….but only if they can sort out their own muddled messages.


John Key’s promise not to promise anything in his pre-budget speech last week revealed some serious muddle in National’s thinking. The tried and tested rule is that governments spend in the bad times to stimulate the economy when no-one else can, and save in the good times. So either they think this is as good as its going to get, and its time to smother any new growth, which is a big risk in election year; Tough luck if you haven’t had jam yet, apparently the recovery has peaked.

Or they’ve got the economic cycle round the wrong way, and are saving in the tough times and preparing to spend when the hay is in, which is bad news for anyone hoping for a long term recovery.

The countries that are recovering from the Global Financial Crisis today followed the rule; in tough times when demand dropped government acted as the purchaser of last resort and spent in the right places to keep the economy going. 

That meant building stuff, keeping services going and increasing wages. 

Ironically, the National Government’s intervention in the Christchurch rebuild, which it had no choice but to do, has helped the country recover. Against his conservative instinct Bill English subsidised house-building, fixed rents and produced a 5-year plan for the look and feel of a new Christchurch. The rebuild goes a long way to explaining why they have a surplus at all. 

John Key’s speech last week marks a return to form for National; government’s job is to do very little and get out of the way of the market. 

What’s really muddled, is that five years ago Bill English was railing against the Labour government for not spending its surpluses.

Michael Cullen ran nine years of surpluses. He kept spending down in the good times, despite the taunting from Bill English who waved his fist in the air and asked why Labour wasn’t spending its surpluses in the form of tax cuts. Then in the last term of government, Labour embarked on a classic Keynesian redistribution of wealth to working New Zealanders, in the form of Working for Families and interest-free student loans. Bill English hated that too. He wanted the spend to be in the form of tax cuts to the top 10 per cent.

Now  he appears to have changed his mind completely. Surpluses should be ferreted away and tax cuts delayed. That’s a big ideological u-turn for a party built around the promise of tax cuts and small govenrment. Or is it ideologically consistent with the right’s belief in low spending, small government?

It’s all a big fat muddle. If voters start to pick up on this and sense that National aren’t going to do much to make an economic recovery stick, it could look like weakness and push some over to Labour.

But Labour needs a much clearer story to tell on the economy and why interest rates are going up, if it's to make the most of this opportunity. 

Labour must decide if the message is to save more and pay off government debt nearly as fast as National. Or spend in the right places to stimulate the economy and make a recovery stick.

It must decide if National is ruining the country by building more roads and drilling for oil, or ruining the country by failing to have a vision.

Labour needs to avoid sounding like a different NGO each week; save the children and lift the Rena off the reef one week, save the internet with a bill of rights the next. 

Instead, they should be making a strong case for the redistribution of the fruits of recovery to the many not just the few. They should be showing us how they will make that recovery last decades, not just the length of a natural upturn in the business cycle, brought about because we had to rebuild a city and replace our old washing machines.

The Great Depression of the 1930s was followed by the Great Prosperity (1940s-1970s)  because government policy made it so. These prosperous decades were also our most equal. So let’s hear Labour’s ‘New Deal’ versus Nation’s muddle.


Comments (10)

by stuart munro on April 08, 2014
stuart munro

There's a lot of work to be done here - and the first order of business is probably clearing away the pitifully flimsy tissue of lies and fabrications that is National's economic 'success story'.

Then there are perhaps two major themes to pursue, purging the failed austerity regime and restoring healthy local development, and restoring social responsibility and fairness. Some organisations are so far from their core responsibilities they should be rebuilt from the ground up - the investment branch of ACC for example will make a fine core asset for the new state pension fund - which will also stop the privateers from stealing it. And Treasury and the Reserve Bank have become hopelessly partisan and essentially worthless, and the culture of WINZ is now so toxic it should be totally obliterated.

The recovery of stolen assets is long overdue, (together with the hanging drawing and quartering of the thieves) and perhaps an accountability procedure for legitimate asset sales - a required public approval rating could be implemented - a model that would also take the asset frenzy out of local body politics, and get councils back to doing their jobs. Capital asset speculation is not productive.

by Wayne Mapp on April 08, 2014
Wayne Mapp

Josie,

It seems to me your article is guilty of the same sin as you suggest the Nats are.

National has been pretty consistent in its economic message. Modest spending increases in the middle of the recession, somewhat larger now. And it seems to me the public (at least those who support the Nats) by and large get that.

And this is a point the Left forgets (or ignores). Even in the recession, National actually increased expenditure, typically by $250 to $500 million a year. Not exactly a ruthless austerity package.

Of course these increases was less than inflation, so the size of government has decreased relative to GDP. But since tax receipts had dropped so much, the annual deficits were very large, leading to a substatial build up in debt. As far as I can see, Labour would have spent quite a lot more, so the current debt would be much larger. Remember the impact of "Show me the money", which I suspect will still have some life left in it in 2014. The public are not quite ready for a big spend up.

The size of central government is a distinguishing feature of Left and Right In NZ. Labour tends to let it increase to over 35% of GDP. The Nats prefer closer to 30%. And the Nats beleive that too large a government reduces growth and drives up interest rates.  No doubt a perennial political argument.

by stuart munro on April 09, 2014
stuart munro

Wayne - not all spending is equal.

In it's poorest days, in the 1950s, a friend of mine was running the Korean economy.  Times were hard - people were starving, there was a war, and the highest earning export was human hair wigs. They prioritised spending, exhaustively calculating returns on every proposal. Only the best were chosen, but the government spent all it could - and none of it on cronies, consultants, or marketing.

This is too much work for the current NZ government, who 'let the market decide' which is simply another way of saying they abandoned their responsibilities. People too lazy to run a country really shouldn't be in government. Not ever.

The proof of the pudding is in the lamentable growth figures and burgeoning - all the vicious and unprincipled assaults on social spending have been for naught. It is a shameful business, as incompetence always is.

by stuart munro on April 09, 2014
stuart munro

burgeoning debt

by Wayne Mapp on April 09, 2014
Wayne Mapp

Stuart (and Josie).

Perhaps the most revealing pointer to the way the Nats will run the campaign was the Campbell Live programme at the Key holiday home at Omaha. The PM was asked what his goals were as the PM. His answer was that he wanted to make New Zealand more economically successful. He briefly set out the things that had been done to acheive that. He expected all New Zealanders to benefit.These are not his exact words but it is close enough. And New Zealanders basically get it.

David Cunliffe has his chance to set out his purpose next Monday. Perhaps the programme has been done, but maybe it is being done this weekend. The biggest failing that I see from the Left (well at least those on The Standard) is that they sound like they all come from the 1970's, or even earlier. I get no sense of a a 21st century approach. Sometimes DC gets close, but somehow he ends up having to tug his forelock to a 1970's vision. On that basis he will fail in 2014.

I know Blair is reviled by much of the Left, but his great success in the 1990's was to articulate a modern vision for Britian; "Cool Britannia" and all that. Surely Labour needs to do the same for NZ, and if not for 2014, at least for 2017.

I do appreciate that Josie basically get this. And it will not be done by saying the Nats are the worst govt ever, and the "hanging, drawing and quartertering of the theives". All that does is illustrate how out of touch Labour is. Forget about shallow attacks on the Nats. Focus on a new modern message for Labour.

by stuart munro on April 09, 2014
stuart munro

Wayne, you assume that all the unhappy and unsuccessful legacies of the last three decades can simply be painted over. That would be as sensible as Muldoon's presumption that he could carbon-copy Australia's union deal without bothering to listen to his own people.

Labour and National have betrayed the New Zealand people - the asset thefts are deeply unpopular because there is not and never was an economic justification. Neo-liberalism can be made to work - but the NZ model included far too much corruption.

National is a crude and backward government - blindly following the blindingly unsuccessful path of David Cameron.

The people expect better from you.

As for a new message from Labour - that message, to succeed, must come out of the people. The people who are suffering under 7% unemployment and massive underemployment and the crude belligerence of stupid and vicious people like Paula Bennett.

As you increase the suffering of the people, so their tolerance decreases, both for fools like Treasury, and for criminals like the asset thieves. It is not happenstance that China presently leads in criminal executions. Poor countries favour vigorous punishments.

You have impoverished your country, and that means when the people get hold of you your punishment will be terrible.

by Josie Pagani on April 11, 2014
Josie Pagani

Wayne, I agree Key has not led a hardline government of austerity, but my point is that this hasn't been their choice - the ChCh earthquake compelled them to spend. And I'm sure you'd agree there are some inside National who have found John Key's lean to the left as he happily intervenes in the market  - ChCh, subsidies for the film industry etc - very uncomfortable (Bill English, Judith Collins I'm looking at you). And why would you smoother the first signs of new growth before most people have seen any benefits in the form of higher wages or better jobs - unless you think this is as good as its going to get, and there's nothing else you can do about housing prices, except slow down growth.

by Josie Pagani on April 11, 2014
Josie Pagani

Stuart - not sure about the 'terrible punishment' to be carried out. Might want to tone down the language abit. 

But here's an article I thought you'd be interest in. http://www.newstatesman.com/2014/03/french-revolutionary

French economist, Thomas Piketty has just publihed a book with a breathtakingly simple observation: that when the returns from capital exceed growth, you will always have inequality, because those who already have wealth will do better by doing nothing productive - just  sitting on their assets. While those who work for a living can never catch up. 

by stuart munro on April 12, 2014
stuart munro

Piketty is interesting - but does not seem to present a solution.

I really think the rhetoric wants dialling up not down however - the theft of public assets is not something public servants should contemplate - elected or not. And if legal or political systems are inadequate to that task, customarily the public may choose to ensure that they do not profit from wrong-doing by other means.

The latest political accomodation reached by Labour certainly inspires no confidence that formal processes will deliver anything of substance. A few exemplary measures will preserve or enhance the reputation of our representatives, much as 'crazy ivan' exaggerated responses to physical incursions prevents the sustained erosion of more tangible borders.

by stuart munro on April 14, 2014
stuart munro

Krugman at least seems very keen on Piketty. Treasury won't like him of course, he's evidence based. His prescription is not so very different from Unger's though: http://www.amazon.com/Democracy-Realized-The-Progressive-Alternative/dp/1859840094  depending I guess on whether one swallowed the spurious math that typifies RWNJ 'economists' in the first place.

 

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