– Our Man In New Zealand: We Haven’t Yet Had To Push The Big Central-Bank Button Labeled “Panic & Self-Destruct” (Testosterone Pit, May 10, 2014):
Wolf here: Lee Hughes in New Zealand sent me an awesome and funny commentary in response to my article, Scorched-Earth Monetary Policy in the US, And What Happened in New Zealand. So I want to share it. Enjoy.
By Lee Hughes, New Zealand:
You’re absolutely right that NZ hasn’t engaged in QE and hasn’t suppressed interest rates to the degree that the US has done and also that the labour force participation rates are high and unemployment is low. No shit – the labour force figures produced aren’t tweaked either. Unemployment really has dropped steadily for five years now, and pay has risen a little too. But there are a few other factors in play that help explain NZ’s present comfort at a time when other developed economies are tanking.
Firstly, NZ has been enjoying high prices for agricultural commodities finally. We’ve had to wait forty years until our products were in demand by a growing population of wealthier consumers – especially the Chinese. From the early 70s through to the late 90s, world food production climbed faster than populations could consume it, and so our economy suffered from the competition and overabundance of cheap food. But that has changed now and is unlikely to reverse course for a generation. So that explains some of the good times – we have something the world wants more of now. Something we are shatteringly good at producing. Better than anyone else. Much, much better. We grow food like the Saudi’s used to pump oil.
Secondly, we got a Keynesian stimulus like the one old Krugman pants and salivates about – you know the one where you bury money in jars and it pays people to dig them up? It happened like this. The NZ economy is small – only $120 billion or so GDP pa. In 2011, an earthquake devastated a fair part of the city of Christchurch. NZer’s though are highly insured, and most of the insurance payouts that followed the earthquake originate from pots of gold stashed outside NZ by large international insurers and especially re-insurers. The quake payouts will total about $30 billion spread over about 3 years. That is a huge injection of foreign money into an economy of our size – equivalent to Congress finding a trillion dollars behind the White House sofa. That money has fuelled a decent short term boom in construction in the South Island and that’s a big help too. But it’s a transient factor and won’t last.
Thirdly, NZ is presently an attractive destination for migrants and is experiencing a welcome return to net population growth. Unlike many developed countries, we are growing in population faster now than for most of the last forty years. That’s a help too.
Fourthly, our economic infrastructure is very healthy. We have very good rule of commercial law where businesses that fail actually go bankrupt (!), non-existent governmental corruption, a de-regulated economy with no subsidies worth mentioning (which makes whatever we produce a genuinely competitive product in the international market and therefore case-hardened against bad times); we have amiable unions, our taxes are bearable, and the tax code is simple. We also get about half our electricity from hydro and some more from coal (with which the islands of NZ are well supplied).
If we strike oil any time in the future, we’ll be once again the third or fourth richest country in the world (as we were in the late forties). Unlike Australia, our commodity exports are renewable, and the Chinese are still buying our stuff.
So while you are right that we haven’t had a central bank that has engaged in dumb shit behaviour like so many countries after the Global Financial Crisis, it ain’t necessarily because we rule such behaviour out on philosophical grounds. We’re just doing well enough that we haven’t yet had to push the big button labelled, “Panic & Self-Destruct.”
Notwithstanding all that, the future down here is so bright, I gotta wear shades. And it looks set to continue for a long while yet. Which makes a nice change from the shitty decades when I grew up and couldn’t wait to go to … the US! Now I’m sooo glad I’m here in Godzone.
Here is what triggered Lee’s letter: New Zealand’s central bank didn’t follow the Fed’s lead in monetary policy that favors capital over labor, Wall Street over savers, at any cost. Read….Scorched-Earth Monetary Policy in the US, And What Happened in New Zealand