Coda

Michael Reddell New Zealand economic performance, Productivity

And so we now have a single political party in a position to form a majority government. Between our single-chamber Parliament and the historically very tight party discipline on Labour MPs, the new government will be able to do whatever they like over the next three years. And where significant things are not done, it will be entirely down to them: their choice.

Of course, they didn’t promise much, so most don’t seem to expect much. But the issues, challenges, and problems don’t go away just a party or government chooses to ignore them. House prices for example – where the Prime Minister has consistently refused to suggest she might act in ways designed to markedly lower the price of urban land/houses.

Or, and the economic issue that mostly drove the creation of this blog, New Zealand’s dismal long-term economic performance. In short, productivity growth (and the lack of it), and our continued decline relative to other advanced economies.

The outlook wasn’t good before Covid – the last government was doing nothing, and Labour was promising nothing, that would have prevented those well-established and dismal trends continuing. But now there is Covid to confront too.

One view of the outlook was contained in the International Monetary Fund’s World Economic Outlook forecasts published last week. The IMF doesn’t have a particularly good track record as a forecaster, but its forecasts do have two particular values at present: first, they are compiled consistently for a wide range of countries, and second, they forecast/project five years ahead, which on most readings is currently far enough out that one could think of things by then being back to some sort of new normal. For what it is worth, the IMF also has no particular partisan interest in New Zealand, but has also, over the years, tended to run relatively upbeat stories about New Zealand when it does comment.

Unfortunately, the IMF does not publish productivity (eg real GDP per hour worked, or MFP) forecasts. But here is a chart showing their forecasts for growth in real GDP per capita for their “advanced country” grouping over the period from 2019 (pre Covid) to 2025).

IMF WEO 0ct 20

Third worst of all the advanced countries over this period, at least on the IMF’s telling. And do note that the countries a few to either side of us all have materially higher levels of labour productivity than New Zealand does, while the countries to the far left of the chart – best-performers – are mostly the countries (I’ve previously highlighted here) that started way behind and are now matching, and move to roar ahead of, New Zealand. On these projections, our relative decline – underway now for 70 years – keeps on keeping on.

Are there any silver linings? I couldn’t find any when I dug a bit deeper:

  • as I noted, since these numbers are for 2019 to 2025 they shouldn’t be affected by either measurement challenges, or real differences in economic structure, that contribute to quite different GDP outcomes for some quarters this year,
  • the difference also can’t be down to differences in how quickly unemployment drops back to normal (itself a thing amenable to policy, especially in a country with its own exchange rate): in most countries by 2025 the IMF thinks that unemployment rates will have got back to pretty close to 2019 levels (NZ’s is about 5 per cent, so not quite there, but it won’t explain anything like the differences in the real GDP chart).  For what they are worth, the IMF also publishes output gap estimates for G7 countries, and they are also back near zero by 2025. 
  • I didn’t look deeply into what border assumptions the IMF is making, but I did check their population growth projections, and they continue to forecast high rates of population growth over 2019 to 2025 (hardly lower than the rate for the previous six years, and third fastest in this group of countries), which again suggests they must think something like a new-normal re-establishes before too long.
  • the IMF seems to think that investment as a share of GDP will also be more or less back to pre-Covid rates by 2025 (unfortunately in New Zealand business investment in the last decade was very subdued, especially once one took account of the needs of a rapidly-rising population).

Sadly, the only realistic interpretation one can take is that the IMF thinks that over 2019 to 2025, on current government policies, New Zealand’s productivity growth performance –  labour productivity and MFP – will be simply shocking.  Most probably negative –  the only way to square falls in real GDP per capita, unemployment returning towards normal, and a reasonable level of investment – and almost certainly far worse than in almost all other advanced economies, and especially far worse than the performance in the countries that were aiming to close gaps with the OECD leaders.

It is a really dismal outlook.

Of course, it is only one set of forecasts.  The IMF may be completely wrong, even specifically about New Zealand’s relative performance.  But it isn’t clear what about policy or the economic environment should be expected to generate decent productivity growth over 2019 to 2025, especially after the fairly dismal performance in the pre-Covid years.

One would like to suppose it was the sort of issue the Minister of Finance would be intensely focused on.  One would like to think that The Treasury’s post-election briefing would have extensive analysis on the issue and possible remedies, and indeed how political party promises may even worsen the outlook.  But such is the malaise around New Zealand economic policy and performance that it seems unlikely.

Changing tack, for some months I’ve been writing much less here than I’d really intended or hoped to. I’ve made occasional references to my indifferent health. I’ve had bugs occasionally in the past that have hung around for a couple of months, never amenable to medical diagnosis, and then eventually gone away and I kept expecting this would be the same. But despite some moderately good weeks at times – this week wasn’t one of them – it hasn’t, and my doctor now reckons that I have some – perhaps fairly moderate – version of chronic fatigue syndrome. And while it still seems most likely that it will eventually go away again, there is no immediate timeframe for that. It seems a rather pathetic thing to have, but I can’t really ignore, say, the three daytime naps I needed on Tuesday.

As a result, I’ve decided for the time being to stop attempting to maintain any sort of regular blog output. As I’ve said to various people who’ve asked, I’m probably only able to operate at 50 or 60 per cent of normal, and while I’m fortunate in not having to try to hold down a fulltime job, I have other fixed commitments (household and other) that demand almost all that energy. Since there are good days, and even a few relatively good weeks, and there many issues (even if I don’t have the concentration to dig into all of them as I’d like), I expect I will probably post here from time to time. But I won’t be trying to meet any schedule. For anyone who wants to not miss out on those posts, feel free to subscribe to get posts by email, and I also use Twitter (@MHReddell) to, among other things, provide links to any posts here.

And now it is time for a lie down…..

46 thoughts on “Coda”

    • I have found a daily tonic of a tablespoon of Apple Cider Vinegar mixed together with a quarter cup Black Grape Juice and topped up with water together with a capsule of COQ10 and Magnesium capsule each morning boosts my energy and immunity. Also don’t forget that early morning cup of brewed coffee, Long black no sugar or milk.

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  2. Very sorry to hear of your ongoing health problems Michael. I’m a regular reader of your blogs and do hope that you recover fully and continue to find the energy to post these blogs.

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  3. Michael. Perhaps our economy also has chronic fatigue syndrome.
    Take care. Bot your yourself, your whanau and in the interests of your ongoing rigorous commentary.

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  4. You seem to be suffering the same malady as New Zealand, chronic fatigue. I do hope you make a speedy recovery my friend.

    As for NZ, well, this country makes collective choices.

    I don’t agree with most of them – and so it’s time for me to look to greener pastures and I’m relocating my business to Singapore – a country with similar values to my own where I felt at home for many years.

    Unfortunately, for many New Zealanders, life is comfortable and complacent. They don’t strive to be the best they can be, and they resent those that do. The biggest problem New Zealanders face isn’t our distance, our resource endowment or our policy settings. It’s our character. That’s not going to change any time soon.

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  6. It has been awhile since I visited your website Michael. Sorry to read about your health concerns. On the housing front. With political will there is a number of reforms that should be acceptable to a left-wing progressive government. I have seven broad recommendations in the following report.
    View at Medium.com

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      • Phil Twyford before the election sparked the latest bull run in house prices when he announced Labour’s Tier 1 cities designation ie 6 levels unrestricted builds in Auckland, Hamilton, Wellington, Christchurch etc. This effectively forced a structural repricing of landed properties.

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  10. It will be interesting to see what (if anything) comes out in regard to productivity in the Briefings to Incoming Ministers.

    Sorry to hear about your health Michael. All the best for a speedy recovery.

    Selfishly I do hope that you find the energy to blog from time to time on whatever might come out of the new government that is related to New Zealand’s own chronic illnesses.

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    • Ditto RR. Get well soon. I selfishly hope this because I’ve found this website quite informative and interesting, if occasionally a bit above paygrade as an economic illiterate.

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      • Every highly automated industrial factory lost is a loss in productivity. Every tourism, international students and hospitality job saved is a loss in productivity. Every cow or sheep added is a gain in productivity because we only count people not animals. Not an easy fix when we are shutting down factories and have an aging population with health care needs.

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  11. There must be a lot of economists who agree with you but aren’t public about it (maybe too well fed)? We need to clone you.(and Don Brash).

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  12. Michael, I’m sorry to hear about your health problems. I’ve always enjoyed the blog and kept an eye on it even though I’m now UK based. Hope you recover soon.

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  13. Thank you so much Mr Reddell for all your posts but your health comes first. So take good and much care of yourself. And we will continue to follow your posts whenever you can write them. Best wishes SLV

    >

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  14. Thank you Micheal for all your posts, always very interesting, with lots of detail to validate or opinions.

    Where are all the other Economists hiding..

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    • Yeah Mark – where are they hiding?

      NZ has fallen into a groupthink/Emperor’s New Clothes stage where most politicians and commentators seems to believe in things which patently aren’t true. It’s been nice to read your blog as a counter to this.

      American novelty card writer Ashleigh Brilliant put’s it best;

      KEEP DOING OPENLY WHAT’S NOT SOCIALLY APPROVED, AND EVENTUALLY SOCIETY WILL CHANGE – OR YOU’LL BE KILLED

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  15. Yes we’ve always had the CODA one ring to rule us all (Crown NZ Govt) I am not much of a believer in the democracy dogma these days.Its made no difference which ideology/color ( party) is in when as we can see our national assets were sold off to foreign nations.
    Can we even talk about sovereignty when its the UN that determines NZ immigrant numbers and UN ( WHO)locksup healthy people of the nation destroying our economy . The banking cabal’s UN is a shadow govt. Who is profiting more off the covid than banks( covid debt borrowing) .

    All the best for your recovery of your energy -its a crazy time in the world . Qi Gong with as many walks in nature as you can do works wonders for CFS.
    https://www.sciencedirect.com/science/article/pii/S0074774219300674

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    • Crown NZ govt. The only Crown is the British Crown as we do not have a local Crown other than the Maori King. We are either the NZ government or not. We are either 1 people or we are 2 nation, the British Crown and Maori according to the Treaty of Waitangi, a colonial British document.

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      • The Bank of England’s Crown NZ Govt an illegitimate govt that got a few chefs together to sign a document when there was no understanding of the contract (concept of land ownership ) . No written constitution.
        Its toilet paper legally which is why all the fuss about ” the treaty” its all they’ve got and its all the emperors wearing no clothes.All signatories to the agreement are dead.

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      • … and if as it said we were all British subjects we’d all have British passports and one group of early settlers ( boat people) would not have privileges bestowed on them that others don’t have.
        But as I said legally the document is worthless.It was after the Crown( by) that the ” Maori King” concept was created .

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  16. Thanks Michael for this post. I really hope some of our leaders read this and begin to take productivity seriously. That IMF chart is very sobering – especially as it continues such a lamentable trend.
    I trust you improve sooner rather than later. Take care.

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    • Hope things improve for you, Michael, and thanks for your commentary.

      I cannot see productivity improving in New Zealand while our Treasury and Reserve Bank seem completely and overly enamoured with subsidising and protecting assets (investment property) from risk rather than rewarding productive business.

      The current RBNZ pumping of the market and devaluing of young Kiwis wages, savings and hard work is obscene. Surely it must have moral consequences for society: why would you have regard for laws of property when those in charge of society have no regard for transferring your wealth to the already wealthy?

      Why would anyone build a business instead of occupying land?

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  17. Thanks for all your thoughtful posts over many years Michael, I have valued them. Now it’s time to look after yourself — please do, and my thoughts and best wishes will be with you.

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  18. Discovering this blog helped restore my faith that intelligent discussion, intelligent ideas, and, with a bit of luck, intelligent policies could even be implemented for the NZ economy. A kind of Mauldin Economics for Kiwis. As they say to returning soldiers, Michael, thank you for your service. Whatever you feel up to providing us, we’ll be both wiser and grateful. I seriously think some enterprising person or group should turn this blog into a business. Reddell Economics?

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  20. I am sorry to hear about your illness. You have independently done a lot of good work advancing some important and ignored issues affecting NZ (PRC and housing being two) – sadly there remains a powerful lobby seeking to maintain the status quo on these and with the compounding effect of Corona, I fear for NZs future… I hope for everyone’s sake you can recover soon…

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  21. Echo the above. Have always enjoyed your posts (and have even understood some) and recommend you to others. My brother had similar issue some years ago and it seemed to pass with time.

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  22. Given the public reaction to land sales to Chinese, Meng Foon is rather interesting here.
    Remember In NZrs’ cultural memory John McKenzie (a crofter forced to shelter in the graveyard of the church) hated landlordism and as Minister of Lands broke up the large estates so the “small man” could get on the land.

    Then you have Helen Clark “foreigners don’t take it with them” and John Key on the Crafar farms and the left quipping “why’s it only Chinese”?

    Here you have Meng Foon telling Maori that land is “mana”

    [2. (noun) prestige, authority, control, power, influence, status, spiritual power, charisma] – Who would have known?

    He talks about Chinese and Maori being about whanau and being intergenerational. Time is nothing. He also says that the first Chinese here were Maori (tongue in cheek), but goes on with a slide to show world populations. “People say there aren’t many tangata whenua. There are many tangata whenua , Taiwan China, Indonesia”.

    John Campbell gave Peter Brown (NZF) a roasting “but many of those [large numbers] will have been born here Mr Brown” [“Asian Attack”]. The idea is expressed in the end of Nigel Latta’s New New Zealand at Rongo….(?) college which is multicultural. The sum is greater than it’s parts?

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    • He’s also quite certain (happy) that the name “New Zealand” won’t be here in the future and advises not to employ old people.

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  23. Hi Michael. Just landed on your site for the first time. I suggest get your blood sugar levels tested if you haven’t already (looking for insulin resistance). Hell, get the whole suite of blood tests. How are your vitamin D levels? NZ has a chronic damp-house problem. Are you living in a dwelling with areas of dampness? Some fungus can cause horrible illness/allergy. Maybe try a break away from your normal location (in a dry place) for a few weeks? Keep pushing the testing with your doc until you get some clues on what’s actually going on. If your doc is clueless/blase/non-inquiring get a different one. Push push push until you get to the bottom of the malady.

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  25. Apologies for my belated best wishes. I have no remedy other than a regular meditation upon the Scriptures. Psalm 112:4 was a great encouragement to me when I was quite ill many years ago.

    May God grant you a speedy recovery.

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