How Minister Robertson & Governor Orr Snatched Economic Defeat from the Jaws of NZ's Covid Victory
This election year will see the two most powerful influencers of economic outcomes in NZ - one elected, the other not - try to rewrite the history of events that occurred between 2020 and 2023. Both argue NZ is doing well, at least in comparison to other places - and that they did nothing wrong during Covid - at least without the benefit of hindsight.
Their historical revisionism, along the lines that the government has been a competent economic manager, is crucial for Labour's election prospects. It is far from the truth.
So how did they screw up? Throughout most of 2020-21, NZ successfully eliminated the virus. Kiwis were the envy of the world. We were out & about. As a direct consequence, we enjoyed one of the smallest economic declines of any nation - only 0.7% for year ended 31 March 2021. The UK, by contrast, suffered a decline of over 11% of GDP that year and its' virus death toll ended up at nearly quarter of a million.
However, Robertson still went over the top with fiscal policy, engaging in a borrow-and-spend program larger than the UK's, and indeed most of the world's. He earmarked over $60 billion in Covid funding, nearly 20% of GDP. Meanwhile the Reserve Bank printed money on a scale equivalent to an additional 20% of GDP, again one of the largest programs anywhere. The fiscal stimulus added to the monetary one put NZ into bonkers la-la land.
The essence of the Finance Minister & Governor's error was to engage in Great Depression policies when our virus success in 2020-21 meant NZ never suffered the double-digit Great Depression declines in output that were occurring in countries like the UK. Why do the same scale of expansion when our relative decline in output was ten times less?
By copying what others were doing, the Minister of Finance & Reserve Bank Governor made horrible misjudgments that stuffed NZ's medium term prosperity. Both are defending themselves against accusations of error by saying other countries are also doing badly. When you copy folks worse than you, that’s what you get.
Incredibly, we now face recession when most nations that did far poorer than us during the pandemic do not. If that isn't proof Robertson and Orr messed up, what is? The Kiwi story these past years is one of our leaders snatching an extraordinary economic defeat from the jaws of the people’s amazing Covid victory.
Below are graphs comparing NZ's Covid (2020) Fiscal and (2020-21) Monetary Responses: