Krugman, Delong & Romer will NOT be happy about this.
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A Keynesian Scorecard
Since Krugman, Delong and Romer would have you believe that massive deficit spending is the only logical and coherent response to economic recession, I thought I would take another look at New Zealand, and see how their approach of saving versus spending has served them during the downturn.
First some background on their recession program:
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These days, you have to travel far to find a national leader who is talking about market-based approaches to the global recession. All the way to the other side of the world.
"We don't tell New Zealanders we can stop the global recession, because we can't," says Prime Minister John Key, leaning forward in his armchair at his office in the Beehive, the executive wing of New Zealand's parliament. "What we do tell them is we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with."
That idea -- growing a nation out of recession by improving productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra. Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says. "You've saddled future generations with an enormous amount of debt that then they have to repay," he explains. "There is actually a limit to what governments can do."
The 47-year-old Mr. Key, a pragmatist by nature, knows a thing or two about how the public sector works. The youngest of three children, he was raised in state-owned housing in Christchurch, on New Zealand's South Island, after the death of his father. His mother worked at blue-collar jobs to keep the family afloat. Mr. Key earned a bachelor's degree in commerce from the University of Canterbury, took a job the next day at a local accountancy firm, and married his high-school sweetheart. After seeing a TV advertisement about a foreign-exchange trader, he started canvassing banks for a job. That kicked off a career as a foreign-exchange trader, with postings in Singapore, London and Sydney -- most recently at Merrill Lynch. "Bank of America," he says, with not a little mirth, "it's probably soon to be owned by Barack Ob-ah-ma!" -- emphasis on the "ah" in Kiwi-speak. His press secretary rolls her eyes.
Mr. Key's coalition government, which includes parties to the right and left of the Nationals, has moved fast to implement a program of tax cuts, regulatory reform and government retooling. He won't label it supply-side economics and smiles when I ask if he's a Milton Friedman or Friedrich Hayek acolyte. "I'm not deeply ideologically driven," he says. "I believe in good center right politics."
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.
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DB here. So let's see how they're doing now 15 months after the above editorial was published:
New Zealand's economy has chalked up four successive quarters of growth, taking the annual rate to 1.9 percent -- it's fastest in two years, official figures showed Thursday.
Gross domestic product grew by 0.6 percent through March, with primary sector industries growing 1.7 percent and manufacturing activity up 1.6 percent in the latest quarter, Statistics New Zealand said in a statement.
The result contrasted with a fall of 3.1 percent between the March 2008 and March 2009 quarters as the economy contracted during an 18-month recession.
"The economy has not yet returned to the level of activity before the recession," the government statistics agency noted.
Finance Minister Bill English said the latest growth figures were "a welcome sign the economy is continuing to recover, but more work is needed to ensure the rebound in jobs and growth is sustainable."
He warned that while the global economic outlook has strengthened in the past year, a European debt crisis shows the outlook remains fragile. That reinforces New Zealand's need to restrain government spending and curb the increase in its own debt, he said.
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What say you, Krugman?
I have emailed Paul with this story. Will be awaiting his response.