Back to the future

Back in the 1980s, there was a constant stream of international delegations to Wellington, seeking to learn from the “New Zealand miracle”, in which a group of radical free-market reformers turned around a sclerotic welfare state. While the results had yet to show themselves, everyone was confident that NZ would soon surpass Australia, where the political system threw up many more obstacles to reform. Everyone knows how that turned out. After 100 years of economic parity, NZ GDP per person has fallen to around 60 per cent of the Australian level. The gap closed a little when NZ abandoned radical reform (from the first MMP election to the end of the Clark Labor government) but is now widening again.

And, just in the last week, the intellectual foundations of austerity polices have been cut away with the discovery that the influential paper of Reinhart and Rogoff, predicting disaster when public debt levels exceed 90 per cent of GDP, was based on a coding error (not to mention some dubious statistical choices). That follows the demolition of the even more influential work of Alesina, Ardagna and other co-authors, some of which I criticised in Zombie Economics

Against this background, it’s truly bizarre to see the Australian right (IPA, CIS and Tony Abbott) presenting New Zealand as a model, on the basis that the budget has been returned to surplus. Apparently, it doesn’t matter that the economic outcomes have been consistently appalling, as long as the ideology is right.

I have a simple suggestion which I hope will appeal to everyone. Since the new NZ government came in, deluded Kiwis have been voting with their feet in large numbers. The resulting imbalance could be addressed if the CIS, IPA, Parliamentary Liberal Party and their keenest supporters moved across the Tasman to try out the marvels of free-market reform for themselves.

79 thoughts on “Back to the future

  1. @Ernestine Gross

    As always, you dance around an issue theoretically and never wish to come to terms with it by grappling with any practicalities. Every moment in time is a new situation. Every moment in time presents “initial empirical conditions at a particular time and place” which as a complex have never existed before. Every theoretical framework (as a set of simplifying formulas and algorithms) grapples with a unique and new complex which is perforce imperfectly understood.

    If one studies in course detail, one will over-simplify one’s model (theoretical framework). If one studies in over-fine detail, one will never finish the model before reality evolves, moves on and invalidates the model. Where is your research project on this continuum?

    It is patently clear that good macroeconomic settings are a necessary but not sufficient condition for a healthy mixed economy like Australia’s. For example, a bad macroeconomic setting would be to levy all current taxes and make absolutely no outlays thus returning the budget to a massive surplus. How long do you think the country could run on those settings?

    Thus I refute the attempt to reject macroeconomics.

  2. @Alan
    “A number of countries are doing extremely well with sovereign wealth funds. Singapore’s acquisition of Optus is a case in point. Apparently it’s so important for Optus to be in private hands that it doesn’t matter if those hands belong to a foreign government. ”

    My recollection is that in 2011 or thereabouts, the Aust PMC Dept rejected (unofficially) the Optus bid for ICT services because Sing govt was likely to get access to communications info.

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