entities under Roger Douglas. Essentially, the country’s unicameral legislature and first-past-the-post electoral system left the executive completely unchecked and allowed one wild economic experiment after another. The electorate soon tired of being guinea pigs for flat earth theorists and moved to mixed member proportional representation.

    I’ve seen a generation grow up there in a low skilled economy where the only comparative advantage is the cost of labour. The society consists of a large urban under-class, composed mainly of Maori and Pacific Islanders. Many middle class, university educated people skill up and leave the country for Australia or elsewhere. The government in the past decade and a half has accelerated immigration from Taiwan, Korea, South Asia and the Middle East and allowed virtually unrestricted foreign investment in property. This has pushed house prices in Auckland close to those in Sydney and priced out many locals from the market.

    A relative absence of consumer protection, through years of pro-business deregulation, leaves people prone to rip-offs in product and service markets. Tens of thousands of people in my parents’ generation (those born from the mid-20s to early 40s) have lost their life savings to shonky financial “advisers” pushing high-risk debentures and mezzanine finance schemes. Discount shops pump out Chinese-made, discounted crap. Public broadcasting (in the sense of advertising free programming) no longer exists. The country is fast becoming a low-wage option for Australian companies (witness Fairfax Media’s outsourcing of its sub-editorial production to NZ).

    My brother-in-law in Auckland is dying of cancer and is currently being shunted from one under-funded public hospital to another in a system that was turned by the National Party to ‘Crown Health Enterprises’ in another blind genuflection to the idea of the market as the ultimate god.

    I go back to NZ regularly to visit family and friends. I don’t know of anyone who would not sell up and move to Australia if they could. Those still there remain so because of family or business ties.

    NZ has many fine qualities – wonderful scenery, great food and wine and humble, self-effacing creative and thoughtful people. But those qualities do not extend to the economy. And the idea that Australia could somehow benefit from following the Kiwi example leaves me speechless.

  26. Jim Rose
    August 6th, 2013 at 21:15 | #26

    @Mr Denmore why did NZ start growing again in 1992 after a long hiatus since 1974 after the passing of the employment contracts act and the mother of all budgets both in 1991?

    what do you want to bring back? give telecom its monopoly back?

  27. SJ
    August 6th, 2013 at 21:54 | #27

    You’re a clown, Rose. Go away.

  28. rog
    August 6th, 2013 at 22:55 | #28

    @Ikonoclast Yes, NZ is a great place to travel in. But inequality is starkly apparent, just look at supermarket prices compared to average wages.

  29. Ikonoclast
    August 7th, 2013 at 06:31 | #29

    When I was in NZ, I thought the food was cheaper and of much better quality than Australian food. Of course, I wasn’t comparing the prices to NZ wages but to my Australian sense of food prices. With respect to quality, I am of the opinion that compared to other developed nations Australia has some of the most expensive and worst quality food going around. I’ve noticed that since becoming subservient to the export dollar, most of Australia’s quality meat is exported and we are left with scrag ends. It is scarcely possible to buy a quality steak in a Brisbane butcher shop any more. If you are foolish enough buy your meat from the duopoly, it’s even worse. About 30% of it by weight is injected water. There is no other explanation for the amount of water that comes out when you attempt to cook it.

    When assessments are made of Australia’s supposedly high standard of living mention is rarely made of the way we face such high priced, poor quality food. Mention is also rarely made of our poor broadband which is 40th in the world for speed. Then there is our poor education performance, declining and overpriced tertiary education. Add in rocketing prices in electricity, gas, insurance, education, rates and so on. Now we have unemployment going back over 6%, underemployment over 11%, youth unemployment about to nudge 25%.

    Australia has a lot of problems which are not being dealt with and these are about to bite us on the proverbial. Trading coal and iron ore for SUVs and plasmas has given a lot of people a false idea of Australia’s economic position. Privatisation and de-regulation has done us a lot of structural damage as well. While people are making money on the top, the productive, educative and infrastructural base is being catabolised beneath. Australia’s economy will soon collapse in a heap and look no better than N.Z’s unless we make radical changes to reinstitute government ownership and management of natural monopolies in the interests of the majority. We also need to re-extend and re-invigorate government regulation and investigatory apparatus to arrest the corporate led decline in quality and exploitation of consumers and workers.

    It is the extension of unregulated capitalism which wrecks countries. Capitalism has reached the phase where financial capital dominates and catabolises the productive base to concentrate wealth if it is permitted to do so. Wealth is concentrated in a few hands while the productive base is destroyed. Of course, this is a not a forward looking policy. The wealthy retreat to their enclaves and figure they can hold out for the term of their natural lives. The course of history after that does not exercise their minds.

  30. Troy Prideaux
    August 7th, 2013 at 08:41 | #30

    Re: Food quality – see, my experience is the polar opposite. I only went to the south island and yup the scenery was spectacular, house prices high, but food was very average on every occasion I dined out for dinner. Melbourne’s food was streaks better.

  31. John Quiggin
    August 7th, 2013 at 11:08 | #31

    Jim Rose: I don’t think there is much point in further contributions from you on this topic, since you’ve repeated the same spurious claims many times already. Please direct your attention elsewhere

  32. John Quiggin
    August 7th, 2013 at 11:08 | #32

    In the whole of the NZ experiment, there were, as Brian Easton points out here, only two really good years


  33. Ikonoclast
    August 7th, 2013 at 12:08 | #33

    @Troy Prideaux

    Well, maybe it’s just Qld’s food but Sth Island food was much better than Qld food I can tell you.

  34. may
    August 7th, 2013 at 12:20 | #34

    thanks for the response on the homeless.

    ignorance showing again.

    with revenue dropping,why does reducing company tax sound such a good idea to conservatives?

    and why was the carbon price called a tax and the tax to pay for really high maternal leave to the very well off called a levy?

  35. Ernestine Gross
    August 7th, 2013 at 12:57 | #35

    Prof Q, you write:

    “Standard economic theory suggests that, when two countries have access to the same technology, comparable education systems, free labour and capital movements and so on, any initial differences in income levels should gradually be evened out.”

    1. Do you mean a perceived ‘standard economic theory’, a belief as talked about during the time when globalisation was promoted?

    2. Or do you mean economic theory which uses ‘standard’ methods of establishing a result (ie math econ)?

    I am not aware of literature belonging to interpretation 2 from which your statement could be deduced.[1]]. I’d therefore be grateful to get some hint as to where to look for.

    [1] I am aware of factor price equalisation results from ‘standard’ (ie in existence for more than 40 years) international trade theory models and related work in international finance. However, notwithstanding the important results by Murray Kemp and Alan Woodland regarding transportation costs, the structure of the models do not allow a distinction to be drawn between ‘a country’ and ‘an individual’. I am quite sure about this.

  36. SJ
    August 7th, 2013 at 22:34 | #36

    Ernestine, I’m pretty sure John means “convergence”, sort of what you call (1). It’s not an obscure doctrine by any means.

    It’s probably an incorrect doctrine, but that’s something John is calling attention to.

  37. August 7th, 2013 at 22:58 | #37

    @John Quiggin

    I’m hoping to add that. Essentially, we start out at the same point as NZ, and diverge from about 1970 onwards in income. Our ranking declines in parallel with NZ initially, but levels out and improves from about 1990.

    I was in the Australian workforce in 1990. It was a time of trading away conditions for pay rises, rather small pay rises at that. Public servants did it. Nurses did it. The government and the unions pushed it. As a public servant at the time, I was all for telling them to keep their 2.4% pay increase, and we’d keep our conditions.

    It was also the time when we started to abandon some of the ridiculously generous retirement schemes. My Dad retired in his mid 50’s in the mid 1980’s from his state government job. He still gets a pension of over $1000 per fortnight, and a part age pension. My old age will not be as comfortable as his.

    The high point of that era was management telling us that the afternoon tea break was a privilege and not a right…

  38. Jim Rose
    August 11th, 2013 at 12:58 | #38

    Ernestine Gross :
    Prof Q, you write:
    “Standard economic theory suggests that, when two countries have access to the same technology, comparable education systems, free labour and capital movements and so on, any initial differences in income levels should gradually be evened out.”

    Germany, France and Italy stopped converging in about 1990 because of high taxes and heavy regulation. Australia has been neither catching-up nor falling behind for 50 years!?

  39. Ernestine Gross
    August 11th, 2013 at 20:13 | #39


    I querried this point because JQ usually provides a point of reference.

    During President Regan’s time, multinational firms, free trade and ‘big bang’ financial market deregulation (ie globalisation) were promoted as a means to achieve ‘convergence’ between so-called developed and so-called less-developed countries. Not sure though this should be called ‘standard economic theory’ because development economics is part of Economics.

  40. Ernestine Gross
    August 11th, 2013 at 20:20 | #40

    Jim Rose,

    you write: “Germany, France and Italy stopped converging in about 1990 because of high taxes and heavy regulation.”

    I say, some outer suburbs in the South-West of Sydney have never converged with the Eastern Suburbs of Sydney and some residents within the Eastern Suburbs have never converged with their compliment in the Eastern Suburbs of Sydney. Where does this leave you and your ‘high taxes and heavy regulation’ argument??


  41. phee
    August 12th, 2013 at 08:18 | #41

    @Mr Denmore
    I could not have said this better, and might have said it substantially worse. An excellent summary of the germane points. There are social and cultural implications to poverty and under investment in people, which is, after all, one of the only renewable, income generating resources a country has. Australians, of which I am now one, often overlook or take for granted this country’s investment in people, from health care to education, to having a public broadcaster. One only needs to watch the ‘news’ in New Zealand to get a clear indication of the race to the bottom, or any number of other examples cited above. The one I particularly enjoy is the Department of Conservation’s (peak gvt environmental body) ‘vision statement’ that does not acknowledge indigenous flora and fauna. Australians are often shocked to discover that feral animals flourish in New Zealand, completely destroying the unique habitat as they go, with the support of the Department of Conservation. Of course, Australian government can be criticised for not protecting the environment, but there is generally a tacit acknowledgement that there is some value in indigenous flora and fauna.
    When I go back to NZ now, with my Australian family and sometimes friends in tow, I spend a lot of time explaining bizarre things like this to them.

  42. Jim Rose
    August 12th, 2013 at 17:58 | #42

    Ernestine Gross :
    Jim Rose,
    you write: “Germany, France and Italy stopped converging in about 1990 because of high taxes and heavy regulation.”
    I say, some outer suburbs in the South-West of Sydney have never converged with the Eastern Suburbs of Sydney and some residents within the Eastern Suburbs have never converged with their compliment in the Eastern Suburbs of Sydney. Where does this leave you and your ‘high taxes and heavy regulation’ argument??

    EG, you are a very well-read fellow, so I will assume you plain forgot urban economics.

  43. Ernestine Gross
    August 12th, 2013 at 22:21 | #43

    @Jim Rose

    You forgot to answer my question.

  44. BilB
    August 13th, 2013 at 05:03 | #44

    How far is too far?

    Possibly the most significant economics and planning article that you will ever read


    The far end of the bell curve.

  45. pablo
    August 13th, 2013 at 09:30 | #45

    Phee @ 41 I largely agree with you. Australia seems to have nothing to historically compare with the various ‘aclimatisation societies’ in NZ that laud it over biodiversity. For example I don’t think it is possible still today to buy a ‘farmed’ trout such is the power of the ‘game’ fishing/tourism lobby that ensures a unique experience catching the thing in ‘wild’ rivers. Or have I just been away too long? Then again there are some nice touches such as the use of native bird calls as time separating or programming devices on their equivalent of national radio. Or have they gone too? Also I was struck by how much more comprehensive their supermarkets were. Made Coles/Woolies look quite soviet era.

  46. August 16th, 2013 at 18:10 | #46

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