Gandalf
This week and last week, The Listener ran five articles revisiting New Zealand’s economic reforms from 1984 to 1993. Four of those articles had little good to say about them, or the people who led them with such clarity, courage and determination.
Articles in this genre largely convey the following context-free narrative: “The neo-liberal reformers caused a lot of needless pain and inequality because they were a bunch of extremist, impractical and uncaring ideologues”. Add to this the undocumented claim that the reforms failed to achieve the reformers’ objectives.
I wrote the fifth article. I did so wondering if in those 40 years The Listener had ever previously published an editorial or lead opinion piece that was sympathetic to the difficulties the incoming government faced in 1984, let alone one that gave the governments through to 1993 credit for successfully addressing real economic difficulties.
But at least on this occasion it was inviting an economist with such sympathies to put that point of view to its readers.
My article explained that the deep economic problems the governments from 1984-1993 faced were two-fold. The government needed to free economic activity from draconian controls (liberalisation) and it had to stop a public debt spiral (fiscal consolidation).
Even before it could start on those tasks it had to address a foreign exchange crisis that instantly became a constitutional confrontation.
It resolved the immediate constitutional crisis, devalued and made structural changes that allowed it to float the exchange rate in March 1985. Forty years have gone by with no material foreign exchange issues. That is a success.
The two deeper tasks took around a decade to achieve. There was real pain for farmers and import-protected manufacturing. Wages and prices exploded after the devaluation and the lifting of the wage and price freeze.
Disinflation is always painful. Brinkmanship in wage- and price-setting occurs at the expense of the most marginal workers. Involuntary unemployment can rise excruciatingly, and it did.
The governments from 1984 to 1993 eventually won that battle. A new Reserve Bank Act sought to avoid another outbreak in inflation. That success lasted for around 30 years.
Structural changes to avoid future recourse to prolonged government deficits have had a more mixed success.
Forty-years later, through too much voter neglect some old problems have re-emerged, fiscal and regulatory, along with new ones in education, health and infrastructure.
New Zealanders face a testing time, once more.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.
I wrote the fifth article. I did so wondering if in those 40 years The Listener had ever previously published an editorial or lead opinion piece that was sympathetic to the difficulties the incoming government faced in 1984, let alone one that gave the governments through to 1993 credit for successfully addressing real economic difficulties.
But at least on this occasion it was inviting an economist with such sympathies to put that point of view to its readers.
My article explained that the deep economic problems the governments from 1984-1993 faced were two-fold. The government needed to free economic activity from draconian controls (liberalisation) and it had to stop a public debt spiral (fiscal consolidation).
Even before it could start on those tasks it had to address a foreign exchange crisis that instantly became a constitutional confrontation.
It resolved the immediate constitutional crisis, devalued and made structural changes that allowed it to float the exchange rate in March 1985. Forty years have gone by with no material foreign exchange issues. That is a success.
The two deeper tasks took around a decade to achieve. There was real pain for farmers and import-protected manufacturing. Wages and prices exploded after the devaluation and the lifting of the wage and price freeze.
Disinflation is always painful. Brinkmanship in wage- and price-setting occurs at the expense of the most marginal workers. Involuntary unemployment can rise excruciatingly, and it did.
The governments from 1984 to 1993 eventually won that battle. A new Reserve Bank Act sought to avoid another outbreak in inflation. That success lasted for around 30 years.
Structural changes to avoid future recourse to prolonged government deficits have had a more mixed success.
Forty-years later, through too much voter neglect some old problems have re-emerged, fiscal and regulatory, along with new ones in education, health and infrastructure.
New Zealanders face a testing time, once more.
Dr Bryce Wilkinson is a Senior Fellow at The New Zealand Initiative, Director of Capital Economics, and former Director of the New Zealand Treasury. His articles can be seen HERE. - where this article was sourced.
2 comments:
Not being a finacial guru (is there such a beast since economics is not a science?) but simply an engineer with a very sound understanding of maths and physics, should we lay the latest iteration of pain due to failure to learn from the past at Ardern & Co's feet. Methinks yes we could, should and shall. We are all doomed to see this rinse and repaet of failed ideology ad infinitum, is it déjà vu all over again?
The undermining of the RBNZ mission to maintain inflation within the 1 to 3% target band, driven by Grant Robertson is the biggest disaster in NZ political and economic history.
Enabled inflation to get out of control by further enabling QE leading to inflation exploding.
Devastated lowest earners in the economy by destroying their purchasing power. Absolute disgrace
Robertson's reward a 600k a year job ....
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