How misunderstanding economic history past jeopardizes our future: New Zealand Edition

NZ Finance Minister Grant Robertson in Budget 2020 speech remarked the need to build NZ economy post pandemic:

Mr Speaker,

Today’s Budget represents the next steps in our recovery and rebuild. The world is still learning what the impacts of COVID-19 will be. We owe it to New Zealanders to work carefully through our next steps, recognising that the decisions we are making will define the lives and livelihoods of many people for years to come.

The weight of those decisions comes with a spirit of optimism in what New Zealand can be. The glimmer of silver lining on this darkest of clouds comes from the knowledge that we have the opportunity to build back better. There are few times in your life when you get to hit the reset button. It is a privilege that many countries do not have right now as they still struggle to get the virus under control. It is an opportunity we will not squander.

Our rebuild must be one that takes the very best of who we are, and uses it to take on the issues and challenges in front of us. Some of them are old – inequality, low productivity, polluted rivers, some are newer, the transition to a low carbon economy, adjusting to the rapidly changing world of work, maintaining social cohesion.

Robertson picks on NZ’s history for lessons:

All of them are in front of us in stark relief. We can draw on the lessons of the past as to how to deal with them. The answers lie in the great traditions of the First Labour Government who rebuilt New Zealand after the Great Depression. It was a time when they understood a genuine partnership between government and the people. That each and every person in this country deserved the right to take up the chances afforded by being lucky enough to live in, as my predecessor Peter Fraser called it, this green and pleasant land. They built houses, rail and roads, they created the welfare state and a strong public health system, and they backed shopkeepers and manufacturers. We are taking those principles into the modern era.

We can also draw the lessons of the past as to what not to do in response to a major economic shock. In this case Mr Speaker I can draw on the experiences of my own life. As the economic carnage of the 1980s and 1990s wreaked havoc in our communities, I saw that up close. It was based on a tired set of ideas that the market would save us, that if government sat on the sidelines all would be well. Well, it didn’t work out that way and lives and livelihoods were lost.

That will not happen again, not on the watch of this government. We know that we must work in partnership with iwi, business, unions, community groups, every one of the team of five million to make sure we all not only get through this, but that we thrive on the other side.

That means continuing to be bold as we have been in the last two months. We are not always all going to agree on the path, but it must be one that gives each and every New Zealander a stake in our future. Decent, well paid work that provides respect and dignity. Looking after our most vulnerable. Where we make good on our promise to future generations that we will take on climate change and leave them a legacy to build from.

So, the call is that government will be there to support and build economies.

Bryce Wilkinson of NZ Initiative, a thinktank responds to the Minister’s speech via a report:

Politicians can usefully look to the past for future guidance – as long as they do not misread it. A government that models itself on a misdiagnosed past risks repeating past follies.

The risk of error is considerable. Politicians and historians have different motivations. Incumbent politicians need to get re-elected. They may draw lessons from the past that best serve that purpose. Historians may not draw the same conclusions.

This report examines the accuracy of the Minister’s representations of those two episodes in New Zealand’s economic history.

Wilkinson reflects on the two historical episodes cited by the Minister and shows how much of Minister’s speech is misplaced.

Well this is not where it ends.

Prof Michael Reddell who writes a terrific blog on NZ economy says the report goes overboard:

To close, the New Zealand Initiative’s report ends up being a funny beast. For better or worse, most people probably won’t care about the pre-84 history, and it isn’t clear how much relevance the specifics have to today anyway. And if there is a lot wrong with this government’s economic policy (and there is) this report is too once-over-lightly (and a little florid in places, given our relative macro stability) to add much value or get much traction. Perhaps there is still a place for debates about the 1984-93 period – in fact there definitely is, even granting that to many younger people it is (my daughter’s phrase) “ancient history” – but to do so usefully probably needs more space, more nuance, and more data than is in the relevant section of this report.