Graeme Wheeler is comfortably orthodox. Comforting to the cabinet, that is, but not to exporters — nor to the red-green-black trio of opposition parties.
The new Reserve Bank governor was clear in his first speech on Friday that his core role is to contain inflation, aiming at 2 per cent a year, perhaps a bit high in a deflationary global environment but lower than his predecessors’ record of mostly 2-3 per cent.
Like his predecessors, Wheeler also will keep an eye on economic growth as a factor in inflation, not an end in itself. Also like his predecessors, he will watch house and other asset prices, with — a late legacy from Alan Bollard — a wider “prudential” brief and more levers to discourage risky, irresponsible lending than the Reserve Bank had when the dangerous 2000s house bubble developed, a bubble still not deflated, especially in flighty Auckland.
Wheeler is also orthodox in valuing “deep, efficient and well-regulated financial markets” which “facilitate economic growth by helping to channel funds to their most productive use and to allocate risk where it can best be borne”.
He does reject the neoliberals’ orthodoxy, which infected much of the global system, that those markets must be left to run: unfettered, he says, they have “destructive power” when “dysfunctional”, as they were leading up the global financial crisis which has loaded governments with debt, on their own and their central banks’ balance sheets.
But that is the only bar of Wheeler’s line that is music to the red-green-black wannabe government of Labour, Greens and New Zealand First, now holding hearings (with Hone Harawira) on the “crisis” in manufacturing (which, actually, there isn’t).
Wheeler’s exchange rate tune is also discordant to the red-green-blacks. He sets four conditions for effective intervention to lower the exchange rate and none are met right now. Rich-country central banks’ dangerous “quantitative easing” (money printing) is not in-control management: he calls it “a sign of desperate times”.
Wheeler’s fix is to shift resources from the public sector and the non-traded elements in the economy to the private sector and the traded sector. Bill English says he is promoting this, but actually the flow has been from traded to non-traded over the past 18 months.
Wheeler’s essential point is that if we are to live up to our overpriced exchange rate — parked in stratospheric orbit by commodity prices, enviable government finances, continued GDP growth and foreign investors’ perception of this economy as a safe haven — we will have to lift productivity growth. That, Wheeler and his political masters believe, happens overwhelmingly in the private, traded sector.
(The reasoning is that most of the public sector and much of the rest of the non-traded sector are person-intensive, where machines and computers make smaller productivity gains than in smart manufacturing and high-end tradable services. This, too, is comfortably orthodox.)
Labour, the Greens and New Zealand First — and the Maori party, if it were honest and outspoken on the issue — think differently. They are searching out interventions to lower the exchange rate, make exports more profitable and make good jobs.
All three agree with Wheeler that the country’s total external debt is perilously high and that the serious and rising balance of payments current account deficit is building it. But they part company with him in wanting active interventions.
This is a combining factor for the three parties, potentially a unifier for a coalition-in-waiting. That the National party has grasped that possibility is shown in its recent slackening of its slagging off of New Zealand First. With the Maori party increasingly sounding like an opposition party, National knows it may need Winston Peters post-2014.
But within that unifier there is a dividing line between Labour and the other two That is over how much a small economy can counter the powerful intrusions of the modern, highly globalised economy.
Labour signed the Singapore, Chile and China free trade deals and actively pursued others. The Greens and New Zealand First oppose free trade deals and are more suspicious of inward foreign investment. That has been a link from Russel Norman to Peters, a meeting point in their occasional chats.
Anti-globalisation is a paradox in Green thinking. Greens have always been globally connected to like-minded parties and insist ecosystems and climate change are global issues from which we cannot, or at least should not, retreat into a nationalistic hutch. But they do not see the global economic ecosystem in the same light.
This economic globalisation line divided Labour and the Alliance in coalition 1999-02 and helped split the Alliance in 2002. That spectre now looms behind the red-green-black dalliance.
So Wheeler’s positioning highlights both what unifies and what divides the trio. If they do take office, what will they do with him — and he with them?