Why we should be talking about modern monetary policy – and bringing science into considerations

One   of  NZ’s  leading  economists,  Shamubeel  Eaqub, says  NZ  is  facing a  huge economic shock.  He  questions what new steps the government will take to boost economic growth other than housing and immigration.

Speaking  on  Radio NZ’s  Morning  Report, he said:

More of the same is not going to give us better outcomes. We have tried to have this growth in property prices, growth in borrowing, growth in immigration without having the increase in the productive capacity of the economy, infrastructure – it is really not going to work.

 “There’s kind of this disconnect between saying that we’re going to just crank up what we’ve done before and we’re going to get better economic outcomes in the future. I just don’t buy it.

I haven’t really heard much on this campaign trail around what’s going to be remarkably different. In some ways, I think, the pain still hasn’t been enough for us to be forced into having a conversation”.

Eaqub said there needed to be a discussion about modern monetary theory.

But  later  in the same  programme  Finance  Minister  Grant  Robertson  was  unequivocal:

“That’s not where we’re heading at this time.”

He told Morning Report now is not the time to make a structural change to the system.

“We’ll keep our eye on that but I am prioritising stability and continuity at a time of massive uncertainty for New Zealanders.

Treasury’s  Prefu  earlier showed NZ emerging from the  Covid-19 lockdowns better than expected but facing years of large deficits and ballooning debt.

Robertson has concerns about the Treasury’s predictions regarding housing and immigration.

“As I have been clear over some months now, we are going to have higher levels of debt and a deficit for some time to come. That is the nature of responding to a one-in-a-hundred-year shock.”

 Robertson  welcomed   new  Treasury  forecasts  as  proof  the economy is  doing better  “right now”  than  when, as  the  latest  quarterly GDP figures show, NZ slumped  into recession.

But  the  Crown’s balance sheet  is already looking  worse than it  was a  few months ago, and will  be exceedingly ugly  by  next year.

NZ  is  in for a  stubborn Covid hangover, the  NZ Herald warns.

There’s no  sign  of  any   fresh  ideas  to spur growth.   And  with  Labour  coasting  along on its  achievement  against  Covid-19,  why  rock the  boat?

Except, as  Eaqub  warns,  more of  the same  is not  going to  give us better  outcomes.

Ministers  talk of  new initiatives to improve education results,  or  advances in  agritech.  But  these  won’t  do  much  to offset  the  loss of  earnings from international  tourism  or   create new opportunities  for those who have lost their jobs.

Indeed  the  current  government  has shown,  in several different ways,  an underlying  hostility  to increasing  farm production,  reflected in the  Green desire to impose  penalties  on methane emissions and a reluctance  to  encourage  gene  editing  and in new  freshwater  rules  that  could restrict  the  dairy industry,   as well as  subsidising forestry  on  agricultural  land.

The ACT  party  has come  up  with  a policy  that  would seek to exploit  resources   waiting to be developed.  Notably, it   would  get rid   of the ban imposed  on  offshore  oil and gas exploration.

The  government’s  decision on exploration was meant to be a  gesture  towards  mitigating  climate change—but  how does it stack up against  the hard  fact  no-one else in the world is stopping oil and gas production (91 million barrels  of oil was  produced globally in August).

NZ  needs  a  much wider  response  than  ACT  proposes  to  develop  resources, among  them  the re-creation of full-blown  ministries  in  the  government  structure:  a Ministry of Energy,  a  Ministry of  Fisheries  and a  Ministry  of  Forestry.    Currently  the oversight  of these  are  tucked away as divisions  in  ministries  whose   managers  have too  many other priorities.

The  focus   in these  re-established   ministries  would  be  on science-based  initiatives.   These  could  originate   in the  Crown  Research  Institutes  which, as a  recent  review  established, are doing world class  work   but  need  restructuring to  stimulate  innovation.

Point  of  Order  is convinced that, taking the  quality  of  NZ scientists into account, a  restructuring  as  recommended by the  CRI  panel,  plus  innovative  ideas  on financing  science,   should be a  priority  in   any  economic  recovery  plan.

If  NZ  were to follow  the example  of  Denmark  it would  restructure and integrate its public research institutes and universities.

And  then how  best  to  encourage  specific  research   which  could  be applied  across  the productive  sectors  in  agriculture, forestry, fisheries, horticulture, aquaculture, minerals,  and  technology as well as to other sectors like biology, health,  and education?

One  idea  would be   for the government  to  set  up  a   $500m specialist  fund  to  subsidise  dollar- for-dollar research to be carried out  in  universities or  the  CRIs.  Then  it   would  be  over  to  the  universities  to qualify  to draw  on the fund   through  appeals  to alumnae  and other  private sector sources  for  the  targeted  research.

This  would  be  more  effective  than politicians who are  “pledging”  money for pet projects — as, for example,  “NZ  First pledges $25m  for new marine   biology facility in   Tauranga”  (or does Winston Peters  really have his own bucket of money?).

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