Tuesday, 13 December 2016

What John Key once told the ‘Wall Street Journal’


With all the in memoria issued to John Key’s premiership, both gushing and otherwise, I’m surprised no-one remembered to repost or to raise Key’s astonishing 2008 Wall Street Journal interview. Astonishing in that he was playing Adam Smith to investors abroad while ramping up to be a Mini-Maynard Keynes at home. “You can’t spend your way out of a crisis” he told the WSJ, then went on to prove it.

Test out his testimony then against what you know now of his record:

"We don't tell New Zealanders we can stop the global recession, because we can't," says Prime Minister John Key, leaning forward in his armchair at his office in the Beehive, the executive wing of New Zealand's parliament. "What we do tell them is we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with."
    That idea -- growing a nation out of recession by improving productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra…

New Zealand is very little more productive now that in was in 2008. In 2008, in per capita terms, NZers made $34.50 in GDP/hours worked; by 2014 the figure was $36.90. Over the same period Australia raised its same figure from $48.10 to $52.60. We are still very much the poorer cousin.
More worryingly, over the 7 years from 2008 to 2015, capital inputs grew 2.0 percent, while capital productivity (perhaps the best measure of productivity) fell 0.6 percent.

…Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says. "You've saddled future generations with an enormous amount of debt that then they have to repay," he explains. "There is actually a limit to what governments can do."

When John Key took office,  government debt was just over $10 billion. After swallowing multiple dead rats and embarking on a $7 billion-plus infrastructure binge it is now over six times that amount.

imageSource: Trading Economics: ‘NZ Government Debt to GDP

The Journal continues:

Mr. Key is returning the country to a formula for prosperity that's worked in the past. As in Britain, the U.S. and Australia in the 1980s, New Zealand's government implemented a wide-ranging program of economic liberalization, including deep reductions in tariffs and subsidies, and privatization of state-run industries. The plan, nicknamed "Rogernomics" after then-Finance Minister (now Sir) Roger Douglas, was akin to Reaganomics, and the island nation grew smartly.
    But while the U.S. and Australia broadly continued their economic liberalization programs under both right- and left-wing governments, New Zealand didn't -- until now.

Not a whiff of that, was there.

"We have been on a slippery slope," Mr. Key says, pointing to the country's slide to the bottom half of the Organization for Economic Cooperation and Development's per-capita GDP rankings. "So we need to lift those per-capita wages, and the only way to really do that is through productivity growth driving efficiency in the country."

Labour productivity growth in 2008 lagged the OCD average. It still does.

The slide in OECD per-capita GDP rankings continues. In 1970 we were 16th out of 26; in 1980 19th; in 2000, 20th out of 26. New Zealand is now 19th out of 34, with no movement to alter that. As John Ansell explains, using IMF rankings, “Far from running a "rock star economy", in terms of GDP per capita Key's major achievement seems to be that we're no longer quite as poor as basketcases Italy, Spain and Greece. (Imagine a New Zealand sportsperson settling for 35th. (And being called a great leader!) With all our natural resources, why shouldn't we be aiming to be World Champion Nation?)”


You can read all the things he tells the journal he is going to do, including those tax cuts lies, and compare them all against the reality. [Another link here.]

"I'm not deeply ideologically driven," he [concludes].

He got that much right.


1 comment:

  1. Bear in mind South Korea in the 1950s had the GDP per capita of Angola, you can see what education, culture that values a work ethic and a complete lack of natural resources might deliver. NZ still is somewhat between a former communist economy and a fully developed one, the half finished reforms of Douglas/Richardson at best have stopped the slide, but not enough to advance.


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