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  • rmacculloch

The short versus long-run economic forecast for NZ

The NZ Herald's Business Editor, Liam Dann, has gone into overdrive defending the government's handling of our economy the past 18 months. He laments "the Covid complainers - whingers stuck in a feedback loop of false expectation about plans and timing that simply can't be realistically met". He says "the worst thing about living in NZ right now is the relentless negativity".


Hang on a second. For many business owners there's a desperate issue, right now, about hiring skilled labor. Our education system isn't producing the goods and workers can't be sourced from abroad. So most concerns being raised by our business community are currently simply centered on better management of quarantine facilities and expansion of places. Labelling folks just trying to keep their businesses afloat as "whingers" is unfair.


More deeply, I find Liam's characterization of how strong is the Kiwi economy off the mark. He says "we are living in an open and thriving economy". But it's not open at all. Huge parts of it are closed off to the outside world. And his comments conflate the causes of short-run versus long-run prosperity: the twin aims of good economic and good health outcomes were achieved in this country 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.


However, the policy actions that achieved this outcome were short-run patch-up jobs. The factors that determine long-run growth rates are very different to the consumption spending that has recently underpinned output. Those factors include skills, innovations and investments, which are being severely constrained by our border controls. It's right and proper for serious concerns to be raised about the fact that our long run growth rate is looking like it will be much weaker than for countries like the UK and US, even though NZ has performed way better than them this past year due to not letting the virus into our country.


Sources:

https://www.nzherald.co.nz/business/liam-dann-the-worst-thing-about-the-covid-era-in-nz/R4KYDQXAKISI3HZBOXOF57DBHE/