Hands-on economies are dying
The bigger the lie, the more likely it will be believed.
Today’s left wails that the global financial crisis has undermined the case for so-called neoliberal economics: free and open economies, price stability as the primary goal of monetary policy, freely traded currencies, prudent fiscal policy and private ownership of productive assets.
David Shearer says “the hands-off, leave-it-to-the-market approach has failed all over the world.” Labour/Green will be “hands on.”
To Labour’s credit, it still says New Zealand needs to return to surplus – as well it might, with net public debt forecast to reach Zimbabwean levels by the middle of the century.
But, broadly, the ideas exciting today’s left are abandoning so-called austerity, pump-priming economies with borrowed or printed money, managing exchange rates with unspecified new “tools”, picking winners and supporting them with taxpayer cash, more regulation, and keeping all state assets in their current ownership forever.
This, they say, would have avoided the financial crisis and is the path to recovery.
Even a drop of real data shows it to be absurd.
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The countries that best weathered the crisis were exactly those that have followed the so-called neoliberal agenda.
According to the Heritage Foundation’s Index of Economic Freedom, the world’s six freest economies are Hong Kong, Singapore, Australia, New Zealand, Switzerland and Canada (see table).
These six have avoided anything like the deep and prolonged recessions of more interventionist countries.
The IMF continues to forecast higher growth for the six than for countries further down the freedom list.
Even more important, both unemployment and youth unemployment are lower in the more free-market economies.
“Hand’s-on” countries like Sweden seem unable to design an economic system that avoids a quarter of their young people being unemployed. In the six freest economies, youth unemployment is half socialist Europe’s.
Moreover, it wasn’t free-market economics that created the crisis.
The US’s troubles were driven by fiscal profligacy and the Clinton Administration’s populist housing policies.
In Europe, the crisis was caused by what amounted to fixing the Greek, Italian and other currencies to Germany’s, followed by massive over-spending.
n the UK, Gordon Brown borrowed more than all previous British governments for the last 1000 years combined.
In contrast, no free-market economy, operating prudent fiscal policy, has suffered anything like the same problems.
Predictably though, the left now tells us, the best path forward for the US, the UK, the PIIGS and New Zealand is the spending and interventionism that got the world into trouble in the first place.
Still, Mr Shearer has done us a favour by launching a “hands-on / hands-off” debate.
It highlights the risks of departing from successful free-market economics towards the kind of EU-style interventionism first begun by Jim Anderton and continued ever since.
With SkyCity, Warner Brothers, Mediaworks, ultra-fast broadband and roads of national significance, Mr Key’s government is quite hands on enough, thank you very much.
The data suggests it would be doing us all a favour if it dropped those types of interventions and just got on with radically liberalising the labour laws and the Resource Management Act.