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| Dr Bryce Wilkinson | Senior Fellow | bryce.wilkinson@nzinitiative.org.nz | ||||||||||||
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The belief that more government borrowing lessens recession severity has a long but professionally embarrassing history. The theory that recessions can be due to insufficient (government) spending is widely attributed to English super-star economist John Maynard Keynes (1883-1946). Much more problematic is the unqualified proposition that yet more government deficit-spending will alleviate recession. Economists who espouse this view are commonly called naïve Keynesians. The naïve proposition has repeatedly failed. A significant setback occurred in the late 1970s, when deficit spending, high unemployment and high inflation all persisted in the prosperous oil-importing countries. A more embarrassing setback came in 1981 when 364 UK economists wrote to the Times asserting that the Thatcher government’s monetarist policies would fail. In the event, economic recovery started about the same time as the letter appeared. Thatcher’s policies brought inflation down and ended the recession. In New Zealand in 1982, a deficit-spending government cut taxes to buy trade union support for a wage and price freeze. The day the news broke, I encountered a well-known Keynesian economist in the street. Contrary to my expectation, he was pleased and believed the policy would support the slowing economy despite the growing public debt. The result was a public debt crisis in mid-1984, followed by a decade-long struggle to balance government spending and revenue. Three prime ministers and three ministers of finance were ousted along the way. Amidst that struggle, a new government cut spending in 1991. Most of Auckland University’s academic economists signed a public letter proclaiming that this would be self-defeating; it could only ‘worsen the recession’. Embarrassingly for them, June 1991 was the bottom of the recession. The strong economic and employment growth that followed turned fiscal deficits into surpluses. Globally, there are more examples of the failures of such superficial predictions. Context is one of the important missing ingredients. If spiralling debt is seen as a growing threat to stability, interest rates will rise and private spending falter. By credibly committing to decisive corrective action, a government can hope to lift private spending and lending confidence. Government U-turns can wreck credibility. Margaret Thatcher famously retorted: “this lady is not for turning”. The Keynesian economists lost that policy debate. |
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| Dr Eric Crampton | Chief Economist | eric.crampton@nzinitiative.org.nz | ||||||||||||
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Value-added taxes elsewhere were riddled with politically-driven exemptions. Once one exception is allowed, it is harder to refuse the next one. Sir Roger Douglas gave us the world’s best consumption tax, without exemptions. Even visiting your GP draws GST. Equity issues are handled through direct subsidies to lower income households and Community Services Card discounts. Four decades later, our consumption tax still tops the Tax Foundation’s international rankings. We should take a similar approach to congestion charging. Keep it simple. Last week, the Helen Clark Foundation and the Initiative co-hosted a panel webinar on congestion charging. It was a fun discussion. Everyone saw the merit of congestion charging schemes. Kali Mercier, who authored the Helen Clark Foundation’s report on the topic, noted the importance of equity considerations. She also argued for exemptions mirroring those elsewhere, for example for emergency services. In the webinar’s comments section, people argued for exemptions for travel to hospital. Or for other important travel. But who could decide? I suggested an alternative. Arguments about which travel is critical are like arguments about which products should be exempted from GST. There is no obvious answer that does not invite lobbying for other exemptions. The simpler solution would, like GST, provide no exemptions at all. My submission to the Inquiry into Congestion Pricing in Auckland suggested using the collected congestion charges to fund a congestion dividend that would be rebated back to road users. The submission has more detail than can fit into a short column here. I discussed it in the webinar as well. Most simply, charges paid by those driving at peak times would be distributed to all road users who travel in the relevant area regardless of when they travel. Those travelling only at off-peak times would obviously pay no congestion charge but would collect a congestion dividend. Peak-time drivers would still pay a net charge, overall. Emergency services that travel at all times of the day could easily wind up being net beneficiaries – without having to set any exemptions at all. Households with a Community Services Card could receive a boosted dividend, with the rest of us receiving a bit less. Really the best congestion charging proposal is whichever one can earn durable political support. But the simplicity that comes of avoiding exemptions has a lot of staying power. Just look at our GST. Dr Eric Crampton on the webinar, Charging Ahead: Tackling Congestion on our Roads on 21 November 2024 |
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| Dr Michael Johnston | Senior Fellow | michael.johnston@nzinitiative.org.nz | ||||||||||||
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The Royal Society Te Apārangi oversees the awarding of the prestigious Marsden grants. In its 2024 round, Marsden funding went to truly cutting-edge projects. One research team was funded to interrogate racist narratives relating to outsize roadside objects like Ohakune’s ‘Big Carrot.’ Another, to investigate ways to link celestial spheres with end-of-life experiences. The latter project secured a cool $861k. Important stuff, and well worth every dollar, I’m sure. A cynic might think projects focussing on, say, treating cancer or fusion energy should take higher priority. But these things are subjective. The Royal Society oversees other grants as well. One is the Mana Tūāpapa Future Leader Fellowship. That scheme funds early career researchers for four years. Twenty successful applicants each receive a salary of $82k per annum plus research expenses. There were a couple of things about the way the Fellowships were awarded this year that might elevate your eyebrows if you think merit should be the main criterion. For one thing, at least 20% of the Fellowships had to go to Māori applicants, at least 10% to Pasifika, and at least 50% to women. Female scholars, especially, need more support. After all, only 60% of New Zealand’s university graduates are women. By happy coincidence, women made up the same proportion of Fellowship applicants. Affirmative action is nothing new. The Royal Society’s true innovation was to award the Fellowships at random. Almost at random, anyway. They did rigorously screen the 327 proposals for quality. Seven were ruthlessly culled. The 320 proposals clearing this high bar went into a random draw – or for candidates belonging to all three favoured categories, a series of draws. The first included only Māori applicants, to make up the obligatory 20%. Unsuccessful Māori who happened also to be Pasifika joined other Pasifika applicants in the second round. Unsuccessful women from the first two rounds were then entered in the third. Men of African, Asian or European ancestry had to wait for the final round for a single chance at whatever was left. Allocating grants at random suggests that the Royal Society doesn’t back itself to pick winners. Perhaps they should simply outsource the 2025 round to the Lotteries Commission. |
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