For anyone interested, here are my introductory remarks to the Epidemic Response Committee this morning.
Economic Policy and the Novel Coronavirus Epidemic Response Ctte introductory remarks
From it, I’m going to extract just my final paragraph
Finally, in 2008/09 we threw a lot at the economy, responding to a recession that also wasn’t homegrown. The OCR was cut by 575 basis points and a lot of fiscal stimulus was in the works. But it still took until 2017 – ten years – for the unemployment rate to fall back even to 4.5 per cent. This is a much much bigger economic disruption. We must do what it takes to prevent any repetition, and all the scarring of individual lives that such persistent unemployment would entail. Doing so will have to involve both fiscal and monetary policy. But there isn’t limitless fiscal capacity, and at present monetary policy is largely spinning its wheels, doing little that makes much difference where it counts. That can’t be allowed to continue.
The wider forward-looking context is in the SSANSE Policy Brief “Rebuilding New Zealand’s Shattered Economy in a Post-Covid World” released last week.
9 thoughts on “My remarks to the Epidemic Response Committee”
Thanks for all of these posts Michael, I think I finally understand some macro!
A question though. If one way or another this is about stimulating demand to get the economy back to something like full capacity, how does that work for the big part of the economy where the relevant assets are really just not very useful any more. I’m thinking tourism and hospo. Many hotels have already been mothballed and many restaurants and bars have already closed. More will follow. Many of the assets cannot easily be switched to any other use.
Does this complicate the analysis?
Fair question. Some physical capital may never be used again, altho much will in time – seems reasonable to assume that five years from now we will have a lot of international tourism. But in a sense, precisely because some sectors won’t just snap back is why we need significant policy stimulus now, to draw forth other spending, to attract demand from abroad to NZ etc, so that at least if not all the capital is intensively used, the people are re-employed, perhaps in quite different roles, as soon as feasible.
Michael. It looks to me as if you are suggesting actions that will lower the exchange rate. While the moneyed elite resist any added tax imposition they would be more easily hit by significant cost for expensive imports (and overseas travel later on) resulting from lowering the exchange rate by your 25%(?)
When every other country has a worst Covid19 problem and the US with the most infections and deaths in the world. It would be foolish to try and bring down the NZD. You can lower interest rates further at the cost to savers but don’t even believe that the NZD would be greatly impacted or that borrowers would spend up big time.
Ggs. Nothing about spending. Obviously with a lot of spare labour for the foreseeable it is better to use, retrain and do something more useful such as import replacement. Too much bank generated liquidity may have helped us sell houses to all and sundry but we need to get down to recovering some replacement income for the new deficit reduction.
Try taxing those on high income and they will squeal loud and long. Thus they have to be got to in ways they cannot counter. Time for the ‘Entitled’ to share out some of the gains,eh?
lumenz, I already pay $60k in taxes plus $50k in rates a year. How much do you pay in taxes and rates as part of your contribution to the community?
Ggs. I pay $4k rates ( no tenants to pay any more)
Taxes to IRD are a moving feast after lots of PIEs paid at source and FIF which is very variable and difficult to keep in the lower tax brackets even shared for a couple.
However I would not grizzle if I had to pay another $10k or so.
Looks like -ve OCR is going to be a 2021 story.
It will be amazing how many are prepared to accept cash payments for a discount – as long as a GST recepit is not required. The “cash economy” is probably set to BOOM.
The consensus seems to be “Starve the BEAST” as a means to bring Government to heel.
I – of course – can not possibly comment or condone