Some Blog Comments


The Dim-Post blog, extracted a section from Does the Government Know What it is Doing? (   There was a vigorous and – usually intelligent –  commentary, to which I – quite out of character – responded. Here are my replies. The full blog is at

Keywords: Macroeconomics & Money; Political Economy & History;

Vibenna: What amazes me is that the economic debate ignores two gorillas in the room. The first is that NZ had negative real interest rates for a decade in the 1970s. Surely that massive economic distortion had some effect? Can we even understand what it was? Maybe if we could, we could understand how to reverse it? The second is that the external balance on investment income has deteriorated from a $5 billion deficit in 1999 to about a $15 billion deficit in 2009.

Brian: Both facts are correct. Much of the serious reform in the 1980s was to try to improve the investment mis-allocation that negative interest rates and other interventions were causing.

Informed economists are only too aware that the investment income of foreigners has been rising. It is not simply this statistic but a variety of related issues. I think we are not quite ready to debate this in public. I promise you, Vibenna, we will get around to it.

Stephen Stratford: I see no evidence for greater – or any – rural disenchantment and, unlike Brian, I live rural. What on earth does he mean?

Brian: My main sources are rural/farm publications in which there is a lot of grumbling and also some farm friends, ditto. Danyl [who edits the blog] was quite correct to cite the ETS, and there are also calls to establish a separate rural party. It is noticeable that in recent weeks farm leaders have been trying to offer some reassurances. The ETS aside, rates of return for effort to farmers and farm processors are very low (and in some cases negative). I alluded to this in a Listener column I wrote: ‘Taking Stock’ ( 17 April, 2010) One can argue over the why, but the incumbent government tends to be blamed.

Berend de Boer: [I said a] committee chaired by Don Brash, which made various policy recommendations of benefit to the business community, claiming that it would accelerate economic growth without providing a skerrick of empirical evidence of the effectiveness of their policies. de Boer goes on That’s a flat out lie of course, the empirical evidence they presented was overwhelming. Just look at the size of GPD versus size of government slice and who is doing better. The bigger the government, the worse of we are.

Brian: de Boer has confused two things. I said there was no evidence in the report. Were it a lie it would be demonstrated by citing the evidence. de Boer does not.

His logic gets a bit fuzzy here but I think he is saying there ‘overwhelming’ evidence that the size of government relative to GDP affects economic performance. It would be helpful if it were to be cited. In fact it does not exist. There is evidence that there is a positive effect, there is evidence there is a negative effect. ‘Overwhelming’ there certainly is not.

Much of the thread is devoted to this proposition demonstrating that only an extremist can be sure of the effect. Many of the points are anecdotes, rather than systematic empirical evidence. But one anecdote is sufficient to reject a claim of ‘overwhelming’.

Let me say that I’d have thought informed economists are currently more concerned that BOTH public spending and private spending is too high, and the need for restraint on both.

Berend de Boer also objects to my asking why focus on GDP per capita? and gives such a strange answer I am not sure how to reply. It is a perfectly sensible question. Even if we consider material production as a relevant objective why do we measure it Gross (including depreciation) and in Domestic rather than National terms (since that it includes the returns to non-New Zealanders – something which Vibenna was alluding to).

Berend de Boer: Brian Easton wants to do exactly what he suggests the businessmen want to do: let the government run the show. NZ is a far way from being a corporate capitalist state like the US (privatise the gains, socialise the losses, although we’re getting close with the deposit guarantees that are going to cost the taxpayer billions).

Brian: I am afraid de Boer has missed the point. The view that governments are somehow independent of the various pressure groups which make demands on it, is a rather inadequate theory. I was writing about who were the important pressure groups on this government.

Fran O’Sullivan: Typically Brian cannot conceive of a journalist having a mind of his/her own.

Brian: What nonsense. I have enormous respect for Simon Jenkins, for instance. There are some excellent contributors to the New Zealand Herald too. Because I am economist let me just cite Brian Fallows, but there are others

Psycho Milt: I know this is a difficult concept to grasp, but perhaps it’s just possible that there isn’t a direct, simple relationship between govt expenditure as a proportion of GDP and economic well-being.

Brian: Right on. (A number of other contributors make similar points, but not as succinctly.)

The Fox: That “growing gap” [between Australia and New Zealand] accelerated in the 80s after market deregulation. The prescription on offer from the right and big business to “close the gap” with Australia is more of the same medicine. It didn’t work the first time and is unlikely to work again. The Business community in NZ work in monochrome. Deep breath Fran – time for a re think.

Brian: The Fox is factually correct.