National: cutting their way into the recession

datePosted on 07:28, February 18th, 2009 by Anita

At Pundit Nicky Hager has an article up about National’s “spending” plans. Based on leaked material he shows that, having started to realise the gravity of the recession, English has increased capital expenditure by no more than an additional $250 million of capital spending a year: in terms of government spending that’s nearly nothing. As Hager concludes:

As the country heads into the worst recession of our lifetimes, John Key and Bill English have decided against any significant economic stimulus package. As other countries acknowledge the magnitude of the crisis and spend, our Cabinet will be putting their energy into finding places to cut.

At the same time the National cabinet is taking a knife to operational spending: 10% here, at least 500 jobs there, 30 more over here. These cuts of operational cuts will very quickly add up to $250 million, not to mention poorer services for all New Zealanders,

So National’s plans to get us out of the recession are… exactly what their plans always were: cut, cut and cut. Less service, less support, and what money there is will be redirected to the private sector labelled “infrastructure investment” and “improved competition”.

17 Responses to “National: cutting their way into the recession”

  1. Tom Semmens on February 18th, 2009 at 09:58

    The wider issue for this National Government is when it is going to get out of it’s opposition mode and start governing. So far, we’ve seen petty payback (Ryall) and vindictive law and order (Collins) initiatives and that is about it. It is telling that these two nasty pieces of work have been most prominent lately. Them and the stuffed shirt Paula Bennett, clearly the fall girl for slashing welfare spending under Rodney’s razor gang.

    It is clear that National is paralyzed between its pragmatists under Key and its hard right rump and ACT coalition partner. Every attempt at an initiative to help the economy is stymied or criticised by the right, so the government slumps back into inaction on core governance issues. Since no action is a default win to the Rogernomes, the right rump is currently winning the battle.

    It is amazing. National won power with no idea what it was going to do and no coherent internal power structure.

    A big thanks to the N.Z. Media, whose desire for someone new to write about has delivered us the Herbert Hoover of our times.

  2. What would Hayek say on February 18th, 2009 at 10:12

    Sorry – its the quality and timing of the spend that matter, not quantity and more importantly you are forgetting the NZ already has a higher portion of government stimulus in the economy. I think Hager and yourself are making some very basic policy/economic analysis errors.

    Humour is the more appropriate response to this posting

    From Organisations and Markets http://organizationsandmarkets.com/2009/02/10/alex-rodriguez-admits-to-personal-stimulus-package/

    Peter Klein |

    NEW YORK — Yankees’ star third baseman Alex Rodriguez admitted to receiving a series of personal stimulus packages from 2001 to 2003. “My trainer said my actual output was well below my potential output so we needed to pursue an expansionary nutritional policy.” Now suffering from a debilitating disease caused by prolonged exposure to stimulus, Rodriguez said he had “little choice” but to ask the trainer for even more stimulus, as well as putting every aspect of his personal and professional life under the trainer’s control. “Bold action is needed,” said a spokesperson for Major League Baseball. ”We cannot depend on stimulus alone to create home runs or long-term athletic growth, but at this particular moment, only stimulus can provide the short-term boost necessary to lift Alex from a recession this deep and severe.”

    Rodriguez’s trainer said he was pleased with his new authority and blamed the player’s health problems on “lack of oversight” by baseball officials. “We didn’t have enough regulation,” he complained. Baseball analyst Paul Krugman said he supported additional stimulus and the trainer’s new powers but worried that the plan “doesn’t go far enough.”

  3. Anita on February 18th, 2009 at 10:33

    What would Hayek saySorry – its the quality and timing of the spend that matter, not quantity and more importantly you are forgetting the NZ already has a higher portion of government stimulus in the economy.

    My point is not whether or not more stimulus is needed, nor quality and timing of spend. It’s that National are running an agenda of public service cuts while claiming they’re implementing a stimulus package.

    The stimulus package is little more than smoke and mirrors, the cuts are real and will damage access to public services.

  4. StephenR on February 18th, 2009 at 10:52

    From the Herald via DPF:

    The Ministry of Social Development aims to cut its staff of 9500 by 5 per cent (475) over the next four years by automating some processes and allowing people to apply for some benefits online.
    http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10557317

    That would seem quite an intelligent way of doing things. Whether it’s the exception or the rule is another question – would be very interested what Bradford would have to say on that…but the pundits at KiwiPolitico will suffice i’m sure.

  5. What would Hayek say on February 18th, 2009 at 10:56

    Ok if that is your point then please start the post with the point and then provide analysis/assessment of Nationals plans and why those actiona either support or disprove the hypothesis. That would then help contributing comments.

    All I could tell from the post was that Hager and yourself wanted either more spending or to solidify the public service as it was on 31 October 2008.

    The post would have been better if it demonstrated that these were reductions to service and what the lossof those services would mean. Realistically does the rest of NZ care if 5% of Wellington public servants disappeared? and the money is put into regional infrastructure projects instead. What matters to wider NZ is whether the 5% loss then translates in to a loss of health, education or justice services that they have an interest in.

    Without this information the post just comes across as being about quantity of spend rather than quality. An yes I do realise there is worry inside the wellington public service about change, but you need to provide a convincing story to wider NZ who are parocial and still consider the public sector as still being like “gloding on”, even though this is not reality. But it is the perception wider NZ has and a convincing story needs to be provided to counter this perception. That would make for a better post and porvide issues to debate.

    Otherwise – it come across as saying mine would be bigger than yours.

  6. Anita on February 18th, 2009 at 15:02

    What would Hayek say writes

    Ok if that is your point then please start the post with the point and then provide analysis/assessment of Nationals plans and why those actiona either support or disprove the hypothesis.

    I reckon that evidence, evidence, conclusion was an adequate structure for a blog post, but I could have tried to flag the conclusion more clearly perhaps.

    The post would have been better if it demonstrated that these were reductions to service and what the lossof those services would mean.

    I think you still haven’t understood my point. To restate it:

    My point is … that National are running an agenda of public service cuts while claiming they’re implementing a stimulus package.

    It’s the disingenuousness that bothers me.

  7. What would Hayek say on February 18th, 2009 at 16:01

    No I get your point, but there is limited if any linkage between a stimulus package and having public service cuts/redistribution/repriortisation. Than can both occur because the stimulus could be going into areas other than the public sector.

    That is the quality of stimulus debate, not quantity. National is not being disingenuous as the have always ben clear that they will put a lid on the public sector and look to repriortise towards front line activities.

    Now if you could point out that they are going to have less front line delivery, drop in standards then there is a discussion, but other wise you are still in the world of saying my package is bigger than yours.

  8. Cutting costs is not recessionary | TVHE on February 18th, 2009 at 17:03

    [...] at Kiwipolitico Anita states that the government will cut spending on government services by at least the same amount [...]

  9. reid on February 18th, 2009 at 19:55

    The stimulus package is little more than smoke and mirrors, the cuts are real and will damage access to public services.

    Why?

    Private sector is always more productive than public sector. There are many reasons, suffice to say, evidence is in.

    In these times, you need utter devotion to bang for buck, a.k.a. productivity. If you thought AGW was an issue, would you deliberately buy a smelly old diesel with poor fuel economy? No? So why do you expect National to do a similar thing with resource allocation in these particular times?

  10. Pascal's bookie on February 18th, 2009 at 20:31

    Private sector is always more productive than public sector. There are many reasons, suffice to say, evidence is in.

    I just can’t help but wonder why it was the public sector that did all the expensive hard yards on our transport networks. And energy generation and distribution. And satellite technology. And computers. And the internet. Maybe these things aren’t worth mentioning, being outliers to our already established principle of private sector superiority at being productive.

    I don’t see that there is anything inherently superior about private enterprise. It is more the fact that private enterprise (usually) is more responsive to the market. If the public sector’s actions in the market are regulated carefully and honestly, and the market is itself properly established, then there should be no difference.

    Where there is a market failure in a specific area, (such as natural monopolies) then the public sector, through political pressures not operating on private companies, can be more beneficial.

    Also when the economy itself falls into a structural hole, the signals being sent by the market can lead to a downward spiral where private actors rationally retrench and focus on debt repayment and become risk averse, causing a loss of economic activity that causes everyone else to continue to retrench, and so on and so forth.

    The public sector can break that spiral. Yes it is costly in terms of debt (future taxation), but better than the alternative, surely?

    If that is the case, and many people believe it is, then in specific circumstances what is required is for the govt to run that smelly old diesel generator to stop the population from freezing to death. Which is not to say that they should keep it running forever, but no one is saying they should.

  11. reid on February 18th, 2009 at 20:50

    I just can’t help but wonder why it was the public sector that did all the expensive hard yards on our transport networks. And energy generation and distribution. And satellite technology. And computers. And the internet. Maybe these things aren’t worth mentioning, being outliers to our already established principle of private sector superiority at being productive.

    We’re talking productivity here, PB. Which is the more productive at exploiting those industries you mention above and a thousand others? Govt or the market?

    In terms of your other comments, you’re really talking about the GFC (Global Financial Crisis). Even though this is a unique situation. (which BTW, is going to fundamentally change geopolitical power and result in a world completely different to the one we’ve always known), that fundamental productivity argument still applies.

    The only thing the govt sector is good for, is governance. Governance does not include operations and administration and sales and marketing, but it does include regulation and authoritative intervention where necessary. An example of necessary intervention is where alternative technologies are suppressed due to entrenched powerful interest groups (e.g. oil companies). I’m not like many conservatives. I don’t believe the market is good for every single thing. The market is lousy when the aforementioned governance functions aren’t performed properly. However, an open market is excellent at determining efficiency, a.k.a. productivity. Just as markets are excellent at that, govts are at the other end of that spectrum, when it comes to efficiency. Horses for courses.

  12. Pascal's bookie on February 18th, 2009 at 21:49

    reid,
    You seem fond of general statements and absolutes, that you assert but don’t justify. That’s fine, but unconvincing.

    A few points.

    The govt is an actor within the market. It is not something separate from it, so Which is the more productive at exploiting those industries you mention above and a thousand others? Govt or the market? are silly questions.

    If The only thing the govt sector is good for, is governance. then how about those satellites and what have you? Do you think the Apollo program was wasteful nonsense that we would have better off without? Not to mention sputnik ;)

    (which BTW, is going to fundamentally change geopolitical power and result in a world completely different to the one we’ve always known)

    This sounds interesting, but only if you have some specific predictions. The world is always changing. There is no world that we have always known. If you are suggesting that we are about to launch into some completely new paradigm (I doubt it) then why should your productivity statement be exempt? Is it some natural law? Personally I think the private sector is ‘more productive’ due to the way we have constructed our society and the way we measure and value activity. Change those things and your statement becomes meaningless. (As the private/public dichotomy would have been prior to the development of the modern nation state.)

    It isn’t really a global financial crisis that I was talking about, but an economic one.

    Just so I am clear about what you are saying, do you think that the govt should not be stimulating demand? After all, that’s not governance.

    If you do think that that sort of intervention is appropriate, then why the focus on productivity? The point of the stimulus is to take up the slack so that we don’t all lose as much as we otherwise would. It’s a temporary thing, that will be paid for in higher taxes when we come out the other side. What exactly does better productivity in the private sector have to do with that? Given that the problem is that the private sector isn’t going to provide the stimulus.

  13. reid on February 18th, 2009 at 23:08

    reid,
    You seem fond of general statements and absolutes, that you assert but don’t justify. That’s fine, but unconvincing.

    I assume one is aware of the literature re: state vs private productivity stats, PB.

    The govt is an actor within the market. It is not something separate from it, so [Which is the more productive at exploiting those industries you mention above and a thousand others? Govt or the market?] are silly questions.

    Why is it a silly question? To me it’s self-evident.

    If The only thing the govt sector is good at, is governance, then how about those satellites and what have you? Do you think the Apollo program was wasteful nonsense that we would have better off without? Not to mention sputnik ;)

    Yes, NASA invented velcro, teflon and many other useful applications that have since been successfully exploited by the market. You’re right. One element I omitted from my previous comment is that fact that the market won’t invest enormous sums on R&D unless it has immediately obvious returns within a defined period. Usually because the approving manager doesn’t want to get fired. I agree, there MAY be a role for govt-sponsored research, so the question is, how does one best decide which projects get sponsored?

    The NZ equivalent is our Ag-Research, so let’s consider that. The most promising technology in Agriculture is genetics. It would bring untold benefit to NZ since we utterly depend on both plant and animal technology not only in direct exports but in our pastures etc. However, look what the political implications are of proceeding wholesale with that.

    Commercial companies proceed regardless and with wise regulation from the govt, they can be controlled. Because of political protest in this nation however, even Govt organisations can’t proceed with exploring this new frontier (broadly speaking – there are limited exceptions but these are subject to harsh restrictions which limit the effectiveness of the science).

    Are we shooting ourselves in the foot, given our dependence on this technology? What is the best balance? These are questions of governance. How do we for example, best exploit a toad gene that increases milk production with no side effects as proven through a gajillion generations? That is a question for the market. The governance question is what research do we sponsor or allow, that may unearth that in the first place, even if it wasn’t what we were looking for?

    The mix of this technology with market and governance dynamics is IMO quite interesting. One of the most abhorrent things in this field in my view, is the patenting of human genes. This patent availability came about through a failure of governance but the science would never have come about if the govt alone had conducted the research.

    The story is, one of the oil companies applied to the US Supreme Court for a patent on an oil-eating bacteria that it had developed. The patent was granted. Bzzzt. The Justices didn’t understand the nature of a living organism, as US Law had up to that point denied patents on such. Over the years the corporate lawyers widened the crack and this led over time to the patenting of the human genome, which will lead in time, to us paying massive premiums to patent holders in order to receive gene therapy for every imaginable ailment. OTOH, the market may through its mechanism reduce the price to a manageable sum so that you and I and our children can be free of whatever malady we wish.

    What is the appropriate balance, is the question? So far, IMO, we don’t have it right.

    This [geopolitical implications of the GFC] sounds interesting, but only if you have some specific predictions.

    I do, but let’s wait till the relevant thread.

    Just so I am clear about what you are saying, do you think that the govt should not be stimulating demand? After all, that’s not governance.

    Stimulating demand is one thing and I applaud it. What they’re doing at the moment, is not going to stimulate demand. In 1929, we didn’t have the mortgages and cc debt in consumers, and the derivatives and CDO’s in financial institutions. This global indebtedness affects everything: insurance companies for they invest in the market; pension funds, ditto; hedge-funds, who were major players in the derivatives markets and which pension funds are heavily into. People are scared and when they’re scared they conserve, because they want to preserve their status quo. Stimulus packages won’t work. Propping up companies that made bad decisions won’t work. Take the pain, let them fall over, support the people who can’t get a new job and move on.

    Don’t forget however, the govt get its money from those of us who have a job. If all that dries up, where do we go? unemployment was 25% during the 29 depression. That’s a 25% cut in govt revenue.

    We’re in a huge hole. The only way out is to dig. The best way to dig is upward. That means being productive. The govt isn’t. The private sector is.

  14. Pascal's bookie on February 19th, 2009 at 07:00

    “The govt isn’t. The private sector is.”

    At the moment he private sector in the US is shedding half a million jobs a month. How productive is that?

    Who should take up some of that slack, to avoid the multipiler effects caused by the increasing unemployment. The private sector won’t/can’t.

  15. reid on February 19th, 2009 at 07:11

    Who should take up some of that slack, to avoid the multipiler effects caused by the increasing unemployment. The private sector won’t/can’t.

    Right now we’re faced with urgent surgery to fix an injury that should never have happened. What is the appropriate action now and what should have occurred to prevent that from arising in the first place, are two separate questions.

    However the principle of productivity still applies to both, so to me, the answer is, whatever is the most productive.

    Incidentally, as to the causes of this crisis, have a look at this C-Span video.

  16. Pascal's bookie on February 19th, 2009 at 11:02

    Thanks reid. That clip is being talked about quite a lot. Some, are talking very irresponsibly. Some are bordering on anti semtism.

    Anyway, the following provides some good info about the story, and links to news reports from the time about what was going on.

    http://baltimorechronicle.com/2009/021109Cherbonnier.shtml

  17. Lew on February 19th, 2009 at 12:13

    reid,

    the market won’t invest enormous sums on R&D unless it has immediately obvious returns within a defined period. Usually because the approving manager doesn’t want to get fired. I agree, there MAY be a role for govt-sponsored research, so the question is, how does one best decide which projects get sponsored?

    The best model I’m aware of for this is the Australian CSIRO – a massive, sprawling powerhouse of ideas and blue-sky research, all of it developed with commercialisation in mind. CSIRO responds to demand from the academy, from industry, and researches projects as diverse as the impact of climate change on aquaculture, better technologies for longwall coal mining, lighter metals, better batteries for electric cars, new wheat and grape varieties which are resistant to disease, and computer technology – yeah, if you use wi-fi internet, you’re benefitting from CSIRO research.

    NZ’s Crown Research Institutes, along with others around the world, work closely with CSIRO, but we’re limited by funding. The thing with the CSIRO model is that you can’t go into it expecting immediate results – it’s been running for 60 years this year, and all its research stands on the shoulders of previous research. We should have funded the DSIR on a similar basis, decades ago – but we didn’t, and now we’re reaping the productivity whirlwind. But it’s not too late to start.

    L

Leave a Reply

Name: (required)
Email: (required) (will not be published)
Website:
Comment: