This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
'Newsroom' recalled Édith Piaf’s ‘je ne regrette rien’ to head an article in which Don Brash expressed much the same sentiment.
Brash opened up his defence of the policies with which he is associated with ‘Looking back on the six years of Rogernomics, I can think of almost no economic policy of that era which should have been done differently.’
He begins listing examples of market liberalisation. I broadly agree. Indeed, I was arguing for it publicly in the 1970s when those with wiser heads kept them well below the parapet, fearful of Muldoon knocking them off. (See, for instance my Economics for Social Democrats, a 1981 compilation of Listener columns.) In his memoir, Saving Labour. Michael Cullen agrees.
Ideology aside, the necessity arose because the increasing diversity and complexity of the economy meant that it could no longer be managed top-down from the centre, as it had been during the Second World War. Not only was there more choice (if you had the income) and improvements in quality (not well measured in the statistics) but, following the liberalisation, the economy became more flexible. That may be the reason that the response after 2008 to the Global Financial Crisis was shorter than one might have expected; flexibility was a major reason why the covid shock was not as damaging as expected.
However, Brash is on less firm ground with the rest of the policies. He does not mention the eight years of stagnation which Rogernomics precipitated – unique in our history for being the result of self-induced internal policies rather external shocks. During the stagnation unemployment rose to a postwar high, and it seems likely that about half of the labour force became sufficiently redundant to register with the Department of Labour. (Perhaps the shakeout was necessary but there was little support for the unemployed, and virtually no attempt to use the redeployment to build up the skills of the labour force).
Brash reports in his memoir Incredible Luck of ‘exceptionally rapid growth in the early 1990s’. The statistical evidence does not support him while the subsequent economic growth rate after the economy began growing again was much the same as the underlying one before the stagnation. (Fairness requires mention that Brash is proud of presiding over the Reserve Bank as inflation was reduced to low levels – the sole Rogernomic macroeconomic achievement. It was not only monetary management which did it, but the flexibility in the economy which the liberalisation generated together with the international disinflation.)
Neither Brash’s article nor his memoir mentions the privatisation of public monopolies, such as Telecom, without any regulatory restraint so that the purchasers made supernormal profits while consumers and efficiency suffered.
His discussion of the distributional impact of the policies is curious.
But what about the effects on income inequality of these reforms? If the numbers are taken at face value ... there was a reasonably significant increase in income inequality after tax and benefits during the late 80s, with a broadly unchanged measure of income inequality after tax and benefits in the 30 years since – some years a bit more unequal, in some years a bit less unequal. [The elision is a caveat, I’ll come back to.]
First, the total increase in income inequality was also the result of measures taken in 1990 and 1991 by the National Government who argued that they were necessary to fund the Rogernomics tax cuts, for Labour left office with a large ongoing fiscal deficit.
Second, we may wonder whether the distributional changes were ‘reasonable’. The facts are that the top ten percent experienced a one-off average real increase of 25 percent in their after-tax incomes from those measures, while those at the very top gained even more. Meanwhile the thirty percent at the bottom had no real income increase for two decades (while the incomes of those at the top continued to increase with the economic growth following the end of the stagnation). Whether this was a ‘reasonable’ change in the level of inequality I leave others to judge.
The statement that there was not much change in after-tax household income distribution after 1991 is broadly correct, with one exception. The National Government’s ‘redesigning of the welfare state’ both cut social benefits (to pay for the tax cuts for the rich) but also indexed benefit rates to consumer prices rather than general incomes so the beneficiaries did not share in any rise in prosperity. (The Ardern-Peters Government restored the indexing to wages in 2019, but by now benefits were at a much lower relative level.) There is no mention in the Brash article of the redesigning of the welfare state from the McCarthy vision of the welfare state, aiming to enable everyone ‘to participate in and belong to society’ to the minimalist one, more like the American vision. People suffered as a result, Don, people suffered; they were not nearly as lucky as you.
The caveat to his statement was that ‘there are some good reasons [in assessing the inequality change using the current statistics] for not doing so given the radical change in the tax system in the late 1980s’. There is no further explanation and it reads like the standard truthyism that ‘since I don’t agree with it, it must be wrong’. I agree that there are problems with the data measurement, but I have subjected it to various tests and none seem large enough to suggest a different story.
Brash’s statements are important, because Rogernomes have hardly defended what they did. This article and Brash’s memoir are the only examples I know of. (Because of the lacuna I had to construct a defence in my Not in Narrow Seas – chapters 55 and 56 – but I am hardly one of them.) You can be sure that had the neoliberal policies succeeded, the Rogernomes would be loud in their self congratulations. Their silence, in Brash’s case in the key areas of macroeconomics and distribution, tells you that even they think they failed. Yet the consequences of their measures haunt us to this day.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.