Thursday, July 07, 2011

Designer Facts

One of the variations on making shit up is rewriting history to suit your ideology; as Paul Krugman observes (with an appropriate nod to The Princess Bride):

I’ve often found that when things happen that aren’t supposed to happen according to the prevailing economic or political orthodoxy, reporting quite often describes what “should” have happened, not what actually happened.

New Zealand's economy and society is a common recipient of this treatment. Witness this article and interview with John Key in the Wall Street Journal:

Mr. Key is returning the country to a formula for prosperity that's worked in the past. As in Britain, the U.S. and Australia in the 1980s, New Zealand's government implemented a wide-ranging program of economic liberalization, including deep reductions in tariffs and subsidies, and privatization of state-run industries. The plan, nicknamed "Rogernomics" after then-Finance Minister (now Sir) Roger Douglas, was akin to Reaganomics, and the island nation grew smartly.

We often hear this story from those who argue for "further reforms". The only problem is that it happens to be false. New Zealand's premier economic historian Brian Easton identifes the 1986-1994 "Rogernomics recession" as one of the main places that New Zealand's economy fell behind Australia and the rest of the OECD (the others were the wool price crash of 1966, and he argues to a lesser exent the oil price shocks of the 1970s). Easton suggests that the culprits were high interest rates and a high exchange rate at the same time as much of New Zealand's productive sector was being dismantled. In any case, the 1986-94 dip is clearly visible on this chart.

The WSJ article continues:

But while the U.S. and Australia broadly continued their economic liberalization programs under both right- and left-wing governments, New Zealand didn't -- until now. Over the past nine years, Helen Clark's left-wing Labour government rode the global economic expansion and used the revenue surge to expand government welfare programs, renationalize industries, and embrace causes like global warming. As a result, the economy stagnated while Australia took off.

As you might have guessed, this also happens to be false. The chart above unfortunately ends in 2002, but you can see that New Zealand actually sees a slight uptick against both Australia and the OECD from 2000. Over the whole 1999-2008 period, New Zealand did a bit better than the OECD and was close to keeping pace with Australia, whose own economy boomed during this period. I can't lay my hands on the stats and charts I had bookmarked, but there's a nice presentation of the data in this post, from an Australian addressing some local scaremongering about MMP government.

That's before you get to the non-sequiturs in that paragraph from the WSJ. For example, I'm not clear what "used the revenue embrace causes like global warming" is supposed to mean. The renationalized "industries", which makes Helen Clark sound like Hugo Chavez, presumably refers to the reluctant rescue of Air NZ and the buy-back of Kiwi Rail. And it is something of a mystery how the Labour government could "use the revenue surge [while]...the economy stagnated".

It would be hilarious if wasn't so depressing.

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