Edith Piaf’s âI regret nothingâ led Don Brash’s unrepentant article on his role in the economic reforms of the 1980s. But, argues Brian Easton, the consequences still haunt us today.
Brash has opened up his defense of the policies he is associated with. âThinking back to six years of Rogernomics,â he wrote, âI can’t think of almost any economic policy from that era that should have been conducted differently. “
He begins to list examples of market liberalization. I generally agree. Indeed, I was defending it publicly in the 1970s when the wiser-headed kept them well below the parapet, fearing Muldoon would bring them down.
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Ideology aside, the need arose because the increasing diversity and complexity of the economy meant that it could no longer be run from the top down from the center, as it had been during the Second World War.
Not only was there more choice (if you had the income) and quality improvements (not well measured in statistics) but, following liberalization, the economy became more flexible. Perhaps this is the reason why the post-2008 response to the global financial crisis was shorter than one might expect; flexibility was one of the main reasons the covid shock was not as damaging as expected.
However, Brash is on less firm ground with the rest of the politicians. He does not mention the eight years of stagnation that Rogernomics precipitated – unique in our history to be the result of self-induced internal policies rather than external shocks.
During the stagnation, unemployment peaked after the war, and it seems likely that around half of the workforce became laid off enough to register with the Ministry of Labor. (Perhaps the reshuffle was needed, but there was little support for the unemployed and virtually no attempt to use redeployment to build skills in the workforce.)
Brash reports, in his memoirs Incredible luck, âExceptionally rapid growth in the early 1990sâ. Statistical evidence does not support this as the subsequent economic growth rate after the economy started to grow again was about the same as the underlying rate before stagnation. (Fairness requires mentioning that Brash is proud to chair the Reserve Bank while inflation has been reduced to low levels – Rogernomic’s only macroeconomic achievement. It is not just monetary management that has kept him down. does, but the flexibility in the economy that liberalization has generated with international disinflation.)
You can be sure that if the neoliberal policies had been successful, the Rogernomas would have congratulated themselves greatly. Their silence, in Brash’s case in key areas of macroeconomics and retail, tells you that even they think they’ve failed. Yet the consequences of their measures still haunt us today.
Neither Brash’s article nor his memoir mentions the privatization of public monopolies, such as Telecom, without any regulatory restrictions so that buyers realize supernatural profits while consumers and efficiency suffer.
His analysis of the distributive impact of policies is curious.
But what about the income inequality effects of these reforms? If the numbers are taken at face value … there was a reasonably significant increase in after-tax and benefit income inequality in the late 1980s, with a broadly unchanged measure of after-tax income inequality and performance over the next 30 years – some years a little more uneven, some years a little less uneven. [The elision is a caveat, Iâll come back to.]
First, the total increase in income inequality was also the result of measures taken in 1990 and 1991 by the national government which argued that they were necessary to fund the Rogernomics tax cuts, as Labor left power. with a large permanent budget deficit.
Second, it is questionable whether the distribution changes were “reasonable”. The facts are that the richest 10 percent saw a one-time average 25 percent real increase in their after-tax income as a result of these measures, while those at the top earned even more. Meanwhile, the bottom 30 percent had no increase in real income for two decades (while the incomes of those at the top continued to rise with economic growth after the stagnation ended. ). If this was a “reasonable” change in the level of inequality, I let others be the judge.
The claim that there was not much change in the distribution of after-tax household income after 1991 is broadly correct, with one exception. The national government’s âoverhaul of the welfare stateâ both reduced social benefits (to pay for tax cuts for the rich) but also indexed benefit rates to consumer prices rather than to consumer prices. general revenues so that beneficiaries do not participate in any increase in prosperity. (The Ardern-Peters government reinstated wage indexation in 2019, but benefits were now at a much lower relative level.)
There is no mention in Brash’s article of reshaping the welfare state from McCarthy’s vision of the welfare state, aimed at enabling everyone “to participate and belong in society.” With a minimalist vision, closer to the American vision. The people suffered as a result, Don, the people suffered; they weren’t as lucky as you were.
The caveat to his statement was that “there are good reasons [in assessing the inequality change using the current statistics] for not having done so given the radical change in the tax system at the end of the 1980s â. There is no other explanation and it reads like the standard truthfulness that “since I don’t agree with this, it must be wrong”. I agree that there are issues with measuring the data, but I’ve taken it through various tests and none seem big enough to suggest a different story.
Brash’s statements matter, because the Rogernomes barely stood up for what they did. This article and Brash’s memoir are the only examples I know of. (Due to the gap, I had to build a defense in my Not in narrow seas, but I’m hardly one of them.) You can be sure that if the neoliberal policies were successful, the Rogernomes would be boisterous in their own congratulations.
Their silence, in Brash’s case in key areas of macroeconomics and retail, tells you that even they think they’ve failed. Yet the consequences of their measures still haunt us today.
|Brian Easton is the author of Not in Narrow Seas: New Zealand’s Economic History which develops these arguments. The article first appeared in Pundit and is reprinted with permission.|