Friday, 27 April 2012

The government delusion

Matt Nolan at the TVHE blog writes,
Again, I’m hearing increasing talk about managing the economy – specifically, I have people telling me that they don’t think the government is managing growth properly. Now, anyone reading here knows this statement is patently ridiculous – the government is not a management committee, and John Key is not the nations CEO.
The view that a country is just a big company and needs to be run along the same lines is a common misconception. That the PM isn't and shouldn't be thought of as the "nations CEO" is not well understood. As Paul Krugman (yes even he is right about some things!) said A Country Is Not a Company. To see why consider, for example, the basic point that companies compete with each other but New Zealand doesn't compete with other countries. Thinking that countries compete is a just one false analogy that comes from thinking that countries are like companies when they're not. The point is that Coke and Pepsi, for example, do compete, one gains at the others expense, but New Zealand and Australia, for example, don't, their loss is not our gain. International trade is not a zero-sum game. 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 compete 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.

Countries trade, they don't compete. And thus we don't need a CEO to running NZ Inc because NZ Inc doesn't exist.

As anyone in Christchurch will tell you micro-management by the government isn't a great thing. Christchurch (or anywhere else) isn't a a division of NZ Inc that needs to be controlled by the division manager (Gerry Brownlee?). Growth in Christchurch and the country as a whole will not be the result of management plans implemented by the government and thus far for Christchurch the actions of government seem to be doing more harm than good.


Horace the Grump said...

The problem is that the media (them again!) and the general public can only think in terms of trade being a zero sum game - there just has to be a winner and a loser!

Trying to convince them that the seemingly counter-intuitive notion that trade is good for all participants is almost an anathema...

That is the challenge.

Paul Walker said...

You have a point. Getting across to people that both sides in trade gain, why else would they trade, is difficult. I just can't see why.