A Rogernome Defends the Policies.

One of the difficulties in making sense of what happened during the Rogernomics Stagnation from 1985 to 1993 is that professional economists sympathetic to its policies rarely discuss the outcomes. There have been historians, journalists and politicians who have commented – but they are hardly informed (and sometimes make stupid mistakes). Don Brash in his 2014 autobiography quoted a 1990 report – halfway through the stagnation – which promised that things were improving; they subsequently deteriorated.

So one eagerly seized the just published Illusions of History: How Misunderstanding the Past Jeopardises Our Future by Bryce Wilkinson, who was a respected section head at Treasury in 1984.

Wilkinson chooses to frame his assessment by replying to Minister of Finance Grant Robertson in his 2020 Budget; taking on a politician is not a major challenge. He begins by challenging the notion that the initial stages of the First Labour Government economic management were a success. This may be a popular view but it is hardly what scholars think. Had there not been the war, or something like it, the economy would have probably crashed by 1941. That is one of the reasons why my Not in Narrow Seas argues that it was not the Great Depression which shaped post-war economic management but the war economy.

I don’t think Wilkinson understood what Robertson was saying. He was arguing that the Savage-Fraser Government put people at its centre of its policy thinking rather than the non-human abstractions which modern economics tends favour. Robertson’s ‘wellbeing approach’ is to go back to the First Labour Government’s one.

However, the main focus of the report is on the period of Rogernomics Stagnation. Wilkinson identifies six ‘myths’:

Myth 1: The reforms caused economic carnage [Robertson’s expression]. New Zealand’s unemployment rate peaked in 1991. Was that due to the reforms or was it less than it might have been but for the reforms? Wilkinson argues that the policy changes were necessary following unsustainable policies before 1984. One is not uncomfortable with that view, although in a longer paper one might contest his complacent view that New Zealand’s adjustment experiences were no (or not much) worse than elsewhere (which contradicts the argument that our pre-1984 policies were uniquely unsustainable – among affluent countries they were). The challenge for those who claim that the reforms caused carnage is to establish convincingly that there was a less costly, achievable, alternative course of action. To the best of the author’s knowledge, no critic has yet risen to that challenge. If the author is unaware of alternative analyses, he has a very limited knowledge. The modernising social democratic critique was to accept that restructuring was necessary – especially the shift to more-market – but that it could have been done differently, particularly with policies which shared the burden of adjustment more evenly across the population (more below). This is what I took Robertson to be saying.

Myth 2: The reform results failed to live up to the expectations of the reformers. This myth is perverse. In fact, the reform results failed to conform to the dire expectations of the critics. The critics expected severe economic distress and poor economic performance which is what happened. The Rogernomes promised accelerated economic growth, which did not happen. Wilkinson seems to be saying that Douglas and Richardson thought their policies were never fully completed and if only they had been they would have got their promised outcomes. That requires a more careful analysis than Wilkinson provides; I doubt if anybody other than true believers would be convinced.

Myth 3: The reforms were extreme. Wilkinson quotes a single New Zealand Business Roundtable paper which, he says, ‘rebutted the claim’. What is going on here is that many of the changes were orthodox but many others were extreme. There is not room here to list all the latter. But surely the privatisation of Telecom without a proper regulatory framework for its monopoly was ‘extreme’. (We were very lucky the Clark-Cullen Government addressed it; the result was the rollout of the cable network – particularly valued during the lockdowns but of great value in our economic development.)

Myth 4: The reforms were undemocratic. Wilkinson says Labour’s sweeping electoral victory in 1987 shows the reform programme at that point enjoyed widespread public support. But the extreme phase started after 1987 and there was no popular mandate for Labour’s subsequent policies nor for Richardson’s in 1990.

Myth 5: The reforms greatly exacerbated economic inequality. Measured income inequality undoubtedly increased on a sustained basis. Doubts arise regarding the validity of the measurement of income during major tax changes involving reduced incentives and means to avoid tax. Wilkinson’s response refers only to the tax data. Some of his points are cautions about interpreting the data, but while they may moderate any conclusions they do not invalidate them. (Wilkinson does not mention the change in the company tax regime, which seems to have been as valuable to top taxpayers as the cut in the top tax rate from 66% to 33%.) He does not refer to the household survey data base (which is the basis for the main measure people use) and is not subject to these cautions. They tell the story that while the top 10% of the population experienced hardly any setback in their income growth, the bottom 30% suffered income stagnation for two decades. (More generally, if Wilkinson got his argument together he would realise that he was also challenging wider economic statistics because the story he is trying to tell requires greater GDP growth. An argument which depends upon every statistic that contradicts it being wrong reminds one of Trump’s electoral claims.)

Myth 6: The welfare state was decimated. I am not sure anyone of standing has used the term ‘decimated’. What Wilkinson does not say is that Richardson and Shipley purpose was to convert the New Zealand welfare state to an American-styled minimalist one, very different in conception and generosity from the one the 1972 Royal Commission on Social Security envisaged. Nor mentioned is that it had been necessary to fight off the proposals to Americanise the New Zealand public health system, and that traditional notions in the ACC and education system were corrupted. Wilkinson summarises aggregate spending using a baseline that the RCSS thought was inadequate, makes no allowance for demographic change and higher unemployment. Moreover, the aggregates he uses have gone up because they increased benefits and then taxed them back so that net payments to beneficiaries remained the same. There is no mention of the well documented microstudies of the difficulties that people on low incomes faced or are facing. People hardly appear in this defence.

Wilkinson has social values rather different from mine and from most people’s. In a democracy he is welcome to them. However values should not lead to a distortion of the facts.

Karl Popper said always to present alternatives to your theories in the strongest possible form. Wilkinson admits that he does not even know what they are. So I am left with patently inadequate defences of what happened.

The best I have come across were those I constructed when setting up a debate between defenders of Rogernomics and others in Not in Narrow Seas (see pages 497-499 and 586-588). They may not be the best that are possible; I sure would like a Rogernome to do better.