Politicians on the campaign trail are offering plenty of big-ticket items in their bid to be winners on October 17.
Among the latest is Jacinda Ardern’s pledge to create a Matariki holiday which apparently will not only celebrate the Maori New Year, but as another MP put it:
“ … gives us time to look up at the night sky and teach our kids about how our tupuna used the stars to give guidance in how we live our lives”.
So far, however, the election policies of the various parties appear to be no more than a jumble sale of ideas, old and new. Critically and dismayingly missing from the policy commitments – given NZ is confronting a deep and perhaps protracted recession – is a constructive, coherent plan to dig the country out of the hole left by the pandemic.
Meanwhile the issues of child poverty and inequality, far from being resolved as Labour promised in 2017, are deepening.
What the current set of politicians do not seem to have grasped is just how extensive the damage caused by the pandemic might be. Perhaps they are persuaded by the fact that NZX indices have been close to all-time peaks, suggesting listed companies are flourishing, and therefore they believe businesses will soon be recruiting those thousands of workers who have lost their jobs.
The hard fact is that the NZX-50 is has been close to its all-time high largely because two companies—Fisher & Paykel Healthcare and A2 Milk, which make up 30% of the market capitalisation—have set new revenue records for themselves during the pandemic. Many others in the top 50 which last year were reporting record profits are fighting for survival.
So what if there is no sharp bounce-back for the rest of the economy?
The London “Economist” last week noted how traumatic economic episodes can exert a drag on growth simply by altering people’s beliefs about the future. It cited research finding that periods of economic hardship and spells of unemployment tend to depress people’s consumption for some time, even after controlling for incomes and variables.
Consumers not only spend less: young people are especially affected, potentially prolonging the dampening effect on the economy.
People’s investment decisions are shaped by their beliefs about the future. If they revise down their expectations of the returns on future investment, the result tends to be less investment and slower growth.
The Economist pointed out psychological scarring could seriously complicate the policy response to Covid-19.
“A rise in precautionary saving and decline in investment appetites will further depress interest rates, when their extremely low level is already constraining the size of the economic boost that monetary policy can provide”.
Reserve Bank governor Adrian Orr is already on the defensive, arguing it is wrong to lay the blame for soaring asset prices and rising social inequality on monetary policy. Yet he has been talking of interest rates going negative next year.
He told the NZ Herald that in times of economic crisis, it is household income, not household net worth, which is the more pressing issue.
“Have I got a an income? Have I got a job?”, he said.
“This is where monetary policy is stimulating the economy, actively pumping cash in to do our best to keep employment at the highest level…. I wish we did have the tools that could make sure unemployment was forever low or zero. We don’t. All we do is make sure the financial market is working in a manner that achieves that outcome”.
Clearly something more will be needed: the Reserve Bank and the government can’t keep shovelling money in endlessly. Debt is already ballooning, leaving the next generation (and the one after that) to pay it back.
What NZ needs is a comprehensive and detailed plan for recovery. A former minister in the Key government, Steven Joyce, contends this should include growth-enhancing reforms.
He is critical of both the Reserve Bank governor and the Treasury Secretary for failing to come up with economic reform ideas to inject alongside monetary and fiscal policy in the drive towards economic recovery.
NZ is already close to the limits of what monetary and fiscal policy can do. Joyce says:
“We need a serious growth plan for these unprecedented and serious times—as yet there is no sign of one”.
Declaring a Matariki public holiday won’t cut it. Nor a wealth tax.
And judging by NZ First’s poll ratings, voters already have a jaundiced view of Winston Peters touring the country and scattering taxpayer money to revive anything from bungy jumping to out-of-time rail lines or workshops.
Point of Order doesn’t pretend to have the best remedies for filling the yawning policy hole from which politicians are resiling — but we can see there is very big hole and in subsequent posts we propose musing on some ideas which we believe should be central to this particular debate.
3 thoughts on “While the pollies are gazing at the stars for guidance, they are letting the economy slip into a huge hole they haven’t filled”
A Recovery plan is a great idea. But we are still in the midst of a potential recurrence, and the focus on securing the health risk, whilst minimizing economic damage, is the primary task. When we have secured that risk, then we will have some sense of the long term severity of the pandemic on NZ and then it will be possible to plan long term recovery realistically. Rushing to action without thoughtful planning will be counterproductive. Only a journalist ( and a retired politician) can afford the call for an instant plan to rebuild whilst the fire is still raging. .
The answer is quite simply private enterprise creates the wealth of the nation farming and business, governments create the environment for enterprise to flourish or otherwise. Deregulate, reduce business taxes to create an environment whereby people want to take a risk and have a go, humans respond to freedom, look at history the more freedoms the greater the prosperity be very bold, we are competing in a global market. Unfortunately, in NZ our most of our current politicians don’t understand this it’s not in their DNA, they think central planning works or they are too timid to spell out what is needed, they call it leadership. I suspect until we reach some sort of a bottom nothing bold will be forthcoming.
Reblogged this on The Inquiring Mind.