Usually commenting on a fringe think-tank would be a waste of time. But its worth doing so in the case of the NZ Initiative since its former Senior Economist Matt Burgess is the Prime Minister's Chief Economic Adviser, the Finance Minister served on the Initiative's Board and I used to see the PM at their meetings when Air NZ was a Member.
The past few months the Chair of the Initiative & its Executive Director have come out swinging against US President Trump. What the Initiative Chairman has stated in his latest Magnum Opus Attempt at an Academic Thesis on International Economics (which is funny coming from a lawyer) runs counter to everything I have learnt in the past 30 years of doing economics.
Writing in The Quadrant and Muriel Newman's NZ Centre for Political Research, in an article called "The Art of the Fail", the Initiative's Chairman writes, to take just one example of its unsound economics, "What makes this trade war even more absurd is that it’s a solution to a problem that doesn’t exist. As the Cato Institute’s Michel explains in the Wall Street Journal, the Trump-Vance narrative that free trade has hollowed out middle America is pure fiction. The American middle class has thrived over recent decades, not declined. The share of households earning more than $100,000 has tripled over the past five decades, while the share earning less than $35,000 fell by 25%. Workers in the bottom 10% of the income distribution have experienced stronger wage growth than those with higher incomes". (By the way, I've nothing against pro-free market right-wing think tank The Cato Institute, having published an article in the Cato Journal on reforming welfare with Sir Roger Douglas).
What tripe. I must have read thousands of books & articles, written over the past thirty years, many by the most eminent economists in the world, including a bunch of Nobel winners, in the most prestigious outlets, saying completely the opposite. The theme of this literature in international economics has been that globalization has not benefitted everyone - there have been winners & losers. I want to particularly take issue with the line presented as a fact by the Initiative Chair that the American middle class has been "thriving" and workers at the bottom of the US income distribution have done better than those at the top. Rubbish. I quote from Nobel Laureate Stiglitz, not because I like the guy, but because he accurately summarizes the state-of-the-art knowledge in the economics profession (being perhaps the most influential researcher in the subject over these past decades):
"Fifteen years ago, I wrote a book, Globalization and its Discontents, describing growing opposition .. to globalizing reforms. It seemed a mystery: people in developing countries had been told that globalization would increase overall wellbeing. So why had so many people become so hostile to it? Large segments of the population in advanced countries have not been doing well: in the US, the bottom 90% has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago .. Among the big losers - those who gained little or nothing - were those at the bottom and the middle and working classes in the advanced countries. Among the big winners were the global 1% of the world’s plutocrats .. Globalization is not the only reason, but it is one of the reasons .. Trade in goods is a substitute for the movement of people. Importing goods from China - goods that require a lot of unskilled workers to produce - reduces the demand for unskilled workers in Europe & the US .. the problem was not globalization, but how the process was being managed".
What was the solution proposed to these problems of globalization by a galaxy of the best economists in the world? Better income insurance for the losers from international trade, in the form of Unemployment Insurance. What did the NZ Initiative lobby against when Labour was last in the power? Introducing Unemployment Insurance - which was the best policy Labour put forward in its six years in power. I find it more than disturbing - chilling in fact - that the NZ Initiative mischaracterizes the plight of low & middle earners in America. One of the several recognized causes of their weakening position has been the unprecedented level of free movement of goods and capital around the world. The Initiative has gone way further than full-blown denial that there have been losers from globalization. It went and fought even the gentle policy of introducing Unemployment Insurance (UI) to better insure low income Kiwi workers from losing out through no fault of their own due to NZ's free trade deals. Why? Because the Initiative's Big Business Employer members, many with Monopoly power, didn't want to pay a small payroll tax, even though having been beneficiaries of the government's lax corporate welfare policies during Covid. The National Party attacked UI.
The Prime Minister and Finance Minister should find themselves economic advisers who actually know a bit about how macroeconomics has developed as a subject over the past thirty years. My view is that what is holding NZ back is that the PM and Finance Minister fundamentally have no economic plan and don't know where to look to find one - other than reverting to their old boys and old girls club of old mates from the John Key years.
Writing in The Quadrant and Muriel Newman's NZ Centre for Political Research, in an article called "The Art of the Fail", the Initiative's Chairman writes, to take just one example of its unsound economics, "What makes this trade war even more absurd is that it’s a solution to a problem that doesn’t exist. As the Cato Institute’s Michel explains in the Wall Street Journal, the Trump-Vance narrative that free trade has hollowed out middle America is pure fiction. The American middle class has thrived over recent decades, not declined. The share of households earning more than $100,000 has tripled over the past five decades, while the share earning less than $35,000 fell by 25%. Workers in the bottom 10% of the income distribution have experienced stronger wage growth than those with higher incomes". (By the way, I've nothing against pro-free market right-wing think tank The Cato Institute, having published an article in the Cato Journal on reforming welfare with Sir Roger Douglas).
What tripe. I must have read thousands of books & articles, written over the past thirty years, many by the most eminent economists in the world, including a bunch of Nobel winners, in the most prestigious outlets, saying completely the opposite. The theme of this literature in international economics has been that globalization has not benefitted everyone - there have been winners & losers. I want to particularly take issue with the line presented as a fact by the Initiative Chair that the American middle class has been "thriving" and workers at the bottom of the US income distribution have done better than those at the top. Rubbish. I quote from Nobel Laureate Stiglitz, not because I like the guy, but because he accurately summarizes the state-of-the-art knowledge in the economics profession (being perhaps the most influential researcher in the subject over these past decades):
"Fifteen years ago, I wrote a book, Globalization and its Discontents, describing growing opposition .. to globalizing reforms. It seemed a mystery: people in developing countries had been told that globalization would increase overall wellbeing. So why had so many people become so hostile to it? Large segments of the population in advanced countries have not been doing well: in the US, the bottom 90% has endured income stagnation for a third of a century. Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago .. Among the big losers - those who gained little or nothing - were those at the bottom and the middle and working classes in the advanced countries. Among the big winners were the global 1% of the world’s plutocrats .. Globalization is not the only reason, but it is one of the reasons .. Trade in goods is a substitute for the movement of people. Importing goods from China - goods that require a lot of unskilled workers to produce - reduces the demand for unskilled workers in Europe & the US .. the problem was not globalization, but how the process was being managed".
What was the solution proposed to these problems of globalization by a galaxy of the best economists in the world? Better income insurance for the losers from international trade, in the form of Unemployment Insurance. What did the NZ Initiative lobby against when Labour was last in the power? Introducing Unemployment Insurance - which was the best policy Labour put forward in its six years in power. I find it more than disturbing - chilling in fact - that the NZ Initiative mischaracterizes the plight of low & middle earners in America. One of the several recognized causes of their weakening position has been the unprecedented level of free movement of goods and capital around the world. The Initiative has gone way further than full-blown denial that there have been losers from globalization. It went and fought even the gentle policy of introducing Unemployment Insurance (UI) to better insure low income Kiwi workers from losing out through no fault of their own due to NZ's free trade deals. Why? Because the Initiative's Big Business Employer members, many with Monopoly power, didn't want to pay a small payroll tax, even though having been beneficiaries of the government's lax corporate welfare policies during Covid. The National Party attacked UI.
The Prime Minister and Finance Minister should find themselves economic advisers who actually know a bit about how macroeconomics has developed as a subject over the past thirty years. My view is that what is holding NZ back is that the PM and Finance Minister fundamentally have no economic plan and don't know where to look to find one - other than reverting to their old boys and old girls club of old mates from the John Key years.
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.
6 comments:
Exactly.
Middle New Zealand has suffered from the globalisation policies and the PM and Finance Minister are oblivious to this.
National are listening to the wrong advice and dismiss the people as though they don't understand.
Totally agree Robert. I find it amazing that people like Partridge cannot see that the USA is in a financial/economic mess and continuing on along the same path is not an option. Radical change was needed when Trump got back into the WH.
It is a pity NZ does not have a Trump like PM, because we need radical changes, as well, in a number of areas.
I agree it is scary that NZ Government is getting advise from an organisation with that sort of shallow thinking.
Ouch! A very telling rebuttal, Professor. Thank you for your refreshing perspective.
A well placed flea in the ear for Mr Partridge from a seasoned economist.
'which is funny coming from a lawyer' - and there lies our problem with our country. Lawyers and accountants run the place, only ever thinking of billing hours and a sure bet.
The fact our PM is under their spell is our downfall.
Robert’s energetic critique of my recent tariffs column is certainly colourful, though perhaps slightly off-target. He’s correct, of course, to say globalization has created both winners and losers—I fully agree. My column never denied that reality. My criticism was focused squarely on Trump’s blunt tariff regime, which I argued is economically reckless and fails to address the real distributional issues Robert rightly raises.
On the specifics, my points about rising real incomes and the declining share of U.S. households under $35,000 are supported by robust, publicly available data. This isn’t “tripe,” it’s just economics.
Lastly, Robert’s dismissive tone towards my professional background is puzzling given that we collaborated on an economic productivity study together, precisely because of our shared concern for these important issues. One might say it’s almost as puzzling as Trump’s tariff policy—or, indeed, Robert’s enthusiasm for it.
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