Will NZ now pay for taking Easy Street?

In August 2016 the Governor of the Reserve Bank of NZ made a statement which included the line that "Domestic growth is expected to remain supported by strong inward migration, construction activity [and] tourism". These three factors were the key drivers of GDP growth for many years of the Key government.

Fast forward to June 2020. As of today, immigration and foreign tourism numbers are both close to zero. Meanwhile, our construction industry, which has long been characterized by weak productivity growth, is wobbling.

In the midst of this virus crisis, are the powers-that-be now offering a different vision of NZ in which GDP growth may come from other sources? Or are they planning a return to the old model? There has been little talk of the former so I presume its the latter.

Why? Perhaps because Kiwi politicians found out that as long as more foreign tourists kept coming, house prices kept skyrocketing and inward migration soared, they didn't need to sweat about tackling the hard issues. Consequently, quality reforms that raised the long-run per capita growth rate, reduced poverty and cut inequality weren't a priority. Public demand for such reforms may also have been low since taking Easy Street seemed to be working.

New Zealand’s COVID-19 Economic Response in Review

Today, we interview two world-class economists. Richard Easterlin, the recognized founder of well-being economics, suggests NZ got its Covid-19 response right:

“If you look at the concerns that are most important for people’s wellbeing, it's three things: their job, family circumstances and their health. The NZ approach involved a composite of attention to health and a job. So the wage subsidy, income support for the people that did lose their jobs … meant people did not suffer nearly as much as they otherwise would have”.

Ananish Chaudhuri, Professor of economics at the University of Auckland and a visiting Professor at the Kennedy School of Government at Harvard University, has a different view:

“The Oxford University Blavatnik School of Government has a measure of this thing that they call the policy stringency index and according to them, the three countries that had implemented the most stringent policies were NZ, Israel and India. But surprisingly there is very little evidence to suggest that there is a strong correlation between the stringency index and number of infections or deaths”.

“There didn’t seem to be a lot of consideration of the costs and benefits … So very often, we get excessively focused on preventing deaths that are right in front of our eyes but in doing so we completely ignored the fact that that action may be creating more havoc elsewhere”.

“The government seemed to be taking a lot of advice from the epidemiologists whose view seemed to be that we are going to prevent COVID deaths no matter what. But in doing so they were completely ignoring the fact that their policies would lead to massive loss of lives, livelihoods, etc, in other areas”.