An economist reflects on Bill English and the rockstar economy

If I only had time, I might still be PM…

Mr John Edward Rowles, OBE, was in splendid company on the Queen’s Birthday Honours list.  His name, “for services to entertainment”, came immediately after the name of the Right Honourable Simon William English,  “for services to the State” among those who become  Knight Companions of the New Zealand Order of Merit.

Rowles has belted out a few hits over the years, most notably “If I Only had Time”, while Bill English is the bloke widely credited with giving us “the rockstar economy”.

According to the official citation:

As Finance Minister from 2008 until 2016, Mr English oversaw one of the fastest-growing economies in the developed world, steering New Zealand through the Global Financial Crisis and the Christchurch earthquakes and ensuring the Crown accounts were in a strong financial position.

Stuff political reporter Stacey Kirk was more laudatory:

More colourful commentary at the time would globally brand him the man responsible for New Zealand’s “Rockstar Economy” – the envy of government’s worldwide and a textbook example of how to pull a country out of recession.

Michael Reddell, the economist who blogs at Croaking Cassandra, is not so impressed.

Among his observations on a post which examines English’s performance as a Minister of Finance:

  • The Crown accounts – they were in a strong position when National took office in 2008, and were in a fairly strong position when they left office. Unusually high terms of trade have been helpful to this in recent years.
  • The Global Financial Crisis – the biggest single contributors to getting New Zealand through this were time and monetary policy.  No discretionary fiscal stimulus was undertaken in response to the crisis.
  • The “rockstar economy” – from 2012 to 2017 New Zealand’s real GDP per capita increased at almost exactly the same rate as the median OECD country – okay but nothing to write home about. And don’t forget we are poorer than most of these countries and are supposed to have been trying to catch up again.
  • Our productivity record – during the period presided over by Bill English (and John Key and Steven Joyce) this “has been really bad”. Middling real GDP per capita growth has been achieved by more inputs (mostly more hours worked), not smarter ways of doing things.
  • Our unemployment rate – it rose as much as the G7 countries (as a group) after 2007 but hasn’t come back down anywhere near as much. The G7 unemployment rate is now lower than it was before the recession, but not in New Zealand.
  • Foreign trade as a share of GDP – from just before the recession to 2016 (the last year for which there is a full set of comparable data), New Zealand’s foreign trade shares shrank while those of the median OECD country held steady (for imports) or increased (for exports).  Yet we’ve had the second-largest increase in our terms of trade of any OECD country.

Yes, Reddell has taken the earthquakes into account.  They held back economic performance, requiring a shift of resources into domestically oriented sectors and  rebuilding, he notes – but they were seven years ago and in wealth terms were more than paid for by the combination of offshore reinsurance and the lift in the terms of trade.

We commend Reddell’s post to English’s successor as National leader, whose economic thinking is reflected in a recent report titled “Trickle-down’ economics still works – Simon Bridges.

According to Newshub, Bridges still believes in trickle-down economics, “despite a damning report that suggests Aucklanders are facing the worst inequality since World War II”.

Bridges told The AM Show “I think there is some trickle-down effect, actually” before reflecting back on the 2007-2017 period:

“We’ve got an incredibly proud legacy in terms of growing the economy and all those things… We had great solutions, actually solutions this Government’s taking up.”

He further noted that unemployment is at a nine-year-low, falling to 4.5 per cent in the December quarter and 4.4 per cent in March – the lowest it’s been since the end of 2008.

Having compared his analysis with Reddell’s, Bridges might usefully read this blog post by Simon Wren-Lewis, Emeritus Professor of Economics and Fellow of Merton College, University of Oxford.

The professor says he is disgruntled with politicians and media which keep promoting bad economics.

One of the most obvious examples is the focus on jobs rather than output.

There are some circumstances where this makes sense. The most obvious is a recession, where unemployment is high and the focus of policy should be getting unemployment down. Another is when thinking about the geographical distribution

of employment. But at times when unemployment is low, the focus on jobs rather than output can be very misleading for one simple reason. We can easily create jobs by having technological regress.

What has happened in the UK since a year after austerity was imposed is that productivity, measured in terms of output per hour worked or output per worker, has hardly increased.

Productivity normally rises in a recovery, and it began to until the middle of 2011, but we have seen almost no growth since then. That is terrible news, because it means that there has been no increase in average living standards: add in the Brexit depreciation and real wages have fallen substantially.

Yet politicians and newspapers continue to talk up employment growth as if it was a huge achievement.

The professor laments the many times he has heard government ministers counter criticisms over output growth performance by talking up employment growth

” … and I do not remember a single occasion where they have been pulled up with the obvious retort ‘so you are happy with stagnant productivity and falling real wages then’.

“Because strong employment growth coupled with weak output growth means something is very wrong with productivity, and we cannot have sustained growth in real wages and living standards without productivity growth.

“You might expect politicians to try and get away with nonsense economics if they can, and you would certainly expect right wing papers to turn reality upside down in an effort to protect their precious Brexit. That is why it is so important that political journalists working for the broadcast media know some basic economics, and are prepared to use it to call out the distortion of some politicians. Until they do, basic misunderstandings about simple economic relationships will persist.”

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