Monday, 30 May 2005

Nats rejecting further ''malinvestment' in ACT

Sniping erupts after Nats snub ACT” says the 'Dom' headline this morning, after National Party president Judy Kirk unequivocally rejected yesterday the possibility of a last-minute deal giving ACT a leg-up into Parliament.”

“Privately, says the 'Dom,' “many National MPs are writing off ACT's chances of surviving the next election. And any remaining goodwill is quickly evaporating amid disagreement over strategy.”

I’m not sure why Act supporters should be either surprised or disappointed at this outcome. On current polling and as the story says “ACT faces a big task dragging itself above the 5 per cent threshold for winning seats in Parliament” (and with ACT’s present parliamentary strategy of mud-slinging and scalp-hunting that task is surely made even harder), so it is no surprise that National Party luminaries should be looking at the ACT party as a sunk cost representing what Hayek called significant ‘malinvestment,’ and needing to be quickly written off as all such malinvestment should be.

As every good Hayekian knows -– and ACT is nothing if not full of Hayekians – malinvestment is a misallocation of resources following a period of either artificially cheap credit or a cluster of poor decisions caused by fads, natural disasters, cultural change and the like.

The number of new political parties blazing across the New Zealand political firmament since 1995 has been a sort of ‘political boom’ caused largely by the political ‘credit expansion’ of MMP, and as Judy Kirk has undoubtedly recognised, some of that malinvestment needs to be recognised and expunged for the long-term political health of the country.

As every good economist would agree – and ACT is nothing if not full of economists -- the best thing when malinvestment is identified to write it off as soon as possible. This is the ‘creative destruction’ of capitalism that Schumpeter wrote about, and ACT party thinkers support. But not when it’s happening to them.

Rather than bemoaning their fate as the Dom headline suggests, ACT supporters should take off their rose-tinted glasses and instead put on their economists’ hats. If they do, they’ll understand what’s going on here: Judy Kirk’s dismissal of investing any further in ACT is recognition that ‘creative destruction’ is a necessary component of long-term growth, and that the ACT party now are nothing but fertiliser for that growth.

A party of economists should surely recognise the value of her observation. I’m sure Don Brash does.


  1. Nice writing. Don't hang up that economic vernacular.

  2. For a party that even could register itself, I'm not sure if malinvestment is the word they want to repeat that often.


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