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…
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The government is still borrowing for consumption. I do not think anyone understands the politics of the spat between Ruth Richardson, who chairs the Taxpayers Union, and Nicola Willis – including those two. The underlying economic issue is analytically clearer. The technical term for it is ‘fiscal consolidation’. It is easiest to understand it by…
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We should follow the Golden Rule of Fiscal Management and not borrow for consumption in the medium run. Asymmetry is a crucial, but often ignored, feature of credit transactions. You would normally be surprised if a shopkeeper said they would sell you 1kg of apples but not 2kg, even if you offered to pay a…
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Queen Elizabeth II famously asked about the 2008 Global Financial Crisis, ‘Why did no one see it coming?’ In fact, many economists (including yours truly) had pointed out that the financial system probably would crash. But we failed to predict what would precipitate the collapse, how severe it would be and when it would happen….
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Our current fiscal settings promise that we will eventually face a public debt explosion. A major cause would arise from the aging population. Is there anything we can do? It has long been known that the ageing population would create future fiscal pressure. It was quantified in the first (2006) Treasury long-term fiscal projection and…
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What the latest Statistics New Zealand GDP figures might be telling us. Statistics New Zealand’s publication of GDP for the June Quarter got a lot of media coverage, some of which bordered on the hysterical. To say the figures demonstrated the country was ‘bankrupt’ is a nonsense. Bankruptcy is about debt. Not a single one…
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What are the economic and political implications if the New Zealand economy stagnates for five and more years? Prime Minister Christopher Luxon told Morning Report that ‘We’ve got the worst recession* we have had in 30 years’. (Observe, he could have said ‘since the Rogernomics Stagnation which finished 30 years ago’, but some things may…
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Why is the British Labour Government penalising its poor? We have the spectacle of the Starmer-led British Labour Government taking measures which are making some of the most struggling Brits worse off. It has got to the point where Labour’s parliamentary backbench is revolting and the government has had to make partial concessions – the…
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What can you do when you have hit your borrowing limit and still want to spend? One option is to cut back on maintenance of your capital – say, to delay repainting the house or keeping the car in tip-top condition. The government does the same. Hence our three water systems leaking, polluting and flooding;…
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Why Government borrowing is limited This column started out to explain how the proposed structural outsourcing of public surgery was partly a consequence of the peculiarities of our fiscal borrowing practices. In summary, the restriction on the government’s debt level means seeking indirect ways to provide the required capital. One way of doing this is…
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Monopsonies – dominant purchasers – need to be restrained as much as monopolies – dominant sellers. That is what pay equity is about. This column is not about you-know-who. There are many other political bullies offshore; sometimes there are local ones, as when a politician attacks a group which cannot defend itself or a cabinet…
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Perhaps the state of the economy is not as sound as we are being told. There was an odd little story over the 2025 Budget, hardly worth relating except that it tells something about budget politics. The original invitations to the lockdown, the meeting which gives a preview of the budget to the media so…
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Should we pursue a ‘Golden Rule’ where any public borrowing for consumption is temporary? This columnist is a fiscal conservative who is cautious about government borrowing for public consumption. I was not originally. The Keynesian model I first studied said borrow as much as is necessary to sustain demand. But the model was of a…
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The budget runup is far from easy. Budget 2025 day is Thursday 22 May. About a month earlier in a normal year, the macroeconomic forecasts would be completed (the fiscal ones would still be tidying up) and the main policy decisions would have been made (but there would still be a lot of policy detail…
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It is said that economists know the price of everything and the value of nothing. That may be an exaggeration, but an even better response is to point out economists do know the difference. They did not at first. Classical economics thought that the price of something reflected the objective cost of producing it –…
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Severe geological and financial earthquakes are inevitable. We just don’t know how soon and how they will play out. Are we putting enough effort into preparing for them? Every decade or so the international economy has a major financial crisis. We cannot predict exactly when or exactly how it will happen. (For what its worth,…
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The state of the current economy may be similar to when National left office in 2017. In December, a couple of days after the Treasury released its 2024 Half Year Economic and Fiscal Update (HEYFU24), Statistics New Zealand reported its estimate for volume GDP for the previous September 24 quarter. Instead of the expected trivial…
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A note written for some younger economics colleagues. I was lucky when I was on the Treasury Forecasting Panel (from about 1998 to 2008) that Jas McKenzie was on it too and we could discuss our experiences. Generally, our approach was that they were the Treasury forecasts and that our task was to help them…
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By way of prologue, the closest parallel to the current economic situation may be when Ruth Richardson became Minister of Finance in late 1990. The economy had been contracting, although there were signs of a fragile recovery. She was an Austerian and cut public spending savagely. The economy plunged a further 5% in GDP per…
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Does the Autumn 2024 British budget point to a change in fiscal strategies? Many countries found their fiscal position was unsustainable, following the 2008 Global Financial Crash. Their public spending was well in excess of their public revenue and they had to borrow more heavily than lenders thought prudent. Almost unanimously, such countries tried to…
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