There is nothing like an idea for which the time has come — or come again. Take voodoo economics.
Steven Joyce on The Nation at the weekend used the term to scoff at Labour party ideas to constrain the exchange rate. The irony was that the originator of the phrase, George Bush senior, applied it to some of the very policies Joyce defends as orthodox.
Joyce thereby in effect made the point that economic orthodoxy is once again unsettled. There are received wisdoms, ideologies, prejudices, learned algorithms and equations, the perfect theory that markets always tend to equilibrium and another that wealth trickles down. Contesting those are prejudices and musings, revivals of Karl Marx and Maynard Keynes, exploratory hypotheses, including about “hyperglobalisation” and the nature of work, and new or revived theories about debt and its enabling and destabilising roles.
And that is only the half of it, the “western” half. There is also the “China model” — or not. A Wellington conference involving academics from China and the United States last week could not agree whether there is such a model to emulate as distinct from what just happens to be going on there. Remember the west’s 1980s worry about or adulation of Japan’s “model” before its asset markets crashed and it stalled for two decades.
Asia does have the Singapore model. It used to appeal to Joyce’s chair, John Key, but Key is not Lee Kuan Yew and our democracy is much messier than Lee’s tidy top-down version.
Into this buzz Joyce last week tossed a pamphlet — oops, “strategy” — for exports. Four more are to come on related topics. These follow “New Zealand Inc” “strategies” for China and India.
Strategies do lurk in the government’s undergrowth. Ministry for Business, Innovation and Employment officials have been expanding and deepening the sectoral studies they started last term. There is also strategic thinking outside the government: the Centre for Strategic Studies will on Wednesday issue a paper on our future relationship with China which goes deeper and broader than Key’s characterisation of it as “commercial”.
The outcome of the officials’ work and ministers’ “strategies” is an economic development theme which is becoming more focused and coherent. Ministers and officials will use the new documents to jawbone businesses and to coordinate regulation and government actions, for example skilling young people and help with innovation, to facilitate development and expansion, particularly of exports.
This approach to development draws a line between National-ACT-United Future and Labour-Greens-New Zealand First. On the other side Labour is inquiring into alternatives being explored abroad.
David Cunliffe has recently been to Denmark and Finland. Those two small countries have changed the structure of their economies and, consequently, lifted their pay scales much more than New Zealand over the past 20 years. Cunliffe has come back with ideas on how the public service can flexibly work with business in a rapidly changing global environment to boost innovation and up-tech the economy, especially in clean technology.
David Parker is now off hunting ideas.
In Paris he will meet the authors of a recent OECD paper that finds the impact of a volatile exchange rate on exports and imports is greater in small economies (New Zealand and Chile) than in large economies (China, the Euro area and the United States). In small economies exporters have smaller internal markets to cushion them from currency rises than those in large economies. Small economies are less diversified so there is less scope to switch to exports which can set their own prices and ride out ups and downs — or, as recently, ups and ups.
Parker last year proposed widening the Reserve Bank’s brief to ease exchange rate problems. Joyce says that cannot work and is voodoo economics. (But note that in the Keynesian orthodoxy exchange rates were fixed for a quarter-century.)
Parker will talk to Ambrose Evans-Pritchard of London’s Telegraph, the economic commentator he respects most, Jeffrey Frankel, a Harvard academic specialising in “capital formation and growth”, Joseph Stiglitz, revisionist former World Bank chief economist, and Olivier Blanchard, revisionist chief economist at the International Monetary Fund. Another target, Dani Rodrik, who wrote The Globalisation Paradox, a revisionist tract on hyperglobalisation, is away when Parker is at Harvard.
His mission is to hunt down new ideas (though, tellingly, in institutions astride the “old” North Atlantic, not in “new” Asia) and see how they fit in the mix here.
Joyce might say to that: bubble, bubble, toil and trouble. But also there might conceivably be voodoo in orthodox economics in need of exorcism. What turns out to be voodoo and what the next orthodoxy we will not know for a decade or more.
Whoever is right, there is a debate now. It will build through to the next election. It beats listening to focus groups.