High profile US Economist Paul Krugman has written a New York Times article in which he shows in one graph the incredible resilience and performance of the American Economy. The dark blue line below tracks the pre-pandemic long-run trend in Real GDP. Meanwhile the orange line is actual real GDP. Krugman remarks that now, in the post-pandemic years, actual GDP is tracking significantly above its forecast pre-pandemic trend. As far as US GDP is concerned, America is fully back to business - as if the pandemic never happened:
US Economy
I've produced a graph below that can be used to compare the US experience to NZ's. It comes from Treasury's Half-Yearly Economic & Fiscal Update, released yesterday. The red-line is the pre-pandemic long-run trend in Real GDP. Meanwhile the light blue line is actual Real GDP, and the black line is actual Real GDP per capita. On both Real GDP and GDP per capita bases, our actual performance is now 7% lower than where NZ was expected to be, before the pandemic. Treasury predict we will keep underperforming at that level for the foreseeable future. To put numbers on these amounts, we're talking $28 billion per year in lost output. Should it go on indefinitely, it will add up to a $560 billion total loss (=28/0.05, with a 5% discount rate used). In terms of personal incomes, we're losing $4,000 per year, compared to where we should be tracking. The bottom has fallen out of NZ's economy.
NZ Economy
What happened? Labour Leader Chris Hipkins wrought destruction with his never-ending lockdowns. He sapped our energy; took away the mojo of a generation of young Kiwis who grew up spending those years on devices. He stole the excitement of a nation. Converting the $560 billion into lives, it equates to 45,000. The short-term saving of lives Hipkins touts himself as achieving during the pandemic is outweighed by a potential long-term loss of 45,000, ranking NZ one of the world's worst in terms of lives loss due to Covid. Why's Dunedin struggling to pay for its hospital? Hipkins took the money. He should leave politics, taking his wrecking ball with him. These graphs show he's unelectable. Meanwhile Finance Minister Willis' "prudent", old-school, conservative, steady-as-she-goes, Bill English-John Key approach isn't working to get things back on track. She's desperate not to be labelled a Ruth Richardson-austerity-style Finance Minister. Whatever the politics, the graphs show this ain't no business cycle. The Big Bank economists got it wrong describing it as such. No, this is "secular stagnation". Thanks Mr Krugman, for revealing it.
Sources:
https://www.nytimes.com/2024/10/30/opinion/krugman-glorious-economy-harris.html
https://www.treasury.govt.nz/publications/efu/half-year-economic-and-fiscal-update-2024
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.
2 comments:
Chris Hipkins is fortunate that most New Zealanders will not get to read this. The NZ media will blame it all on the Coalition Government and Labour will be back with a big borrowing plan.
"Most New Zealanders won't get to read this" - true - but they are living it every day. NZ is stuck between a rock and a hard place. Time to bite the bullet. Government expenditure and borrowing needs severe pruning. The public service remains bloated and it seems impossible to get anything done quickly and at a reasonable cost. Roading and Dunedin's new hospital spring to mind.
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