Counting Properly Matters

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Aside from its Orwellian doublespeak, the proposed legislation to change how we count New Zealand, first requires an expert review?

In early April, the world’s biggest census ever began; it is a $2b exercise covering 1.4b Indians. It is so complex it will take a year, as first they count the households, then the persons living in them. The results will have controversial impacts on both the parliamentary balance of seats and on fiscal redistribution. Nevertheless, despite the implications and despite the cost, the Indians are proceeding with their big count.

New Zealand seems to be going in the opposite direction if our Parliament passes the Data and Statistics (Census) Amendment Bill before it. By way of background, the Data and Statistics Act 2022 currently requires the Government Statistician to take a census of the population and dwellings of New Zealand in every fifth year after the previous census.

The invitation to make submissions to the select committee states: ‘The Act implicitly [sic] assumes that it will be a large-scale survey involving the total population of New Zealand. The Data and Statistics (Census) Amendment Bill would amend the Act to update the Statistician’s census obligations under a modern [sic], administrative-data-first census [sic] approach. Under this approach, future censuses would be taken using administrative data as the primary source, which would be supported with survey data.’

There are weasel words here. The ‘implicitly’ is unnecessary. Any dictionary will confirm that the normal meaning of ‘census’ is ‘a large-scale survey involving the total population’. A count based on ‘administrative data’ is not a census in the normal meaning of words. As for ‘modern’, apparently those poor benighted Indians, and just about every other jurisdiction in the world, are presented as living in the past.

The bill’s is Orwellian doublespeaking – a practise of many politicians and raised to an art by Donald Trump – where the definition of a word is twisted to mean its opposite. The proposal is not about modernising the census but replacing it with a different method of counting the population. We’d prefer our MPs were not hypocrites nor that the courts would get into a tangle over the meaning of words such as ‘census’. Parliament should make that honestly clear in the proposed legislation that it is replacing the Population Census.

Doublespeak aside, should we replace the census as our main form of a national count?There are some good reasons.

First is that a proper census is expensive. The 2023 census cost more than $300m. It is claimed the new approach will be cheaper, although the ‘supported with survey data’ gives no indication of how many surveys will be necessary. The fiscal requirements of the new approach will give the government the opportunity to control what is known about New Zealanders, which may not be the same as what we want to know, nor what good government requires.

The second is that the last two censuses have been botched with unsatisfactorily low response rate. (See here for the 2018 census.) Part of the problem has been that the State Services Commission has been appointing Government Statisticians who were generic managers with little experience in statistics or its culture, let alone in managing a population census. To protect the SSC from perceptions of further failure, we have descended into doublespeak, proposing to abandon what their generic managers cannot manage.

It is true that both the 2018 and 2023 censuses were partially rescued by recourse to administrative data. But that is not evidence that an administrative data system alone will work.

I’ve had a bit of experience of the problem. Historically, Statistics New Zealand used administrative data to update the population statistics after the census was taken. At the next census it would be found they were not quite right and the interim years had to be realigned. Fair enough, but I can report it was a tedious exercise for the serious researcher to have to go back and change all the data that they had been working with.

Allow me a personal note. I have been using census data for more than 60 years, including censuses as far back as the first ones in the middle of the nineteenth century. I know quite a bit about their difficulties. The historian in me has been particularly frustrated by their absence in 1931 (the middle of the Great Depression) and in 1941 (the middle of the Second World War). The deficiencies in the 2018 census have upset my contemporary work – and made it difficult to check the 2023 census. I guess I am a bit of a conservative, although I try very hard to come to terms with contemporary social change. Ironically, I use the Population Census as an important means for studying the growing diversity.

One of the issues which arose on the 2023 census was that the enumerators experienced a far higher level of abuse – some physically threatening – than in previous censuses. Why? It may be because of the poor publicity before census day. (Apparently they relied on social media so I didn’t see it.) Or it may be an ongoing breakdown in social coherence – we need a decent census to help track it.

We don’t know whether a new system based on administrative data will work. It will not cover all the traditional variables in the census – religion for instance, or iwi membership – and other variables are problematic – people change their ethnicity depending on circumstances and the administrative record ought to reflect this but it will muddle the population count.

It is unlikely that the new approach will give the precision needed. Precision depends on the size of the samples necessary to supplement the administrative data. Especially for small groups in the population, the need is for very large (and correspondingly expensive) samples. I do not see any future Minister of Finance looking favourably on every request for such funding. Yet understanding these small groups is critical for understanding the way that Aotearoa New Zealand is evolving. I am not even sure that a cheap sample survey will give the precision some Māori; one of our largest minorities, will require.

What is making an assessment difficult is that there is little published material which demonstrates that the new approach will work. The 2018 and 2023 censuses introduced untested methods without sufficient prior validation – they did not work.

That is why there is a call that the bill not proceed until the select committee has had advice from an independent expert panel. (To make it clear; by ‘expert’ is meant they will have run successful census operations – some will have to come from overseas – and are not generic managers or political/woke appointments.)

That could delay the implementation of the big count by one year. Currently the bill says 2030. Any competent social statistician will ask why not wait to 2031? That is the year most countries do their (proper) population censuses; we would get back to alignment with them. That this did not seem to occur to those promoting the bill tells us something about their lack of expertise.

Don’t Worry; Be Happy

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The 2026 World Happiness Report challenges us to think differently about economics and about New Zealand.

The New Zealand media reported the latest World Happiness Report with the single headline that New Zealand ranked 11th. It deserved more attention for there is much to be learned from the report and the 14 earlier ones.

The publication is based on research at the University of Oxford’s Wellbeing Research Centre. Its principal source of data is the Gallup World Poll which asks respondents to evaluate their current life using the image of a ladder, with the best possible life for them as ‘10’ and the worst possible as ‘0’. The resulting scores are called ‘life satisfaction’ or ‘happiness’. Typically, around 1000 respondents are surveyed annually for each country. There are the inevitable problems of different cultural responses but, as far as it is possible to assess, they are not important.

Countries are individually scored. The highest in 2026 was Finland at 7.8; the lowest of 96 countries was Gabon at 5.2. (Earlier surveys with more countries went as low as near 2.) New Zealand’s score was 7.0. Scores shift around a bit over time; inter-country differences are not great.

I’ve written about these happiness surveys and the challenge they present to conventional economics elsewhere. (Here and Chapter 2 of In Open Seas.) I am particularly interested in the extent to which material income is a significant contributor to well-being in affluent economies. This research raises new issues.

Australia ranked below New Zealand at 15th with a score of 6.9. There is not much in it and Australia has ranked above New Zealand in earlier surveys. For the purposes of this column it is sufficient to treat happiness as much the same in the two countries. That raises the question, why is there a net (and growing) outflow of New Zealanders to Australia, if life satisfaction in the two countries is much the same?

The reasons people migrate are more complex than the economic ‘push’ and ‘pull’ factors that were once the standard theory. I struggled with the problem of ‘Why Did They Come to New Zealand?’ in my economic history Not in Narrow Seas. The economic differences between New Zealand and Britain and the alternative destinations were not that great, especially when allowance was made for a low level of knowledge about the differences. Differences in perceived life satisfaction including opportunities must be relevant.

The media has numerous articles (of varying quality) showing that those who cross the Tasman in a westerly direction are financially better off. (Serious research comes to a similar, if more nuanced, conclusion.) But will they have greater life satisfaction? It does not seem particularly related to the material standard of living; otherwise, the Australian’s happiness should be markedly higher than New Zealander’s. (There are a host of caveats. I’ll skip them because of space limitations; they are a bit tedious. I’ll assume they don’t seriously compromise the conclusion.)

 The research finds that six variables explain about three-quarters of the variation between levels of happiness across countries: GDP per capita, healthy life expectancy, and perceptions of social support, freedom to make life choices, generosity, and freedom from corruption. New Zealand ranks above Australia for social support, freedom and low corruption; Australia above on the other three.

The six variables used here are because they can be easily measured across all countries. Others you might think relevant cannot be so easily measured – weather for instance. (The study compares inequality, with New Zealand lower than Australia.)

Those missing variables may be important in policy terms. If the government was to focus exclusively on raising per capita GDP, it might damage the other factors which contribute to happiness. For instance, we can boost GDP per capita by cutting back on healthcare for the elderly which would reduce life expectancy and the non-working, retired population.

Other missing variables the government may be compromising in its quest for economic growth include the quality of the environment and urban living densities. In doing so, life satisfaction may be depressed, despite higher material incomes. No doubt there are other factors which might add to New Zealanders’ life satisfaction and be compromised by poorly managed economic growth. We need to find out what is keeping up our happiness relative to Australia. Perhaps those caveats I omitted are important.

I will return to the issue shortly, but the 2026 report’s theme of the impact of social media on happiness deserves attention. By way of background, the 2024 report looked at happiness by age. Usually young adults (in the 15-to-24 age group) are happier than their elders. While that was true in Australasia until about eight years ago, their happiness has been declining since and they are now less happy than those older than 24. This is also true for North America, Britain and Ireland but not generally elsewhere. (The gap between the age groups has been narrowing in Western Europe but their young adults are still happier.) Intriguingly, the decline seems to be strongest in English-speaking countries.

Noting that life satisfaction is highest at low rates of social media use and lowest at higher rates of use and drawing on a wide range of evidence, the 2026 report concludes that social media use is not reasonably safe for children and adolescents. It shows there is now overwhelming evidence of severe and widespread direct harms (such as sextortion and cyberbullying), and compelling evidence of troubling indirect harms (such as depression and anxiety). The report concludes that the harms and risks to individual users are so diverse and vast in scope that they justify the view that social media is causing harm at a population level. The conclusion supports Jonathon Haidt’s The Anxious Generation (reported here); unrestricted social media use is harming our young people.

For the purposes of this column, note that those unhappy young adults are more likely to migrate. Are the two facts related? We don’t know.

There are cautions. The young are likely to go walkabout anyway. The issue may be that they don’t return. Perhaps they stay long enough to settle down and have a family, so that returning becomes too onerous (especially if their partner is a local). Why is the inflow of Australians not offsetting our outflow? Perhaps for Australians, New Zealand is hardly a stepping stone to the rest of the world. Have I come back to the conclusion of my economic history that migration is about opportunity (and excitement), not material circumstances? Perhaps life satisfaction overlooks the fact that many people thrive on dissatisfaction.

The international research, which the column has drawn on, raise tantalising and fundamental questions about the future of New Zealand worth more than just a media headline. Sadly, there are not a lot of New Zealanders pursuing such questions. Perhaps we should.

Note. Much social research in New Zealand today focuses on ethnic diversity. The Gallup Poll does not, given the difficulty of measuring ethnicity in a consistent way across many cultures. In any case, the sample sizes would be small. Additionally, social research here is not particularly quantitative; the research I report above is quantitatively challenging, as would be the responses to the questions it raises.

WELLBEING

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Chapter 2 of ‘In Open Seas’.

Ignoring the fact that humans are social has been a failing of much economic policy thinking. It underpinned the neoliberal changes on the 1980s and 1990s which were based upon the assumption that an individual’s consumption or income was the focus of policy. 

But a person’s income (or consumption) is not a complete measure of their wellbeing. It is easy to think of reasons why their equivalence with wellbeing is not exact. A reasonable response might be that, on average, the equation works and that income is the best single indicator we have. Even if this were true, there is a danger from forgetting all the caveats. 

The problem is even deeper, for there are many other factors which influence wellbeing; pursuing income may undermine those other factors. Later chapters will address questions of the environment and sustainability, and the distribution of wellbeing among people. The aim of this chapter is to reduce the obsession with income as the focus of policy. 

GDP as an Alleged Measure of Wellbeing

The usual measure of income for a nation is per capita Gross Domestic Product (GDP).  (Strictly it should be ‘National Income’, which excludes income which goes overseas and capital depreciation, but allow the simplification adopted by the conventional wisdom.)

I first met GDP in my opening economic lectures in 1962. My teacher, Alan Danks, pointed out its limitations including that if neighbours did each other’s washing the measure would increase. (He could have added that a mother sending her child to a childcare centre and going to work there would have much the same effect.) Not long after, I read J.K. Galbraith’s Affluent Society, with its cautioning against the usefulness of GDP, and Paul Samuelson’s Foundations of Economic Analysis with an introduction which confesses that ‘the quaint modern custom of excluding the value of one’s wife’s services from national income cannot condone [Samuelson’s wife’s] exclusion from the title page’. Later, I would read Simon Kuznets, founder of modern national accounting from which GDP is derived – a colleague of Galbraith and a teacher of Samuelson – who wrote in 1934 that ‘the welfare of a nation can scarcely be inferred from a measurement of national income’.

So I have been greatly puzzled by those who, decades later, claimed that economists say per capita GDP measured wellbeing, ignoring the many eminent economists who said the opposite. The ignorance is compounded with proposed alternatives which suffer similar limitations to GDP. The challenge is not to fiddle around with its definition.

Economists need national accounts to assess the workings of the market economy, especially for tracking unemployment, inflation, the balance of payments and for fiscal and monetary policy. GDP, which is a part of the accounts, entered public commentary in other roles. Unfortunately, if nothing else of substance is around, we grab GDP, like a drowning man hangs onto a sinking boat.

Subjective Assessments

GDP-associated measures are derived from objective goods and services bought and sold in the market. In recent years people have been asked how they feel: ‘are you happy?’ or ‘are you satisfied with life?’ Converting the answers into useful measures is not without problems, but there is evidence that such subjective measures correlate with physiological measures and other people’s assessments of the individual. At the very least, they offer an alternative means of looking at wellbeing, thereby critiquing material income.

The longest ‘happiness series’ we have – I use ‘happiness’ interchangeably with ‘life satisfaction’, merely because it is shorter – derives from annual surveys in America beginning in the late 1940s. Since then, average US real material incomes have risen over three times but the average level of happiness has hardly changed and is at a similar level today to what it was 70 years earlier. You are much richer than your grandparents but no happier. Huh?

There are shifts within subgroups. Today’s American blacks are happier than their grandparents, which is some comfort, but still average as less happy than whites, which is not surprising. More paradoxically, while American women remain happier than men, they are less happy than their grandmothers, even although they have a greater share of labour earnings. (It is not sufficient to argue that today they are holding down two jobs, because they could abandon working in the market economy and that would make them most decidedly unhappier.)

We have much less data for other countries, but we can compare their happiness rates at a point in time. This shows that among affluent countries there is no correlation between the average happiness of a nation and GDP per capita. However, at lower levels of per capita GDP – well below New Zealand’s – there is a rough correlation, so that among low-income countries the higher the average income, the higher the average level of happiness (or life satisfaction) on average. That provides a case for poorer countries increasing their GDP, but it does not apply to affluent ones.

Happiness Levels Within a Population

There are patterns within a population which seem to be fairly general among affluent countries, although on the whole there do not seem to be a lot of differences among ethnic or language groups once other factors are allowed for.

Happiness averages are higher among young people than for those in their mid-adult years, but the elderly are also happier (so the relationship is curvilinear). An average ‘married’ person is likely to be happier than someone who is living alone. Be careful about causal directions; perhaps happy people marry or stay married. Serious analysis has to be careful about the interactions of the various influences. One news headline announced that widows were happier than married women. Before considering bumping hubby off, observe that widows are older on average than married women and that the age effect is stronger than the marital effect. Married women tend to be happier than widows of the same age.

The influences identified thus far can hardly be affected by public policy. Some of the correlates with happiness can.  One clear finding is that unemployment is typically bad for happiness and life satisfaction. (There are no similar findings for inflation.) A similar result applies for the sick and disabled, whose lives are limited by their not being able to participate in their communities. My guess is that housing adequacy may matter for life satisfaction, but I have never seen solid research on the effect, probably because it is so difficult to measure.

The impact of income on happiness within a country is more complicated. The general finding is that those with higher incomes are slightly better off than those with lower incomes (if all other characteristics are the same). The effect is not strong. For instance, doubling income increases happiness to about the same degree as getting married. (This is not the same thing as saying that two can live as cheaply as one.)

However, at the bottom of the income distribution (say, the bottom 20 percent), the income effect is much stronger than the ‘slightly’ of the previous paragraph – the poor are much more unhappy. A utilitarian would conclude that the sum of happiness could be increased by transferring incomes from the top and the middle of the income distribution to those at the very bottom.

But there is a puzzle. Over time and between countries, higher average incomes appear to have no impact on happiness among the affluent, even though when we look within an affluent community, we find that there is this (very mild) correlation between happiness and income. 

The conventional explanation – aside from denial that subjective measures have any meaning – is that one element of happiness is status. People feel they are happier with higher incomes because it gives them greater status than those with less. When everyone’s income goes up they get no additional life satisfaction because they maintain their income ranking. Thus, overall increases in income do not raise happiness.

This might explain why the wealthy are keen on tax cuts, despite having much more than enough to spend. Perhaps they think the higher resulting income will add to their status. But since all their peers’ incomes will go up too that they will only maintain their ranking. Not sure about this; many would say it was just pure greed. 

Status seeking also explains ‘conspicuous consumption’, the showing off how wealthy someone is. (Galbraith has wonderful illustrations in The Age of Uncertainty.) Another demonstration of status can be charitable giving. While we should not sneer at the genuineness of the motive, it is noticeable that anonymous donations have been less frequent since Rogernomics. 

Recent international studies have found that those countries where there is trust in the community (would you expect your wallet to be returned untouched?), in their health system and in the government generally, also describe themselves as happier. It may be too early to draw strong policy conclusions but one is struck that the neoliberal approach of the 1980s and 1990s with its focus on selfishness and lack of trust, may have done little to promote happiness in New Zealand – it did not do much for material income either. 

A different approach, which broadly supports the above conclusions, is provided by a 2021 Pew Research survey which asked about what makes life meaningful. There are differences between the seventeen affluent countries in the survey, but the general finding was that respondents mentioned family and children most often, occupation and career second, and material wellbeing third. Very close behind were friends and community, and physical and mental health. New Zealand respondents mentioned friends more often than material wellbeing. 

The Hierarchy of Needs 

We can gather the previous sections together by drawing on psychologist Abraham Maslow’s hierarchy of (human) needs. The hierarchy is frequently presented as layers in a triangle, with a point which draws attention to the upward direction.

However, the casual observer may think that the needs at the top are smaller than those at the bottom.  So here the hierarchy is presented as a stack. (Sometimes the asterisked levels are subsumed in self actualisation needs.) Stack or triangle, the physiological needs at the bottom are the foundation. They are the needs with which GDP is most concerned. Economics has much less to contribute to the remaining higher levels. 

Maslow’s Hierarchy of Needs

Transcendence needs*

Self-actualisation needs

Aesthetic needs*

Cognitive needs*

Esteem needs

Love and belonging needs

Safety needs

Physiological needs

Certainly, economic stabilisation can contribute to safety and security needs, possessions to status-esteem needs, avoiding unemployment to all the upper needs. Income inequality may contribute to the esteem needs of those at the top. But generally, the role of conventional economics measures, such as income, become less relevant further up, just as the happiness research reports. 

While economists tend to see a job as a trade-off for obtaining income, paid work also has latent functions which contribute to levels of the Maslow hierarchy of needs above the economic foundation for which income provides:

 – it imposes a time structure on the working day;

 – it involves contacts and regularly shared experiences with people outside the household; 

– it links an individual to goals and purposes which transcend her or his own;

– it enforces activity;

– it provides social status (typically people who meet for the first time ask each other what do they do). (NINS:410-11)

The economy makes some contribution to wellbeing. But it is a limited one. In particular, the GDP measure, even if we could fix up all its problems, cannot be a comprehensive measure of wellbeing since it is dealing with only the bottom step in the hierarchy. A humbling thought for economists, but a proud one in that economics contributes to the foundation of the Maslow hierarchy of wellbeing. (A similar conclusion might apply to all public policy: it can make a contribution to some needs, but not to all of them.)

The Social Dimension

While Maslow was a psychologist, there is a social dimension to his hierarchy; the higher needs involve some social validation, the middle ones require social networks to fulfil them. That suggests an explanation as to why rising material living standards are not associated with rising life satisfaction. 

Social networks are not well studied in the happiness survey context. An example might be that in order to obtain a high-paid job one might have to move to a location far from your family network, so economic income is up but social connections are down. Other issues are also relevant: how many friends have you? How often do you connect with them? Do you often feel lonely? It is hard to ask a suitable question in a short questionnaire.

However, there is one routine question which sheds some light: respondents are asked about their marital status. We all know of good, indifferent and bad marriages. Even so, the evidence from the surveys is that married people are on average happier than those who say they are not married. We may speculate on why, but for the purposes here it is evidence that social relationships affect wellbeing, particularly with reference to the love and belonging needs in the middle of the Maslow hierarchy. GDP says almost nothing about such social connections, other than when they generate a market transaction.

It is conceivable that modern economic development has been associated with deteriorating social conditions so that the impact of the extra material consumption has been offset by poorer social connections. One has to be cautious, because a comprehensive explanation requires that the two effects almost exactly offset one another. But at least this reminds us that wellbeing is more than the economists’ material consumption; that social and psychological conditions, outside the remit of economics, are important. 

So the surveys conclude that age, employment status, gender, health, marital status and community trust are more important determinants of life satisfaction than income at even moderate levels of income. The exception is that the happiness of those at the bottom of the income ladder could be markedly improved if their relative income was higher. The surveys might be interpreted to suggest that housing, social connections and social ranking also have considerable influence on life satisfaction.

A weakness of the survey evidence is that generally it assesses wellbeing at a point in time. We do not have much data which tells us the patterns for an individual through their life cycle. However, we can make some inferences about some other significant issues. 

Health and Longevity

Consider my grandfathers. My material standard of living is about double theirs but, if we can rely on back-projecting the happiness surveys, it is likely that their life satisfaction was similar to mine. Both died before I was born. My maternal one died in an accident at a railway crossing; my paternal one died after a debilitating illness. Both were in their fifties. I have lived a quarter of a century longer so we can be reasonably sure that I have had many more years of happiness than either of them.

This does not appear in GDP; indeed, my post-retirement longevity lowers per capita GDP since the elderly don’t produce much. 

              A bridge was built over the fatal crossing and the treatment of my other grandfather’s cancer would be more effective today. Both activities appear in GDP, but their qualitative impact on each life far exceeds the quantitative one on production. One is entitled to conclude, with various caveats, that  my paternal grandfather was less happy because of his illness. So medicine and other measures have not just prolonged life,  but given us a better quality of life while we are living. 

I can better compare myself with Dad. Again, we were probably of about equal happiness despite my income being higher. What strikes me about the differences between us is life choices. Dad was the eldest of seven (with an ailing father) and left school in the Great Depression in order to support his family. Had he had my chances, he would have stayed on, gone to university and very likely become a very good GP. (He was bright enough and had the social and personal skills and an interest in medicine, evidenced by his second career as a psychopaedic nurse.) 

For women, the inter-generational comparison is even starker. I am struck by the number of women in my mother’s generation who never had a chance, but by sheer ability contributed to the public domain (as well as being good mothers).

Economic development, which is not the same as GDP growth, has opened up choices our ancestors could not have dreamed of (especially for women).  Amartya Sen’s ‘capabilities’ approach – encapsulated in the Fraser-Beeby principle set out below – proposes that social arrangements should be evaluated according to the extent that people are capable of achieving their well-being (rather than on their mere right or freedom to do so). Dad would have loved to be a doctor although he may never have dared dream of it.

From this perspective I have been more fortunate than Dad, not because my per capita real income is higher (true) or that I am happier (probably not true) but because I have been better able to exercise my capabilities.

The capability approach throws light on John Stuart Mill’s puzzle: whether it was ‘better to be a human dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied.’ He concluded against the pig: ‘if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question. The other party to the comparison knows both sides.’ Sen offers an extension. If the pig has the capability to be a Socrates, he is worse off if it is not realised.

Opportunity has been a central concern in the development of New Zealand. Not in Narrow Seas asked why people came to New Zealand. (NINS20) It concluded that while there were objective differences (such as longevity and incomes) from other possible destinations, the differences were small (and not well-measured at the time). The critical element which had the newcomers coming to the other side of the world is that they saw New Zealand as a land of opportunity; they were not too wrong then.

The social objective of providing opportunity remains in our rhetoric. It is magisterially captured in the ambition expressed by Peter Fraser (drafted by Clarence Beeby and gender amended as later he said Fraser and he would have wished):

The government’s objective, broadly expressed, is that every person, whatever her or his level of academic ability, whether he or she be rich or poor, whether he or she live in country or town, has a right, as a citizen, to a free education of the kind for which he or she is best fitted and to the fullest extent of her or his power. 

While there are complaisant anecdotes to ‘prove’ the objective is being attained, there are also many anecdotes – and some research – which demonstrate that able children from poor circumstances are less likely to make it. Sadly, whatever the professed aspirations, public policy often ignores the needs of those children, undermining any chance they have to achieve their potential.

Wellbeing is Not the Same as Income

While philosophers and social statisticians may conclude that there are profound deficiencies in such subjective assessments as surveyed happiness or life satisfaction, these alternative measures are useful if they have undermined the uncritical acceptance that income is a good measure.

Modern societies experience economic and social development (which has been rapid in comparison to human experience for the millennia earlier). The tendency is to assume that this development is generally progressive (environmental destruction aside). The rise in per capita real incomes seems to confirm this judgement.

Of course, there has been progress because we live longer and healthier lives, we have superior life opportunities to those of their ancestors and living is safer in some parts of the world (but only in some). However, GDP per capita (or any of its associated measures) is only tenuously connected to such outcomes. While economics has a sophisticated account of economic progress, there is not a comparable account of social progress.

The material foundation of the Maslow hierarchy of needs has consolidated but we cannot say the same about the social conditions which influence the upper parts of the Maslow hierarchy. There is even a case that some economic changes – such as the increased intensity of competition – have worsened social conditions, while other changes have damaged wellbeing – urbanisation is a possible candidate. 

I am not sure about such things, but I do think we could have handled the social change better if we had not transferred the economic model of economic development to our thinking about social development, a concern which nags me as I write this book.

Responding to the Economic Shocks from the Iran War

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We may regret we have not put enough effort into building resilience.

I was wrong when I argued that the Muldoon Government should have hiked petrol tax to ration petrol when it ran short following the Second Oil Shock in 1979. The Iran revolution’s reduction of oil output amounted to about 4 percent of world production; New Zealand was heavier hit when an oil tanker heading for our shores was diverted to Japan. The government considered full rationing but restricted cars from travelling on particular days instead – the so-called ‘carless-days’ scheme.

At the time, it seemed to me that it made more sense to allocate the scarce petrol resource by raising its price via a tax surcharge. However, the demand for petrol is very inelastic (unresponsive to price changes) in the short run; people are stuck with their cars and patterns of travel and cannot easily alter them. To reduce consumption sufficiently would have required a massive tax hike. (It was indicative of economic thinking at the time that ministers did not even contemplate this market price option.) It is estimated that carless days saved a day’s petrol every month – not much. The tax increase required to get this effect in the short term would raise the petrol price to around $4.80 a litre in current terms – ouch. *

The Iran war is expected to cut growth, raise prices and cut real incomes. By how much it is too early to tell. The government’s approach has been ‘don’t panic’. Perhaps the government is too calm. (No doubt its advisers are working their butts off.) I just hope the crisis is over by the end of May and we do not have to look back at the missed opportunities to conserve transport fuel.

Even its package for working families seems ad hoc. I have no objection to increasing support to children, although almost everybody agrees (they did virtually from day 1) that Working For Families is a clumsy and inefficient way to do this. There is substantial variation of fuel consumption by families. It looks more like a budget measure hastily brought forward more than anything actually addressing the fuel crisis since Meanwhile, the government keeps promising to do something for those who consume a lot of fuel (such as when there is a considerable distance between home and work). We shall see.

As 1979 teaches us, there are actually two issues. One is supply shortage and the other is an international price hike which is an income effect. Economics tends to conflate them because they are interdependent in the long run, but in the short medium term it is useful to separate them.

The government also asked the Productivity Commission to look at the longer term aspects of resilience. It reported just as it was being (regrettably) closed down. Not only was a team with expertise broken up, but there was more work that followed from it.

The funding of the closed Commission was diverted to the Ministry of Regulation – the highest-paid of all New Zealand’s bureaucracies. Presumably the government had greater priorities than productivity growth or economic resilience. The reduced regulation on hairdressing may comfort you when you get your next haircut  (baldies miss out) even if you could not drive to get it.

The Productivity Commission defined the notion of resilience as ‘the capacity of industries and associated communities to anticipate, prepare, absorb, recover, and learn from supply chain disruptions’, observing that ‘global trends point to a more volatile and uncertain future’ and that ‘New Zealand should expect more frequent disruptions in the near future’.

It studied supply-chain disruptions with a Computable General Equilibrium Model with scenarios which found shocks reducing Gross Domestic Product by between 1.4 and 7.5 percent. (Current estimates of long-term productivity growth means the economy would be set back by between two and ten years in per capita terms.) Between 24,000 and 112,000 workers could lose their jobs.

Since the exact source, timing and magnitude of disruptions cannot be predicted, it is crucial to invest in generic sources of economic resilience. The commission’s policy recommendations were at a high level requiring more detailed work, which I doubt has been done.

One generic source of resilience is the government’s ability to borrow offshore (directly or indirectly, as when foreign investors buy government domestic bonds). That is why Treasury is keen to keep our government debt low. (In my opinion, the level could be higher, providing any additional borrowing was invested including to increase resilience.)

Energy policy is almost generic. It is disappointing that we have not done more to reduce New Zealand’s dependence on imported energy by accelerating renewable energy production and purchasing more electric vehicles. (Some would say that finding hydrocarbons would also contribute to resilience although there are complications.) In the longer run, we strengthen public  transport by housing people closer to it and by greater electrification of railways.

As the Productivity Commission report indicates, there are other measures. But the point is made. We have given little priority to building resilience to the many threats that New Zealand faces. We may regret this failure in the next few months. (More generally, I have on my to-write list an account of how concerns about resilience seem to be reshaping globalisation. This column is about local domestic resilience.)

Better resilience to supply shocks doesn’t deal with external price shocks, such as the rise in the price of oil which we are currently facing, or the international inflation which challenged us a few years back. As the second example reminds us, we leave the policy response to inflationary pressures to the Reserve Bank. Economists are still arguing how well it managed its response then. That is another issue to be left to a future column.

Short-term crises usually defer long-term thinking. As we face one shock after another, we are too frequently unprepared for the next.

* Those who did ECON101 microeconomics will recognise that the ‘income’ effect of a price hike is, in this case, far greater than the ‘substitution’ effect.

The Recovery is Off, Dear.

This entry was posted in Globalisation & Trade, Growth & Innovation, Political Economy & History, Pundit on by .

The turmoil in the world economy from Trump’s attack on Iran will delay New Zealand’s economic recovery.

Back in 1993 I was perhaps the first to announce that the economy seemed to be in recovery. The notion was seized upon; apparently, the long Rogernomics stagnation was over, and economic growth would soon be booming. That is not quite what I meant. ‘Recovery’ is a technical term used in trade-cycle theory for the phase when the economy has bottomed out and begins the upswing. It says nothing about how strong the upswing will be, nor whether the top of the cycle – the ‘boom’ – will be long.

There was much disappointment from those who did not understand this when, a year later, the ‘boom’ indicated the growth trend was much like that the economy had been experiencing before the stagnation, except that the economy was growing at a lower level – it has never recovered the relative loss from the Rogernomes’ shock policies. There was certainly no faster growth which followed – no catchup. (I’ve put a couple of wonkish notes at the end of the column – no need to read them if you are not a wonk.)

The previous paragraphs were intended for a column I was about to write about the growing evidence that the New Zealand economy was in some kind of recovery. The point I wanted to underline was that ‘recovery’ did not mean that subsequent growth would be strong. I wanted to contemplate the case that the growth trend would be lower than it had been in the past. In two words, whether it was going to be a ‘weak recovery’.

The economic consequences of the attack on Iran mean that any recovery has been delayed. Probably there will be higher inflation from higher oil prices (which means that people will spend less in real terms); there may be supply shortages from difficulties with offshore suppliers; there may be setbacks in confidence and further closing down of existing businesses or delays or even abandonment of promised investments. All a bit gloomy and unsettling. What is certain is that any recovery is delayed. *

We cannot tell by how much or how long since we don’t know when the Iran war will be over. But even if the conflict ends tomorrow, its consequences will take some time to unwind. I’ll be addressing what seems likely at the time of the budget forecasts at the end of May. Conveniently, the Treasury’s main forecasting effort is still a month off, when things will be less murky. Speculating before then is pointless, even if it can make good headlines for a media bereft of hard stories.

However, it may be useful to background the sort of public economic debate which is likely to occur up to the election. The government, fronted by Christopher Luxon and Nicola Willis,  has put a lot of emphasis on its claim that the economy measures it has taken were proving successful. Had there been no Iran war and the recovery had got under way, it would have promised strong growth, although evidence for that – if the government was right – would not really have been available until 2027.

The government case now looks thin given the likely delay of the upturn. It will argue the delay is not the government’s fault (without actually mentioning it is Trump’s) and promise that there will be a recovery – eventually. I don’t know how convincing that will sound to the public. Whatever, the May budget is going to be difficult; theere can be no significant electoral ‘bribes’ – just promises. (Been there, done that.)

There is the added complication that the three parts of the coalition are running almost independent economic policies, although there is some overlap among them. The above discussion is about the central policy. Meanwhile ACT has its own approach, although I have seen little real influence from the Ministry of Regulation either on policy or the economy – or, for that matter, when I get my hair cut. NZF’s Think Big is still largely a promise. It takes time for big projects to get under way. (Their construction phase needs to be distinguished from their production phase. Muldoon’s construction phase certainly had an economic impact but there is little evidence that there was additional thrust to the economy from the production phase.) I mention the coalition party differences because they are likely to intensify in the runup to the election.

The Labour Opposition will have the easy task of taking potshots. Whether it promises anything significant which will make it a credible alternative is a bigger challenge. It will offer some new policies – like a capital gains tax – but I am not sure whether that will mean much difference to the economy; they may enhance wellbeing although that seems hardly a frame which Labour is using. The Greens are likely to pay considerable attention to redistribution but they do not give as much attention as they did once to the environment. Te Pati Māori has not much of an economic policy except to enhance the wellbeing of Māori.

In the end the economic issue may not be much about policy but about the credibility of each major party leadership to manage shocks – like the one the Iran attack is generating – using the existing paradigm.

We have yet to reach the stage in the electoral cycle where serious economists withdraw and leave it to politicians and the commentariat to grumble, pontificate and promise. That does not mean that economists will give up thinking about economic issues – but what they have to say will be drowned out by the sizzle.

* The Statistics NZ announcement that GDP growth in the December 2025 quarter was 0.2% – fractionally above zero in GDP per person terms – should be treated as that the economy is still near stagnation. It may be revised a litle – in either direction. Given the shock from the Iran war the statistic gives little indication of what may happen in 2026.

Two Wonkish Appendices

1. I expected that many of the Rogernomic changes would result in ‘allocative efficiency’ gains (better deployment of resources) that would boost the level of output but not necessarily accelerate the growth rate. I never found any significant improvement, although there was evidence of quality improvements (standard economic measures do not incorporate quality changes very well). Moreover, the economy is probably more resilient to economic shocks. (In contrast. the Rogernomes’ redistributional impacts were very evident.) It may be a guide to the well-known economics question: ‘how many Harberger triangles [the allocative effects] fill an Okun Gap [the macroeconomic effects]?’. In the case of Rogernomics, macroeconomic management was dreadful. The answer answers sems to be ‘a helluva a lot’. (See my In Stormy Seas.)

2. I have long puzzled why the New Zealand economy has not benefited by the convergence effect – the well-established proposition that lower productivity economies tend to grow faster than the highest productivity economies and begin to catch up to them, once they have met certain organisational arrangements (which is why many of the poorest do not prosper). The convergence occurs because it is easier to borrow/import existing technologies than to create new ones. My guess is that New Zealand’s industrial configuration does not generally benefit from importing technologies in the way that other economies do; we are too small and insufficiently linked into the rest of the world because of our location.

Does New Zealand Need a Basic-Income-for-Artists Scheme?

This entry was posted in Literature and Culture on by .

This note is to promote a public discussion. It is referred to in Irish arts policy shames NZ Newsroom 23, March 2026

The Irish take their arts seriously which may explain their four Nobel Prizes in literature: W.B. Yeats, Bernard Shaw, Samuel Beckett, Sean Heaney, with James Joyce a near miss*. But great trees don’t flourish without a vibrant understorey. Ireland’s is being nurtured by a Basic-Income-for-Artists Scheme.

The scheme is basically simple. Every three years 2000 artists – in writing, visual and performing arts – are awarded a €325 per week income for a three-year term. (The Irish unemployment benefit is between €125 and €450 euros per week.) They are chosen by lottery. The pilot scheme introduced in 2022 has been so successful that it is to be permanent. Research showed that those in receipt of the scheme were more productive, spent more time on their creative work and less time scrambling around working in the precariate on the borders of the labour market.

Other countries are looking to follow. Why not New Zealand? This is how it might work. Ireland has about the same population as New Zealand so let’s settle on 2000 artists per three-year term here too. Candidates would be selected by lottery. (Identifying future tall trees from the understorey is a hopeless task.) Any full-resident New Zealander who applies would go into the draw. (In the first round, there were 8000 Irish applicants.) They would be paid at the rate of the Job Seekers benefit – currently $361.42 net a week for over 25-year-olds, which would be treated as taxable income (so any additional earnings would be taxed).

The scheme would have a direct cost of about $37.6m a year (rising as benefit levels rose). You can hear the fiscal austerity brigade loudly objecting. But the net cost would be much lower. Some recipients will come off social security benefits – the advantage to them will be less stress, more certainty – at zero fiscal cost. Recipients will pay tax on their earnings, adding to fiscal revenue. Given the high level of unemployment, every participant that leaves a job creates the opportunity for an unemployed person to take it – another fiscal gain. Not to mention the wider gains to the community of a more vibrant arts scene.

The actual cost of the scheme may be near zero. A cost-benefit analysis found that for every €1 spent society received the equivalent of €1.39 in economic and social benefits back (a somewhat higher return than on some of those transport projects beloved by ministers.)

The big fiscal cost may its administration – New Zealand cultural administration seems to take a relatively high proportion of the funds available. The cost could be reduced by following Irish practices while avoiding committees of has-beens and never-wases making arbitrary decisions in favour of lotto would substantially reduce administration expenses.

Sound a good idea? How to get the scheme implemented? To be frank, the arts community it is not notable for its lobbying ability. Most could not even name the arts spokespeople in Parliament. (Some are nonentities – itself a measure of how ineffective the arts lobby is). This year’s election presents a window of political opportunity. Press each party to include a Basic-Income-for-Artists Scheme in their manifesto – make sure they keep to their commitment when they are in government.

* Margaret Mahey won the young people’s fiction equivalent of a Nobel Prize, when she was awarded the biennial Hans Christian Andersen Award in 2006. Writing for children and adolescents has been strong in New Zealand perhaps because of the commitment to reading from the educational sector.

1929 and All That

This entry was posted in Business & Finance, Macroeconomics & Money, Political Economy & History, Pundit on by .

Andrew Sorkin’s new book, 1929: The Greatest Crash in Wall Street History sheds light on how financial markets work.

Economists argue over how exactly the Great Depression of the early 1930s occurred. We are pretty much agreed on what happened in New Zealand – our ability to borrow internationally became very limited while the terms of trade (the price of our – almost solely pastoral – exports relative to the price of imports) fell sharply. The external shocks were caused by the international downturn. It is the precise mechanisms which made that world depression so deep that are contested.

It is common to date the Great Depression from October 1929 when the price of shares (or ‘stocks’ in the American vernacular) on the New York Stock Exchange (commonly called ‘Wall Street’) crashed; they fell on average by almost 90 percent in the next three years. In the first week, share prices fell by (roughly) a quarter (25 percent).

Wall Street was already the greatest financial centre in the world and there is no doubt that the crash contributed to the Great Depression. However, it is argued that the world economy was weakening before October 1929 and certainly some policy responses intensified the downturn. Among the most serious was the Smoot–Hawley Tariff Act, which was intended to shield American industries from foreign competition; it set tariffs at levels so high that they make Trump look like a tariff moderate.

We can also look at the Wall Street crash outside the context of the Great Depression, to enable us to understand better how financial markets work. This is not about the intricacies, which have become much more complicated in the last century, but how financiers operating in them behave, which probably hasn’t changed that much. We can be very grateful to journalist and historian Andrew Sorkin for his 1929: The Greatest Crash in Wall Street History—and How It Shattered a Nation which could be taken as a prequel to his earlier book about the 2008 financial crash: Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System—and Themselves.

The new book tells the 1929 story by tracing the stories of various people involved ranging from Presidents Hoover (who Sorkin treats kindly) and Roosevelt to the shoeshine boys outside the dealing house (Joseph Kennedy, John’s father, decided it was time to sell when the boys were offering share tips); even Winston Churchill makes an appearance, losing a small fortune.

There are many men in the story. (Wives are mentioned plus one astrologer/fortune teller who predicted that ‘stocks might climb to heaven’ a few weeks before the 1929 crash and who lost money shortly after). There is such a kaleidoscope of them that Sorkin provides nine pages of ‘the cast of characters’.

The book gives particular prominence to Charles Mitchell, who was the president of National City Bank, sometimes described as the ‘world’s largest bank’. (It exists today as a part of Citibank.) ‘Sunshine Charley’ aggressively encouraged his bank’s customers and employees to buy securities, including shares in the bank, even on credit. The NCB was also taking over other financial institutions to enlarge its market power.

Mitchell was in the process of merging National City with another bank when Wall Street crashed. The deal was that the other bank’s shareholders could swap their shares for cash, or for National City shares. Before the crash, when share prices were high, they preferred the share swap, but when the share price of both banks plunged they went for cash. National City did not have the cash they demanded. In order to protect NCB, Mitchell did some financial manipulations which, not incidentally, put his own fortune at risk. But they did not work and he ended up broke. He had been fabulously rich. As well as a town house he had a rural estate: 108-acres including a 25-room mansion, an elaborate stone boathouse, a ten-room guest cottage, a nine-room groom’s cottage, and multiple garages and stables.

What strikes one about Sorkin’s account is that while Mitchell was frequently treated as a villain – even the chief villain – in the Crash, he was not an evil man. He got into a financial mess because he was trying to protect the institution he loved and those who were involved with it. It is true that he was criminally charged with tax evasion. The jury found him not guilty, but a civil lawsuit had him paying $US2m (say $US50m today) to Inland Revenue. (We may take it that his views were not as tender towards the US government as they were to his bank, employers and customers.)

Few of the people portrayed in the book were wicked. They were rich, they were greedy, they were arrogant, they were poorly informed on issues outside their narrow expertise (but still wanted to interfere there), and they would willingly outwit another businessman in a deal; many were religiously devout. But most were not genuinely evil; Sorkin reports a few; some got deserved comeuppances such as poverty and jail (some of the suicides involved honourable, but depressed, men). More generally, many financiers lost their fortunes; not all – Joseph Kennedy made his by ‘shorting the market’. *

Much the same applies today. There are some genuinely wicked financiers but most are so-so, rather like the rest of us. It’s worth underlining this point because when financial markets crash again, many involved will be labelled villains. While we should not feel sorry for them when they lose their fortunes and we should not try to bail them out, the attitude misses the point that there is a fundamental problem with financial markets.

It was Karl Marx who pointed this out. (Marx is considered one of the great classical economists, whatever you may think of other aspects of his thinking or that of his followers.) He observed that once money was merely a medium of exchange used to convert one commodity into another. Commercialisation changed that. Money became a store of wealth and you entered into a transaction where you purchased a commodity to increase your wealth.

Symbolically, transactions changed from C➙M➙C1 (the commodity is exchanged for another commodity with money intermediating) to M➙C➙M+ (the commodity is used to increase one’s money holdings).

The next step is to use a financial instrument – a piece of paper which is a contract about exchanging in the future – instead of a commodity. The deal becomes M➙FP➙M+.

Magically, one makes money by dealing in the intangibles of finance. We have moved a long way from the C➙M➙C1 world or even the M➙C➙M+ one. That world involving commodities worked because the other side of the transaction (actually, there could be many sides) wanted to exchange commodities too, so that both sides thought themselves better off after the transaction (providing they did not make mistakes).

In the M➙FP➙M+ world the holder of the financial paper thinks they are better off because they are going to flip it on too, increasing their stock of money. It is a speculative Ponzi scheme, relying on someone wanting to hold financial paper of intangible worth which they will convert into cash if they can pass on the baby (or is it the bomb?).

In the 1920s the mechanism was compounded by encouraging Americans to borrow to fund their speculation. In a C➙M➙C1 or M➙C➙M+ world it is a means of coordinating decisions through time. In a M➙FP➙M+ world borrowing works fine until it doesn’t and the Ponzi speculation crashes. So be it, except innocent people suffer as well as some of those who have been speculating.

Sorkin nicely illustrates the story; it is especially detailed in his account of Mitchell. You can read his book as a gripping history. But it is also a parable which may help you understand what is currently going on and what will happen when the next bust comes.

* Explanation: When shorting the market (or short selling), an investor borrows shares they do not own, sells them at the current high price, intending to buy them back later at a lower price when the share price falls and pocket the difference. This is the opposite way around from the normal speculation of buying shares, selling them when their price rises and pocketing that difference.

Accident Compensation (index)

This entry was posted in Index, Social Policy on by .

Compensating Factors (April 1981)

The Historic Context of the Woodhouse Commission (July 2002)

Submission on Review of Medical Misadventure (April 2003)

Ending Fault in Accident Compensation: Issues and Lessons From Medical Misadventure (December 2003)

Accidents Will Happen (April 2004)

Medical Misadventures: Should Patients Be Compensated for Managerial Failure? (February 2005)

The Economic Crisis: Where Does ACC Fit In? (June 2009)

Social Security and ACC (December 2009)

A Proposal for an Earnings-Related Redundancy Insurance Protection (April 2011)

Portrait of Owen Woodhouse (November 2011)

ACC: an Accident Waiting to Happen (November 2012)

McCarthy, Woodhouse and The Proposed Redundancy Social Insurance Scheme (April 2022)

The following books all have significant sections devoted to Accident Compensation

Social Policy and the Welfare State in New Zealand (Allen & Unwin, 1980) (Japanese Edition, 1987)

Pragmatism and Progress: Social Security in the Seventies (University of Canterbury, 1981)

Economics for New Zealand Social Democrats (McIndoe, 1981) 156pp.

I was involved in the 2007/8 review of the Accredited Employers Scheme but was not a major player in the writing of the final report. 

IS THE RICH WORLD GOING INTO SECULAR STAGNATION?

This entry was posted in Growth & Innovation, Political Economy & History on by .

Chapter 7 of ‘In Open Seas’

In the last 200 years, world per capita incomes (measured by market output) have risen over ten times on average– more so in the most affluent countries. In the previous 200 years they are thought to have risen about 10 percent. Can the miracle growth of the last two centuries continue? Stein’s law says that ‘if something cannot go on forever, it will stop’. But when? Perhaps ‘soon’, at least for the affluent economies.

Secular stagnation is the notion that affluent economies are moving into a low economic growth stage for a long period, if not forever. (For economists, ‘secular’ means the ‘long term’, of indefinite duration.) Are we there yet?

There are some economists who think that the world economy may already be in secular stagnation and that GDP per capita will not grow much in the long term. Indeed, secular stagnation has been a common concern of the profession; among the greats who have pondered on it are Thomas Malthus, David Ricardo, Karl Marx, John Maynard Keynes and Joseph Schumpeter. However, there is no consensus among today’s economists that the rich economies face the prospect of long-term stagnation compared to their experiences of the last two centuries. There is even less consensus on why it may happen.

It is generally accepted that international real (adjusted for inflation) interest rates are low compared to the past and are likely to remain low for some time. In principle, low interest rates ought to stimulate an investment boom, but none is evident. That seems to suggest that in rich countries businesses do not see growth opportunities.

Business sees opportunities in poorer countries, although they may be hesitant to invest there because of political instability. Many poorer economies are growing faster than the rich ones. However, even the economic growth of the star performer, China, is slowing down. Japan too, was once growing very quickly but it slowed to the rich economies’ rate once it caught up. This suggests the rapid growth occurred by Japan as a poor country adopting rich countries’ technologies. Once that had and Japan was using the top ones, its economy slowed down to their rate.

Another concern is that much of today’s growth is dependent upon ultimately unsustainable financial behaviour. There is bound to be at least another major financial crash sometime in most readers’ lifetimes and that will almost certainly set back the international (or individual countries’) growth track.

Mechanisms Ending Growth

Why might growth rates in rich economies stagnate? Here are some possible explanations. They are not exclusive.

First, the shift from the non-market economy to the market economy – evident in the rise of food preparation (and consumption) outside the home, that home dressmaking is much less common and that more of childcare occurs outside the family – may be near exhausted. New Zealand has already very high labour force participation by women – among the highest in the world. Can we squeeze any more blood out of the kitchen?

Second, if economic growth has been as dependent on consuming natural resources, as the previous chapter explored, then we may be reaching the point where such exploitation is ending, especially if we stop using as sumps for polluting waste air (greenhouse gases and smoke emissions), fresh (waste and runoff) and sea water (including plastic bags) – the alternatives are more expensive measured in GDP terms.

Third, it is possible there is a slowdown of new growth-promoting technologies compared to the last two centuries. As Chapter 4 discussed, economists think that a major drive of economic growth has been technology rather than capital accumulation. This may explain why poorer countries are still growing. They are upgrading their technologies to rich-country levels. When they reach that level, they will grow at the rich-country rates.

American economist Robert Gordon, who has done more research in the area than anyone else, argues that today’s innovations are not comparable to those of a century ago – like electricity and the internal combustion engine. We may know whether he is right in a hundred years, although there certainly seems to be an ongoing multitude of new innovations if not as dramatic as the ones Gordon cites.

Why? One possibility is that the technologies at the back of the warehouse (Chapter 4) are less exciting than the one’s near the front which have already been discovered. I am not sure about that. One suggestion is that those at the back are harder to get at, since the researcher has to work their way through all the technologies at the front of the warehouse, so one needs to know a lot more nowadays.

A third possibility is that the new technologies do not give a commercial return. For instance, the contribution to wellbeing of new pharmaceutical drugs, costly to generate, may far outstrip their contribution to GDP. (Not in Narrow Seas mentions the impact of efficient contraception which hardly appears in GDP but made a dramatic impact to wellbeing.)

A variation on the social valuable innovations which don’t give commercial returns is infrastructure, which is often cited as generating a high return to the economy. Generally the return does not go directly to the investor but is spread widely, which is why private investors tend to be uninterested (unless there is a public subsidy). While public-debt-constrained governments have difficulties funding infrastructure without raising taxation, motorists sit fuming in a traffic jam unwilling to pay the taxes to improve roads.

A fifth possibility is there are increasingly severe difficulties measuring conventional economic growth as we shift from the product economy to the service economy.

A sixth is that the degree of monopolisation seems to be increasing in key sectors with the incumbents resisting new entrants. This may be because they are often ‘common carriers’ (natural monopolies) with the technologies favouring only one significant provider. (Examples are the immensely profitable Facebook and Google whose revenue comes more from advertising than the services they provide to users – similar to newspapers.) That may slow down economic growth by stifling genuine innovation. (I certainly think that natural monopolies should be regulated in the public good. If that generates economic growth as well as improving wellbeing, so be it.)

A seventh possibility is that secular stagnation is a rich-economy phenomenon because the rich countries offshore production to poorer economies. I wrote about this in my Globalisation and the Wealth of Nations. Essentially, the ability of poor countries to produce many of the same products using lower paid workers switches economic growth in their favour, whereas in the past circumstances favoured the now-rich producers. Even so, there remain opportunities for affluent countries to provide advanced precision products, as Germany’s capital goods exports to China demonstrates.

The world’s regional balance of economic activity is always changing, which must imply some regions are in relative decline. Once Northern England was more affluent that Southern England (which is why many New Zealander’s nineteenth-century ancestors came from the south). Booming parts of the US are now rust-belts. The South Island once had a larger population than the North Island. Over the long run, there are changes in the relative rankings of economies by per capita GDP. Observe that in Europe and the US economic development moved from increasingly congested centres to the periphery (in Europe from Britain to Finland and the Mediterranean; in the US from the Northeast and Midwest to the South and Pacific West). Now, the same processes move industry offshore, so when Japan reached rich country status some of its industries moved on to South Korea, Taiwan and South East Asia.

The underlying economic model suggests that the developing country shifts its labour out of its low-productivity farm sector into a medium-productivity manufacturing sector which exports to the rich. (The cognoscenti will recognise here a ‘Lewis’ model of growth; West Indian Arthur Lewis was the first non-European Nobel Laureate economist.)

A final theory is that a lot of economic growth is a kind of Ponzi scheme, especially that which depends upon the financial sector. It argues that investors are benefiting today from trading worthless financial paper with others who expect similar returns in the future. One day they will not be delivered. Such arrangements may not be illegal, but they are painful when they collapse. Much of the 2008 Global Financial Crisis can be explained this way. (Economic growth depending on environmental depletion is also a kind of Ponzi scheme.)

Secular stagnation may have begun towards the end of the twentieth century – perhaps as the result of a slowing down of the rate of technological innovation which could be commercialised (although others of the explanations above may have also contributed). The financial sector speculative boom in the first decade of this century disguised the sluggishness. The GFC ended the boom.

A Stagnant New Zealand?

The full model of the offshore movement of manufacturing to poorer countries (the seventh possibility) has an interesting prediction, especially for New Zealand. These new manufacturing countries will suffer a food deficit because their agricultural sectors will not be able to deliver all the food demanded by the more-affluent city workers. The price of foodstuffs then rises relative to the price of manufactures.

That has been already happening over the last forty-odd years because of industrialisation in East and South East Asia. The rising prices have been to New Zealand’s benefit (because it gets paid more for the same production). In contrast, the food terms of trade had been generally falling in the twentieth century before the 1980s.

This adds to the promise for the New Zealand economy. The foundation of New Zealand’s prosperity has been its resource base – especially, land, sun and water – which it has processed and exported. Is New Zealand running out of the resources to fully reap the gains?

What if Economic Growth is Dependent Upon Environmental Depletion?

To return to the second possible explanation. Suppose past economic growth has been partially dependent upon depleting the environment (as well as innovation). There are two major ways the depletion happens.

One is that there is a resource – such as coal – which gets mined out. This may be thought of as converting a not-priced non-market resource into a priced market one (relating to our first possible explanation of why we may be facing secular stagnation).

A variation on this is that a resource may be used as a sump – sewerage and runoff into water, carbon dioxide into the air. The implication is that if we had a wider measure of economic activity it would include a measure of environmental depletion analogous to capital depreciation in GDP. Thus far it has proved difficult to calculate in a convincing way. Moreover, it would make little difference to current measures of material wellbeing (consumption). Rather the wellbeing would stagnate and fall in the future – sounds like a Ponzi scheme.

But environmental depletion may impact on material wellbeing. Suppose it was decided to remedy the sumps or even just to stop using them. That would divert resources which could be used for increasing consumption. Some people would say that would increase their psychic wellbeing. Fair enough. (Robert Fulghum’s All I Really Need to Know I Learned in Kindergarten says ‘Put things back where you found them; clean up your own mess’.) Whatever such actions would do for psychic wellbeing, the material economic outcome would appear as secular stagnation.

A slightly different issue is that much of New Zealand’s capital investment has been shoddy – leaky and earthquake prone buildings for example. Like remedying of environmental depletion, remedying poorly built structures will involve redirecting economic activity from adding to material consumption to consolidating past gains.

The Implications of Secular Stagnation

Predictions are hard to make, particularly about the future. So we do not know whether international secular stagnation is something to really worry about, or just another passing fad. However, I should not be surprised if economic growth among the rich countries is markedly lower in the future than it has been in the past. The secular stagnation scenario sees a continuous slow down but we should not rule out crashes followed by a very slow recovery as happened in 2008 and after.

The clue for me is real interest rates. Those in the US, which set world rates, dropped from 5% p.a. in the 1980s, to 2% p.a. in the 1990s, and to just 1% p.a. in the 2000s. Since the Global Financial Crisis occurred, they have averaged a negative 1% p.a (yup, nominal interest rates have been below the rate of inflation). They may recover but that is not what the forward looking long-term interest rate on US government bonds says. Low interest rates are indicative of a lack of investment opportunities relative to available savings.

There is a terrible inertia in human thinking when it is not chasing frivolous fashion. There is real danger we will not adapt to the new circumstances which may be, if there is secular stagnation or much slower growth, totally different from the experiences (particularly in rich countries) over the last two centuries.

Adding to the inertia of thinking about economic growth is that the growth rate and the profit rate are inextricably entwined. Low long-term growth means low long-term profitability. In the short-term business can squeeze wages, shifting the share of total income towards profits, but that cannot go on for ever. There is a basic long-run mechanism that drives profit rates towards interest rates plus a risk premium. That is why some of the great stagnationist thinkers saw an end of capitalism. Thus far capitalism has survived despite such predictions, because of its ability to morph into new forms, overcoming the inertia, or perhaps because technological innovations has kept generating new commercial investment opportunities – up to now.

Even so, practical inertia will not prevent the public rhetoric pressing for growth will remain prominent. It is largely unaffected by evidence and research, so why should new circumstances and evidence change its approach?

The Risks of Overestimating Interest Rates

The danger is that we base our future on the past growth rate; if it is markedly lower we will make poor decisions. Suppose real interest rates remain near zero but individuals plan their retirement on their savings based on a real return of 5 percent p.a. (low compared to the rate many investment advisers talk about). They are going to have a low-income retirement relative to their working-age income and their plans (their New Zealand Superannuation benefit is not going to grow much either).

They may convince themselves they can get a higher return by investing in high risk schemes. But not everyone can get a higher-than-average return on their investment. Ergo, some are going to get lower returns. In a low-growth, low-return economy some of those involved in risky investment are going to lose a lot of their savings. (Not you of course, someone else.) People who lose their savings are usually incensed, forgetting that it was they who decided to invest in high-risk schemes. That some schemes proved fraudulent or near-fraudulent heightens the anger. But other investments fail through bad luck or events outside the control of the investment manager, especially if they were betting on higher growth rates than the actual outcome.

The same trap applies to business. If their plans are based on expected growth and there is long-term stagnation, the firms will over-commit themselves and fail. That does not mean there are no business opportunities during secular stagnation – picture theatres were built during the Great Depression – but there are fewer.

Similarly for government investment, except that failure results in higher taxes or public debt. It is fashionable to argue the case for public infrastructure but the underlying case is a cautious one. There is a need for catchup of a backlog, and some new infrastructure may be vital to wellbeing – addressing the three (fresh, waste and storm waters), for instance. But such investment gives a financial return (in higher tax revenues to the government) only if there is economic growth.

So, any transition from the high material growth rates of the past two centuries to lower (or zero) ones will not be easy. Possibility the usual economic rules of the last eighty-odd years are going to be stood on their head posing quite a challenge.

How We Might Cope with Slow Economic Growth in the Future?

Thinking about the economic future one cannot avoid making some assessment of the likely course of material economic growth. If it is going to be slower than rich countries have been used to – there may even be secular stagnation. How are we to cope?

Chapter 2 argued we should shift the economic focus from material economic growth to wellbeing. But that does not mean that all the traditional concerns have become obsolete.

People still need jobs as a part of their involvement in their community and sense of worth. Thus avoiding stressful unemployment (which includes underemployment) and promoting quality job creation should be an important public policy priority.

Inequality is dealt with in a later chapter. There will be significant gains in aggregate wellbeing by lifting the relative incomes of those at the bottom. Economic growth which fails to change the relativities is of little relevance.

Diversity should be celebrated, with tolerance and respect. No group is privileged, but attention should be paid to the smaller ones. I have spent my entire life as a minority of one – so have you, if you have an independent sense of your self-worth. There is a current fashion to promote a society based on love. That seems to me to be a bit excessive in the case of some people, but we should be kind to them.

At our level of affluence, material consumption is not as important as the quality of life. That gives great significance to health care in all its dimensions. That care needs resources (as well as kindness). But we need to break away from assessments like ‘adopting my policies is worth so many billions of dollars’ which plays into the hands of those overemphasising GDP.

The same approach should be applied to safety – both personal and physical. It is not an area I know a lot about, although the law and order brigade seems to know even less.

Opportunity, or as Amartya Sen describes it, achieving capabilities is a key element of the good society and of individual wellbeing. A crucial element of that capability for each of us is creativity and achievement. There are so many social impediments to many New Zealanders being able to achieve what they are capable of. That is discussed in future chapters including the way education system has been captured by commercial considerations aimed at lifting GDP. The result is that people’s access to developing their capabilities has been limited. It is a repeat of an earlier theme. Prioritising material output in an affluent society damages wellbeing.

Finally in the list is sustainability. Earlier generations bequeathed to my generation opportunity and wellbeing. We owe the same to later generations.

Observe that the above list of objectives applies whether the affluent society is in a growth boom or in secular stagnation.

The list does not rule out the market economy, nor the need for a high-level – but sustainable – material output. But we should not confuse any analysis of growth with wellbeing; as the Maslow hierarchy makes clear, we should not be obsessed with GDP in the way that neoliberal policies have been.

Nor does the analysis reject an honourable role for business. It contributes to wellbeing in a number of ways. This is its purpose, not the pursuit of material output, as sadly Rogernomics thought. Business needs to be humble about what it can do, as we all need to be.

Do More Recent Cohorts Have Poorer Prospects?

This entry was posted in Distributional Economics, Growth & Innovation on by .

This is a note shared among colleagues which was a response to a graph in The Economist. In an article ‘British Class Politics is Back – With a Green Twist’ it argued that younger cohorts were experiencing poor economic growth prospects.

Specifically :’Recently published an analysis showing that lifetime levels of GDP growth have a significant impact on individuals’ political outlook. Cohorts that experienced periods of high growth are more likely to trust the government and have more positive perceptions of living standards. In Britain such voters are dying out (chart omitted). Today’s 75-year-olds witnessed average annual GDP growth of 2.4% in their lifetimes, compared with 1.4% for a 20-year-old. This might help explain why Green voters tend to be younger than Labour voters, and Reform voters tend to be younger than Conservatives.’

Here follows my contribution to the discussion it generated:

Dear Colleagues,

I am pleased that the Economist graph has triggered a useful discussion. Here follows my contribution. You may want to skip over the econometric paragraphs to the emboldened head: What does all this mean.

Simon Chapple was quite right to suggest that we would better look at per capita GDP. I had already written to The Economist suggesting they explore that. I also suggested they use working age population and hours worked in the denominator – measures of productivity.

I can confirm Shamubeel Equaab’s graph. I independently constructed a similar one with broadly the same profile.

What it means is unclear. You could, I think, argue that there was a downturn of some kind in 2000, perhaps similar to what may be The Economist finding, but with greater volatility arising from NZ being a smaller and more buffeted economy. (Incidentally, I was fiddling about with the series after 2015 and, as Simon warned, the short time and high volatility resulted in a garbled series.)

One issue which I have yet to look at is that these calculations result in recent growth rates which are high compared to my recall of a Treasury paper (and the Treasury long-term fiscal projections).

It took me some time to sort out my data. I am impressed by Shamubeel’s quickie on the phone. Congratulations to him. I suspect that Bill’s work involved my sort of tiresome fiddling around.

Bill Rosenberg’s work sort of supports the declining growth of GDP per cap thesis. ‘Sort of’ because many of his trend coefficients are not statistically significant although they are all negative as the hypothesis being tested posits – an R-square of above .25 over 60 observations is ‘significant’ at the 5% level. (Note that he is using a different measure to The Economist and Shamubeel.) The data shows a lot of volatility. It is, of course, easy to pick out the graph which supports one’s thesis (and to be clear, my preferred graph on conceptual grounds has the highest R-square – .35.)

Bill, looking at that graph are there any economies which differ markedly from the trend? Focussing on outliers is a dangerous game, but at least we ought to look at them.

What does all this mean?

I was struck by the abruptness of the downturn in the British series (beginning in about 1995). You don’t often get that sort of change. For instance, many years ago I observed a quadratic rather than an abrupt change in a series, which I eventually tracked down to the 1966 wool price shock. While it was abrupt, it took time to feed through into the data  – hence the ‘quadratic’.

Conceptually, The Economist is using is an odd series because it accumulates future economic growth for each cohort. I’ve been trying to construct a model but thus far have not got one which is tractable – which throws any light on the abrupt change. It might suggest a spluttering winding down of the underlying growth rate.

What The Economist was saying is that recent cohorts have experienced lower GDP growth than earlier ones. (Yes it would have been better had they used GDP per cap.)

Observe the series is not about productivity change (which is what the secular stagnation hypothesis is about). The concern may be more about consumption – that younger generations are not getting the same growth in (public and private) consumption (assuming investment shares remain constant) as did their elders. (That also requires the assumption that generational shares are constant over time – they havnt been in the past – and something about intergenerational transfers which are too complicated to detail here.)

(A distinction which is probably not important to the Brits but critical to NZ is that the GDP measure is about production, which in constant price terms over time is not the same as effective GDP – the expenditure which production makes possible – when  there is a shift in the terms of trade (so that relatively higher export prices makes a higher level of consumption possible and the reverse). Because the NZ TOT have had a secular trend favouring NZ food exports – unlike the Prebish thesis; see my Globalisation and the Wealth of Nations for an explanation – there needs to be an allowance for a TOT effect, if you want to use The Economist measure as an indication of consumption possibilities.)

There are two further possibilities not hinted by The Economist. One is that the politics needs economic growth because there is so much volatility in the distribution of output, that zero growth means there are ‘equal’ numbers of losers and winners. A little growth reduces the number of losers and the political discontent; much growth reduces the discontented even more.  The second possibility is that GDP change has downsides as well as upsides and that one needs growth to offset the downsides. (For instance, pollution may increase with GDP and so some of the additional output needs to be set aside to deal with the pollution.) In effect GDP does not covert into wellbeing at low growth levels or high levels of affluence.

I conclude that perhaps The Economist measure is not conceptually robust enough to be of much significance. But its abrupt change in the trend requires further investigation because it says something about some important underlying processes.

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The Return of the Policy That Shall Not Be Named

This entry was posted in Business & Finance, Globalisation & Trade, Pundit on by .

Industrial policy is once more on the agenda of many governments.

There is a long history of Industrial Policies (IP) aimed at promoting a particular sector of an economy. When Henry VIII abandoned Roman Catholicism, the practice of eating fish on Fridays lapsed. The change devastated the English fishing industry. Edward VI, Henry’s son, reinstated meatless days ‘for the benefit of the commonwealth, where many be fishers, and use the trade of living’. There were many sector-promoting proposals in nineteenth-century New Zealand (such as prizes for finding gold or starting a new industry like export butter).

As the reach of the state broadened the sectoral interventions increased. By the 1970s they were at the point that no-one had the foggiest idea of their impact. A consensus began to form that they had to be rolled back.

One reason was that it was far from clear that the complicated plethora of interventions of the 1970s was doing anything to benefit the overall economy. During the Uruguay Round of trade negotiations, the New Zealand government agreed to reduce protection on strong beers in exchange for better European dairy access. The repercussions impacted badly on Hastings brewery workers even though they did not produce strong beers, Auckland steel workers who produced the beer cans, and Huntly and West Coast miners, who produced the coal to make the cans. The Taranaki and Waikato dairy sectors did well though.

A second reason was that industrial policies had to be rolled back as a part of our international trade deals. If we wanted our trade partners to grant more access to their markets, we had to reciprocate by lowering our barriers, including our industrial policies.

A third reason was that the policies often bordered on corruption. You see this in Trump’s America. A group from a particular industry contributes to funding one of his grandiose schemes – say the White House Ballroom – and shortly after, Trump implements an executive order which benefits the industry. I don’t think such instances were as widespread in New Zealand, but a complication here is that a sector often consists only of a single business, so a sector intervention frequently benefited a single business which may – or may not – have been providing political support.

By the early 1980s there was a widespread – but not unanimous – view that the government should wind back and rationalise its sectoral interventions. The Rogernomes who captured power went further than that consensus, when they eliminated as much intervention as they could.

Their extremism could be vicious. While I was director of the NZIER, I wrote a Listener column arguing that the current interventionism was excessive and needed to be wound back. (You can read it here.) It was a dangerous sentiment to go public with when Muldoon was bully Prime Minister. However, those in charge of Treasury research funding said that because of the column did not go far enough by denouncing the Muldoon policy regime, the NZIER would never get any more research funding. They kept their word. (Muldoon never retaliated.)

The Rogernomes were not alone. The conventional wisdom – the ‘Washington Consensus’ – which dominated world economic policy, was so antagonistic to IP, that key institutions suppressed the use of the term ‘industrial policy’ and repressed those who advocated it. IP was outside the Overton window – the spectrum of topics and arguments which were acceptable to those who controlled the discourse. ‘Horizontal policies’, such as tax reductions, infrastructure extension, more permissive business regulation and subsidisation of R&D growth were permitted, even if IP, which changed the sectoral composition of production, was not. (The upskilling of the workforce is a horizontal policy but it has been given little priority in English-speaking countries; I leave others to work out why.)

Not everyone adopted the Washington Consensus. East Asian governments, in particular, exercised economy-wide foresight about future sectoral growth opportunities and gave support to the sectors important for future growth. They implemented measures to promote them combined a shrewd balance of government and market drivers.

The Washington Consensus predicted that this strategy would lead to failure. However, the dissenting economies thrived, as is well illustrated by the success of the Chinese economy whose state-led ‘capitalism’ is the central factor in the deep structural change in the world economy; Chinese firms have often out-competed those in the West.

The rhetoric of the conventional wisdom in affluent economies now accepts, grudgingly, that some industry policies have a role. A recent IMF report concluded that ‘if industrial policy is pursued, it should be grounded in clear diagnostics of market failures, include mechanisms for regular evaluation and re-calibration, and be embedded in a strong institutional and macroeconomic framework. Market discipline should be encouraged through vigorous domestic and international competition.’ (It is not a very different sentiment from my Listener article, even if it was unacceptable to the Treasury neoliberals or Muldoon.)

The notion of ‘market failure’ used here is a bit naive. No market works perfectly so every market fails to meet the benchmark of the ideal. Taken superficially, the IMF argument that IP can be justified to deal with ‘market failure’ is an open invitation for a promiscuous industry policy. It is, of course, not their intention.

We can learn from the Chinese experience. They identified key future industries which, as the Western experience suggests, the market undervalued – including solar energy, electric vehicles and rare earths – and gave them assistance. (On the other hand, the Western markets have done better with computer chips – in part arising from the demands of the computer gaming industry – and AI, thus far.) The Chinese success has stimulated Western IP partly out of fear that the Western’s defence industries – and hence its military capacity – are being compromised.

A second major concern was the disruption of global supply chains suggested some – but not total – retreat from relying on international sourcing. The Washington Consensus implicitly assumed that there was an orderly world economy.  Even neoliberals have to accept increased uncertainty about exports and imports reflecting the unreliability of global trade caused by geopolitics and compounded by climate change and various shocks. This reframing of ‘Make or Buy’ decision by firms and economies, making them more open to ‘heterodox’ policies.

The last Productivity Commission report looked at the resilience of supply chains and found that countries with strong private-public institutions are best prepared to anticipate, prepare, absorb and recover from shocks; small countries with public-private ecosystems do better both in seizing new opportunities and responding to shocks. Sadly, in contrast to Denmark, Sweden, or Singapore which maintained reasonably transparent public-private institutions throughout the neoliberal era, New Zealand has lost the skills of intervening.

While we may learn from the Chinese experience, New Zealand should not naively imitate it. Size, location and resource base puts us in a niche in the world economy. Some obvious areas of our interests are value-added processing, where, despite talking about it for decades, we still underperform, and 3D manufacturing, which has the potential to reduce our isolation.

But New Zealand faces a serious implementation problem. One part of it is the lack of skills and experience needed to design the policy tools and implement them with appropriate accountability. The neoliberals, fronted by ACT, closed down the Productivity Commission, which was inching towards extending the Overton Window to include Industry Policy. Despite market intervention making a significant contribution to the historical success of the New Zealand economy and to the success of contemporary East Asian ones, there are parts of the New Zealand government which still insist on only ‘horizontal’ support measures, especially ‘less business regulation’.

A second issue is that New Zealand has no well-institutionalised coalitions between state agencies dealing with the production side of the economy and business, trade unions, universities, think-tanks engaged in the same activities. Yet such public-private coalitions are vital for formulating and implementing – and terminating – IP.

Is one surprised that the New Zealand economy has not been doing well?

Planning for the Future

This entry was posted in Environment & Resources, Governance, Pundit on by .

It is more than a four-letter word exercise.

In 1986, the government commissioned a review of science policy chaired by ex-Governor General David Beattie. Among the agencies it interviewed was the Treasury, in the course of which Beattie asked whether it had a science plan. The Assistant Secretary of the Treasury spluttered; he was clearly unwilling to use that four-letter word, at least in polite company.

The short answer was that Treasury did not have a p**n for anything. The neo-liberals thought it was unnecessary, for the market had all the answers. Indeed, Treasury was closing down as much of New Zealand’s capacity to p**n as it could. Some of what was going on was not very good, but some was world quality. Treasury’s actions were not about improving the average quality; it was eliminating p**nning as an integral part of government decision making.

Of course you can’t hand over all the p**nning to the private sector. So when the public sector had to p**n it did it in an ad hoc limited way. For instance, following a 2004 amendment of the Public Finance Act, the Treasury has been required every four years to do a long-term 40-year projection of the fiscal position. This involves projecting the long-term growth rate of the economy which is done mechanically by positing a number. No attention is paid to what will be the future composition of economic activity. It assumes that the growth will happen and that the required businesses – critically, exports – will appear. After all, the market will provide.

It will, but not always in the way that may be expected. There is no compelling theory which says the market will always provide beneficially. Suppose the New Zealand economy cannot produce enough exports to pay for the imports to sustain an adequate standard of living. The market solution is that the mobile – typically the most qualified young – will leave for places where there are more opportunities (probably Australia). The market has provided. But the immobile left behind will be even worse off.

The main conclusion of the long-term fiscal projection is not greatly affected by getting the growth rate projection wrong. The aging population puts a substantial burden on the fiscal position under any plausible growth scenario; a major migratory outflow would just make it worse. Following its 2025 projection, the Treasury has chosen to highlight the conclusion very strongly although it has been evident in every one of the six statements since the first in 2006.

From the beginning a few lone voices tried to draw the public’s attention to the looming danger, but the ostriches ignored the issue. It took even the Treasury 19 years to go public. Isn’t that typical? We do not think about the future in a comprehensive way. When the crisis arrives, we are surprised it has happened, but fail to learn the lesson that we need to think systematically about the future – to p**n.

How many times have we have to suffer crises throughout the country about our fresh, storm and waste waters before we realised that we had a nationwide problem? To what extent do we see the problem as an example of a wider weakness in our governing system (which will not be resolved by yet another redisorganisation)?

Fundamentally, successful p**nning is about the process rather than the actual final figures – all future projections will prove wrong. What is important is systematically thinking through future issues.  A good report shares that thinking, moving it – and the issues – into the public arena. (Alas many of the discussions which follow have not always been useful.)

It is with some relief that one reports of the recent release of the 2026 National Infrastructure Plan (oops, the ‘National Infrastructure P**n’) with its 30-year outlook. I initially thought this column should provide a critique of the plan – perhaps arguing it was more sizzle than sausage (platitudes rather than practicals), but I want to strike a more positive note. After all, p**nning is a reiterative process. You set it down and then realise that it is not quite right; that requires more detail, that something is overlooked. My bet is that the team which pulled it all together are already discussing their next steps (unless they are already being disbanded, which would be typical of the way we have managed such things over the last 40 years).

Instead, let me summarise some key issues. First, the report’s notion of infrastructure covers a diverse range of activities (with recent outlays as a share of GDP and an arrow indicating the direction by which the level is expected to change in the future):

Land transport (1.3% ↓)

Electricity & gas (0.8% ↑)

Water & waste (0.6% ↓)

Telecommunications (0.7% stable)

Education (1.0% ↓)

Hospitals (0.2% ↑)

Public administration & safety (0.9% ↓)

Social housing (0.3% stable)

Other public capital (0.2% stable)

Note that while most of the defined infrastructures are the responsibility of the (central and local) government, a quarter is commercially provided by the private (or quasi-private) sector. Electricity and gas and telecommunications are there because they are ‘network’ industries (as are land transport and waste) but airways and ports are a part of the transport network too.

Network industries are not simple private sector market ones, as is illustrated by the government’s involvement in the LNG terminal and the broadband rollout. Perhaps there ought to be more p**nning in the energy sector, where there is more interdependency than is being allowed for in discussions on the LNG terminal at New Plymouth, the Lake Onslow pumped-storage hydroelectricity project, and the impact of renewables and battery storage.

Second, while most of the discussion is around a central forecast, there will be shocks from natural hazards (such as earthquakes and volcanoes) and from extreme weather (increasingly, because of climate change). There is some discussion in the report, but I would expect that there will be a separate one addressing them (p**nning involves reiterations). A major issue which we are only gingerly addressing – usually by ad hoc decisions when we are not deferring them – is the amount of risk which is to be borne by the private sector and that to be borne by the public sector. (If one is in a flood-prone building who pays when it is damaged?)

The boundaries in the report’s social infrastructure are puzzling. There is social housing; why omit the far bigger private sector? Education covers primary, secondary and tertiary, why not ECE? What is the report saying about private-sector hospitals? What if we had a government which intensified the outsourcing of healthcare even more than the current one? Good p**nning has to be prepared for policy changes.

Another issue is the funding of the future infrastructure. The report divides the funding between user-charges, rates and central government taxes. It is true that any borrowing will ultimately be serviced from these revenue sources but servicing of infrastructure debt can go long into the future. The report touches on borrowing; perhaps it avoids a comprehensive discussion because that is a Treasury concern. The public avoids the issue at its peril.

The report tends to favour moving away from funding public structure with general taxation towards user-charges. I am not uncomfortable with that shift, although there are technical and political issues. Water-meters are probably inevitable. I am more sceptical of comprehensive road-user charges being implemented in the medium future. A Minister of Transport promised them in the 1990s – nothing happened. Indeed, the first time I heard the subject discussed was in the 1960s and hardly anything has happened worldwide since – a few city centres excepted.

That is the problem with policy generally. We ignore looming challenges until there is a major crisis. We then panic. That is why we need systematic comprehensive planning – even if it means swearing in public.

New Zealand First’s Economics

This entry was posted in Growth & Innovation, Pundit on by .

Shane Jones is committed to state-led economic development.

New Zealand First and ACT sit further apart on the economics spectrum than do Labour and National. On other parts of the policy spectrum the two are more aligned, but this column’s focus is primarily on economics and, particularly, the economics of NZF. I leave Christopher Luxon’s future memoir to describe the strains in the coalition government from the differences between the two partner, but he may have even found the tensions helpful. Had he only a single coalition partner – be of it of the far-right or the centre-right – his government would have been dragged towards positions with many of which it would have been uncomfortable.

At its heart, NZF is the inheritor of what can be called economic ‘Muldoonism’. (This is not to say that those who adopt it have Robert Muldoon’s personality or style.) Muldoon’s economic approach was an extreme version of the way the economy had been managed for the previous century when economic development was state led with a high degree of state intervention.

Struggling with unprecedented inflation, Muldoon intensified the use of interventions, but they were always there. Recall that the first wage-and-price freeze in the post wool-price-shock era was supervised by Jack Marshall, who would insist he was an economic liberal although he died too early to give a comprehensive view on Rogernomics; he probably would have sympathised with the market liberalisation but thought it too extreme.

Winston Peters, the only leader NZF has had, is not deeply into economics; his university training was in law, politics and history. He left little mark when he was Jim Bolger’s Treasurer from 1996 to 1998 although he was always alert to the political implications of Treasury recommendations. (In contrast, Muldoon would engage with Treasury advice – and overrule it.) Peters has been happier as Minister of Foreign Affairs. (Perhaps he has been more pro-American under a National-led Government, echoing Muldoon and supported by Judith Collins.)

Peters left the National Cabinet in 1992 and its caucus in 1993 to set up NZF, because he strongly objected to the government’s neoliberal policies – Ruthanasia and Jennicide. That resulted in vitriolic neoliberal attacks. In 2017 he said, ‘Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong. That is why we believe that capitalism must regain its responsible – its human face.’ He is no friend of the socialist left either.

Muldoon equally strongly rejected the neoliberals, but he could not find a way to respond to economic change, given the coalition of interests he depended upon. Peters, born in 1945, is a generation younger than Muldoon, born in 1921. He does not seem to have thought greatly about how to adapt Muldoon’s interventionism to the changing economy, already occurring even when Muldoon was in power.

NZF’s number two, Shane Jones, born in 1959, is almost a generation younger that Peters. He has more of an economics background including earning a Masters of Public Administration from Harvard, advising the government in near-economic areas (such as the environment and treaty settlements) and managing business in the fishing industry. Most of the portfolios he has held – fisheries, infrastructure, regional development, building and construction – have a strong economic component. (He is also currently associate minister of finance and of energy.)

There are parallels between Jones’ ‘fast track’ legislation and the 1979 National Development Act we associate with ‘think big’. While they are not the same, for we have learned much in the five decades since it was enacted, they are in the same spirit. The underlying theme of the state as actively promoting economic development goes back to Julius Vogel and even earlier.

More than anyone else since Muldoon, Jones frequently connects his interventions and subventions – especially those in the regional development portfolio – with the expectation that his party should be politically rewarded for them. Muldoon would applaud the various policies that Jones has promoted; there is no other cabinet minister whose economic policies Muldoon would applaud more (although to repeat, almost all are a progression on Muldoonism – not a replication).

Jones is not alone. Chris Bishop, sometimes canvassed as the next leader of the National Party and one of its most successful cabinet ministers, also approaches his portfolios with a state-led development bent. (Bishop and Jones are social liberals on issues where Muldoon was generally not).

So the more-than-century-old tradition of state involvement in New Zealand’s economic development continues on the right, despite the neoliberal attempt to crush it. (That it continues on the left is more understandable.) Muldoonism was fortified by ‘Rob’s Mob’ – ‘ordinary blokes’ (but there were women); blue-collar conservatives antagonistic to the elite. Their children and grandchildren have succeeded them and are the core of NZF supporters and voters.

I am tempted to draw the conclusion that the ongoing ‘Rob’s Mob’ is evidence of a widely held belief that the neoliberal strategy of leaving development to the private sector has failed. It is not a universal belief; ACT still has its supporters (although some are not unknown to break from their general principles and demand favourable treatment by the state when it is in their interests).

It is hard to identify any period of New Zealand’s history in which the withdrawal of the state from the promotion of economic development resulted in good economic performance. That is true for all the other smallish economies I have looked at. Even large economies get into state involvement – witness the US under the Biden administration, whereas President Trump’s withdrawal of state industrial support is causing difficulties which are temporarily obscured by the AI boom.

At issue then, is not whether New Zealand should have a(n explicit) state-led development strategy but what kind of strategy. My assessment is that Muldoonism had come to an end. Affluence, diversity and choice, new technologies and specialisation, the rise of the service sector, globalisation and increasingly complex supply changes, and resource depletion (including pollution and global warming) make the Vogel approach to state-led development obsolete. There has been a lot of change over the last five decades.

What to replace it with is only partially understood – but it is certainly not ‘do nothing’, nor to go back to Muldoonism. I am not sure that NZF has it right, but at the very least its economic policy means we are reminded of the challenge.

The Humanitarian Struggle

This entry was posted in History of Ideas, Methodology, Philosophy, Political Economy & History on by .

Land and Money: How Britain colonised Australasia in the long 19th century by John Lepper

2 vols, Kerr Publishing. This review was published in Newsroom on 19 February, 2026

Some decades ago, a colleague was presenting a paper on the peripheral labour force – today we call it the ‘precariat’ – to a room of economists. One economist made some penetrating observations indicating someone well-schooled in the history of ideas and able to apply them creatively to a contemporary issue.

            ‘Who is that?’

            ‘John Lepper, the new senior economist of the Bank of New Zealand; just arrived from overseas.’

Thus Lepper began his long career as a significant New Zealand economist. His latest contribution is a two-volume, book Land and Money, which provide a detailed account of the evolution of land policy and financial institutions in New Zealand and Australia (mainly New South Wales) between the 1770s and 1920s. (This follows a 2011 book, An Enquiry into the Ideology and Reality of Market and Market System which challenged the traditional view that markets and market systems are ‘natural’.)

Scholars will both value this new book with its original insights and descriptions and challenge some of its propositions. This review is directed to the general reader.

The overall thesis is summarised by Rex Fairburn:

Smith

a refugee from the Black Country

suffers the insults of the foreman

that his family may live

in the discomfort to which they are accustomed

with deductions by the Commissioner of Taxes.

…

Smith is an English immigrant.

Consider the curious fate

of the English immigrant:

his wages were taken from him

and exported to the colonies;

sated with abstinence, gorged with deprivation,

he followed them: to be confronted on arrival

with the ghost of his back wages, a load of debt;

the bond of kinship, the heritage of Empire.

             ‘One Race, One Flag’, The Dominion (1938)

The poem illustrates the theory, first set out in John Hobson’s in 1902 classic study, Imperialism, that British colonial settlement was driven by capitalist expansion. It is a vent-for-surplus theory, in which new markets for surplus capital and labour were sought in colonies of settlement. Lepper argues those settlements became colonial dependencies, while their first peoples suffered. That ‘prosperous servitude’ shaped their experience to this day, although Lepper finishes his narrative a century ago.

The issue of capital flows and their political consequences has been a major gap in our understanding of the evolution of New Zealand. There are some fragmentary contributions but they are insufficient to pull together a comprehensive account. The data base of aggregate capital flows simply does not exist.

Lepper’s book makes a major and invaluable contribution to filling the lacuna by a detailed account of the evolution of the financial system; a bank in the middle of the nineteenth century is a rather different entity from a bank today. (But we still lack the aggregate data.)

The book begins by asking why colonise Australasia? Lepper attributes it solely, or mainly, to the need to find new outlets for surplus domestic capital. Monocausal explanations in history are always dangerous. Other explanations include British fear of French imperialism, a concern to regulate British citizens who were spreading around the globe, the need to secure supplies of critical resources, a place to house the burgeoning prison population given that the US had been shut off, and humanitarian intentions towards the welfare of the first peoples.

Lepper does not go into any detail about these alternatives. He may be right that capitalist imperialism was the most important, but the others played their part in a concatenation of causes. His ‘it is difficult to accept that British colonial policy was significantly inspired by humanitarian principles’ seems excessive. The evidence indicates that when colonial secretary James Stephen was pressured by them, the British government responded sympathetically. (A little mentioned fact is that Stephen was the grandfather of Virginia Woolf.)

Lepper did not have the advantage of access to Erik Olssen’s just published The Origins of an Experimental Society: New Zealand, 1769-1860, which makes a compelling case for the significance of the humanitarian element in British colonial policy. Nor did Olssen have access to Lepper’s book.

These new books are potentially two key contributions to how historians – and eventually the public – may envisage the development of Aotearoa New Zealand, with its tensions between the humanitarian and commercial pressures which exist to this day. The Rogernomes tried to overwhelm humanitarians by adopting commercial solutions whenever they could. Despite their impressive success in setting up a new economic framework, they never totally quenched the humanitarian vision in the population, although its subsequent struggle to reverse (some of) the commercialisation has hardly been successful. Jacinda Ardern, the most humanitarian of the subsequent prime ministers tried, failed and resigned.

The pressures go back to the beginning of the European governing of the country. Daniel Pollen, who was at the signing of Te Tiriti and a Premier in 1875 and 1876, told the Legislative Council in 1863 that ‘I was present when the Treaty of Waitangi was proposed and an attentive listener to all that passed. I heard Her Majesty’s representatives arguing, explaining, promising to the natives, pledging the faith of the Queen and of the British people to the due observance of it, giving upon the honour of an English gentleman the broadest interpretation of the words in which the Treaty was couched.’ He went on to say that the good intentions disappeared shortly after it was signed.

In fact the commercialisation pressures were by people who never signed up to the humanitarian ambitions and were pursuing business interests which required their ownership of land. That meant the transfer of the possession of land from the M ori form of ownership (allodial – the Anglo-Saxon arrangement in which there was no authority above the ‘owner’) to the English common law form, in which ownership of land is based on William the Conqueror’s feudal doctrine that the sovereign was the absolute owner of all land; others’ rights came from the Crown. Land was no longer to be a taonga; it was a balance sheet asset.

The notion of land as a taonga continues to haunt even the Pakeha. It is the spirit which underpins the Overseas Investment Act, which restricts overseas ownership of New Zealand land although commercial pressures mean there are numerous exceptions. M ori agencies – corporates, trusts and the like – hold land on the basis they will never dispose of it but the value of their land is included in their financial balance sheets, which assumes that potentially the land can be sold. (Treaty settlements pay a lot of attention to iwi acquiring rangatiratanga of the land in their rohe.)

Not all humanitarians were sensitive to the difference. They reconciled it with a belief that the best future for Mâori was to join the capitalist market economy – to become brown (Christian) Brits. Believing the transformation was progressive, they were often oblivious to its impact on Māori.

Lepper, who gives a lot of welcome attention to the law as it relates to the financial sector which depends heavily on property ownership, details much of this story of land alienation, especially the Native Land Acts of the 1850s and 1860s, which privatised and commercialised the ownership of land, memories of events too often overshadowed by the macho excitement of the New Zealand Wars and the resulting confiscations.

Woody Guthrie sang ‘some rob you with a six gun; some with a fountain pen’. Perhaps we do not give enough attention to the fountain pen; law is tedious. The lands legislation may well have been more destructive to the integrity of M ori society than warfare. The defeated were still able to function as a community, albeit with less land but with a grievance that added to their solidarity. The settlement acts divided M ori within and between hapu, alienating much land by voluntary sales but also to pay for the consequential litigation.

Lepper traces this process (but not quite in the way an anthropologist might). The implication is that it was not only capitalist greed which was destructive to M oridom. The intentions of the humanitarians were not always sensitive to the particularities of M ori society. Not only did the missionaries override M ori religion. They could be as casual about M ori culture generally, where they were equally convinced of the superiority of British practices. (Another destructive force which is frequently underplayed is demographics. They are not in Lepper’s remit, but European diseases killed an immunologically virgin population more than warfare did, as well as markedly reducing M ori fertility.)

The book marches towards a conclusion that the transfer of land to settlers, the establishment of financial institutions and the dependence on overseas capital led to ‘prosperous servitude’ – an affluent neo-colony. Despite his book being about commercial pressures, the underlying Lepper vision is humanitarian. He challenges our colonial creation myth for

            – ignoring the degree to which first peoples were marginalised;

            – ignoring the contribution of women;

            – simplifying the role of land;

            – paying insufficient attention to ‘massive government borrowing’;

            – proclaiming an egalitarian society with little attempt to describe or account for its many inequalities;

            – paying no account to the changing international political economy.

Land and Money does not set out the alternatives which its analysis might suggest. Its purpose is to set economic history foundations for others to think through the consequences.

Tariffs as Weapons of Warfare

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How successful are Trump’s measures at making America great again?

War is destructive. It destroys lives, it destroys loved ones and it destroys economies. The victors’ economies suffer because a conquest is not as valuable as the rhetoric portrays and any gains go to only a select few. Even countries which are not invaded suffer because of the sacrifices they make. Those sacrifices may include lives but there are also economic ones. The GDP of a war economy typically rises as all underutilised resources are commandeered but because of the diversion of production into warfare activities – much production simply gets blown up – private consumption does not rise and usually falls.

Donald Trump is not a fan of guns-blazing warfare perhaps because, like many of his generation, he was appalled by the body-bags returning from Vietnam. As commander of the biggest military force in the world, he is happy to use its might to pursue his MAGA ends providing it does not result in too many American deaths. That limits his ability to invade with troops on the ground.

He even seems keen to attack those who thought they were the US’s allies and friends, prosecuting his warfare by other means such as tariffs. But it is still warfare, which means there are economic costs and, as we shall see, many of those costs are borne domestically. While Americans may be largely avoiding body-bags under Trump, they are sacrificing wellbeing.

Trump argues that the cost of a US tariff – a charge on its imports – will be paid by exporters. Both theory and evidence conclude that is not entirely true.

To illustrate, suppose New Zealand were to slap a 50 percent tariff on US exports to it (just kidding). The US exporters would pay the tariff when their product crossed the border. Trump’s NZ equivalent would point to the government revenue it generated. However, the exporter would typically pass the additional cost onto the consumer who would be indirectly paying the tariff; the tariff is an indirect tax levied on things local consumers buy.

There are numerous complications. First, the US exporters may reroute their product through Australia, say, thereby avoiding the tariff. It is not always easy to prevent that subterfuge.

Second, consumers might turn to sourcing the product, say an EV, from elsewhere, say, China. Presumably, the alternative source is more expensive so consumers end up paying more, but there is no additional government revenue.

Exporters dislike such favouring of other suppliers for it cuts into their markets. Hence the grumbling at Trump setting different tariff rates for different countries, especially as the settings seem arbitrary. (By April the US Supreme Court may, or may not, have ruled Trump’s tariff regime as illegal. He seems to be imposing taxes without legitimate authority; the last time that happened in the US, it caused a revolution.)

The third major complication is that consumers may turn to purchasing alternative products. Those products may be made locally or sourced from elsewhere. Consumers would be worse off because they would prefer what they could buy before the tariff was imposed.

The above analysis also applies to US tariffs. The quantitative balance of these effects is not predicted by the theory. It has to be measured. The effective tariff rate on US imports has risen from 2.5 percent to about 13 percent, lower than what Trump announces because of numerous exemptions from his nominal rates. (These estimates do not include the impact of the quotas which many New Zealand food exports face.) A couple of research studies using different methods, both concluded that at least 90 percent of the tariff is paid by US importers and consumer. (Here and here.) The burden of the tariff war is being carried mainly by American consumers.

The burden of the tariffs appears as higher prices. Paul Krugman provides three guesstimates from three independent data sets. All three agree that US prices have risen by about 0.8 percentage points from the Trump tariff regime introduced last April (and repeatedly modified since).

You may think that a 0.8 percent price lift is not significant. But suppose our Minister of Finance was advised that the price level was actually 0.8 percent lower than we thought. She – any MoF – would make sure that the news was on the front pages and batter us right through to the election with the statistic, going on that a median-wage worker would have an extra $9 a week or so in the hand.

(She would expect the RBNZ to reduce interest rates because of lower inflation. But strictly the rise/fall is for one year only. Economists are cautious about what the figure would say about future inflation but note that it may affect inflationary expectations.)

Distancing ourselves, we can take Trump’s tariff policy as an experiment with outcomes yet to be fully worked through. In the interim we can assess it against his predictions. Recall his ‘April 2, 2025, will forever be remembered as the day American industry was reborn, the day America’s destiny was reclaimed and the day that we began to make America wealthy again.’

It has increased the US government’s revenue but by much less than Trump promised. It makes a small contribution to reducing the fiscal deficit which his ‘Big Beautiful Bill’ is generating, by increasing indirect taxes on ordinary Americans to fund major income tax reductions which benefit the rich. (The macroeconomic effects of the BBB are yet to come through; generally economists expect them to be inflationary and to undermine the integrity of the US monetary system. They expect it will result in higher nominal interest rates, another way in which many ordinary Americans will be paying for the tax cuts which benefit the rich.)

Trump promised more manufacturing jobs. There has been a long-term decline in the US with some stabilisation in numbers in recent years. However, since Trump’s ‘Liberation Day’ tariff package, the decline seems to have recommenced.

Is Trump making America great again? It seems likely that the tariff and other measures Trump has taken has diminished America’s long-term (already diminishing) authority in the world, as countries turn away from the US. As well as being costly to Americans, the economic warfare is failing.

But at least there are no body-bags.

Sizzles and Sausages

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There are politicians who are more than a comms team.

Prime Minister Geoffrey Palmer was not doing well in 1990, so he announced his government would halve unemployment. That would have been an impressive achievement – then the unemployment rate was about 5 percent – so much so, it gave the government a temporary boost in the polls. Economists, curious as to how the government intended to do this, requested the background papers. There were none. As best as we could judge, the PM’s comms team, desperate to improve the government’s image, invented the promise but had no idea how to implement it. That was a task to be handed over to someone else.

Politicians’ promises which sizzle without sausages have continued ever since. (And, no doubt before; the 1990 one was so spectacular it wipes the memory of before.) Today, there is, however, a paradox. Discussing the issue with my Labour-aligned friends, they ask me whether I meant Labour’s leader, Chris Hipkins; among my National-aligned friends they assume I am referring to Christopher Luxon. Oh ye of little faith. I am referring to the entire political scene.

Yes, some of the parties have made promises which could be effectively implemented. (I was discussing a capital gains tax, which Labour is now promising, in the 1970s; in 1990 I suggested to a National Party conference they should pay more attention to household saving, and at last they are thinking about it. One is not overwhelmed by the rate of genuine policy innovation.)

But politicians’ comms teams – which manage their images – are dominating the political space. Think of the cabinet ministers in the Key-English and Ardern-Hipkins Government who seemed important at the time but left little achievement behind them. Can’t remember them? Exactly.

Currently the New Zealand political theatre is a contest of one side which makes promises which never seem to be implemented (or if so, extremely ineffectively and very slowly) and which are criticised by the other side which does not offer an effective alternative. Even the supporters of each side seem to be getting impatient.

To be more positive, just sometimes a politician offers a bit of sausage which is a pleasure to report, even if one’s sausage taste is different.

Thus it is with Craig Renney’s booklet The Good Economy. Grant Robertson describes Renney as a ‘gifted economist’ an assessment with which his profession would agree. (He went on, ‘and a rare breed, a left-wing one’, which tells you how out of touch Robertson was; I could give him a list – I could also give a list of competent right-wing economists were he that way inclined.) As well as working for Robertson, Renney has worked for Treasury, MBIE and the RBNZ. He is currently director of policy at the NZCTU. (His background includes his father losing his job following a Northumbrian mine closure, a redundancy tough on his family. Renney has been here since 2012.)

I described Renney also as a politician. He is vice-chair of Labour’s Policy Council and is a Labour candidate in this year’s election with a good prospect of winning either an electorate seat or list one. His booklet deserves to be taken seriously. It may be very influential on the next Labour Government even if it is not (yet?) current Labour policy.

The booklet includes chapters on ‘political polarisation, inequality and instability’, the ‘role of the state’ and ‘the rise of the dual-income and the working mother’, so it presents an analytic foundation. Renney brings his themes together in the final chapter with four key recommendations:

            – an Inflation and Incomes Act;

            – a Decent Work Act;

            – a Ministry of Green Works;

            – a new fiscal approach: a national investment bank, a state-owned default KiwiSaver scheme and a capital gains tax.

Each is elaborated. They included an extended version of the Social Unemployment Insurance scheme which Hipkins dumped in his policy bonfire of early 2023.

It is a coherent program which deserves consideration. One’s natural inclination is to write a Treasury critique of the proposals, for they will not all be as practical or as effective as hoped. Even Renney writes, ‘these policies might seem aspirational and perhaps radical – particularly in their terms of a more active state’. He goes on, ‘none of them would be considered unusual in many countries we compare ourselves with’. Perhaps, but many compare us with only a very narrow group of countries, excluding the European social democracies which Renney has in mind. (To interpolate; what is intriguing is that those economies, typically members or associates of the European Union, have been able to maintain extensive welfare states despite being very open economies. I do not deny that they are under strain, but there is no economy in today’s world which is not under strain; if there was it would not have to employ economists and would soon do things which put it under economic strain.)

As I have indicated, you may not personally like the taste of this sausage. (I favour a more active state but, frankly, I am not sure we have the capacity in the public service to deliver it, given the way we have been damaging its ability to function effectively.) But at least it is nutritious enough to chew upon. Better that than the expectation that we will be invited to a 2026 election barbecue and you turn up to it sizzling away but nothing on the grill. Perhaps they want you to bring your own sausages.

I wanted to illustrate the column with a picture of Renney at a barbecue, but he has no comms team to supply one.

Review of ‘Anything Could Happen’ by Grant Robertson

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New Zealand International Review January/February 2026 Volume 51 Number

It is common to say that Arnold Nordmeyer is the greatest Labour prime-minister-who-never-was. His failure was a matter of timing. The misfortune for Grant Robertson, who challenges Nordmeyer for the title, was that he was gay. Three decades after homosexuality was decriminalised, a gay candidate for the premiership was still considered unelectable. Otherwise, Robertson could have been prime minister in 2017 or even 2014.

As his autobiography details, he struggled with being gay in his adolescent years – about the time of decriminalisation – and there are occasional references to later nasty incidents. But Robertson portrays his orientation as a comfortable fact, not a burden – not until the two times he stood for the Labour Party leadership. (Jacinda Ardern tells a parallel story in her biography, except one is left with the impression that being a young woman was a much more dogging experience.)

I do not recall any popular concern about his orientation when Robertson became Deputy Prime Minister in 2020 after Labour’s 2017-20 coalition partner, NZF, failed to win any seats. The position is not as significant in New Zealand as the title sounds and the commentariat portrays. There was no designated DPM in New Zealand before Keith Holyoake was so appointed in 1954. A position rather than a power it is not quite down to Lyndon Johnson’s description of vice president – ‘a bucket of warm piss’ –it involves minding the fort while the Prime Minister is away but so does the minister on Christmas duty.

Typically the Minister of Finance is number two in the cabinet, wherever they are ranked. The power comes from significant policy decisions having a financial dimension. In effect, there is often co-leadership of government; a PM of politics and a MoF of policy.

Robertson was MoF for six years from 2017 to 2023. (He held some other portfolios including, for two weeks after the 2023 election, Foreign Affairs when his predecessor failed to be re-elected. He had been a junior diplomat in New York, where his head of mission, Michael Powles, told him he was too political for a diplomatic career.)

Robertson was not well prepared for the finance job, judged by comparison with his predecessors – Michael Cullen, Bill English and Stephen Joyce. He had no academic training in the relevant disciplines, had no previous cabinet experience and had been appointed to the opposition finance portfolio less than three years before he became MoF. Moreover, the Treasury advising him was not as strong an institution as it had been. His personal economic advisers – each for three years – Craig Renney and Toby Moore are very good economists but they hardly offset the Treasury’s weaknesses.

Robertson’s biography is not very strong on his political philosophy. It is a pity that it did not crib from his maiden speech which portrays him as coming from a traditional Labour background with its ‘progressive’ commitment to social justice and equality.

The biography is more informative on his origins as a political activist in student politics and later as an adviser in the Clark-Cullen Labour Government. He presents himself as a bit of a political thug. ‘The rule of thumb for other offices was that if I arrived in their office something bad was brewing; if Heather [Simpson] arrived, something bad had happened; and if Helen [Clark] arrived, it was to say goodbye.’ He was H3, to H2 and H1.

There is no sense that Robertson was a policy wonk in the way that Michael Cullen, say, was. There is an odd example which he does not tell. (It is written up more fully in my In Open Seas.) Robertson reports, with pride, his involvement in the separation of Archives New Zealand from the Department of Internal Affairs in 2002. The Key-English Government reversed the change in 2011 for no obvious reasons. In 2017, Labour was elected with barely any policy – Opposition parties prefer plotting over policy. One well-formulated policy was to return Archives New Zealand to its 2002 independent status and strengthen it. The DIA resisted, outmanoeuvring their ministers, using tactics which were not entirely honourable. Robertson was one of those ministers, leaving the puzzle of how the government’s policy chief was so thoroughly castled by a department.

The lack of policy direction haunted the Ardern-Hipkins Labour Government. In opposition, Labour had more staff running its social media than policy advisers. In government it set up advisory committees which were largely about being more generous or dealing with anomalies. Robertson’s lists many such improvements; fair enough, but consolidating rather than transformative.

The biography covers a couple of initiatives which meet a progressive criterion. His social unemployment insurance scheme offered a path towards a major extension of the welfare state including the extension of the ACC scheme to sickness beneficiaries. Robertson says he reluctantly agreed to its jettisoning by prime minister Chris Hipkins in the policy bonfire of March 2023. Had its development been just slowed down, it could have been presented as Labour being progressive. Hipkins seems to have canned the policy because it was a de facto tax increase, continuing Ardern’s banning of all new taxes. Robertson spent six years trying to increase revenue to fund social spending while subject to this headlock.

His other major initiative was focussing on ‘wellbeing’ as a public-policy objective instead of personal real incomes. Robertson promises to write a book on the topic, so I shall be brief here. Robertson’s shift to focusing on wellbeing reflects that while once income may have been a reasonable proxy for wellbeing, with increased affluence and new technologies, income measures such as GDP are no longer adequate.  It was very much a top-down exercise – as was much of the Ardern-Hipkins changes – with no attempt was made to establish institutions outside government to support and develop the notion. The Luxon-led Coalition easily repealed it.

We need to linger on this. Economic, social and technological change mean that the paradigms which we use to understand and regulate society are continually becoming obsolete and having to be modernised. That task was the traditional role of the liberal left, with the liberal right then consolidating the change. Today, as the Ardern-Hipkins Government illustrated, the dominant left has been consolidating, lacking a traditional leftish analysis of social change. There was no encouragement of their listening to those who thinking about the future.

That is why Robertson’s government looks so conservative and why it has been reasonably easy for the successor government to repeal so much of what it did. In comparison, Walter Nash, Roger Douglas and Michael Cullen all gave New Zealand a new direction. Robertson will not join that pantheon. His natural mode seems to be more a political problem solver rather than a policy leader.

He says that following his running a close second in Labour’s 2014 leadership contest, he decided not to seek the job again. (He had not the power ambitions of a Muldoon.) When Ardern resigned the job was offered to him. By now Belgium, Iceland and Ireland had had gay premiers. He declined, in part because he had a serious back problem – an old rugby injury. Robertson had been a keen rugby player – it is how he met his partner. His favourite portfolio was Minister of Sport where he prioritised the promotion of women’s sport. So much for stereotypes.

Where is the World Going?

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Canadian Prime Minister Mark Carney outlines an architecture

For some decades the United States of America domination of the world has been falling. This is most obvious in economic terms. The US is no longer the world’s largest economy. It is easy to say that China is because of it has larger a population but caution in the comparison is necessary. Comparing GDP per hours worked, the US is seventh behind Belgium, Denmark, Ireland, Luxembourg, Norway and Switzerland. Americans have a higher per-capita GDP because they work more hours or, put the other way around, many Europeans use their affluence for leisure.*

But it is not only economics. Think of how many international organisations are now being undermined by the US because it can no longer get its way in them. While the US has done some generous and noble things over the last 85-odd years, its self-interest was always there. These days its actions are more likely to demonstrate self-interest without much generosity or nobility.

It is true that the US remains the world’s largest military power, but its loss of economic superiority is making that hard to sustain. Donald Trump implicitly admitted it when he demanded Europe increase its military spending, acknowledging that the US can no longer share the burden in the way it once did. As this column is written, an American carrier task force has steamed from the West Pacific to the Middle East in order to threaten Iran. Does that not mean that the US can no longer sustain contemporary operations in the two theatres? (As if to answer, the US has just announced it will be stationing fewer troops in Japan and South Korea.) The US once had 17 military bases in Greenland; today it has one.

The US dollar still dominates the international financial system, but yet again its role is diminishing. Its share of the currency reserves of the world’s central banks is falling, while the euro share is rising. The withdrawal from investing financially in the US may be accelerating. Most switchers emphasise that they are worrying more about the burgeoning US budget deficit – a sign of fiscal weakness – than politics.

The expectation in the past was this decline of US dominance would be steady but slow. China’s rising significance would be offset by India – with its population growth and greater productivity gains – becoming globally more important, while the EU would slowly – oh so slowly – get more coherence in its governance.

The expectation was that the rule of law would continue to underpin the world order. Trump has repeatedly and unashamedly flouted that framework, instead pursuing ‘might is right’ while overlooking that the US is no longer as mighty as it once was. Arguably, its current apparent strength comes from everyone else being unprepared for such erratic aggression.

It was not Trump’s intention to accelerate the US decline. Its consequence has been that China’s significance has been increasing more rapidly than expected. The authority of the EU and Indian offsets have not grown as quickly. The lack of coherence in the US strategy is illustrated by Trump imposing higher tariffs on India than on China, so India is trying to reset its fraught relations with China. The guests of honour at the 2026 Indian national day were from the EU.

It is difficult to predict the future world. Economists struggle to explain the workings of a market with four major players; markets do not have the added complication of politics and the military. However, the immediate new scenario is a duopoly of China and the US. Duopolies are easier, but still difficult, to analyse. How will the rest of the world respond, mindful of ‘whether elephants make love or war the grass gets crushed’.

Groups of countries are beginning to organise themselves. That was a popular interpretation of the outcome of the Davos World Economic Forum. Trump went a step too far over Greenland and the Europeans (and the US bond market) resisted. Taco Trump retreated. (Taco: Trump always chickens out.)

I am not going to predict the next political steps, especially as they depend on an erratic Trump. But we can try to think what the new architecture might eventually look like.

The Davos speech by Canadian Prime Minister Mark Carney, who has been the governor of both the Canadian and British central banks, was widely acclaimed for setting out the architecture issue. His critical point was that ‘nostalgia is not a strategy’.

Carney told a story by Czech dissident Václav Havel. A greengrocer has a sign in his window: ‘Workers of the world, unite!’ He does not believe it. No one believes it. But he places the sign anyway – to avoid trouble, to signal compliance, to get along. And because every shopkeeper on every street does the same, the system persists. Havel called this ‘living within a lie’. The system’s power comes not from its truth but from everyone’s willingness to perform as if it were true. And its fragility comes from the same source: when even one person stops performing – when the greengrocer removes his sign – the illusion begins to crack.

Carney argued that it was:

 ‘time for companies and countries to take their signs down. For decades, countries like Canada prospered under what we called the rules-based international order. We joined its institutions, praised its principles, and benefited from its predictability. We could pursue values-based foreign policies under its protection. We knew the story of the international rules-based order was partially false. That the strongest would exempt themselves when convenient. That trade rules were enforced asymmetrically. And that international law applied with varying rigour depending on the identity of the accused or the victim. This fiction was useful, and American hegemony, in particular, helped provide public goods: open sea lanes, a stable financial system, collective security, and support for frameworks for resolving disputes. So, we placed the sign in the window. We participated in the rituals. And largely avoided calling out the gaps between rhetoric and reality. This bargain no longer works. Let me be direct: we are in the midst of a rupture, not a transition.’

Trump was infuriated. He immediately revoked the invitation to Canada to join his Gaza ‘Board of Peace’, which is probably not of great significance to anyone other than Trump’s acolytes (a cruder writer might call them ‘bum-lickers’). Then he threatened to raise tariffs on Canadian products not covered by their free trade agreement (to be renegotiated this year) by 100 percentage points (effectively prohibiting Canadian exports to the US in those products) using the excuse of the Canada-China deal which he had earlier praised. The fury is understandable, given that geopolitically Canada and the US have been close – closer than even Australia and New Zealand. The prohibitory tariffs would just as brutally penalise US consumers as Canadian producers so, like as not, TACO will trump Trump.

That does not point to the new international architecture. Getting to it may be a bit like getting agreement from a herd of (frightened) cats. Carney listed the steps Canada is taking:

            – doubling defence spending by 2030;

            – diversifying abroad;

            – pursuing variable geometry with different coalitions for different issues, based on values and interests. (On Ukraine, Canada is a core member of the Coalition of the Willing; on Arctic sovereignty, it stands firmly with Greenland and Denmark.)

            – an ‘unwavering’ commitment to Article 5 of the NATO treaty agreement that an armed attack against one member is an attack against all;

            – forming a buyer’s clubs for critical minerals;

            – cooperating with like-minded democracies to ensure that AI does not force Canada to choose between ‘hegemons and hyperscalers’;

            – championing efforts to build a bridge between the Trans-Pacific Partnership and the European Union, creating a new trading block of 1.5 billion people.

New Zealand may take a small bow at his CPTPP-EU proposal. While it kept the required sign in its shop window, it has long been aware of how vulnerable it is given its size – Canada’s economy is about twelve times larger than New Zealand’s) – and position – David Lange famously described it as ‘a dagger pointed at the heart of Antarctica’.

So while supporting the rules-based world order as it appeared (keeping the notice in the window), New Zealand has pursued a backup policy of ‘open plurilateralism’ in economic relations. The noun is an alternative to ‘multilateralism’ (all countries) and ‘regionalism’ (New Zealand is hardly in any economic region). ‘Open’ is the notion that each deal is designed to enable others to join, as illustrated by Britain recently joining the CPTPP.

The CPTTP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) is perhaps New Zealand’s greatest contribution to this strategy (despite the US not finally joining). Success has many fathers but New Zealand was there and driving at the beginning. I recall my scepticism when Brunei, Chile, New Zealand and Singapore signed the first Trans-Pacific Strategic Economic Partnership Agreement in 2005. (What were these geographically diverse pipsqueaks doing?) It has evolved into a 12-member multilateral trade agreement covering more than14 percent of the global economy.

What Carney has in mind is not clear. Many CPTPP members already have free trade agreements with the EU. The economic barriers can be reduced (but don’t expect significant gains in dairy trade). What at this stage is critical is that New Zealand will be at the same table as 38 other countries which cover around 28 percent of the global economy. Add in some EU associates and it will be a kind of UN of mainly developed economies; the US will not be there.

Where this leads is uncertain. But as the (American) folk song says ‘step, by step the longest march can be won’.

* There are other European nations with hourly productivity close to that of the US. The EU economy is almost as big as the US economy, but it has a bigger population.

Central Bankers Club Trump

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Why we want the Reserve Bank to operate independently.

Minister of Foreign Affairs Winston Peters was wrong to criticise Governor of the Reserve Bank of New Zealand, Anna Breman, for cosigning a statement with 14 other heads of other central banks (plus two from the Bank of International Settlement). The statement expressed support for the principle of independence of central banks and solidarity with the Federal Reserve System and its Chair Jerome Powell.

The statement was

‘We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell. The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve. It is therefore critical to preserve that independence, with full respect for the rule of law and democratic accountability. Chair Powell has served with integrity, focused on his mandate and an unwavering commitment to the public interest. To us, he is a respected colleague who is held in the highest regard by all who have worked with him.’  

Peters said that the RBNZ ‘has no role, nor should it involve itself, in US domestic politics’ and urged Breman to ‘stay in her New Zealand lane’ and focus on domestic monetary policy. He cannot have been fully aware that the heads of central banks belong to one of the most exclusive clubs in the world. Like many such clubs, most of the time it is about conviviality, gossip and respect, but during an international monetary crisis it really matters.

During the Global Financial Crisis there was a threat of international liquidity becoming totally jammed which would have meant exports, imports and international debts could not have been paid, and then, well who knows … The club dealt with the threat by currency swaps which, in our case, enabled the central banks to exchange NZ dollars and US dollars, giving us the liquidity we required (although, as it happened, we did not have to use the facility). The personal knowledge and respect generated by the club meant the deals were done efficiently and quickly (‘instantaneously’ compared to most international negotiations). Those swaps unwound the potential monetary catastrophe.

So the statement was only tangentially about American domestic politics. It was about the international monetary system. Any domestic policy side was because the US dollar remains at the centre of both. Mind you, Trump seems to confuse the two. If there was a ‘domestic’ purpose of the statement, it was each governor signalling to their government not to get politically involved in operating a central bank (although Peters failed to get this point).

Breman is probably the newest member of the club; previously she would have been, as the First Deputy Governor of the central bank of Sweden, an associate member. By signing the statement, she affirmed her membership. (Peters would have had a justified gripe, had she unilaterally made the statement. There also seems to be an issue about when she advised her Minister of Finance of the signing; the ‘no surprises convention’ is so ministers are prepared when journalists raise a matter with them.)

It was not just a political decision. Breman personally and profoundly believes in the necessity of central bank independence. As do almost all New Zealand economists who recall the Muldoon years. The then Prime Minister and Minister of Finance, Rob Muldoon, had a practice of telephoning the Governor of the Reserve Bank (as well as the chief executives of the commercial banks) directing them as to what their interest rate settings should be.

A political dimension is very disruptive to money markets, which have to make complicated decisions about the future. Such uncertainty leads to higher interest rates which really reflect the poorer efficiency of the resulting monetary system.

That is why in the 1980s, after Muldoon lost power, the Reserve Bank of New Zealand was given statutory operational independence. Nowadays, the government sets its objectives and leaves the operational pursuit of those objectives to the Bank’s expertise and judgement. The government may only communicate its requirements in writing which is tabled in Parliament. (Such is the statutory rigour that Ruth Richardson relates in her memoir that when she was Minister of Finance, she got a legal opinion as to whether she could dine with Governor Don Brash – they were old friends; he was appointed to the position before she became minister.)

Other central banks will have slightly different arrangements to ensure their independence.  (The American Federal Reserve Board, for instance, has a majority of members not appointed by the President.) One can support the principle of an operationally independent central bank without agreeing to the objectives it has been given or to the judgments it makes applying them. (Because these are technical issues, politicians tend to be more personal in their criticisms.)

The point is that politicians – including Muldoon and Trump – are not competent to make those judgements, any more than they are competent to fly a plane. It is you, the passenger, who target your destination by your choice of plane; the pilot operates gets you there. (Coupling Muldoon and Trump does not mean they behave similarly, although both have a penchant for interest rate controls. Muldoon’s directions were for short-term electoral gain, never for personal aggrandisement.)

Once it was claimed that the Reserve Bank Governor was the most powerful man (as he was in those days) in New Zealand, confusing the destination and the piloting. The nonsense ended when Governor Brash stepped down to go into Parliament with the ambition to be prime minister.

I suppose Peters made his criticism partly because he thinks he has to keep reminding us that he is in charge of foreign affairs (although he is subject to collective Cabinet decisions). Additionally, Peters – and everyone else – is anxious that New Zealand does not to come to Trump’s attention; keeping a low profile helps. That is a sensible judgment given that Trump bullies everyone and the smaller you are the easier it is to bully. However, Breman was low on the list of signatories. (That may reflect her assenting at 3am, presumably a little sluggishly.) Given Trump’s notorious lack of focus, he would have given up reading the statement before he got to her name. He is probably much more concerned with the criticism of the chief executive of JP Morgan whose line was similar to the central bankers’ statement. Clinton adviser James Cargill, said that if there was reincarnation, he wanted to ‘come back as the Bond Market. You can intimidate everybody.’

Addendum. Since the column was posted, Breman has apologised to Peters. I have only seen one news report but not the official statement, so I am unable to assess it. In any case, I stand by the column’s conclusions.
Peters may have inadvertently raised New Zealand’s profile in the Trump administration. It is quite possible that had he said nothing, Breman’s cosigning would have been unnoticed. However, the US embassy would be duty bound to report the interaction to Washington. Not that Trump would notice this either.
About the same time Peters praised the United States for withdrawing from the World Health Organisation, questioning whether it is worth New Zealand’s continuing to support it. This may be NZF policy or be Peters trying to show support of Trump. Hopefully he will be pressed on the matter.
Brian.

Trading with India

This entry was posted in Globalisation & Trade, Pundit on by .


Free trade deals can be complicated; so is their analysis.

We must celebrate the achievement of a Free Trade Agreement with India, but only the uninformed attribute its success solely to the current Prime Minister, Christopher Luxon, and to Todd McClay, the trade minister. The negotiations took a couple of decades involving many more politicians. Even less recognised – and more crucial – have been the diplomats who have been slugging it out over the years dealing with intricate details, spending their lives flying between the countries and in anonymous hotels. Salute to them too.

With a population smaller than even a middle-sized Indian City, New Zealand was never going to be in the forefront of candidates for India’s trade deals. Australia’s FTA came into force more than three years ago, and many larger countries have already settled too. We were not high on India’s list partly because we are tiny, partly because we have not had a lot to offer in exchange. That is why a major concession by New Zealand has been better visa access for Indian workers.

(When the neoliberals abandoned tariffs in the 1980s and 1990s, they gave up what could be traded in international trade deals. They thought there would be significant gains from the abandonment. There wasn’t. They expected other countries to see the benefits and follow suit. They didn’t. Their response has been likened to someone stripping naked, saying ‘follow me’. Everyone looks at the sight and puts on another jumper – in the case of Trump, full armour.)

One of the things holding up our deal was, as in the case of others we have negotiated, an unwillingness to give concessions to our dairy industry. We reluctantly gave up insisting on the inclusion of dairy (there are some very small concessions).

There is a view that this obduracy by India reflects the significance of cows in Hindu culture. The economic analysis is more insightful, relying on a more subtle interpretation of the ‘gains from trade’ analysis than the ideologists allow. The static theory shows that the elimination of protection increases effective output. That only results in an unequivocal increase in welfare if the losers are compensated by the winners.

Often the static gains from a trade deal are so small and the costs of the transfers to compensate losers are so expensive that the compensation does not happen except that the changes may be phased in, giving the losers time to adjust. But where the losers are numerous or politically powerful, their interests may block a deal.

Around 650m Indians depend on agriculture – that is more than there than the entire populations of any other country – China excepted. (India has an estimated 75 to 80 million dairy farms, which are predominantly small-scale, family-owned operations, typically with two to five cows or buffaloes.)

Well over 500m of rural dwellers suffer economic distress. India has no easy means of compensating them if its food sector was opened to international competition. Hence its reluctance to negotiate trade deals which compromise its farmers, even if the urban population would benefit – as it would have, had they access to high-quality, cheaper, dairy products.

The static economic analysis tells only a part of the whole story. There are two bigger benefits from trade deals. The first is international diversification. Currently, we are overly dependent on the Chinese market. We learned the lesson many years ago when we were overly dependent upon the British market. That went well when Britain boomed but when it suffered, the New Zealand economy suffered with it. We also found that economic dependency intensified political dependency. (China’s share of our exports is about half what was Britain’s share in the 1960s, when our dependence on it began to collapse – it had been even higher.)

Over the last twelve months, Trump has demonstrated that the world has been too dependent on the US. For some reason – the analysis of which defeats rationality – he has been been pushing everyone – New Zealand included – into China’s arms. India – the fourth largest economy in the world after China, the US and the EU – has become more responsive to trade deals as a part of this changing political economy. We, and many others, have been happy to take up the opportunity.

India is also keen to open its economy as a part of a modernisation. India focused on self-sufficiency when it gained independence. It is an easier strategy for such a large economy, but it failed to lift its productivity in the way that China lifted its performance, following Deng Xiaoping’s opening it to the global economy four decades ago.

The modernisation process depends on the circumstances of the economy, but underlying it there is the second reason for trade deals. Businesses in an open economy are under pressure to perform better because of competition from other international businesses; meanwhile, they are also given opportunities to perform better. (The reality means that poorly performing businesses wither.) These are the dynamic gains from a trade deal which, in the long run, are far more important than any static gains.

There will be resistance to the Indian FTA (as there is to every trade deal). As the economic analysis says, some will be made worse off. Others may object to the type of economic growth it will generate (for instance, it may put extra pressure on the environment) but that is really a matter of how we handle economic growth, not especially about an open economy.

The third doubt is that the open economy means a loss of sovereignty. All trade and exchange involves some loss of independence. You have less personal sovereignty if you get your veges from the supermarket. There is, however, a paradox in that an FTA which passes some sovereignty to India reduces the power of other economies, such as China and the US, over us.

The main leader of the resistance is likely to be Winston Peters. One is not sure how really serious he is. Is he merely trying to gather the grumblers under the New Zealand First umbrella? (One can think of instances where he did little in office to support the grumblers who voted for NZF.) Would he veto the deal if he could? Peters is widely optimistic if he thinks that he could take the current proposed FTA back to the Indians and make a significant change to it (without their extracting more concessions in return).

Labour is likely to support the deal when it comes before Parliament (although the other leftish parties will not). That is a consequence of the other, often ignored, side of negotiating a trade deal. There is always a considerable effort by the officials and the politicians to discuss the issue with domestic pressure groups and the Opposition. Labour has already probably indicated that it will support the deal while, of course, saying that had they been the government they would have negotiated a better one.

Were New Zealand significant in the world economy, the world would need a NZ-India FTA. It needs a more modernised India, as indeed do the poor of India who have seen a modernising strategy lifting hundreds of millions of Chinese out of gruelling poverty. The world, and New Zealand, need a more economically successful India to offset the economic power of China, the EU and the US. Four bullies are better than three.