Taking our medicine

25/05/2012 § 4 Comments

Another budget, eh? Two surprises for me (but maybe I wasn’t paying attention):

  • the increase in RS&T spending
  • Kiwisaver information provisions.

I support both of these, although the devil will be in the detail. The first one is generally a public good (non-exclusive, non-rival), and the other overcomes an information asymmetry.

But what I really want to talk about is this: it’s another take-your-medicine-like-a-good-kid sort of budget. Haven’t we had this before? Over and over again? When does this prescription run out?

To show what I mean, here’s a timeline. This is the approximate mental model I carry around in my head of the economy over the last forty years:

  • 1970s – stagflation and oil shocks
  • early 1980s – recession
  • mid 1980s – not bad
  • late 1980s – stock market drop, Savings and Loan scandal
  • early 1990s – recession
  • mid to late 1990s – tech boom
  • early 2000s – tech bust
  • mid 2000s – not bad
  • late 2000s to now – recession, turmoil

(I did a graphic of this, but can’t get it out of Word into this post.)

Yeah, it’s totally non-scientific, just my personal perspective. It reflects where I’ve lived and what I’ve been doing. But other people look at the economy with their mental models – vague personal recollections connected in some sort of narrative. And what’s the story? About 5 to 10 good years when the economy was humming, maybe 10 to 15 years of moving sideways, and lots of difficult years.

So, when do we get to stop taking all this economic medicine?

When is the patient going to be healthy?

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§ 4 Responses to Taking our medicine

  • jamesz says:

    But then what would the politicians have to fix?

  • JC says:

    I can go back a bit further. In the early 60s I took out an accident insurance policy and a decade later the Govt introduced ACC and made my original investment look a bit silly.

    In the late 60s I took on some big premiums (in addition to my Public Service Super) for endowment insurance, and of course the Govt introduced National Super and again made me look a bit silly. Its a good thing I am male or otherwise I would have taken out a policy against pregnancy and divorce till the DPB rolled around in the early 70s!

    So the way I see the last 50 years is that Govt raced to catch up with the latest and greatest in social welfare, and Budget night was famous for the Finance Minister saying “and we’ve a record allocation for education and health!!

    The effect was the swift transfer of responsibility from individuals to the Govt.. which actually had a limited ability to fund its new responsibilities.. so it ran current account deficits. In other words the Govt replaced parents as agents of their future who became hostages to political fortunes and whims.

    Thus, “taking your medicine” is really the inevitable response of a Govt that can never efficiently manage the large parts of the household budget and aspirations of which it it has taken control.

    JC

  • Paul Walker says:

    Bill. The problem is that budgets are NOT about fixing the economy, they are about staying in power. Politics rather than economics drive the budget. The economy will never be “fixed” as long as politicians are doing the “fixing”.

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