That’s the title of my book-in-progress, which is about undead ideas that should have been buried for good after the global financial crisis. But, in most cases, the evidence against these ideas was substantial even before the crisis. Still they wouldn’t die.
This was brought to mind the other day when I got a call from Radio New Zealand asking me to discuss a new report on how NZ could close the (very large) gap in wages and productivity with Australia. That’s an important question, but I realised it was unlikely to get much of an answer when I was told the committee that produced the report was headed by Don Brash, former head of the Reserve Bank of NZ in the 1990s who resigned and immediately went into politics, becoming leader of the then National Party Opposition. Other members included David Caygill, one of Roger Douglas’ offsiders in the 1980s Labour government that implemented ‘Rogernomics’ and Australian free-market economist Judith Sloan.
From this team, about the best suggestion would be that crack NZ scientists should invent a time machine which would go back in time to ensure that the parents of Brash, Caygill and, even more importantly, Roger Douglas were prevented from ever meeting.
Update: For a more carefully stated presentation of my views on NZ, a few years old now, but not requiring any updating, you can read this paper.
Before the committee members and their allies gained political power in NZ in the 1980s, there was no significant gap between Australia and New Zealand. The two economies had grown in parallel ever since the arrival of Europeans, and both faced very similar challenges. The gap the report were supposed to close was the product of the radical free-market policies implemented by Douglas, Caygill and others in the 1980s and the mismanagement of monetary policy by Brash in the 1990s. Australia took a more measured approach to micro reform and chose more sensible central bankers, producing much better outcomes.
The absurdity of appointing such a committee is even greater now that the theoretical basis of their policies has been destroyed by the financial crisis. The centrepiece of the policy framework was comprehensive financial deregulation, along with policies like privatisation that depended on the assumption that private capital markets were the best possible guide to the allocation of scarce capital. All this depended on, and reflected, the effiicient markets hypothesis, a theory now abandoned by all but the most dogged and dogmatic of its proponents.
Unsurprisingly, the committee came up with no new ideas, suggesting massive cuts in public spending, more deregulation and so on. About their best idea was congestion pricing for road access to major cities, something Ken Livingstone beat them to some time ago.
Who would be silly enough to appoint such a committee. The National Party is happy enough to leave the Brash years behind, and Labour certainly has no interest in promoting Cargill. The answer, unsurprisingly, is the free market + statist law and order ACT party, which demanded this as part of its price for entering a coalition government. This political zombie is well matched by the zombie economics it has dished yp.