Oz, NZ and the election

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.

OzNZ002
NZandothers

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.

46 thoughts on “Oz, NZ and the election

  1. @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?

  2. 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.

  3. @Ikonoclast
    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.

  4. 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

  5. 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?

  6. 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.

  7. 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.

  8. @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…

  9. 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!?

  10. @SJ

    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.

  11. 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??

    I

  12. @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.

  13. 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??
    I

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

  14. 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.

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