Nobel Laureate Paul Krugman's GDP Graph Confirms the Bottom has Fallen Out of the New Zealand Economy

High profile US Economist Paul Krugman has written a New York Times article in which he shows in one graph the incredible resilience and performance of the American Economy. The dark blue line below tracks the pre-pandemic long-run trend in Real GDP. Meanwhile the orange line is actual real GDP. Krugman remarks that now, in the post-pandemic years, actual GDP is tracking significantly above its forecast pre-pandemic trend. As far as US GDP is concerned, America is fully back to business - as if the pandemic never happened:

US Economy

I've produced a graph below that can be used to compare the US experience to NZ's. It comes from Treasury's Half-Yearly Economic & Fiscal Update, released yesterday. The red-line is the pre-pandemic long-run trend in Real GDP. Meanwhile the light blue line is actual Real GDP, and the black line is actual Real GDP per capita. On both Real GDP and GDP per capita bases, our actual performance is now 7% lower than where NZ was expected to be, before the pandemic. Treasury predict we will keep underperforming at that level for the foreseeable future. To put numbers on these amounts, we're talking $28 billion per year in lost output. Should it go on indefinitely, it will add up to a $560 billion total loss (=28/0.05, with a 5% discount rate used). In terms of personal incomes, we're losing $4,000 per year, compared to where we should be tracking. The bottom has fallen out of NZ's economy.

NZ Economy

What happened? Labour Leader Chris Hipkins wrought destruction with his never-ending lockdowns. He sapped our energy; took away the mojo of a generation of young Kiwis who grew up spending those years on devices. He stole the excitement of a nation. Converting the $560 billion into lives, it equates to 45,000. The short-term saving of lives Hipkins touts himself as achieving during the pandemic is outweighed by a potential long-term loss of 45,000, ranking NZ one of the world's worst in terms of lives loss due to Covid. Why's Dunedin struggling to pay for its hospital? Hipkins took the money. He should leave politics, taking his wrecking ball with him. These graphs show he's unelectable. Meanwhile Finance Minister Willis' "prudent", old-school, conservative, steady-as-she-goes, Bill English-John Key approach isn't working to get things back on track. She's desperate not to be labelled a Ruth Richardson-austerity-style Finance Minister. Whatever the politics, the graphs show this ain't no business cycle. The Big Bank economists got it wrong describing it as such. No, this is "secular stagnation". Thanks Mr Krugman, for revealing it.

Sources:

https://www.nytimes.com/2024/10/30/opinion/krugman-glorious-economy-harris.html

https://www.treasury.govt.nz/publications/efu/half-year-economic-and-fiscal-update-2024

Its Official: Behind all the Hot Air from the PM & Finance Minister, National is Running a Bigger Borrow-and-Spend Government than 6 years of Ardern & Robertson.

Political spin is one thing. Facts another. My reading of NZ Treasury's Half Year Economics & Fiscal Update 2024 is that little has changed since the government changed. The latest figures show that the fiscal deficit (excess of government spending over taxes) equals -3.1% this year under National, ACT & NZ First. Given GDP is about $400 billion, that's $12 billion added to NZ's national debt. Next year, 2025, its forecast to be -4.1% and the following year, -3.1%. The average of those three numbers, which comprise the Coalition's first term in office, is -3.4%. How does it compare to when former PM Jacinda Ardern & Finance Minister Grant Robertson governed? Those six years went from 2018 until 2023. They ran a surplus in 2018 of 1.9%, surplus in 2019 of 2.4%, and once the pandemic hit, deficits of -7.3% in 2020, -1.3% in 2021, -2.7% in 2022 and -2.4% in 2023. The average is -1.6%. So National, ACT & NZ First are on course to more than double the size of fiscal deficits that were run during the Ardern-Robertson years. What's more, the year when the deficit really blew out, being 2020, was due entirely to the wage subsidy scheme expansion. National lobbied hard, together with Business NZ and NZ Initiative, where Finance Minister Willis was a Director, to make it of unlimited size, so the largest firms in NZ would be fully covered. Labour relented, probably concerned in election year 2020 that it would help the Nats take the business vote. Before the wage subsidy cap was lifted, the maximum any one firm could take was $250,000. After the cap came off, firms like Fletcher Building scooped over $50 million each.

What's the moral of the story? That National and Labour are essentially the same party, just run by different actors, sales folks and marketing directors who are pretending their two products are different, because they use different branding & colors. They're like Coke and Pepsi Cola. We have a borrow and spend Finance Minister pretending she's "prudent". But she ain't cutting corporate welfare; she ain't cutting movie subsidies; she ain't replacing welfare dependence on the State with helping Kiwis build up their own personal savings to become more independent, like the Aussies & Singaporeans have done; she ain't cutting the billions spent each year on university grants & subsidies paid to children from the wealthiest families in NZ. No, she's just trimming some public servants in Wellington & writing A-grade English speeches about how it all proves she is "delivering". Willis is good at doing that - she did English at University & was in Debating Clubs. But hers are not profound changes. They're profoundly boring. Same old. More Bill English. More John Key. Both her former bosses. Am sure she gets on well with former Bell Gully Chair and (for the past 10 years and for the next 10 years, probably a lot more) NZ Initiative Chair Roger Partridge (Willis' father having been a partner at Bell Gully as well). Yes, keep it cosy in NZ, where everyone knows everyone. Same old. Same old.

Sources:

https://www.treasury.govt.nz/sites/default/files/2024-12/hyefu24.pdf