Listener: 23 January, 1982

Keywords: Political Economy & History;

In his valedictory speech, the outgoing director of the New Zealand Institute of Economic Research, Kerry McDonald, argued that our economists should be more mvolved in the public debate on economic policy. While such sentiments are eminently appropriate in a democracy there are practical problems.

For instance, half of the New Zealand economics profession is employed by the government, in the Treasury, other departments of state and the Reserve Bank, and that includes some of our most capable economists. Inevitably there must be limitations on what public servants can say in public, since their main function is to advise government.

Nonetheless, I agree with McDonald that government economists could make a greater contribution to the public debate. First in their work government economists produce a vast quantity of research material which could easily be prepared for public release.

Second, government economists could give more ‘think piece’ papers in public. Some readers will recall a lecture given by a young Treasury official at the ANZAAS Conference in January 1979. Its topic was the protection of industry, and it provided a public indication of what some Treasury economists were thinking. In the event, it prepared us for the 1979 budget changes to our border protection.

Nonetheless, the paper illustrates a limitation of officials’ participation in public debate, because it omitted exchange rate policy. Almost certainly the original version of the paper discussed the possibility that devaluation would be necessary if the level of protection was reduced. But devaluation is a sensitive area. A Treasury official mentioning it might suggest to some that the Government was thinking about devaluing. This must be the reason why the section was chopped out, though it left a serious omission in the paper’s argument. (It will be recalled that the Government devalued by 5 percent when it introduced the protection package in the 1979 budget.)

The omission of government economists from the public debate leaves a curious imbalance. We get a lot of the criticism about government policy but little of the advice that the Government receives and on which it bases its policy. The balance is further distorted by the tendency to ignore agreement with the Government, Would you read a headline ‘Economist agrees with Government’? Our shoot-from-the-hip politics and journalism does not always lead to a well informed public debate.

There are problems for the other half of the economics profession participating in the public debate. The difficulties that Len Bayliss has faced illustrate the private sector’s problems. Bayliss’s employers have given him a considerable degree of independence to comment publicly, and the community has benefited. However, the bank must be embarrassed on occasions when Bayliss expresses very different views from their own – as must occur if he is independent – and perhaps even more so when his views are markedly different from those of the Minister of Finance, since the government owns the bank.

A number of private sector advocacy groups, representing special interests such as employees, unions, manufacturers, and farmers, employ very competent economists. Inevitably these economists are limited by their job requirements. For instance, recently a broadcasting journalist was unable to get an independent assessment of the car assembly industry because all the experts were hired by various advocacy groups.

The limitations on government and private sector economists places a great responsibility on those in universities. With Kerry McDonald, I think academics could do more but having recently left academia I am not unaware of the problems. At the university I was at, economists and other social scientists had a much greater teaching load than, say, the natural scientists, and teaching crowds out research and keeping up with all the economic issues. In addition, stepping outside one’s expertise can be dangerous. The most notorious case is of the academic who published a long newspaper article against export incentives. Unfortunately the incentives he was denouncing had been abandoned a few years earlier.

Faced with such problems, compounded in this case by the lack of Treasury papers on the topic, most academics wisely remain silent. However, they might note the strategy of a professor in a highly theoretical field of psychological measurement who used his scientific skills to become an expert on a topic of public interest (abortion), because he thought he had a responsibility to make a contribution in the public arena

Another professional source or public economIc discussion is the New Zealand Institute of Economic Research. As the incoming director. It would be inappropriate for me to comment on its role here. But McDonald argued vigorously for more economic research, in the institute and outside, suggesting that one of the ways the Government may deliberately censor unfavourable economic comment is by refusing to fund research. It will be interesting to see how the Government responds.