Kiwi News and Views

This transcript of a recent conversation between the Prime Minister and his chief economic adviser has not been verified.

We’ve announced we are the ‘Yes Government’. Do you like it?

Yes, Prime Minister.

Dreamed up by the PR team. It’s about being committed to growth. Not that the PR team know anything about the economy. So how do we go about it?

You mean growth of GDP, sir?

The Minister of Finance – what’s her name? – said in her 2025 Budget Policy that there would be three overarching goals – let me see, where did I put it? ah, yes – ‘building a stronger more productive economy, delivering more efficient, effective and responsive public services, and getting the government’s books back in order’. She added that the goals are ‘the Government’s wellbeing objectives, as achieving them is the most important contribution the Government can make to the long-term social, economic, environmental and cultural wellbeing of New Zealanders’. We are required by law to have wellbeing objectives, you know.

But, sir, wellbeing is not the same thing as GDP.

No ‘buts’, no ‘nos’. This is a yes government.

Yes, sir. I was just pointing out the difference.

My first-year economics dealt with the two in different parts of the course. Never really got my head around the difference. Might as well treat them as the same for my government.

Yes, sir.

So when are we going to get some growth of GDP? The Half Yearly thing-a-me-bob wasn’t too optimistic.

The macro-economic indicators which have come in since we did the forecast have been worse than expected. The business closure rate remains high. We expect the contraction to continue a bit longer, but we havn’t done the next round of forecasts yet. There is a view among the troops that the upturn may be weak – but we have yet to decide. The downside risks will be greater than for December’s ‘Economic and Fiscal Update’. There is increasing concern that Trump’s tariff policies will precipitate a world economy downturn, and we cannot rule out there may soon be another global financial crash. We are due for one. Many of the indicators suggest financial instability, and the upset over Deepseek [the Chinese AI firm whose recent announcement clipped a trillion dollars off share values] warns just how fragile financial markets are. Meanwhile the Chinese economy is still spluttering.

That’s not good enough. We need some growth.

Yes, sir. I should add that the current GDP track is not the same as the growth of production capacity. We are currently a bit below full capacity so there could be a bit of catchup. You may be concerned with the sustainable long-term economic growth.

Actually, what I am concerned with is what will make the Government look good, particularly as we run up to next year’s election.

Understood sir. We can temporarily accelerate the current GDP growth rate by increasing the fiscal deficit. That will mean you will miss your stated budget target. The increase may be inflationary; the Reserve Bank might have to increase interest rates.

We wouldn’t want that. But we could expand the economy just before the election when the inflationary pressure is not obvious. So we’ll focus on increasing long-run capacity.

Yes, sir. Some of those measures may also lift the economy in the short term.

Good. Now I have a list of policies here. What about digital nomads?

They  won’t have a big impact and they may not lift New Zealanders’ incomes much. Most of the GDP increase may go to the nomads. That’s an example of why an increase in GDP does not always lead to an increase in support for the government.

Except among the commentariat.

Exactly. Nobody believes them either, except other members of the commentariat.

How about we increase foreign investment?

If they are just buying New Zealand assets, there is not much benefit. New investment creates jobs, which boosts the economy in the short run the way you are wanting. In the long run there are typically fewer jobs than the construction phase and more of the profits go offshore. The exact balance depends on the particular case.

Does that include the fast track projects?

Yes, sir. Most won’t get underway before the election and you’ll have to manage the political backlash. Some of its arguments are valid. But during the investment phase the projects will produce jobs, usually fewer than in the production phase.

Privatisation?

It may not do much for economic growth. The 1980s sales program didn’t make much difference. Many were botches. We had to buy back NZ Rail and Air New Zealand. (I know.) We had to set up Kiwibank because selling off the POSB left a gap in the market which the trading banks ignored. It took us decades to unwind the private monopoly that the privatisation of Telecom created. We’ll prepare a list of possible asset sales. It won’t be long.

Including the government equity in the electricity generation companies?

Yes, they’ll be high on it. There is an argument though, that the sector should be nationalised and the companies merged into a single government-owned and operated entity. Actually, what we would like to do first is design a better regulatory regime for electricity production and supply. Currently, it seems to be price gouging consumers and businesses – some big ones say they are closing down because of it. There’ll be a consumer outcry when there are major price increases later in the year.

Oh dear. You seem to be suggesting there is not much we can really do. We could reduce regulation.

Everyone agrees, sir, that some of the regulation is clumsy and ill-suited for purpose, some bits are badly administered and that we should be trying to remedy these failures. That supervising task is now delegated to the Ministry of Regulation although we shall be monitoring them. But there is not a lot of evidence that our regulatory regime is holding back economic growth more than it is in other countries. A lot of regulations are trying to align GDP growth with improving wellbeing and a sustainable environment.

As I have said, those are not a priority for this government.

They are for some of your voters, sir.

But not all of them. We have to win only a half. The last item on my list is the research sector. We are pumping public money into it. That should make a difference.

The evidence is that technological innovation is crucial to economic growth. But there is not a lot of evidence that subsidising it will have a lot of effect. Some of our most successful innovators like Xero and Fisher and Paykel didn’t get a lot of government funding.

Most technology is developed overseas. The big challenge is to adapt it to New Zealand. We talk as though our public research system is going to develop an international breakthrough technology. We’ve been talking like this for almost three decades and it still hasn’t. It might. But we might have got a better return spending it on Lotto.

Of course, there are areas where we have to be local. It would be a fat lot of use if our geologists depended on Australian research. But generally, the issue is the direction of research. A key channel for importing world-class technology is world class local research. It is ever so important that our medical research keeps up with the frontier. True for other areas like AI and 3D printing.

We also need to upgrade workforce skills so it can adapt smoothly to the new technologies. The indications are that the quality of the management of our large firms is not world class. Whenever this is discussed – always in hushed tones – no one is sure how to upgrade it.

You seem very pessimistic about our being able to do anything about the growth rate.

New Zealand economists were grumbling about our poor growth record before you and I were born, sir. The grumbling only goes back sixty-odd years when the data first became available, and economists began to better understand the growth process. There is not a skerrick of evidence that the six decades of grumbling has accelerated our economic growth rate. Where is the evidence that the Productivity Commission made a difference? You closed it down because it didn’t. You will find the grumblers can point to our lowish productivity growth rate, as they could back then. But their nostrums are not connected to any causal process backed by evidence.

What we can do is remove impediments to maintaining the growth rate. Like removing the Telecom monopoly which was blocking the broadband rollout. It’s a more humble objective than accelerating the GDP growth rate, but we’ve been pretty successful at that over the years.

I hear all your economics, but I am running a political airline. We need a story that will resonate with the public and the commentariat even if it does not make sense to experts. So we will keep to our ‘yes to growth’ strategy. Got that?

Yes, Prime Minister.

Do its Property Right Provisions Make Sense?

Last week I pointed out that it is uninformed to argue that the New Zealand’s apparently poor economic performance can be traced only to poor regulations. Even were there evidence they had some impact, there are other factors. Of course, we should seek to administer effectively a system of high quality regulations. However, the proposed Regulatory Standards Bill will not contribute much to this end. It has another purpose.

As a background, consider the Treaty Principles Bill (TPB). The one before Parliament has a fundamental difference from the one which ACT had in its manifesto. There its proposed second principle was that the government should ‘protect all New Zealanders’ authority over their land and other property’.

In the bill before Parliament that principle has been replaced with 

‘     .’Rights of hapu and iwi Maori — 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.’

It is a very different sentiment altogether. The minister gave no explanation for the change when he introduced the bill to Parliament. Obviously there must have been a concern within the legal fraternity about how the bill could upset existing arrangements.

But the change is more than a legal twist. The effect of the manifesto version would have been to strengthen private property rights markedly. The effect of the second sentence in the actual bill before Parliament probably strengthens them but not to the same extent.

We see a similar sentiment in the Regulatory Standards Bill (RSB). (Actually, there is no bill currently before Parliament. It has yet to be drafted. I am quoting from the bill which ACT introduced in 2021, but which was not proceeded with.) 

The principles of responsible regulation are that … legislation should

 ‘ … not take or impair, or authorise the taking or impairment of, property without the consent of the owner unless —

(i) the taking or impairment is necessary in the public interest; and

(ii) full compensation for the taking or impairment is provided to the owner; and

(iii) that compensation is provided, to the extent practicable, by or on behalf of the persons who obtain the benefit of the taking or impairment.’

Those principles substantially strengthen private property rights.

The notion of regulatory ‘takings’ comes from the US. The American libertarian lawyer, Richard Epstein, who developed the idea, said that ‘[i]t will be said that my position invalidates much of the 20th century legislation, and so it does’ and that ‘[m]ost of economic regulation is stupid…. What possible reason is there for regulating wages and hours? If my takings doctrine prevails, you have no minimum-wage laws. That’s fine. You’d have an [Occupational Safety and Health Administration] a tenth of the size. That’s fine too. You’d have no anti-discrimination laws for privileged employees, which would be a godsend.’ (Epstein was involved with the development of New Zealand’s now repealed Employment Contracts Act.)

While his approach has been described in the US as ‘rolling back the New Deal’, if it was introduced into law today the requirement would merely prevent almost all future change. For instance, had the ACT legislation been in force in 1984 there could have been no Rogernomics, because it expropriated without compensation a lot of private property rights (while creating others).

I don’t think those who developed the 2021 bill have thought through the meaning of property rights. They seem to think of plain old-fashioned property rights similar to those with which Epstein was concerned, colonially adopting his American framework. But, as the TPB implies, property rights in New Zealand are far more complicated.

Iwi and hapu might (or might not) concede that their land was legitimately transferred to others. But they will never concede that their mana whenua rights were transferred. That includes kaitiaki (guardianship) rights over the environment of their rohe. How those rights are exercised is a complicated mix of statute and common law.

Guardianship claims are not unique to Māori. Greenies will campaign on a similar basis for their environmental goals even where they have no direct connection with the land involved. Similarly you may campaign against a proposed building which will block your view.

The Government intends to replace the Resource Management Act with new legislation which will make some changes to property rights. If ACT’s 2021 RSB was law, it couldn’t. It would be hypocritical to pass a revised RMA with the RSB as currently intended pending (although that may not prevent it happening). Even so, ACT could be repeatedly embarrassed by it being insisted that it should vote against any Government legislation  (including the TPB) which infringes its 2021 bill.

Given the backdown over the TPB between its manifesto and parliamentary versions, I am expecting some major revisions to the tabled  RSB. It is possible that the Government version will be a set of sensible rules about how it should approach regulation. In its interim regulatory impact statement the Ministry of Regulation said that while it supports the overall objectives, that legislation was not needed. Its preferred option was to build on, and strengthen, the existing regime based on Labour’s legislation passed in 2019.

What is the real purpose of the proposed statute? Epstein may be the clue. Its aim is to stop government economic intervention altogether, which makes ACT the party of the status quo. Its supporters, having got into wealth and power, want to consolidate it.

There is an argument, set out by the libertarian Robert Nozick, that if you start with a just distribution of property rights, then it remains just following voluntary exchange. I leave the reader to decide whether the current distribution has derived from a just distribution at some ground zero with only voluntary exchanges since. (There are other issues involving complete knowledge and technical change which complicate Nozick’s argument, but let’s settle the initial position issue first.)

The main economic issue is that stable property rights are necessary for good economic development. It is a view held by most (Western) economists, including Daron Acemoglu and Simon Johnson, two of the most radical economists to have been made Nobel Laureates. But most would add caveats.

History has numerous examples where private property rights were over-ruled with development benefits. Most economic historians would accept that Henry VIII’s dissolution of the monasteries wrecked the rights of their inhabitants but laid the foundation for Tudor economic prosperity. Even ACT supporters would add the neoliberal Rogernomics changes to the list of more recent historical examples.

One is left with the conclusion that ACT’s RSB in its 2021 form is muddled. I look forward to someone providing a better explanation.

The invitation to comment on the proposed Regulatory Standards Bill opens with Minister David Seymour stating ‘[m]ost of New Zealand’s problems can be traced to poor productivity, and poor productivity can be traced to poor regulations’.

I shall have little to say about the first proposition except I can think of a lot of New Zealand problems – actual and fantasised – which don’t seem to have much to do with productivity. I wait for the minister to explain the connection his Treaty Principles Bill has to poor productivity when it is returned to Parliament. (And indeed for his productivity insights on many of the other troubles which beset us.)

As for the second proposition, New Zealand may have a productivity problem – I cannot think of any country where such a claim is not made. But to attribute the problem entirely to ‘poor regulations’ is disingenuous and extravagant.

When a junior minister, Casey Costello, was challenged for empirical evidence to justify policies which rolled back the campaign to reduce tobacco consumption she could only cite flimsy industry-driven opinion from a thin Google search. There was a widespread demand she should resign. No similar demand has been made of Seymour to show his evidence. A Google search will prove just as thin.

To be clear, poor regulation can impact on economic performance. However, it is extremely difficult to measure by how much. For instance, in the late 1970s I was warning of the dangers of the heavy interventionism we associate with Muldoon. In the mid-1980s it was wound back. I spent a lot of effort trying to find out how much this impacted on economic growth. The evidence was that once the economy had come out of the great (seven- or eight-year) stagnation which Rogernomics had induced, it grew at much the same rate as it had been growing before the Rogernomic policies.

There was some evidence of a better quality of output (which is difficult to incorporate in the GDP measure) and more economic resilience and flexibility. But there was no faster economic growth, no measurable productivity gain. That is why it took twenty years for those at the bottom of the income distribution to regain their pre-Rogernomics standard of living. I was surprised by this no-productivity-gain research finding. But I am a scientist, not an ideologue; I learn from the failure of an experiment.

We can ask how damaging is today’s regulatory framework? Is it that much worse than other countries with higher productivity which is the assumption implicit in the minister’s claim? Perhaps a thin Google search will support the minister but on many dimensions elements of our framework are judged world class. For instance, it is not unusual for New Zealand to be judged very highly in the rankings of the ease of doing business. But our aggregate productivity levels are certainly not up there with it.

The government (MED) used to publish a checklist of how we performed. The one area where New Zealand seemed to do very badly was the quality of its management. There was not a lot of evidence one way or the other though. My suspicion is that the culture of New Zealand management, while good for dealing with small organisations, does not cope well with large complex (private and private) organisations. Cynics might add politicians to the management failure list. However, while poor management may explain, in part, New Zealand’s relatively low productivity, it is not a regulatory issue.

Other particularities of the New Zealand situation are that our size and isolation from the rest of the world economies means that we cannot reap productivity enhancing economies of agglomeration. There is not much that a regulatory framework can do about relocating us.

Paul Krugman, famous for his ‘productivity isn’t everything, but in the long run it is almost everything’, has recently modified his generalisation. He conceded that health and safety and environmental regulations could improve living standards, but that they slowed productivity increases. ‘So part of the productivity slowdown during the 1970s probably represented not so much a loss of dynamism as a shift in priorities — deliberate choices to make workplaces safer and skies cleaner, even at the expense of production. … We could have a bigger economy if we were willing to have filthy air and a lot more injured workers, but that’s not a trade-off we want to make.’

They are instances of improving the quality of life at the expense of productivity. Another instance is that nowadays we can measure productivity in terms of output per hour worked. That does not include travel time to work. (It seems likely that were we to include that, New Zealand would do better in the productivity stakes because we spend less time commuting.) So if we ‘waste’ investment resources on reducing congestion and travel times, the cost is lower measured productivity.

In other words, we should not get too obsessed with the notion that economic output as measured by the GDP conventions translates directly into economic and social welfare. It may not especially as a society gets more affluent (and complex), something that the economists who developed the GDP measure almost a century ago pointed out; the measure was developed for much more limited purposes.

I would welcome better administration of the government’s interventions. I have described past failures of leaky buildings and earthquake standards, both of which have been costly in human and economic (productivity) terms. But that is not what the Regulatory Standards Bill is about. I write about its real – subversive – purpose next week.

The state of the current economy may be similar to when National left office in 2017.

In December, a couple of days after the Treasury released its 2024 Half Year Economic and Fiscal Update (HEYFU24), Statistics New Zealand reported its estimate for volume GDP for the previous September 24 quarter. Instead of the expected trivial fall of 0.1 percent on June, the economy appears to have contracted 1.0 percent. There was much consternation because the discrepancy was too big to be explained by noise/measurement error. The outturn was also much weaker than the private sector forecasters anticipated.

The issue is not the single quarter decline. The New Zealand economy has been in contraction since late 2022. (I am using per capita GDP, to reduce the effect of immigration.) That is eight quarters, with a total fall of about 5 percent per person so we are back to about where we were six years ago.* The consensus among forecasters had been that the contraction would bottom out about now. I imagine they now think the upswing will be a bit later – the gloomy may say ‘much later’.

As a consequence, unemployment – which lags the bottom of the production cycle – will be higher. HYEFU24 forecast unemployment peaking at 5.4 percent of the labour force in June 2025. (It was 4.8 percent, September 2024.)

And, of course, the government’s current account is going to show a greater deficit, because the government’s revenue will be below what HYEFU24 anticipated. There will be a need for more borrowing – to be discussed in a later column.

What has caused this contraction? Many people will jump to the conclusion that it is the fault of one politician or another, the choice depending on their political prejudices. I do not want to discount that there has been some poor fiscal management – probably by both parties – but that disguises what may be an underlying structural problem.

I won’t bore you with the details, but the economy seems to have been performing poorly over the last twelve years. It was pedestrian under the Key-English Government. Labour tried to lift its growth by expanding the public sector, but the private sector remained near static. In particular, there was little growth relative to the population in the tradeable sector, which generates and conserves foreign exchange.

There were three main exceptions. The Information, Media and Telecommunications sector boomed. Presumably that was from the broadband rollout. But even it peaked in 2021 and is now stagnating.

There was some growth in consumer spending but that appears to have mainly sourced from products produced offshore. (Retailing contributes to economic activity by paying workers and rents and making profits.) In fact, retailing was sluggish like the rest of the economy until 2019, and then took off, interrupted by the lockdown. It is still humming away (but not everywhere).

 The third driver has ben the construction and real estate sectors. Construction grew rapidly after the turn down following the GFC. It peaked in late 2021 and has contracted by about 10 percent since, back to about where it was in 2017. The pattern for the real estate sector (which is very heterogenous including rental and hiring) is a little different. It fluctuated around a rising trend a lot; it still appears to be rising even if estate agent activity is not.

So we have had a weak economy for some time. Labour was trying to stimulate it via the government’s spending, which the Coalition Government is cutting back. There is no part of the private sector which is significantly expanding. Its expansion peaked three years ago; today the construction sector is producing absolutely less than it did then.

It is easy then, and correct, to say that at the heart of the current economic contraction is the construction sector. Its contraction was caused by the Reserve Bank hiking interest rates. OCR went from 0.5% p.a. in August 2021 to 5.5% p.a. in June 2023 – it is currently 4.25% p.a.)

The minutes of the RBNZ Monetary Policy Committee are not published, so we cannot be sure exactly what it was thinking. In November 2022 a select committee of Parliament asked the RBNZ Governor whether the central bank was engineering a recession to combat inflation. He replied, ‘I think that is correct. We are deliberately trying to slow aggregate spending in the economy. The quicker inflation expectations come down, the less work we need to do and the less likely it is that we have a prolonged period of low or negative growth.’

In August 2021 consumer prices (CPI) had increased 5.9% on a year earlier. The rate rose to 7.3% shortly after and has since sunk back to 2.2% today. I leave to another venue whether this inflation reduction is a consequence of RBNZ action or whether it would have largely happened anyway as world inflation eased.

So a major cause of the two-year-plus contraction has been the actions of the Reserve Bank. But it happened in a decade-long weak economy.

Because we hardly focus on the existence and causes of the weakness, the government is hardly addressing it – continuing the Key-English approach. The one exception is Shane Jones and his ‘think big’. You may not like what he is proposing – and it will take some time to be effective – but at least it grasps the nub of trying to deal with the weak tradeable sector.

In summary the state of the current economy as similar to when National left office in 2017. As it promised in its election campaign, we are back on its track.

* This column looks through the strong fluctuation associated with the Covid crisis.

Can we trust the Trump cabinet to act in the public interest?

Nine of Trump’s closest advisers are billionaires. Their total net worth is in excess of $US375b (providing there is not a share-market crash). In contrast, the total net worth of Trump’s first Cabinet was about $6b. (Joe Biden’s Cabinet total was about $118 million and Barack Obama’s second-term Cabinet was about $3 billion.)

A US President’s cabinet is different from ours (or a British one) which has to come from the governing party caucus (or caucuses) and (partly) reflects its political balances – it may even contain members whom the prime minister loathes. The US system harkens back to the days when the kings chose their advisers who did not need to be in Parliament; compatibility need not be a problem unless the president picks a bunch of egoists.

In principle then, the President has a much wider choice, and ought to be able choose a Cabinet of greater competence. However, outsiders may not have a good grasp of the difference between business and politics. To take a simple local illustration, more than one party leader with a business background hasn’t understood that while the CEO appoints the workers, the workers/caucus appoint the party leader – which means that if the polls turn against a bullying or neglecting party leader, he or she will be out (if there is a viable alternative).

There is a tendency by the public to assume that because someone has succeeded in one arena they are expert in many others. In fact, where celebrities give opinions on which they have no expertise, their contributions are usually uninformed, with – at best – content as useful, as comforting and as platitudinous as a horoscope. Yet we listen with unwarranted respect.

Before the 2008 Financial Advisers Act, a celebrity would front advertisements for a financial firm to give an impression of its integrity and competence. (A number of the firms collapsed much to the chagrin of their investors; some even had staff prosecuted for fraud-like offences.) Assessing the soundness of a financial business is not easy; auditors have not always been successful, nor have the retired bankers recruited to their boards. Why should uninformed celebrities do any better? Presumably enough of the public were credulous to make it worthwhile for the firm to outlay considerable amounts on a suitable celebrity. (Derek Quigley says he turned down a $150,000 fee to front an insurance company’s TV promotional campaign, at a time when the average wage was about $18,000 a year.)

No doubt among some of Trump’s billionaires there will be some who are competent and some who are not. But that is usual in any cabinet. The bigger concern is the extent to which they will use the opportunity to pursue their personal interests at the expense of the public interest. At his confirmation when being appointed as Secretary of Defense in 1953, the President of General Motors, Charles E. Wilson, said ‘what was good for our country was good for General Motors, and vice versa’. It is widely thought he said that ‘what was good for GM was good for America’, the sentiment implicit in his ‘vice versa’. The implication is that there are no conflicts of interest between business and the government.

You may recall that in his first term as president, Donald Trump signed a ‘historical trade deal’ with his ‘very, very good friend’ Xi Jinping that committed China to purchase $200b of additional US exports before the end of 2021. China bought none of the additional exports Trump’s deal promised.

I have not been greatly impressed by Trump’s international negotiating record. (Remember the cosying up with North Korean president Kim Jong-Un?) But perhaps I was looking in the wrong place. At the time he was doing the deal with China, that country was giving very favourable treatment to the fashion businesses of his daughter, Ivanka Trump.

Will this sort of thing be repeated in Trump’s second term, but tenfold? There will be even fewer checks on him this time, given that Congress is dominated by Trump supporters – for the next two years anyway. These were the concerns of those who designed the American constitution almost quarter of a millennium ago. I doubt they quite expected things to play out as they will over the next two years.

American social psychologist Dacher Keltner has amassed a huge amount of evidence which suggests that the more powerful people become, the more likely they are to act selfishly and ignore the consequences of their actions on others. While the conclusions are based on micro and experimental studies, they may well apply to macro-situations such as being in government. As Lord Acton said in 1887:

‘Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority, still more when you superadd the tendency or the certainty of corruption by authority.’

(Was Jimmy Carter an exception?)

While many may use the opportunities in government to enhance their wealth, the Trump Cabinet may not have ten billionaires (Trump plus nine others) when it steps down in four years time. Some may have left in frustration, either with the president or with the job. (It has been pointed out to Eion Musk charged with cutting government spending, that his new job is not rocket science – it is way much harder.) Some may end up with smaller fortunes – in some cases the current valuations appear to be based on over-optimistic valuations rather than underpinned by solid cash flow.

Moreover, there are concerning assessments that the world financial system is in the ‘Ponzi finance phase’ of the Minsky financial cycle. The last one was 17 years ago in early 2008. One could argue that a bust is more than overdue. As Herman Minsky wrote:

But in truth neither the boom, nor the debt deflation, nor the stagnation, and certainly not a recovery or full-employment growth can continue indefinitely.

The consequences of a bust would impact not only on billionaires but also on ordinary folk; indeed, more so. Providing they are not over-leveraged, the rich have much more cushion to cope with a shock. It is not uncommon for the amelioration measures to be more in the interests of the rich – recall how the financial sector made a pig’s breakfast leading to the Global Financial Crisis, but many of its employees kept their bonuses which were paid as a part of taxpayer bailouts. One would not expect a Trump Cabinet to behave very differently.

Bob Dylan sang ‘money does not talk; it swears.’

While we may not always have quality political leadership, a couple of recently published autobiographies indicate sometimes we strike it lucky.

When ranking our prime ministers, retired professor of history Erik Olssen commented that ‘neither Holland nor Nash was especially effective as prime minister – even his private secretary thought Nash was ineffectual’. Even so, Olssen ranked the two as 11th and 12th out of 21 (and two other historians ranked them even higher). That means Olssen judged there were nine of our prime ministers who were even less effective. Apparently, ineffective prime ministers presided for roughly half the time since the position became formalised in the early twentieth century (previously they were ‘premiers’). It is a salutary reminder that so many of even our top politicians are mediocre, although often that does not become publicly stated until the cosmetics of office are stripped away.

Not surprisingly then, one ends up reading many biographies and autobiographies (often ghost-written) of politicians as a matter of duty or nostalgia. However, sometimes the subject is a quality politician – one way or another – and the reading becomes a pleasure while providing insights. Earlier columns have reviewed the memoirs of Michael Cullen (here and here) and Chris Finlayson (here). Here follow two more which are worth reading.

Derek Quigley (b.1932) was a National MP from 1975 to 1984 (almost four years as a cabinet minister – mainly housing) where he fell out very publicly with Rob Muldoon. Between 1996 and 1999 he was back in Parliament as an ACT MP. This and much more is set out in Challenging the Status Quo: A Political Memoir.

The book chronicles Quigley’s life as well as giving a thumbnail history of the National Party. Politically he is anchored in National on its rightish side, very committed to private enterprise but not quite a neoliberal. (He does not really have a good grasp on the challenges the New Zealand economy has been facing.) His membership of ACT was as much to redirect National. There is a fascinating account of the ideological tensions within the ACT Party, still playing out today, and a gripping account of the failed ‘Colonels Coup’ against Muldoon in 1980, as well as much political gossip. Those interested in international relations will appreciate his detailed accounts of the role he played in restructuring the military. I greatly valued his account of being a minister.

As I did when reading Steven Joyce’s autobiography. A generation younger (b.1963), Joyce was a National minister from 2008 to 2017. He did not fall out with his Prime Minister. John Key lauds him as ‘the guy who got stuff done’. Called ‘the Minister of Everything’, as the seven major portfolios he held indicates, there is much less politics in his On the Record. He is too busy telling you about what he got done.

As is usual, Joyce starts off with his early life. At university he got involved with student radio, which he built up into the successful network RadioWorks. He learned there how to interact with the public, which led, after he sold his holding, to running National’s election campaigns, and then a list MP jumping immediately to become a minister in the Key-English Government.

One cannot help noticing that he developed his radio network by seizing opportunities from changing government regulation. Quigley’s business success after politics was also dependent upon opportunities created by government actions. One can favour private enterprise, but never escape the symbiosis between it and the public sector.

The public has a shallow understanding of the way a minister works; so have, it would seem, many politicians with ministerial ambitions, who think it is about getting the baubles of office and then do what they think should be done (assuming they think). The two books show it is much harder than that. For that reason alone the books should be read by any aspiring politician, potential policy public servant, or observer of how governments actually work.

Quigley was the Minister of Housing for just under four years but his detailed account of twice restructuring the defence services reinforces the description of the required skills. Marilyn Waring said ‘if every minister ran their portfolio like Quigley runs Housing, we would be in government forever.’ Joyce is even more detailed. I was long puzzled about some features of his creation, the Ministry of Business and Innovation and Employment. I am clearer now – I still think the creation of the mega-department was not a good decision. (Ironically, now out of power, Joyce is likely to argue for greater decentralisation.)

There is an important difference between their presentations. Quigley acknowledges the role of his advisers, even naming a particularly valued Treasury economist. Quelle horreur! The convention is that officials at this level are anonymous. Joyce hardly mentions his advisers.

Joyce certainly deserves credit for, say, the broadband rollout. But the story is more complicated. Work on the rollout was well under way by the Clark-Cullen Labour Government, including taking the first steps to separate Telecom’s value-added services (it became Spark), where the market was potentially competitive, from the monopolistic line operation (Chorus) which Telecom had been using to beat its competitors. Almost certainly, Joyce depended on at least one unmentioned official, probably a specialist network economist.

Could either have been a prime minister? Quigley describes how his prospects of leading the National Party were blocked first by Muldoon and later by Jim Bolger – neither of whom he has much time for. Joyce was a contender for National leadership after Bill English’s resignation. The winner, Simon Bridges, demoted him and he left Parliament – he was 55. (Portfolios are often allocated on the basis of rewards to allies, rather than on ability.)

Each is a reminder that the most able may not reach the top. In Labour’s history, Arnold Nordmeyer would almost certainly have made a better prime minister than Nash. But we should never overlook that ministerial success is dependent upon quality, usually, anonymous advisers – although even the best cannot overcome the limitations of a weak boss.

It is difficult to make sense of the Luxon Coalition Government’s economic management.

This end-of-year review about the state of economic management – the state of the economy was last week – is not going to cover the National Party contribution. Frankly, like every other careful observer, I cannot make up my mind.

Certainly Christopher Luxon and Nicola Willis are doing things, but there appears little coherence in what they are doing (after implementing the expenditure and tax cuts promised during their election campaign). The Post senior editors ranked the two’s performance in the bottom half of the cabinet. (The top rankers were Chris Bishop, Simeon Brown, Todd McLay, Mark Mitchell, Winston Peters and Erica Stanford; the Lambton Quay rule is that it is rare for more than five cabinet ministers to be outstanding performers.) We may see from the 2025 Budget Policy Statement (early next year) whether the government’s economic management is struggling with a contracting economy or just plain struggling.

Instead, this column focuses on ACT and NZF, the two wing parties in the Coalition Government who have quite different economic visions.

ACT was founded by neoliberals and on the whole has followed their approach. For instance, its election manifesto tried to slip into its Treaty Principles Bill a neoliberal reinterpretation of the second article of Te Tiriti based on the its account of property rights. Their approach was so anachronistic that the bill before Parliament has replaced it with something which is closer to what was the thinking at the signing.

However sometimes ACT policies can be puzzling. David Seymour is minister for Pharmac and announces major public funding initiatives. No doubt that goes down well with the public but it is unclear how greater public funding fits in with a neoliberal vision of a health system. A conspiracy theorist might argue that the cunning plan is that while the additional spending is not very effective, it chews up public healthcare spending which could be used more effectively (such as reducing waiting times and earlier prevention) and so drives people into the private healthcare sector and private insurance.

ACT’s Ministry of Regulation is even odder. It was to be funded by closing down the Productivity Commission, which was established as an ACT initiative during the Key-English Government. Presumably ACT’s thinking has shifted from the need for an independent assessment of the impact of government interventions to one which was more ministerially driven.

The Ministry is going to be about twice as expensive as the Commission. One reason is that it will be paying the highest remuneration in the public service. Seymour’s group working on charter school is also more generously remunerated than average. So much for the neoliberal vision of small government.

Even more strangely, Minister Seymour has chosen agricultural and horticultural products, Early Childhood Education (ECE) and hairdressing for the first regulatory reviews. One doubts that improvements there are going to make a lot of difference to economic performance. (The review of building regulations by National’s Minister for Building and Construction, Chris Penk, will have a far great impact, although it is to be hoped they will not repeat its mistakes which led to the leaky building saga.)

An even stranger story is that neoliberals in general and Seymour in particular have a passion for a Regulatory Standards statute. In Opposition they twice introduced a bill into Parliament – both times it failed – and plan to again. However, in an interim regulatory impact statement the Ministry of Regulation said that while it supports the overall objectives, the legislation isn’t needed. Its preferred option is to build on, and strengthen, an existing regime based on Labour’s legislation passed in 2019.

One is left with the uneasy feeling that, as with the Treaty Principles Bill, ACT is not showing any of the political skills that were so admired in the delivery of the End of Life Choice Act.

If ACT is the successor of Rogernomics, NZF is the successor of the economic management paradigm that it replaced. Yes, Winston Peters is Robert Muldoon’s successor. The media does not like Peters. Nor did they like Muldoon, both of whom treated them with belligerence. (In any case the Establishment is always uneasy with populists.)

While it is easy to criticise Muldoon’s second period as Minister of Finance (1975-1981), his first period (1967-1972) was widely admired. In the later period Muldoon was beset with economic problems which, he could not solve because of the politics. But the interventionist economic paradigm developed in the 1930s and 1940s had proved successful for four decades. (Not in Narrow Seas explains why it became obsolete, although it probably can be adapted.)

Peters made no great mark as Minister of Finance (1996-1998) but he adamantly rejected ‘neoliberalism’: ‘[t]he truth is that after 32 years of the neoliberal experiment the character and the quality of our country has changed dramatically, and much of it for the worse’. His occasional mention of economic issues – like at this year’s party conference – would be supported more by Muldoon than by Seymour.

This stance is reinforced by NZF’s number two, Shane Jones, who is the Minister of Resources (and Minister for Oceans and Fisheries and for Regional Development). Like Peters, he is a populist and belligerent towards the media. Jones may be overqualified for a politician, with enormous Māori mana and a Harvard degree, and having worked as a university teacher, a public servant, in commerce (including chairing the Treaty of Waitangi Fisheries Commission) and in diplomacy.

Jones left the Labour Party, where he had been a minister, in 2014 because it was not sufficiently committed to the private sector, but his promotion of the Fast Track legislation and other development initiatives shows that he is also highly interventionist. It is a mix which politicians from the pre-Rogernomics era would recognise. Fast Track is an example of the ‘think big’ approach which goes back to Julius Vogel over 150 years ago. (Muldoon gave the approach a bad name but previous programs had often been successful.) Think Big is anathema to the neoliberals.

Jones is an Associate Minister of Finance, as is Seymour (and National’s Chris Bishop), Willis being the minister. Economic policy discussions within the Luxon Coalition Government must be rather tense because while with Luxon, National has a majority, the politics of coalition enables both Jones and Seymour to wield a veto. Perhaps that it is why it is so hard to fathom what Luxon and Willis actually stand for.

By way of prologue, the closest parallel to the current economic situation may be when Ruth Richardson became Minister of Finance in late 1990. The economy had been contracting, although there were signs of a fragile recovery. She was an Austerian and cut public spending savagely.

The economy plunged a further 5% in GDP per capita terms. Unemployment rose to above 10% of the labour force. Richardson could claim she achieved her Austerian goal of lowering relative government spending.

But National only narrowly won the 1993 election (because the left was severely divided – this was before MMP). Richardson was sacked. While she could point out that the rate of inflation came down under her watch, it was not really her win. World inflation was falling and in any case, as the legislation she supported clearly states, inflation was the responsibility of the Governor of the Reserve Bank (then Don Brash) not the Minister of Finance. (Perhaps one should add that the National Government also suffered electorally from its attempt to commercialise the health sector.)

This is not to say that this will be the political fate of Nicola Willis, nor of the Luxon Coalition Government. But the memory of the effect of heavy cuts to government spending on a weak economy hangs heavily over today’s policy stance.

Treasury’s 2024 Half Yearly Economic and Fiscal Update (HYEFU) is due for release on Tuesday 17 December – an awkward time of the year, which precludes serious analysis published before Christmas. Helpfully on 21 November, Treasury’s Chief Economic Advisor, Dominic Stephens, gave an indication of what is likely to be in the macroeconomic forecasts – not the numbers, but the way they are shaping up.

He observed that the economy has been doing worse than the central forecast of May’s Budget Economic and Fiscal Update (BEFU), pointing out that since the September quarter of 2022, per capita GDP has fallen by 4.6%, making this already a larger per-capita recession than the Global Financial Crisis of 2008-10. Recent economic data suggests the downturn has been deeper, and the recovery will begin later, than the May BEFU forecast (which was already pessimistic compared to the December 2023 HYEFU):

– in the June quarter GDP fell 0.2%, compared to the Budget forecast of a 0.2% increase.

 – as of October, spending on electronic cards at retail stores remained 1% lower than a year ago.

– indicators of manufacturing and service activity remain at contractionary levels, suggesting little or no growth in the economy over recent months.

– Despite improvements in firms’ expectations of future trading activity, the Quarterly Survey of Business Opinion reported that firms are more pessimistic about their current trading conditions than they have been since 2009 (apart from the pandemic).

In fact the economy seems to have been tracking nearer the downside economic forecast which was also set out in BEFU2024. I look at two aspects of what this may mean: unemployment and the fiscal position.

Unemployment tells us something about the shape of the output (GDP) track although it tends to be a lag indicator. BEFU2024 had its rate at 4.0% of the labour force in December 2023, rising a third to 5.3% at the end of 2024 (about now). Then it was to fall sluggishly so that in December 2026 it would still be at 4.6%. There is no downside forecast for unemployment, but a reasonable guess is that it would have peaked near 7% sometime in second half 2025 and would be correspondingly higher about the time of the next election (even 6% in December 2026). Recall that after the GFC it took the economy almost five years to return to its previous GDP peak.

The fiscal forecasts are gloomy too. Treasury’s Chief Economist reported that ‘Treasury has been revising its revenue forecasts lower. Tax revenue has proven lower than expected given the state of the economy in recent economic and fiscal updates. … If this trend continues, there could be further downside risks to the Treasury’s revenue forecasts.’ One of his Associate Ministers, Chris Bishop, was less discreet, announcing that it is unlikely that the fiscal position will return to surplus by 2027/8 as forecast in BEFU2024.

The Treasury did not foreshadow anything about the public spending track. That is a ministerial prerogative; ministers are indicating they expect more public spending cuts. A group of 16 economists led by Ganesh Nana have argued there should be no more spending cuts or delays to infrastructural spending because they will ‘needlessly exacerbat[e] the current recession’. In effect the economists are arguing for a bigger government deficit – that it is not necessary to pursue as rigorously the debt-to-GDP target. Bishop may agree; he said the government was ‘not going to be a slave to a surplus’ (not mentioning one can get enslaved by debt). Prime Minister Christopher Luxon said ‘I’m not going to chase a surplus at all costs.’ We await HEFU2024 to learn the new date.

One should not quibble with public spending cuts whose purpose is to reduce over-staffing, while arguments about cuts of programs which the government does not like are political, although there will be technical consequences. The offset to this position is that the government should increase expenditure where there is under-staffing or on programs which it favours. The technical issue is whether the government should be cutting overall expenditure (or restraining it below population and related demands) to return to surplus. (There is a parallel discussion around raising taxes.)

What Nana et al. are arguing is that not only are such cuts unnecessarily harsh but they are compromising long-term economic growth. On the other hand, there are Austerians who think that the state sector is still too big and are using the crisis to cut it back. (The exception is that they prove to be big spenders in their own portfolios.)

This is likely to be a major debate from now to the next election. In the interim the economy is contracting and is likely to stagnate a bit before it recovers. I withhold an explanation until we have the detailed Treasury HYEFU2024.

How the Prospect Theory of Behavioural Economics Makes Economic Analysis Difficult

Behavioural economics has been described as the most revolutionary thing which has happened to economics for ages. The notion that people do not behave like ‘rational economic men’ (women are mainly ignored) undermines the microeconomic foundations of the subject. Not the empirical evidence on which economics is based – only its interpretation. It also impacts on normative economics, as this column explores.

I’ve written a number of pieces on behavioural economics (see here). This column explores the part known as ‘prospect theory’ for which Daniel Kahneman was awarded a Nobel laureateship in 2002 (as would have been his co-researcher Amos Tversky had he been alive). The theory unites three basic observations: people treat gains differently from losses (known as ‘loss aversion’); people place unequal weight on outcomes with certainty compared to those with uncertainty; and the structure of a problem itself may affect the choices made.

This column focuses on loss aversion, with an example of how it complicates analysis. Suppose a good quality cost-benefit analysis – they occur less frequently than they should – concludes that a project would generate an extra net $1 (add as many zeros as you feel necessary). Because the study is of high quality it also will set out winners and losers, finding perhaps that the winners receive a benefit of $3 and the losers $2 – giving the net aggregate benefit of $1.

Typically the economist is not allowed to tradeoff the winner’s gains against the loser’s losses, because that involves the political judgement of comparing people’s welfare; the profession has no particular expertise in interpersonal comparisons. In principle the tradeoff is left to politicians, although sometimes economists don a politician’s hat – without telling the public – and advocate one way or the other.

Some economists argue, using ‘Hume’s Law’ (David Hume would be embarrassed to be associated with it), that ‘a dollar is a dollar’ and favour the project since it adds a dollar to the economy. (There is also a complicated theory of ‘compensation’ which need not detain us here.)

What ‘loss aversion’ says is that different dollars have different values. Suppose you did not know you were a winner or loser but that your chances were half and half of being either. The empirical evidence is that, as a rule, most people would prefer not to lose the $2 dollars despite the equal possibility of winning $3. Typically their tradeoff is between wanting a $4 win in exchange for a $2 loss. In effect, they are valuing a dollar lost the same as two dollars gained – bang goes Hume’s law.

In which case how does progress happen when there is loss aversion? Surely there will an inertia from the loss aversion often outweighing the immediate gains from progress.

In a market, winners frequently succeed and losers suffer because there is no market mechanism to compensate losers. How often does a news story amount to the losers appealing to the government to protect them from a market decision which is against their interests?

Where politicians have some influence, the project may still go ahead despite the losses outweighing the gains. The political decider may favour the winners over the losers, the costs of opposing by the losers may outweigh the loss from the project (especially if there are a lot of small losers and a few huge winners), the losers may not realise they are being screwed and so on.

You can see one of the reasons why the evidence points to market economies progressing –with greater innovation and higher output – more than ones which are dominated by a centralised authority. You can also see how market decisions will be continually appealed to government to be overruled or moderated, not to mention the difficulties governments face when they are making changes. So while on conventional measures there may be progress of a kind, there may be considerable grumpiness from people offsetting the gains with double their losses.

And yet there is progress. The complexity is captured in a story about Ken Findlay, a feisty truckie and trade unionist. When the freezing works he worked at was closed and jobs were lost, he was a prominent and vociferous objector. Some years later he said  that the closure was the best thing which happened. I did not ask him why – alas he died last year, so I can’t ask him now. I am left with the puzzle of the apparent contradiction.

I doubt that his protests at the time were just on behalf of his devastated mates. Rather, he seems to have changed his mind or perhaps, it might be better to say, that his thinking evolved or that his subsequent experience was not as damaging as he feared.

Most of the experiments on which behavioural economic theory is based, perhaps inevitably, have very short time dimensions so they tell us little about how people’s thinking evolves through time. The one hint comes from Kahneman’s Thinking Fast, Thinking Slow. It suggests that we do not handle time in the way models of rational economic man assume.

This is all very troubling – behavioural economics is troubling to the rational thinker. Here is the best I can conclude at this stage.

First, the indicators we generally use to measure economic progress may not reflect improvements in the wellbeing of everyone (even after acknowledging their standard limitations).

Second, those who are hurt by change may be more hurt than those who benefit from it. We may ignore or discount the losers; sometimes we don’t even notice them.

Third, people may handle ‘progress’ differently in the long term from the short term. It is possible that many remember the short-term downsides and forget the long term upsides.

Not very strong conclusions, I’m afraid. Like so much of behavioural economics, the main conclusion is not to be too confident of conclusions dependent upon the traditional framework of the rational economic man.

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.