This is my latest NBR opinion, accessible at https://www.nbr.co.nz/node/230932 or below:
It started as a few comments that weren’t seen as mainstream. Now it’s become a veritable tsunami.
The Head of the Productivity Commission has just announced his disdain for GDP. He says it “is not a great measure of anything useful” and blames the profit-oriented shareholder model for our society’s ills. Even though it forms the basis of wealth creation in this nation.
The Reserve Bank is backing him. As for the Climate Change Commission, had it cared about both the environment and economic growth, it would’ve advocated for carbon taxes with the revenues being used to cut other tax rates. But it didn’t. Furthermore, the keynote address at the NZ Association of Economists 2021 Conference by the Ministry of Primary Industries’ Chief Economist called for a “systemic transition” to a new “holistic”, “post-growth”, “doughnut” approach to management of the country’s affairs.
The keynote gave this new approach a name. Aoteanomics. What is it? A full blown rejection of the idea that GDP growth is desirable. And it is way more radical and experimental than Rogernomics ever was. So why won’t the PM and Finance Minister come clean to the nation about the new post-growth agenda that’s the talk of the Wellington elite?
Are they terrified of their party being wiped by Kiwi business if they make the big reveal? Is this the reason why the government is pretending to be inventing gravity-defying forms of economic management? Ones that can close borders and still yield long-term prosperity? Ones that can impose a swathe of command-and-control rules relating to climate change with little effect on output? Ones where more equity can be achieved by dumping the shareholder model, or by introducing fair-pay agreements, without giving up efficiency?
The public concern for GDP expressed by the only two politicians who count in NZ is starting to look fake. When an indefinite extension of our tight border policy was recently announced, the PM argued that “If we preserve our options, it enables us to make choices that are good for our economy and good for our health”. She appears to be referencing an article from last year about “preserving options” with respect to Covid-19 by Arthur Grimes, a former Reserve Bank Chair. Yet that article’s argument has been surpassed by events. Due to the vaccine roll-out proceeding at snail’s pace, NZ has no option other than to keep its borders sealed.
The twin aims of good economic and good health outcomes that the PM describes were achieved the past year due to robust consumer demand made possible by our domestic elimination of the virus. People were able to go on holidays and enjoy a freedom of movement denied in most other places. But the policy actions that achieved this outcome were short-term patch-up jobs. The factors that determine long-run growth rates are very different to the consumption spending that has recently been underpinning output. Those factors include skills, innovations and investments, which are being severely constrained by our border controls.
Evidence of such constraints is beginning to mount from stock-markets, as share prices are forward looking. The NZX 50 is significantly down since the start of the year. Yet the Dow Jones in the United States is up around 15%.
Countries are now moving beyond addressing the fall-out from what first appeared would be a temporary shock to designing ways of accommodating what’s fast looking like becoming a more permanent state of affairs. In this new equilibrium, biting trade-offs will occur. Better virus-related health outcomes supported by closed borders are likely to lower long term growth paths, especially for small, isolated countries. The best-of-both-worlds scenario that we previously savored is about to evaporate.
As NZ enters this new phase, some truths about government priorities are beginning to be revealed. Long-run economic growth isn’t one of them. Notably, after Dick Easterlin, the founder of well-being economics, visited NZ in 2019, he subsequently heaped praise on this country’s pandemic response. He argued that our government did well to prioritize health and jobs. An interview we taped with him got posted onto the Beehive’s website.
What wasn’t posted are the videos outlining the original conjecture that made Easterlin famous. Namely his view that higher GDP hasn’t led to higher reported levels of happiness over long periods of time, which he believes is due to materialism being a pointless quest.
Many Kiwis no doubt support Easterlin’s views. Perhaps GDP should not be NZ’s focus and instead we would be happiest by never letting the virus in, focussing on family life, not caring about low productivity and being grateful for jobs even if the pay isn’t great by world standards.
But shouldn’t the PM and Finance Minister spill the beans? About how output has been dropped as a national objective? About how the government’s covert motto has become “it’s not the economy, stupid”.