Short not-sharp shock

datePosted on 10:26, February 11th, 2009 by Lew

NatRad’s PCR Jane Patterson on Nine to Noon this morning characterised the government’s counter-recession plan as “drip-feeding”, opposed to Obama and Rudd’s “big bang” approach (audio). But drip-feeding would imply a long-term commitment, and Key doesn’t believe the recession will be a medium or long-term problem.

Rather than either of those metaphors, I would characterise the front-loading of already-planned expenditure and development into the coming six to eighteen months as a short sharp shock; however, given the relatively small amount of expenditure and development in the plan, it’s not even very sharp. Of course, there’s the argument that the government doesn’t have any more money to spend, but Key has bet on a short recession, and that implies short-term debt. I would think that if one was betting on a short recession, one would do everything in one’s power to ensure it was a short recession.

If it turns out to not be a short recession, Key (and English) will have to return to the drawing board, and that will very likely mean another short (perhaps sharper this time) shock, rather than introducing a strategic counter-recession plan mid-term and mid-recession. DPF raises (in some jest) the idea that Key might emulate his hero Muldoon on another matter, but to me it looks like this track could lead to economic micro-management of a very Muldoon-like nature. And the broadband plan is very Think Big.

L

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4 Responses to “Short not-sharp shock”

  1. Thomas Beagle on February 11th, 2009 at 10:45

    I think we’re taking a free-rider approach. Either the big stimulus plans in the big economies are going to work and drag us along as well – or they won’t.

    Not doing too much now may actually make sense for an economy as tiny as ours.

  2. BeShakey on February 11th, 2009 at 12:51

    I think we’re taking a free-rider approach. Either the big stimulus plans in the big economies are going to work and drag us along as well – or they won’t.

    I disagree – clearly our efforts aren’t going to make any difference to the global recovery, but the government’s actions can have a huge difference in terms of our preparedness to take advantage of the opportunities that will be presented when the recovery starts. For instance, if unemployement is particularly high, or there has been significant emmigration, there will be a long delay for the economy to gear up to meet the increased demand that will be associated with an upturn. The government can certainly influence these things (and they are just an example)

  3. Lew on February 11th, 2009 at 14:59

    I agree with BeShakey here; while the government can’t necessarily influence the world economy, it can to a large extent influence the domestic economy, and the trick is to do so while ensuring that we are prepared to hit the ground running when the recession does end. While I understand the limitations in play, I don’t think this is it. I think this is timidity dressed up as prudence. The government is doing the minimum that they can get away with, and (this is a bit cynical) perhaps hoping to blame the shortcomings of their programme on the “decade of deficits”.

    I’m curious about the relative absence of “learn to live within our means” rhetoric, but that is precisely the sort of programme the government has announced.

    L

  4. jcuknz on February 11th, 2009 at 20:01

    Paul Krugman [NYT] seems to be rather critical of the timid approach of the Obama Administration, I hate to think what he would say about our governments approach.

    He pointed out that in the States the New Deal of Roosevelt fell below par when in his second term he was influenced to be conservative and draw back for fear of mounting deficiets. Japan suffered similar fate awhile back due to ‘conventional’ thinking that programmes should be cut when money dried up. It is obvious that people suffer in that situation and responsible government bites the bullet and trusts that a recovering ecconomy will be capable of paying back the borrowed money.

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