One Recent Economics Publication Offers Diversity, Another Ideology.
Listener: 15 February, 1997.

Keywords: Macroeconomics & Money;

Over the years I have collected a bibliography of about 500 books and article on the economic reforms since 1984, reflecting numerous accounts of what happened. It is not comprehensive – simply the items I have referred to in my writings. By a judicious selection one can select a subset of these references which demonstrates the muldoonist analysis of the reforms was correct, or a marxist one, or a crude keynesian, or a social credit one, or whatever. You would not have to do that for a new right account of the reforms. Instead you would go to a recent article “Economic Reform in New Zealand 1984-95: The Pursuit of Efficiency” by Lewis Evans, Arthur Grimes, David Teece, and Bryce Wilkinson, published in the Journal of Economic Literature.

The technique is simple. Quote only the material that supports your case, and do not address the critics. Do not even mention them, because the reader might look up the critic and see the strength of the argument, even if you have misrepresented it.

It leads to odd accounts. The article discusses an issue called “the sequencing problem”. It is not an easy one to deal with, as anyone who has read the exchange between Alan Walters (who use to advise Mrs Thatcher) and myself. (I thought I got the better of the argument, but I am sure Walters thought he did.) The difficulty the new right faces is that the main contributors on sequencing in New Zealand were critics of the reform. (The pro-reformers came very late to this party.) So the article does not mention any New Zealand debate, just use foreign literature.

By contrast is just published A Study of Economic Reform: the Case of New Zealand, with 14 chapters written by 22 contributors. (I was one, but I was not involved in the editing or selection.) The three editors, Brian Silverstone, Alan Bollard, and Ralph Lattimore, who between themselves reflect a diversity of views, went to writers they thought would offer competent and interesting contributions. Inevitably there is a assortment of viewpoints and approaches, but the book is not dominated by any one vision. No attempt was made to require the contributors to maintain a particular ideology, and some even disagree with each other.

Almost all the economic writers I have thus far mentioned are not involved in policy, and so their personal political preferences are not so important. But the same problem exists in some government economic advice agencies. They can be so ideological that alternative approaches are completely ignored.

An exception is the Reserve Bank. If one criticizes monetary policy, they are likely to send an article in response, or to write a private letter, or even phone the commentator. Their economists are courteous, firm, but not arrogant about the Bank’s monetary policy. They engage positively. The public and outside economists have some confidence that there is a debate going on inside the Reserve Bank. Over the years the Bank’s theory has evolved, as it has taken aboard some points made by the critics. While one may disagree with their policy stance (or be impatient as to how long it takes the Bank to get the point of some of the criticisms), one respects the Bank’s approach.

Unfortunately, this is not true for all policy areas and advisers. Too frequently, the government agencies use their privileged position to monopolize advice, and ignore criticism, with the result that policy suffers.

Yet their failure to engage with their critics leaves the following thought. Perhaps the unwilling are unable to reply. They think they know the truth. They believe there is a reply to their critics. But they do not know what it is. Better for them to ignore those with whom they disagree, than indicate they are unable to engage in debate.

Indicative of the muddled thinking in the Journal of Economic Literature article, is the failure to offer any rigorous evaluation of the reform’s outcome. It ends with the expression “the success of the reforms to date”. but it is a litany not a methodical assessment. Rather than a systematic account of the economic performance, the article emphasizes the institutional reforms. Its “logic” is that commercialization was required, there was commercialization, therefore the commercialization was successful, and so must be the economic performance. Because the argument is circular, anecdote is sufficient confirmation. (It even cites Richard Prebble’s I’ve Been Thinking. One cannot get more anecdotal than that.)

It is well to recall that the original objective of the reforms was, we were told, to increase the economic growth rate. The authors emphasize the two good years in the last decade, but do not update their account with recent changes, which show that it was a temporary burst, rather than sustainable. Everyone else probably knows it, but I offer the accompanying graph, which shows that real GDP was going at about the same rate as the rest of the OECD up to the time of the reforms. According to the forecasts, the economy is back on the old growth track, but at a lower level. Thus we are poorer as a result of the reforms, and appear likely to remain so.