Sunday, 8 March 2009

Article on John Key in the WSJ (updated x2)

An article on John key has appeared in the Wall Street Journal, see You Can't Spend Your Way Out of the Crisis: New Zealand's prime minister wants to give his country a competitive advantage instead.

The report says
These days, you have to travel far to find a national leader who is talking about market-based approaches to the global recession. All the way to the other side of the world.

"We don't tell New Zealanders we can stop the global recession, because we can't," says Prime Minister John Key, leaning forward in his armchair at his office in the Beehive, the executive wing of New Zealand's parliament. "What we do tell them is we can use this time to transform the economy to make us stronger so that when the world starts growing again we can be running faster than other countries we compete with."

That idea -- growing a nation out of recession by improving productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra. Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says. "You've saddled future generations with an enormous amount of debt that then they have to repay," he explains. "There is actually a limit to what governments can do."
Fine words, I just wish his actions backed them up.

I would add that there are no "other countries we compete with". We don't compete with other countries, this is a false analogy that comes from thinking that countries are like firms, they're not. As Paul Krugman, of all people put it, A Country Is Not a Company. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia don't, their loss is not our gain. To see this, note that while Coke may wish to put Pepsi out of business, so that Coke can increase their sales and prices and therefore profits, New Zealand would not gain if we put Australia "out of business".

Why? Well in the Coke/Pepsi case, Coke gain a lot, in terms of sales and profits, from not having Pepsi to complete with and lose little since Pepsi doesn't buy much , if anything, from Coke. Or Coke from Pepsi. This is not true of the New Zealand/Australia example. We may gain some sells if Australia stopped producing, but we would lose much more. Australia is our biggest export market and if they "went out of business", they would stop importing, and that would hurt us a lot. Also they are suppliers of much of our useful imports and that would stop too, which would hurt us even more.

The relationship between countries is very different from that between companies. Anyway read the whole article and see what you think.

Update: For a good discussion of the whole 'countries compete' idea see Paul Krugman's essay - written when he was still an economist - Competitiveness: A Dangerous Obsession.

Update 2:
The Adam Smith Institute in the UK has picked up on the WSJ piece on Key.

5 comments:

Crampton said...

Pepesi, Paul? Really? Pepesi? How do I pronounce that?

Paul Walker said...

Shit! Fixed, thanks. The worst thing is that I was drinking a can of it while I wrote the message. Hence the example.

Anonymous said...

There's still a Pepesi in the last paragraph. How much of the stuff were you drinking?

Paul Walker said...

Thanks. Clearly not enough!!!

Tom M said...

"We don't compete with other countries"

That's true for the most part, but in terms of our tax regime we are competing with them for investment capital and skilled migrants, which may be what the Prime Minister is thinking of. The assumption would be that New Zealanders get greater externalities from having those things here than overseas.