Which politician, holding a senior frontbench economic position, made the following sensible observation
I remind you that Lehman Brothers, the collapse of Lehman Brothers, which started this global financial crisis, on that very day, they still had a AAA credit rating. What does a AAA credit rating really amount to? What I’m saying is you can’t place enormous store in the rating agencies. They do get things very badly wrong, and they totally missed those major firms and economies that were driving and the reason for the GFC.
Unfortunately, the same one who said only a few months ago that our
commitment to returning the Budget to a real surplus in a timely fashion and retaining Australia’s AAA rating is paramount.
Answer over the fold
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My previous posts put up various bits and pieces about the sharp economic divergence between NZ and Australia, but I didn’t say much about why this topic is of interest right now. The issue has come up in several different contexts, where the contrast between the two countries, starting from fairly similar positions, seems to me to provide some pretty strong evidence. The questions include
* Do recessions have sustained effects on income levels, or does the economy rapidly return to its previous growth path? The evidence from NZ (six recessions since 1975) and Australia (two) suggests that effects are sustained
* Is market-oriented microeconomic reform a major determinant of economic growth? NZ reformed more, and more vigorously than did Australia and did drastically worse in economic terms.
* Do more flexible labour markets yield better macroeconomic performance? Again, the evidence from NZ and Australia suggests the answer is No.
Obviously, given the points above, I take the view that bad macroeconomic policy in NZ, particularly during the reform era of the 1980s and 1990s, is an important reason for poor economic performance. Important examples include the adoption of a contract-based 0-2 per cent inflation target in the early 1990s, and the misconceived idea of the Monetary Conditions Index at the time of the Asian crisis. I don’t think bad macro policy is a sufficient explanation, but the gap is so large and persistent, it’s hard to explain in terms of standard microeconomic analysis.
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Those are the terms chosen by young American voters to describe climate change deniers in a poll conducted for the League of Conservation Voters. LCV is obviously pro-environment, but historically nonpartisan, and they used both a Democratic and a Republican pollster.
The fact that, to be accepted in Republican circles, its necessary to be ignorant, out of touch or crazy or, at the very least, deferential to the crazies who dominate that side of politics, is being recognised as a problem for the Republicans and an opportunity for the Democrats, going well beyond the specific issue of climate change.
The climate denial issue came up again in Andrew Bolt’s interview with Kevin Rudd, and I’ve been reminded of his repeated claim that I got estimates of the climate impact of the government’s emission target wrong. In fact, it was Bolt who was wrong, as on almost every topic he touches, in this case, out by a factor of 100.
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Readers have sent in a couple more instances of claims that the NZ economy has done, or was about to do, better than competitors, most notably Australia. Here’s Tony Abbott on the alleged success of NZ macro policy
there are other countries which have chosen a different path and there’s no evidence that their response has been any less effective than ours. For instance, in New Zealand they have tried to reform their way through the global financial crisis under the new government’s leadership and they seem to be doing pretty well
and here’s a picture from 1989 of then Finance Minister, David Caygill, showing what he thought the reforms could achieve.
It’s time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.
A new sandpit for long side discussions, idees fixes and so on.
For a variety of reasons, I’ve been looking at the relative economic performance of Australia and New Zealand over the postwar period. For most of the 20th century, income per person in New Zealand grew in parallel with Australia. According to the Penn World Tables, income per person in New Zealand was within 10 per cent of the Australian level for most of the period from 1950 to 1970. Since the 1970s, NZ has declined greatly relative to Australia. On the latest Penn World Table figures, income per person is about 70 per cent of the Australian level. Over most of this period, NZ has been governed by radical advocates of the free market. As part of my research, I’m collecting some of their claims about NZ economic performance, relative to Australia and the OECD. I’ve listed some over the fold (links a bit scrappy, as some predate the rise of the interwebs). Further contributions welcome, as would any interesting examples of more accurate assessments (I have some already).
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