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The Dangers of Delusions of Grandeur

This is a column about MAGA – Make America Great Again. But as a prequel I scroll back sixty years to when I was teaching in England. I have fond memories of the students – bright and personable as they were. But their attitudes to England and the world left me uneasy. In the time of their great-grandparents – before the Great War – Britain and its empire had been the world hegemon. Those students persisted with the notion that their country was considerably more powerful than was warranted in the 1960s. They thought it had won the Second World War, discounting the impact of the Russian population and the American economy. They thought in terms of the British Empire (oops, Commonwealth) ignoring that the core element of India had gone AWOL, and that other elements – even New Zealand – were forging their own paths.

I concluded that there was considerable inertia in international attitudes over the generations but hoped that the Brits would steadily come to the realisation of their relative decline. I took comfort that the support of Edward Heath and Harold Wilson for the (now) European Union, and the outcome of the referendum in 1975 which favoured joining it, was evidence of Brits revising their perception. I recall, however, one of my students supporting joining the Union on the basis that it would benefit from British leadership – the EU as a kind of third British Empire.

Britain proved unable to lead the EU. Germany was bigger and had more weight; France, Italy and even Poland and Spain were only a little smaller. In 2016 the English and Welsh voted to leave and the Northern Irish and Scots voted to remain. Exactly why they voted as they did is complex but I heard in the campaigns echoes of the delusions of grandeur and that Britain could go it alone. Older voters tended to vote ‘leave’, and there was talk of reviving the British Commonwealth – yeah, right. (Of course it could go it alone at an economic cost, but its weight internationally would not increase.)

Britain’s hegemony was being displaced by the US’s. In 1950 the US produced around 27 percent of the world’s goods and services (measured in common prices – ‘purchasing power parity’). The next ones down were the Soviet Union at 7 percent and the United Kingdom at 6.5 percent. The rest of the world was desperate for US dollars because their inward-facing postwar reconstruction meant they had little to sell to the US. No other country was anywhere as near as militarily powerful, although the Soviet Union had just tested its first nuclear bomb in 1949. I do not know how to measure it, but cultural hegemony had shifted to the US too – think of Hollywood.

Seventy years later it is a very different world. China produces 19 percent of the world’s GDP, ahead of the US at 15 percent. The EU (without Britain) is fractionally behind also at 15 percent. India is at 7.5 percent and Japan at 3.7 percent. Further down, Indonesia, Brazil and Turkey join Russia and Britain in the 2 to 3 percent group. (The ten member states of ASEAN produce about 5.7 percent; Australia is about 1.0 percent, New Zealand a sixth of that.)

A caveat is that while China’s economy is bigger because of its larger population, its productivity is markedly lower and its discretionary surplus smaller. (However, its more authoritarian governance may find it easier to deploy its surplus for international purposes.)

Moreover, even today no other country is as militarily powerful as America with its global reach. But, as local wars demonstrate, other countries may challenge it in a region, while a US presence may change the balance of military forces as it does in Europe, the Middle East and Taiwan. None of the remaining military powers has a global reach. Even China’s military extends outside its immediate region only to protect its supply routes. Otherwise, it confines itself to its ‘region’ although, as boundary disputes with India and in the South China Sea (to use its most popular name) plus Taiwan indicate, others may have different views of what exactly is China’s region.

It could be argued that the US has not the commitment to exercise its global military reach. Nowadays it may be less willing to commit troops outside its borders and you may think its support to Ukraine has been less than wholehearted. But decades after 1956, Hungarians recalled what they thought was a betrayal when the West gave no significant support to their uprising.

Apparently the Pentagon is less confident that it can fight two major wars, a position underlined by Donald Trump who wants Europe to bear a greater share of the burden of confronting Russia, presumably to free up US military resources for other theatres.

(Because of the global use of English, US culture is still significant, but probably diminishing. Britain also punches above its weight culturally.)

MAGA is a reaction to this change. Observe the second A for ‘again’. It says America was once great but is no longer. However, its diagnosis is hardly convincing to the reflective observer. It explains the loss of greatness as a consequence of the failure of the leadership in Washington, typically for conspiratorial reasons rather than the structural reasons just outlined. It concludes that what is needed is a new leadership not beholden to the ‘deep state’ in Washington – enter Trump.

With one exception, Trump’s proposals to MAGA are unclear. He is promising to increase tariffs on imports, especially those from China. The Chinese economy appears to be in trouble. Possibly it has reached a similar stage to the Japanese economy in the 1990s, when its economy seems to have absorbed all the international technology it could and it stagnated for a number of decades.

But China aside, a 20 percent tariff on the rest of the world is likely to be extremely disruptive because there will be retaliation. A big change over the last 70 years is that in 1950 the US exported about 3 percent of its output; today the figure is more like 11 percent. The US is also vulnerable because of the international involvement of US corporations which could be subject to boycotts. (X and TELSA are already prominently mentioned.) How a global trade war will evolve can only be guessed, but it will be ugly – wars are. International output will fall, and unemployment rise.

A further complication is that the world institutional architecture was largely developed shortly after WWII, favouring the US. It has, with four others, a veto in the Security Council in effect castrating the United Nations. Its institutional power in the IMF and the World Bank reflects the international economy of 70 years ago. It has paralysed the workings of the WTO by refusing to approve judicial appointments to its appeal authority.

So international fora are not going to be much help. Yet under MAGA the US can only bully, not lead, the international community. My guess is that the consequence of any thuggery will be a further weakening of the long-term influence of the US as the rest of the world evolves institutions to deal with the bullying. It won’t be easy and it won’t be instant. It certainly won’t be easy for countries as small as New Zealand. Expect a realignment of our international connections.

Property rights – which enable decisions over tangible and intangible assets – are critical to an economy as Why Nations Fail pointed out.

Not just private property rights for, as we shall see, they are more complicated than that. Neoliberals argue that private property rights lead to the maximum economic prosperity; they used that to justify privatisation. Certainly, ambiguous property rights are likely to result in poor quality outcomes. But community property rights can be effective, as economic orthodoxy acknowledged when Elinor Ostrom was awarded a Nobel laureateship in 2009 for showing that the use of exhaustible resources by groups of people can be rational and prevent their depletion without either state intervention or markets with private property.

Pre-market Māori demonstrated that too. The seas around Northland were teaming with fish, even in the 1850s. The local hapu had various measures which sustained them. Following the breakdown in hapu authority, the seas became fished out.

The neoliberal misunderstanding was evident in the original formulation of ACT’s treaty principles proposal. Its second principle stated that the government should ‘protect all New Zealanders’ authority over their land and other property’. This was intended to be an updating of Article II of Te Tiriti, which actually stated that the Māori rangatiratanga would be preserved for ‘ratou wenua o ratou kainga me o ratou taonga katoa’, which might be translated as ‘their lands, their villages and all their treasured things’.

Two things. Minor for the purposes here, ‘ratou taonga katoa’ (all their treasured things) is wider than just property. Did ACT intend to downgrade the standing of te reo, despite the highest courts in the land determining that it is a taonga under Article II?

But second, the notion of rangatiratanga is not just about individual authority. Pre-market Māori did not have a notion of individual ownership of land and other resources. Those property rights were exercised communally.

This was barely understood by the first Europeans and led to many early misunderstandings, some of which persist to this day, for we are always tempted to anachronistically interpret the past by current standards. (The misunderstandings are well explored in the scholarly literature; I tried to summarise them in Chapters 4 and 5 of Not in Narrow Seas.)

(Those of a conspiratorial frame of mind may think that ACT was not ignorant but was trying to sneak into legislation a clause which the courts could interpret as upholding the principles in ACT’s Regulatory Standards Bill.)

Clearly, ACT’s second principle will not do, and sober official advice changed its manifesto promise to

          Rights of hapu and iwi Māori — the Crown recognises the rights that hapu and iwi had when they signed the Treaty/te Tiriti. The Crown will respect and protect those rights. Those rights differ from the rights everyone has a reasonable expectation to enjoy only when they are specified in Treaty settlements.

(ACT has lost interest in this revised second principle but is proceeding with the Regulatory Standards Bill.)

This still does not capture the essence of Article II of Te Tiriti. I’d have thought that the rights existed from the time of signing and that treaty settlements only recognised the existing rights rather than created them.

There is also a deep complication about what property rights refers to. It is not peculiar to Te Tiriti, so I begin with a contemporary example.

Suppose there was a proposal to establish a KFC in a suburban shopping centre. Even a neoliberal living, say, 100m away might object to its impact on the neighbourhood and join in the objection to its establishment. (In the case in mind, they were successful and the KFC was never established.) There is nothing among a property owner’s legal rights which entitles them to block the proposal. The opportunity to object arose from town-planning provisions such as in the Resource Management Act. But presumably the neoliberal thought there was some existing moral right to block a neighbour’s peaceable, if detrimental, activities.

(You can see why proposed changes to the RMA and the proposed fast track legislation are difficult. While they are intended to reduce the transaction costs of making decisions, they will also reduce some people’s ‘property rights’ while increasing those of others.)

We frequently see Māori claiming kaitiakitanga (guardianship) in their rohe, despite its ownership having been legally alienated. They are arguing that the rangatiratanga of Article II of Te Tiriti included stewardship rights and mana whenua was not alienated when ownership was transferred (whether justly or unjustly). They are not alone in their belief of kaitiakitanga rights. Greenies frequently invoke it; we are all greenies on occasions (as with the raising of the level of Lake Manapouri, even if we had never visited it and lived miles away).

ACT does not seem to have thought through these issues in its proposals, or perhaps neoliberals do not think they should be attended to (unless it’s about a KFC in their neighbourhood). But others do.

ACT has opened up a can of worms. The biggest worm in the property rights can is to what extent their existing distribution is just. (This is not quite the same issue as the inequality of the property rights.)

The respected libertarian philosopher Robert Nozick pointed out that if a distribution is ‘just’, the distribution of rights remains just following voluntary transactions. But what if the original position is not just, what if transactions are not voluntary? How can we treat the existing distribution as acceptable?

Was the distribution of land just even on 6 February 1840? As a reult of the Musket Wars much land involuntarily changed its rangatiratanga. Oral traditions report that there were involuntary land transfers following conquest even earlier. Was there ever a time when the distribution of land was just? Arguably the proto-Māori seized the land from the existing animal inhabitants, when they first arrived.

A practical resolution might be to say that the distribution on 6 February 1840 was acceptable in the governance of New Zealand. Even so, much of the subsequent alienation was not voluntary.

The tendency is to highlight the consequences of the New Zealand Wars – we do love heroics. Arguably, the 1865 Native Lands Act was far more destructive. It created the Māori Land Court, which converted Māori customary title into a title recognisable under law. Māori were not consulted about this legislation. British law was unable to deal effectively with collective (customary Māori ) ownership, so Māori practices were converted to individualised ownership. The creation of a commercial title with its individualisation pitted Māori against Māori, undermining the integrity of hapu. (Woody Guthrie sang ‘some rob you with a six-gun/some with a fountain pen.’) Here is a salutary reminder that property rights influence the way we organise society.

Nozick is ruled out. So how are we settle on an acceptable distribution of property rights? ACT’s Treaty Principles Bill is not an answer.

The current rise of populism challenges the way we think about people’s relationship to the economy.

We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. The re-election of Donald Trump is just the latest example

Professionally, I found the British people’s voting for Brexit the most disturbing (52 percent voted to leave, 48 percent to remain, on a 72 percent turnout). There was a compelling case that the British economy would be damaged by Britain leaving the European Union (although not as quickly as some claimed). One might favour ‘Leave’ because it would give Britain more control over itself, for international economic intercourse compromises national sovereignty. But the tradeoff is that cutting back trade reduces economic prosperity. Much of the public chose to ignore the tradeoff when they voted. Subsequently they found that the sovereignty gains were small, while the British economy has performed badly. An increasing proportion of ‘leavers’ regret the decision to leave. The economic analysis proved correct.

Populism is sometimes characterised as ‘the people’ rejecting the ‘Establishment’. During the Brexit campaign there was a strong undercurrent that since the Establishment supported ‘Remain’, the policy must serve them to the detriment of ‘us’. They now know that closer British involvement with the European Union was beneficial to many of them too.

It is easy at this stage to dismiss people taking a strong line against the Establishment as ignorant or worse. Recall Hillary Clinton muttering that many of the Trump supporters were ‘deplorables’ and there will be equally dismissive explanations of those who voted for Trump’s second victory – ‘racists’, ‘sexists’, ‘fascists’ …

It might be wiser to recognise that these people have concerns which they may badly express, which they may badly diagnose, and for which they may have badly thought-through policy responses. But even so, those underlying concerns are real enough. There is no point in ignoring them and then being shocked at the following election when the holders again vote against the Establishment and even against their best long-term interests.

How often does one hear preaching rather than engaging with the audience? How often does one find that the preacher’s argument is self-serving? That does not mean that the argument is always wrong, the preacher is just not connecting. The case against Brexit was not wrong as we (almost) all know with hindsight; it was badly presented.

I’ll leave others to tell us about the populist vote which has returned Trump to power, and I’ll leave you to decide whether the opinions are self-serving or based on too narrow a perspective and information. Instead, here is a New Zealand example about how a government was not listening to even its own people.

In August 2023 Talbot Mills Research surveyed voters on their views on some non-economic issues. Four responses are revealing. The scores here are the percentage favourable less the percentage unfavourable by party voting intentions. The focus is on those intending to vote Labour but the equivalents for Green and All voting intenders are included for comparison.

Labour Greens All

Bilingual Road Signs 13% 56% 11%

Māori Health Authority 16% 58% 1%

Co-governance   10% 49% -5%

Māori Wards in Local Govt  -13% 25% -26%

There was not a lot of enthusiasm among Labour voters for their party’s policies, especially when you compare the Green responses. The survey took place a few months before the 2023 election, where the party ad lost half of its 2020 support. Presumably the majority of the Labour leavers had views more like the last column of all voters, who were even less enthusiastic.

One must conclude that the Labour Government seemed hardly to be listening to its own supporters – let alone the nation as a whole. One is reminded of a parallel instance under the Lange-Douglas Government, when a small group of senior cabinet ministers pursued (neoliberal) policies which were an anathema to the party supporters. A Talbot-Mills survey in August 1990 which asked questions about Labour’s economic policy is likely to have shown a similar lack of enthusiasm.

It was a time in which half the population had no increase in their real incomes between 1986 and 1998, twelve years later. Around a third had to wait twenty-odd years before they got an income boost. But there was nary a mention of their struggles by the experts and acolytes of the Establishment, whose incomes continued to rise under the neoliberal policies of the time. I leave it to the elite to reflect whether they should feel guilty about their neglect; the point here is that they were not listening.

What would we hear from the non-establishment were we to listen? I am hesitant to answer that question. It is just too easy for the opinionated to pretend to listen and report their personal prejudices. However, allow me to raise the possibility that rising material GDP does not always make consumers feel better off, despite our having been indoctrinated into assuming it does. GDP measures output, whether the output be goods or bads.

For example, when Europeans first arrived in New Zealand, they wanted produce like flax, timber and food. Maori increased their production in order to acquire guns and other European goods in exchange. GDP increased but the guns led to the chaos of the Musket Wars which devastated the Maori population. This extreme example reminds us that increased material possessions need not lift wellbeing.

It may be that increased material consumption and possessions in the first half of the post-war era was associated with people feeling better off. But that may be less true in the second half. Hence the turning to populist demagogues who promise better outcomes (even if the promises do not get fulfilled as in the case of Brexit and, as seems likely, with some of Trump’s promised policies).

It is possible that once consumers have met reasonable material needs – not all have – additional consumption is more concerned with esteem needs so that there are few realised gains from just keeping up with Jones. (The implication is that traditional theory which equates consumption with wellbeing no longer applies.)

The populist phenomenon may not be only economic. The Talbot-Mills survey explored cultural responses. Another possibility is that many people are finding the rate of change is accelerating and they are finding it increasingly difficult to cope. That may explain why populism is currently dominated by conservative parties in affluent economies – Boris Johnson’s Conservatives in Britain, Trump’s Republicans in the US, New Zealand’s most populist part in NZF led by Winston Peters. (MMP may disperse the populist capture of a single dominating party; I resist going down some interesting consequential paths.)

Whatever the reasons for the rise in populism – there are more – it presents a challenge to liberal democracy. The challenge will not be resolved by ignoring the underlying concerns until the run-up to the next election and calling their holders ‘deplorables’ when they vote against the Establishment.

Does the Autumn 2024 British budget point to a change in fiscal strategies?

Many countries found their fiscal position was unsustainable, following the 2008 Global Financial Crash.  Their public spending was well in excess of their public revenue and they had to borrow more heavily than lenders thought prudent. Almost unanimously, such countries tried to fiscally rebalance by cutting back their public spending rather than raising tax revenues. The poor and those on middle incomes bore the burden of adjustment.

In some ways the strategy, called Austerianism – a portmanteau word from austerity and Austrian economics – was surprising. Certainly the rich had been hard hit by the GFC but they had been the main beneficiaries of the financial boom which had caused it. Ironically, that boom was accompanied by the demand that governments should not get involved in regulating the financial markets, but when they crashed, the same financiers expected their governments to bail them out.

The Austerian policies which followed tend to protect the rich at the expense of the rest of the community. Rarely, for instance, did governments try to reduce the fiscal gap by raising the top tax rate or reducing the tax loopholes of the rich. Neoliberals seized the crisis to pursue their ambition of reducing the size of the state.

Not surprisingly, Austerian policies resulted in political turmoil. Yet they continued. Even the Ardern-Hipkins Government pursued them with the promise of no significant tax rises and a restrictive borrowing target which meant that public spending – including supporting the poor – was severely constrained. Less surprisingly, the Luxon-Willis regime is also broadly Austerian, as had been the Key-English regime. (The measures which we associate with Ruth Richardson were also Austerian.) Admittedly, all of them fudged around the margins – we shall see more fudging from this government.

The British Starmer-Reeves Government budget represents a major break from this approach. It faced a major fiscal imbalance inherited from the Conservative Government which it has just replaced. Its response has been to raise taxes and maintain public spending. (Its borrowing is coming down more slowly than the Austerians would want).

The Blair-Brown Government had left Britain’s government spending at just over 46 percent of GDP in 2011. The Conservative Governments which followed had squeezed the ratio to under 40 percent just before the Covid crisis. After, it rose to near 45 percent but the Conservatives planned to squeeze the ratio down to 42 percent by 2029. Labour announced spending plans which would have kept the ratio at 45 percent, not quite the Blair-Brown level, but nearly. ( Comparing country ratios is tricky because of institutional differences but I am pretty sure the British public spending ratio is effectively higher than New Zealand’s, which is reported at about 28 percent.)

I think it reasonable to assume that had the Conservatives returned to power, facing the same fiscal gap they would have cut government spending even further. British Labour is adjusting primarily through increased taxation. What it will further do while it is in power is conjectural. (The next Britiah election may not occur until 2029.). But the reasonable expectation is there will be further tax increases. British fiscal policy has entered a new era.

Of course it may not work. Economic policies have a practice of being blown off course by events external to the economy. Often, the forecasts prove too optimistic or other events occur (in New Zealand’s case we seem to be building up considerable expenditure commitments to compensate for some of the dreadful things that past governments did – often by neglect, sometimes a long time ago). And there is always the possibility that lenders will raise the cost of borrowing. In the past, governments with similar intentions have often had to retrench.

There was widespread disappointment that the economy is expected to be growing slightly more slowly under the Reeves October budget projections than under the last Conservative budget in March. But there may have been new data indicating the economy has been tracking lower than the March forecast. Moreover, one expects some slowdown if a fiscal hole has to be addressed.

But third, we are naive if we think a single budget can make a major change to the long-term economic growth rate (if only it were that easy). The sorts of spending policies which Labour hopes will work, like on infrastructure and industry targeting, will take years to come onstream. That is why that sort of spending is among the first items to be cut under an Austerian budget. So there always seems to be an infrastructure deficit. As this government is telling us; it will be lucky if any of its infrastructure projects have any impact on the growth rate before the next election.

(It’s hard to identify a change in trend, given there are so many possible endpoints and cycles. I remain uncertain whether there was a slowdown after about 2008, and why.)

If I was advising the British Government, I’d suggest they would get a quicker boost to their growth rate by negotiating a better trading interface with the European Union, reducing the extraordinary transaction costs that Brexit has generated. A budget is not the only place for policies which can also substantially affect economic performance. 

He’s done it. The re-election of Donald Trump as US president is a massive shift in US and global politics. Cool heads and steely-eyes are called for at momentous times such as this, but those steely eyes would have to be closed tight not to see this is a moment that will go down in history. For a man who wrongly claims so many things he does are “the greatest ever”, this time he’s right. It’s one of the great political comebacks.

What has he achieved? He is the only politician other than Grover Cleveland in 1982, to lose and then win-back the US presidency. Americans have historically dispensed with yesterday’s presidents. Trump has overcome that American instinct. He’s also the first convicted felon to be elected as president. In May this year he was found guilty on 34 charges in a scheme to illegally influence the 2016 election by paying hush money to a former porn star, who says the two had sex. Finally, he’s won in a way that most politicians and political observers, just a decade or less ago, would have said was impossible. He refused to concede defeat after an election loss and encouraged an insurrection. He has called his opponent “vermin” and an “idiot” (he mouthed that Kamala Harris is a “bitch” just a couple of days ago), called independent media “the enemy of the people”, has been accused of assault by at least 26 women, many of his former White House staff have publicly said he’s unfit for office, and one of them, his former Chief of Staff, revealed Trump had told him “Hitler did some good things”. The laws of political physics in a democracy have been turned upside down.

And it’s a comprehensive victory; he’s won the popular vote and looks to be winning the electoral college at a canter. Perhaps, if I try to apply that cool head, this election will come to be seen in more traditional terms – the same kind of vote against incumbency we’ve seen in Britain, Germany, Japan and of course New Zealand in the past year. Perhaps it’s a more normal cry for economic help after rampant inflation. But you only have to have heard Trump’s own words – let alone the words of his nearest and dearest such as Stephen Miller and Elon Musk – to think it’s more than that. Trump promised just last week that he would be a protector of women, “whether they like it or not”. It’s reasonable to expect him to act in his own best interests and to re-arrange the furniture of US politics, whether Americans like it or not.

So the question becomes: what does he do with this remarkable victory? What will the Make America Great Again (MAGA) movement do with power second time round? The truth is, we really don’t know. When you hear commentary from those in and around his camp and those who know them, there are factions, as there are in any movement. Some argue that Trump simply wanted to remove the stain of “loser” from his name and once he is sated with the revenge he has openly says he wants, others will do the hard work of running the country. Others say he remains the strongman at MAGA’s heart. The power struggle now around Trump is likely to be immense, as it is with all ‘strongman’ leaders.

Whichever way the castle politics go, I use the word “strongman” intentionally. Because for me the most remarkable – and terrifying – part of this election is that America has voted for a shift away from what has been conventional democracy since at least the end of World War II. In the wake of two world wars and the Great Depression, western leaders knew that bombast, extreme nationalism and authoritarian tones would not be tolerated by a population who had lost so much in fights against tyranny, oligarchies and fascism. Guardrails were built to protect us from horrors. That has clearly changed. Generations more distant from that reality seem to have softened their stance and are less wed to what have become the norms of democracy. As many others have warned, democracy was on the ticket this election and without the “grown-ups in the room” as there were in Trump’s first term and with learned experience, the extremists around Trump will have more power. Many of them see a liberal democracy as a weakness. They prefer authoritarian regimes and oligarchies. Do you think Elon Musk is in the tent to serve the American people? Or his own business interests and the interests of the wealthy elite who think they should just be allowed to get on with making the big decisions? Who needs “we, the people”?

Because let’s be clear about one thing – while this is a move right for the US, it is not a win for conservatives. Sure, fundamentalist Christians will get their dues and abortion rights will be diminished, but conservatives value solidity, security, sound institutions.

If you read my analysis piece last week, you’ll have seen I quoted a New York Times/Sienna College poll of the battleground states that showed 40% of voters wanted a president who “”promises to fundamentally change America”. Fully 14% wanted the system “torn down”. (It also may help explain this result, somewhat).

It seems like they will have their way and we’re about to embark on a new era of US politics – and if the US shifts on its orbit that much, it will pull the tide of politics with it all over the world.

With a compliant Supreme Court and Senate, and perhaps even the House of Representatives, for at least two years Trump and his advisors will have immense power. What will they do with it?

An isolationist America looks inevitable – closed borders, protectionist trade policies, a withdrawal of military engagement. Under Trump, expect America to be closer to the strongman countries of the world than its traditional allies, including New Zealand. Say a prayer for the people of Ukraine, and even of Taiwan, tonight. And the New Zealand government will have to think long and hard about its moves to get closer to the US and the importance of our independent foreign policy in a new and volatile diplomatic world. It’s easy to imagine more traditional democracies forming a closer alliance apart from the US and New Zealand becoming even more reliant on Asia for trade.

An anti-immigrant stance has always been a powerful tool in politics of most kinds, and Trump has leant into that more than any other policy platform, promising to protect jobs in the Midwest and southwest, with a strong strain of xenophobia. He has promised mass deportations ranging from a couple of million to maybe 50 million. Either way, the upheaval across the US will be huge and painful, because legal and illegal immigrants do not fit into nice, separate boxes.

Tariffs and tax cuts? Of course, but how much and on/for whom, we don’t know. But the march of globalization, already stalled in recent years, will now be turned around.

Trump’s win also punches a hole in the balloon of what’s been called woke politics. As muddled and weaponized as that word has become, you know what I mean. Liberal, urban activists will have to reckon with the reality that they have not won the argument with the majority. The Democrats backed Black Lives Matter and other minority rights movements, spoke of a more liberal border policy, acted on climate change. But it’s been clear the majority of voting Americans aren’t buying what they’re selling; the Democrats’ progressive “squad” couldn’t even get key members through their primaries as the Democrats realized their values would not win elections. Kamala Harris in her short campaign played the centre – said nothing about paid-parental leave, student loan forgiveness, or minority rights. Her big policy play was a tax cut. Yet again, American have elected Trump over a woman. Centre-left parties which want to win elections will be concentrating much more on that ‘centre’ psrt, thinking more about economic and class politics than identity politics.

Precisely because Donald Trump is so volatile, so driven by ego and self-interest and so little by policy and ideology, it’s impossible to know what the next four years hold. Will the change merely be big or will he “tear it all down”? Either way it will undoubtedly be a test for democracy as we’ve known it and the institutions we’ve relied on for generations. We’ll get to see just how strong those guardrails are.

In 1992 James Carville, Bill Clinton’s lead strategist, hung a sign on the wall of the Democratic candidate’s campaign office in Little Rock, Arkansas. It had three lines on it to focus the team on the key vote-swinging issues and one of those lines would become so famous it’s turned into a political cliché. The line read, ‘It’s the Economy, stupid’. It stuck for good reason. Elections are almost always about the economy. It’s atop most of the polls asking voters their main issue for the 2024 US Presidential election as well. Just perhaps not in a way you think.

We’ll get to that shortly because it’s the point of this column. But first let’s just be clear why the economy matters so much. Take a look at this chart recently released by Gallup:

sA you can see, if people lack confidence in the economy, incumbents are punished. Any politician knows economic confidence and election wins go hand-in-hand and if Kamala Harris loses next week one of the main reasons will be her failure to sell a clear economic recovery plan and the image many voters have of Trump as a top politicians, rammed home by his name-heavy real estate business and as he climbed off that helicopter and fired people week after week in his top-rating reality TV show, The Apprentice.

But what is the actual state of the US economy and why do so many Americans lack confidence in it? Well, the aftermath of the Covid pandemic, Russia’s invasion of Ukraine and the slowing of China’s economy (amongst other things) have meant high prices around the world in the past few years, including in America. Inflation peaked at a 40-year high of 9.1% in 2022 and even though it’s back down to 2.4% and annual growth is back to 2.8%. Petrol prices are easing from $5 highs, but are stubbornly holding above $3/gallon contrary to forecasts. Unemployment is 4.1%.

These could be winning statistics in most election years, but Americans are coming off an extreme few years. That 9% inflation meant prices overall are up nearly 20% since Joe Biden became president. Unemployment had passed 14 percent in 2022. All that insecurity is still a fresh memory and incomes haven’t caught up with that inflation spike. And most Americans have no sense of the global moment they’re caught in; they expect the president to have protected them better.

But that’s the surface economic debate and it obscures what many people are really saying when they tell pollsters the economy and the cost of living are their main issues this election. Because here’s the rub: I think when many people fret about the economy they’re taking the longer view.

It reflects one of the other pieces of advice Carville hung on that Little Rock wall back in 1992. One that’s typically forgotten but worth remembering just as much as ‘It’s the economy, stupid’. That other line? “Change vs more of the same”.

Ah yes, change. It’s a complex one, but I think the politics of it are pretty clear. Many people have lost trust in their public institutions and they are demanding change. In fact they have been since the turn of the century. They’re fed up no-one’s doing nuthin’ and this inflation, it’s really just the latest in a long line of economic disappointments.

Back in May, the New York Times and Siena polled the battleground states of Arizona, Georgia, Michigan,  Nevada, Pennsylvania, and Wisconsin.

Overall, a massive 40% said they’d prefer a president who “promises to fundamentally change America”. Asked if they thought the political and economic system in America needs to change, 55% said “the system needs major changes”, almost double the 27% who backed “minor changes”. But guess what? 14% said “the system needs to be torn down entirely”. Few want the status quo.

At that stage it was a Biden v Trump race and 13% said Biden would make “major changes” while 45% say Trump would. For many, it almost doesn’t matter what the changes are. They just want different. Anything but ‘more of the same’.

Many people, especially middle-aged and older middle- and working-class people who have seen their way of life and financial options deteriorate over a generation or two, are feeling less wealthy, more alienated and disrespected. Which is bad news for any incumbent. And it backs up another piece of data I saw at a talk this week by University of Glasgow Politics Professor Chris Carman. He pointed to research showing that in 1980 white men without a college degree earned around 10% above the average full-time income. But as Asians, women, Black, and Hispanics have all seen their income get closer to, or surpass the average, those white men without a college education now earn around 10 percent below the average income.

Their role as breadwinner, their status and pride, their ability to own a home and provide for their family and hold their head up high, has been eroded. And the Democrats seem to have lost their ability to talk to them and their working/middle class families. Is it any wonder then that they respond to a politician such as Trump, who sounds like them, reflects their frustration, and wants to get things back to when their America was great? Is it any wonder they get so angry about immigration and trade deals because, while it’s not as simple as Trump makes it sounds, it’s pretty orthodox economics to say high immigration levels do suppress wages, especially in lower paying jobs. Is it any wonder they lash out at “change” in all its forms when they’re on the losing side, while also wanting more change so that they can find their feet again. To my mind, the culture wars and the economic wars are deeply intertwined. Don’t get me wrong, there is a deep strain of prejudice in parts of the US, a conservative form of Christianity that asks for a disproportionate focus on abortion and sexuality, and a level of mis and disinformation that runs mind-bogglingly deep.

But at the heart of the election and the polls showing the economy as far and away the biggest issue, is generations of social and economic change that has left too many people behind. There’s a loss of trust in public institutions and a sense of hopelessness that means too many are comfortable that democracy is on the ballot this election; because they feel so betrayed, they want to burn the whole thing down.

If Trump wins, the disillusioned and bitter may get their way. If Harris wins, she will have the deep-seated challenge of living up to her promise to be the president for all. Of actually doing something about the cause of her country’s polarisation rather than the symptoms. Because you’d really have to be stupid not to see that we are running out of time to save the idea of America and the strong, hopeful middle class that sustains it.

Back in May, the New York Times and Siena polled the battleground states of Arizona, Georgia, Michigan,  Nevada, Pennsylvania, and Wisconsin.

Overall, a massive 40% said they’d prefer a president who “promises to fundamentally change America”. Asked if they thought the political and economic system in America needs to change, 55% said “the system needs major changes”, almost double the 27% who backed “minor changes”. But guess what? 14% said “the system needs to be torn down entirely”. Few want the status quo.

At that stage it was a Biden v Trump race and 13% said Biden would make “major changes” while 45% say Trump would. For many, it almost doesn’t matter what the changes are. They just want different.

Many people, especially middle-aged and older middle- and working-class people who have seen their way of life and financial options deteriorate over a generation or two, are feeling less wealthy and more frustrated. Which is bad news for any incumbent. And it backs up another piece of data I saw at a talk this week by University of Glasgow Politics Professor Chris Carman. He pointed to research showing that in 1980 white men without a college degree earned around 10% above the average full-time income. But as Asians, women, Black, and Hispanics have all seen their income get closer to, or surpass the average, those white men without a college education now earn around 10 percent below the average income.

Their role as breadwinner, their status and pride, their ability to own a home and provide for their family and hold their head up high, has been eroded. And the Democrats seem to have lost their ability to talk to them and their working/middle class families. Is it any wonder then that they respond to a politician such as Trump, who sounds like them, reflects their frustration, and wants to get things back to when their America was great? Is it any wonder they get so angry about immigration and trade deals because, while it’s not as simple as Trump makes it sounds, it’s pretty orthodox economics to say high immigration levels do suppress wages, especially in lower paying jobs. Is it any wonder they lash out at “change” in all its forms when they’re on the losing side, while also wanting more change so that they can find their feet again. To my mind, the culture wars and the economic wars are deeply intertwined. Don’t get me wrong, there is a deep strain of prejudice in parts of the US, a conservative form of Christianity that asks for a disproportionate focus on abortion and sexuality, and a level of mis and disinformation that runs mind-bogglingly deep.

But at the heart of the election and the polls showing the economy as far and away the biggest issue, is generations of social and economic change that has left too many people behind. There’s a loss of trust in public institutions and a sense of hopelessness that means too many are comfortable that democracy is on the ballot this election; because they feel so betrayed, they want to burn the whole thing down.

If Trump wins, the disillusioned and bitter may get their way. If Harris wins, she will have the deep-seated challenge of living up to her promise to be the president for all. Of actually doing something about the cause of her country’s polarisation rather than the symptoms. Because you’d really have to be stupid not to see that we are running out of time to save the idea of America and the strong, hopeful middle class that sustains it.

A new book challenges how we need to think about technological innovation.

Last week’s column mentioned the three 2024 Nobel laureates in economics. The column focused only on the 2012 book Why Nations Fail by Daron Acemoglu and James Robinson with little reference to Simon Johnson, although the three have worked closely together for about 30 years. Johnson published last year, with Acemoglu, a 599-page book: Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity.

Any book covering a millennium is going to be selective, with some of its examples contested. Nevertheless, this one’s basic thesis is uncontestable: technological innovation is not always beneficial and often favours the powerful.

Economics tends to treat technology as beneficial, probably because of Bob Solow’s finding some 70 years ago that it was not possible to explain most of (per capita) economic growth by additional capital. He labelled the gap – the coefficient of ignorance which explained 80 percent of rising labour productivity – ‘technological change’, saying it was ‘a shorthand expression for any kind of shift in the production function’ including ‘slowdowns, speedups, improvements in the education of the labour force, and all sorts of things’. When we are thinking about aggregate (market) GDP we should also include shifts into the market as when natural resources are depleted, subsistence farming becomes commercial farming and rising household productivity shifts housework and houseworkers into the market.

Lumping this miscellany into ‘technology’ is confusing. So to first principles. Joan Robinson defines technology as ‘blueprints’ – a description of how things can be done. In order to be of practical use, a blueprint has to be imbedded in an artefact (physical capital) or in how people do things (human capital). Not all discovered blueprints are adopted. Many are never used or are discarded because they do not contribute to profitability. (Their adoption by the non-market economy and society as a whole is even more mysterious.)

This focus on aggregate market output (GDP) plays down technology’s transformational role. Electricity and the internal combustion engine may have had major impacts on GDP, but their impacts on the lives we lead has been even more extraordinary. Without them we would be poorer, but we would also lead very different lives. Conversely fertility regulation technologies hardly merit measuring their impact on output, but they have transformed the lives of both women and men.

We tend to assume that if something contributes to aggregate output (GDP), it is beneficial to humankind. Of course that is not totally true – think of climate change, smoking and weapons – and economists have given much thought to explain when and why it is not. Economic ‘bads’ (and externalities) are a critical feature of economic analysis.

Acemoglu and Johnson are saying more. I skipped over how we identify the blueprints. Increasingly they are the result of major financial outlays. The evidence suggests that locating genuinely novel (commercial) technologies is becoming increasingly expensive – or as economists put it euphemistically, the ‘productivity of research is falling’. So who makes the investment in research decisions?

The book argues that the impact of new technologies on human welfare depends crucially on social choices about how those innovations are used. Those choices are usually determined by those who hold power. In recent decades the choices have been increasingly steered by tech companies and venture capitalists in terms of profitability rather than social wellbeing.

Thus the effort for new pharmaceuticals is towards those who can pay rather than maximum life enhancing, so we put less into researching ways of medication for those with high mortality and morbidity in poor economies. (A bizarre illustration was that American medicine was much slower to adopt lithium chloride for managing bipolar mood swings than European medicine because the chemical was not patentable so there was no commercial incentive to encourage American doctors to prescribe it.)

The book suggests that, in particular, currently digital technologies and artificial intelligence are increasing inequality while undermining democracy through excessive automation, mass data collection, and intrusive surveillance.

Acemoglu has done a lot of work on the impact of robots, pointing out that the new technologies aim to replace workers rather than complement them. That’s the way our system operates. The authors argue that democracies must ensure that the proceeds of technological waves are more generally shared among their populations. They say there are three things that need to be done.

First, the automatic technology-equals-progress narrative has to be challenged as a convenient myth propagated by a huge industry and its acolytes in government, the media and academia even though it is not always true.

Second, there is a need to cultivate and foster countervailing powers including civil society organisations, activists and trade unions.

Third, there is a need for technically informed policy proposals that supply a steady flow of ideas aimed at improving human wellbeing rather than exclusively targeting private profit.

The book also contains an interesting discussion on avoiding technologies which replace workers and devising ones which complement and empower them instead.

You may be surprised at how progressive (or impractical, if you are of a different political temperament) these Nobel laureates are. It is a reminder that the top of the economic profession reflects much wider political spectrum than the New Zealand one.

New Zealand economics is also imitative. Rather than adopting (or ignoring) the Acemoglu-Johnson-Robinson recommendations, New Zealand needs to apply them to local conditions. Since most – say, 99.7% – of the world’s research (blueprint generation) occurs overseas, our main task is to adapt what is available.

That does not mean we should do no research. Local research is a critical part of the process of effective importing and adapting new technologies. If, as a consequence, New Zealand researchers do some exceptional internationally innovative work, we are twice blessed.

This changes our research strategy. Instead of bewailing that New Zealand does not produce enough commercial blueprints, we need to evaluate it by how successful it is at importing and transferring the internationally generated blueprints here. (Medicine is an excellent example of our success at importing new technologies.) We need to move our approach from its (not very successful) narrow commercial focus to a whole-of-society approach.

While adapting we need to keep in mind the Acemoglu-Johnson reservation that the new inventions are biased towards some groups over others, and we may want to direct them differently.

Our public funding is far too centralised. Why Nations Fail argued that it was the decentralisation in an inclusive society which enabled effective innovation. We have not reached the stage where Stalin’s directive to pursue Lysenkoism and ignore Darwinism set back Soviet biology for generations. We came close to it when the Rogernomes closed down empirical economics research because its results disagreed with them. It has crippled New Zealand economics to this day. Outsiders would be surprised how little of our economic policy public discussion is evidenced based.

Each year the Taxpayers’ Union highlights bizarre ‘research’ grants from the Royal Society’s Marsden Fund. They would be amusing if they were not diverting funds from more valuable activities. They are not at the Lysenkoism level, but suggest that some of members of the grant panels are chosen for their ideology rather than competence. My guess is that there are objectively worthier projects among those that the ideological and non-competent rejected.

Power and Politics: Our Thousand-Year Struggle Over Technology and Prosperity challenges us to think more carefully and creatively about technology policy. It is very unlikely there is any grant funding to do this.

This year’s Nobel awards in economics raise critical issues about the future of the world.

I was not alone with high hopes when the Soviet Union collapsed. It has been good to see various nations leave the yoke of the Soviet Empire and move towards liberal democracies with thriving economies although sometimes it has been two steps forward and one back. But that has not happened to Russia itself, despite it having a comparatively well-educated population and a large economy. It remains nowhere near a liberal democracy and any economic success has been correlated with high oil and gas prices.

Among others who were disappointed was a British economist and political scientist, James Robinson, currently at the University of Chicago. He has just been awarded a Nobel laureateship in economics jointly with Turkish economist Daron Acemoglu and British economist Simon Johnson of MIT. With Ronald Coase, Douglass North, Elinor Ostrom, and Oliver Williamson – also Nobel Laureates – they have been key contributors to the ‘new institutionalism’, which focuses on the contribution of institutions (the social and legal norms and rules) that underlie economic activity.

The approach is well illustrated by the 2018 Why Nations Fail by Acemoglu and Robinson. Like all their books, it is rich in ideas. I focus here on the light it sheds on the Russian experience.

What I underestimated at the time of the Soviet collapse was the importance of institutions such as the rule of law, restraint on arbitrary government, lack of corruption, secure human rights, sound property rights and sustainable fiscal practices (including a robust tax system). They are so integral to many of the economies I have studied closely that I overlooked their importance.

The Soviet empire generally lacked them. Even today, the ‘liberated’ nations to its west struggle, some lapsing into authoritarianism (currently Hungary) and finding it difficult to eliminate corruption (Ukraine is not alone in this respect).

Perhaps it is not so surprising. It took the prosperous Western economies centuries to evolve their current institutional arrangements and they are still not always perfect. What is sad though, is that Russia has made so little progress compared to the years when it dominated the Soviet Union.

The Russian economy is distinguished from the ex-Soviet economies to its west by being based upon enormous mineral reserves – especially oil and gas. The success of these quarry industries crowds out more conventional exportable industries, such as farming and manufacturing (as explained by the ‘Gregory effect/Dutch disease’). Resource-based industries produce substantial rents and there is more private profit to be made from wrestling over the allocation of those rents than by producing things, especially when the members of an authoritarian government are syphoning off some for their private enrichment. The book describes the resulting political economy as ‘extractive’.

Contrast with New Zealand. Admittedly we inherited our institutions from the long-evolving British ones. (Acemoglu and Robinson see their foundation in the 1688 Bill of Rights.) But we are a resource-based economy too. Our resources – sun and water (New Zealand soils are not particularly fertile) – are not as easily monopolised as those found down a well with their associated pipelines. Instead, the rise of the mixed family farm, following the introduction of refrigeration in 1882, dispersed the resource rents across much of the population, shaping the political economy of New Zealand into a popular liberal state with a market economy, which the book describes as ‘inclusive’.

There was almost an important exception. Initially, prosperous sheep farms were not viable north of Taupo because of bush sickness and footrot. Instead, late nineteenth-century Auckland developed around the extractive industries of gold, kauri gum and kauri timber. Fortunately for Auckland, as they became depleted, the railway network facilitated dairy farming in the Waikato region while, as its port became increasingly dominant, local manufacturing prospered. Even so, today a residual of those ‘wild west’ times is still evident in the more commercially vigorous Auckland. (This story is elaborated in Chapters 13, 16 and 18 of Not in Narrow Seas.)

Acemoglu and Robinson argue that inclusive political and economic institutions lead to a prosperous economy, while where the institutions are ‘extractive’ there is poverty and economic failure. A key difference is that the former allows initiative and innovation, whereas the latter stifles it.

But is an inclusive political economy necessary for economic prosperity? Acemoglu admits that China appears to be an exception suggesting its economic success may be but transitory. In my view China’s success has been the result of technology transfer from the West and the economy may not be sufficiently innovative to sustain its growth.

We must be careful though with this explanation. Concentrated effort enabled the Soviet Union to develop nuclear weapons and the sputnik. But it was not generally pervasive. Clearly China’s development of electrical vehicles is impressive, but widespread innovation has been less evident. I await to learn more of the new institutionalists’ explanation for the China anomaly. A major component of its current economic struggle has been a bursting of a Ponzi-type property boom (although one might argue that the finance boom in the West is similarly artificially stimulative). Certainly, China’s government has not shown the degree of arbitrariness and corruption evident in Russia – not as yet.

Both China and Russia show considerable outmigration. The success of those migrants rules out that their countries face some cultural or racial handicap. The outflow of so many able, energetic well-educated Russians to the West adds to my pessimism about its future. Instead of the prosperous inclusive society which one hoped for after the collapse of the Soviet Union, it is likely to remain exclusive and extractive, even after Putin, with its elite fighting over the resource rents. That is disturbing because of the destabilising impact on the world order. That is sad because I so much admire Russian contributions in art, literature, mathematics, music, science and – yes – even economics. Too often though, recently these have been by its refugees in the West.

Why Nations Fail and the other works the three have published are worthy of Nobel recognition. The New Institutionalism reminds us that economics is not just about narrow technical markets but about the wider social context in which an economy operates. Adam Smith, David Ricardo, Karl Marx, Maynard Keynes and Joseph Schumpeter – among so many of our great economists – would applaud.

Healthcare sector management needs to break away from its obsession with financial information and focus on funding for access.

Health New Zealand recently ‘proactively released’ 454 pages about its financial performance to July 2024. Here is a letter it did not release.

Hon Dr Shane Reti, Minister of Health.

Dear Minister.

We have been deluging you with information about our financial performance. Probably no one understands it all. Certainly you won’t. That is probably, conspiracy theories aside, why you appointed Lester Levy as Commissioner for Health NZ, so you had someone you could consult, although it may be doubted whether even he can understand it all in a three-day working-week.

This letter says that it is all dishonest. To be clear, it is not saying that you, Minister, or anyone else is dishonest. Nor is it saying that the accounts sent to you are dishonest – they conform to the Generally Accepted Accounting Principles (GAAP). It is the system which is dishonest.

You announced that the ‘Government’s goal is for all New Zealanders to have timely access to quality healthcare, to improve life expectancy and quality of life’. We can assure you that from the very beginning Health NZ has had a similar goal.

The June 2024 Government Policy Statement set out five priority areas for the health system.

 ‘Access – ensuring all New Zealanders have equitable access to the health care services they need, no matter where they live.

 ‘Timeliness – making sure all New Zealanders can access these services in a prompt and efficient way.

 ‘Quality – ensuring New Zealand’s health care and services are safe, easy to navigate, understandable and welcoming to users, and are continuously improving.

‘‘Workforce – having a skilled and culturally capable workforce who are accessible, responsive, and supported to deliver safe and effective health care.

 ‘Infrastructure – ensuring that the health system is resilient and has the digital and physical infrastructure it needs to meet people’s needs now and the future.’

You then identified five access targets (none of which we are currently being attained or likely to be attained with current financing), adding that ‘focusing on the health targets did not mean other areas would be neglected’.

Meanwhile a month earlier, the May 2024 budget, from a totally different part of government, voted Health NZ insufficient funds to deliver those ambitions. It is as if two parts of the government brain are disconnected from one other.

Were they connected, the government would offer a certain amount to Health NZ; we would then come back with an estimate of how much we could deliver with that funding. There would follow a bit of bargaining but ultimately we would all end up with adequate funding for realistic goals, if not your June ones.

That is not how it happens. It is more like an architect being asked to design a five-bedroom home but being offered funding for a two-bedroom one. That is what is meant by the system being dishonest.

The dishonesty distorts the running of the public healthcare sector. Its  administration has become obsessed with its finances, while ignoring its healthcare performance. It is evident in the document dump where there are papers describing themselves as reporting ‘performance’, when they are merely dealing with ‘financial performance’. The actual performance of the healthcare system – that is, how well those needing healthcare are being treated – hardly appears.

A June document reported an expected $604m financial deficit for the 2023/4 year. The deficit is made up of $529m of a pay-equity revenue stream which had not been received (presumably an accounting failure), $183m which was about COVID decisions which occurred in earlier years, and $40m of ‘actuarial and writeoffs’. Without these accounting adjustments (and probably some others), Health NZ would have been running a surplus (of over) $148m.

Admittedly there was some ‘operational overspend’ (at least $385m more compared to that planned in March). That means that in those last three months, Health NZ spent another $385m more on healthcare than it planned. Most people would think that was a good thing. But we are so obsessed with the financials that the benefits of any extra care were overlooked.

To be clear, we are not objecting to the application of the GAAP rules (which are probably necessary for government borrowing). The issue is that they should not dominate our thinking about healthcare provision. The law articulated by Don Gilling, a retired professor of accounting, is that the way the system is scored shapes the way the game is played. We should not be scoring healthcare according to the GAAP rules.

I’m afraid, Minister, we have all been trapped by this scoring system. You have said there is a ‘healthcare crisis’. There is not one. Most parts of the healthcare system are working brilliantly once one is inside it. As your ambitions set out, the failure is because people in healthcare need  are not getting inside it. That is because Health NZ does not have enough resources. Give us the funds and we’ll meet your ambitions. 

What we have is a financing crisis; insufficient funding means that there are too many people who are not getting access to the quality care you say you want. (We don’t know how many; unlike many other affluent nations we do not have a comprehensive survey of healthcare needs.)

That means, Minister, your ambitions, your expectations and your targets are pointless. They will remain so until the government provides the funding to meet them.

In June 2024, Health NZ told you, Minister, that ‘our intention is to take on a savings target of $2 billion in 2024/25 Budget on the premise that … this is a comparable target to other agencies across government (7% of revenue). … No frontline clinical employees’ roles will be impacted through the savings target.’

The entire personnel costs of the non-medical employees of Health NZ were about $1.6b last year and the spending on ‘infrastructure and non-clinical supplies’ came to another $1.5b.The statement seems to be proposing to cut those items by two-thirds. It is joking.

The greater part of the $2b reduction is likely to come from financial juggling (consistent with GAAP, of course). It won’t be sustainable, and the following year there will be another financial deficit. In any case, there is going to be the ongoing access deficit, unless the Government fronts up with the required funds. We’ve set out the failures of the current situation bluntly, Minister. You have got to stop talking about a ‘health crisis’ and focus on the funding crisis. Unless you do, the limitations on access to care will continue and your ambitions will remain unrealised.

Yours etc (signature deleted under obscure provision of the OIA).

PS. This letter may not have been sent.

PPS. A balloon fell out of a fog and settled down in the middle of a large green field. The traveller in it asked a bystander where he was.

‘You are in a balloon which is in the middle of a large green field.’

‘You’re an accountant, aren’t you?’

‘How did you know?’

‘Your advice was precise, accurate – and of no bloody use.’

‘That will be $200 plus GST.’

What might the public’s increasing demands for safety and security tell the economist?

Criminology and economics are quite different disciplines. Someone from one discipline trespasses on the other with the greatest of caution, something which, I’m afraid, not all economists have. There is a foolish economics literature about the ‘optimal level of crime’. Before it raises your hackles, it is better framed as the optimal level of criminal enforcement, something which must trouble greatly the Treasury desk officer struggling with the law and order vote. This year it amounts to $6.7b (police $2.6b; corrections $2.1b). It is up $2b (or almost half) in the last six years. It amounts to the average adult paying almost $5 a day in tax.

The size and growth of the sector are puzzling, since overall the level of crime has not been increasing. The Ministry of Justice has run a New Zealand Victim and Crime Survey since 2018. It is far more reliable than offences reported to the police because not all crimes are reported and not all of those reported are to the police – common reasons are because the incident was too trivial or it was reported elsewhere (fraud is more likely to be reported to a bank).

The survey results are all over the place but with the exception of fraud offences, which are rising, generally the crime trends have been stable or very gently falling since 2018.

(I made a small research contribution to explaining these trends when I pointed out that Māori were poorly prepared for their postwar migration into the big cities, which resulted in social disruption including higher incarceration rates. As Māori have adjusted to urban life the imprisonment rates among the young have fallen dramatically; the proportion of Māori who are victims of crime has been falling and is now close to the national average.)

However, the public perceptions show increased concern about crime. While 30 percent of the public said they felt ‘completely safe’ in 2018, only 24 percent had similar feelings in 2023. Meanwhile, the proportion who felt ‘unsafe’ rose from 10 percent in 2018 to 15 percent in 2023. Hence the public demand for increased law and order spending. It is high across most parts of the political spectrum, including among those otherwise antagonistic to government spending.

The research literature describes a phenomenon called a ‘policy entrepreneur’, who promotes an agenda by exaggerating the problem the community faces. But the community has to be receptive to the exaggeration. To understand its willingness, we might turn to another discipline – psychology.

Abraham Maslow proposed a hierarchy of (human) needs. It is frequently presented as layers in a triangle, with a point which draws attention to the upward direction. However, the casual observer may think that the needs at the top are smaller than those at the bottom. So here the hierarchy is presented as a stack.

Maslow’s Hierarchy of Needs

Self-actualisation needs

Esteem needs

Love and belonging needs

Safety needs

Physiological needs

Stack or triangle, the physiological needs – essential for human survival and include things such as food, shelter, and clothing – at the bottom are the foundation of wellbeing. They are the needs with which economics is most concerned (and which are measured by GDP). But observe that the economy has much less to contribute to the remaining higher levels (although the importance of conspicuous consumption – the display of ‘positional’ goods – to esteem needs should not be underestimated).

Immediately above the physiological needs are the ‘safety’ needs with the implication that as physiological needs are met, people turn to their safety needs. That seems to be what is happening.

There is no question that the physiological needs of the vast majority are being better met than at any time in human history. That is true almost everywhere, although for many people in the world there remain serious physiological deficits. But in some parts of the world – including New Zealand – there is widespread affluence.

Certainly, people demand more income – hence the demand for tax cuts – but the same people may be retiring earlier and working shorter hours or taking lower paid jobs because that better reflects their life demands.  (Two hundred years ago, a 70 hour working week was not unusual and people did not retire but worked until they died.)

But we should not be complacent. Perhaps a fifth of the population are struggling rather than affluent. Typically, they are families with children.

So the economic logic is that the economy may becoming less important in public life. It is still there of course, but not as prominent as I recall it being in the 1970s. Economics remains foundational in political and social development. Moreover, economic goods and services remain important in dealing with safety needs to the extent of at least $6.6b a year of public money and all the private money spent on safety. (Additionally, as already mentioned, positional goods are important for esteem needs.)

Whether we are deploying the law and order resources most effectively is an economic concern. Often policy entrepreneurs have solutions to complex problems which are clear, simple … and wrong or wastefully ineffective. It is also a feature of New Zealand’s approach to public issues to ignore prevention, instead focussing on ambulances at the bottom of the cliff and neglecting fences at the top. (We are so unprepared, the ambulances usually arrive late.)

I began by saying that economists do not have a lot to say about law and order so perhaps I should stop at this point. I finish with the slogan of a former British Prime Minister, Tony Blair, who said that his government was ‘tough on crime; tough on the causes of crime’. I cannot think of a New Zealand politician who has expressed a similar sentiment.