As for concerns raised by prominent US economists about the size of that country's debt and deficits, they have been exploding under both Democrats ad Republicans. In a nutshell, Democrats have been expanding welfare programs, but don't have the guts to sharply raise taxes on Americans, and Republicans are inclined to push for lower taxes, though don't have the guts to cut welfare on the poorest Americans (and are regularly inclined to push up defense spending). Both those approaches, on both sides of US politics, have expanded public debt. My Argentine economist friend and coauthor at Harvard Business School has been predicting a debt (and currency) crisis in the US for years now, due to its huge current (trade) deficits and public debt, much like the kind of crises that have broken out in Latin American countries.
The primary debate in the US, which was raised in a letter written by 400 economists critiquing Trump, and in another letter, written by 18 Nobel Laureates, concerns mostly the potential effect of Trump's policies on inequality. That is a domestic US issue, and not one that has any direct implications for the NZ economy. How can one make sense of Trump's economic policies, especially in the context of NZ? In some ways, one can view them as a mix of traditional right-wing and left-wing ones, which is why the pundits are confused. His idea of tariffing imports is more a left, anti-market policy, whereas his aim to potentially cut taxes, or at least not increase them anymore, is more a right, pro-market policy. Economists preferred way of protecting workers who have lost jobs due to globalization is generally not to interfere with prices and trade - let them flourish and create wealth - but to address the unfairness and equity issues through the tax and transfer system. However, Trump does not want to do that, since it would mean higher taxes.
In many ways, Trumps economic approach can be viewed as wielding out on a grand scale the one National tried, on a much smaller scale, in the NZ election. National wanted to give tax relief to local Kiwis funded by a tax on overseas buyers of our real estate. That is, make foreigners pay for domestic cuts in our taxes. Trump's plan is to do the same, but where the revenues instead come from tariffs on imports. He figures its clever. Target China with tariffs, and so try reducing the economic power of America's great super-power rival; meanwhile get hold of significant revenues in the process, which can be used to hold or cut US taxes, all whilst protecting his voter basis - being working class Americans hurt by globalization. New Zealand's Labour Party, by the way, is promoting an opposite economic strategy. It is to support free trade without imposing tariffs, and fund a larger welfare state through higher taxes. It is closer to the approach that receives more support by traditional economists. Both Trump's & NZ Labour's approaches have a logic to them within their domestic contexts. On the other hand, since National's plan to tax foreign buyers was scuttled by NZ First, it has been left under pressure to both cut taxes and support strong health, education and retirement systems, all funded out of local taxes on a weak domestic economy.
The primary debate in the US, which was raised in a letter written by 400 economists critiquing Trump, and in another letter, written by 18 Nobel Laureates, concerns mostly the potential effect of Trump's policies on inequality. That is a domestic US issue, and not one that has any direct implications for the NZ economy. How can one make sense of Trump's economic policies, especially in the context of NZ? In some ways, one can view them as a mix of traditional right-wing and left-wing ones, which is why the pundits are confused. His idea of tariffing imports is more a left, anti-market policy, whereas his aim to potentially cut taxes, or at least not increase them anymore, is more a right, pro-market policy. Economists preferred way of protecting workers who have lost jobs due to globalization is generally not to interfere with prices and trade - let them flourish and create wealth - but to address the unfairness and equity issues through the tax and transfer system. However, Trump does not want to do that, since it would mean higher taxes.
In many ways, Trumps economic approach can be viewed as wielding out on a grand scale the one National tried, on a much smaller scale, in the NZ election. National wanted to give tax relief to local Kiwis funded by a tax on overseas buyers of our real estate. That is, make foreigners pay for domestic cuts in our taxes. Trump's plan is to do the same, but where the revenues instead come from tariffs on imports. He figures its clever. Target China with tariffs, and so try reducing the economic power of America's great super-power rival; meanwhile get hold of significant revenues in the process, which can be used to hold or cut US taxes, all whilst protecting his voter basis - being working class Americans hurt by globalization. New Zealand's Labour Party, by the way, is promoting an opposite economic strategy. It is to support free trade without imposing tariffs, and fund a larger welfare state through higher taxes. It is closer to the approach that receives more support by traditional economists. Both Trump's & NZ Labour's approaches have a logic to them within their domestic contexts. On the other hand, since National's plan to tax foreign buyers was scuttled by NZ First, it has been left under pressure to both cut taxes and support strong health, education and retirement systems, all funded out of local taxes on a weak domestic economy.
Professor Robert MacCulloch holds the Matthew S. Abel Chair of Macroeconomics at Auckland University. He has previously worked at the Reserve Bank, Oxford University, and the London School of Economics. He runs the blog Down to Earth Kiwi from where this article was sourced.
3 comments:
I don't see why National have such a problem? There are very simple ways of balancing the books. First stop all the gratuitous payments to Maori. No more taxpayer junkets. If they want to travel first class around the world to retrieve heads or kiwi feathers they previously sold, they can pay their own way. Then have some real cuts of the useless public servants. Get rid of the Human Rights Commission, Race Relations office. Creative NZ, Ministry of Pacific Island Affairs, Ministry of Woman's affairs, all the Three Water Entities that still exist and so on. The list of cuts can go on and on. The Waitangi Tribunal should be completely funded by applicants. Then cut the benefits. If you're on the jobseekers benefit for more than six months, bye bye. And only approved doctors should certify for the sickness benefit. No more self diagnosed excuses and doctor shoppong. Finally, no more money for Wellington's failed transport system. They have received too much already and it just gets wasted. The problem is National's lack of a spine.
I could not agree more with the above comments. And then there is all the waste with “grants” for “research” dished out each year by the government; as highlighted by the taxpayers union. So much for going through the accounts line by line. Nicola Willis is such a funny lady.
Agree with the previous comments. There's plenty of evidence now that grants for research have become a metaphor for waste of public money. As for Maori interests, as reported in the Harvey (sorry, Herald) a while ago, Maori wealth is north of $70B (when combined) and growing - junkets certainly aren't required.
I am still waiting to hear an apology from Iwi leaders regarding the bad things their ancestors were responsible for, such as eating all moa to extinction, inter-tribal wars, slavery, infanticide, cannabilism.
As for wasteful spending, I get the impression that this govt is having to really push to get progress through our entrenched public service (stacked with leftwing self-interest types), so I hold a degree of sympathy for them.
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