Little to gain from playing blame game
Scrutiny of Covid-19 responses requires speck of humility
With annual inflation peaking at 7.3 per cent in New Zealand, the blame game is well and truly under way. It’s the Government’s fault for injecting the thick end of $65 billion of made-up money into the economy and fuelling a consumer and asset price boom that nobody predicted when the Covid-19 pandemic first hit in March 2020.
It’s the Reserve Bank’s fault for running loose monetary policy to accommodate the expected shocks of the pandemic and fuelling a consumer and asset price boom that nobody predicted when the Covid-19 pandemic first hit in March 2020.
The monetary authorities have been “so incompetent” and now we are collectively paying the price. Well, hang on.
For a start, where were all the smart people saying this was the wrong thing to do in March 2020, when every business owner and householder had no idea what might happen next?
Sure, there were a few armchair experts suggesting there would be greater costs from locking down than from letting a highly infectious, little understood, novel virus with no vaccines run through the global population on an experimental basis.
But those people had clearly never read any history or looked at how countries, mainly in Asia and Africa where pandemic control is well understood, use isolation to prevent transmission and it is a pandemic approach as old as time.
They were right lockdowns would be mentally challenging, but were they suggesting that was reason enough to fail to get on top of a pandemic when such failure is clearly more disastrous than succeeding?
It took the Great Fire of London to provide the circuit-breaker that stopped the plague rampaging through that great city in 1666. By comparison, the Great Wage Subsidy Payments of 2020 look like a small price to have paid to settle down a nervous nation, followed by the Great Bonfire of soft loans, lockdown compensation and accelerated infrastructure projects.
Healthy debate
We can now argue some businesses gamed the wage subsidy system and
didn’t need it or were prevented from a healthy commercial failure thanks to government largesse.
But overall, the “least regrets” approach to the early parts of the pandemic was clearly highly effective.
We can argue now about whether the fiscal and monetary looseness went too far and went on for too long.
Let’s have that debate, but let’s not imagine there was ever a point in time in 2020 or 2021 when it was obvious things had gone too far or, in the case of rampant house price inflation, that there was an easy fix to the evidence of overkill that wouldn’t have choked off economic activity.
Are the critics of today’s inflation figures and absurdly high house prices really arguing there was an option where the Reserve Bank started raising interest rates during, say, the Auckland lockdown last year?
Or that the Government should have delivered a package of spending cuts in the 2021 or 2022 budget, when the crown accounts show New Zealand has one of the lowest government debt-to-gdp ratios in the world?
More to the point, are these critics living in a bubble that assumes this is only happening in New Zealand?
The evidence is that if our monetary
and fiscal authorities got it wrong, then so did everyone else.
Every other major developed country reportedly has inflation right now and many are looking at staggeringly high levels of government debt.
Wrong about Ukraine, too
A large number of us were also wrong in assuming Russia was just stickwaving with its talk of invading Ukraine.
Even more of us have since been surprised to discover just how much wheat, grain, sunflower oil and transport fuel usually comes out of Ukraine and Russia, but can’t at the moment.
The impact on house prices is perhaps the most worrying aspect for New Zealand of the aftermath of the globally shared approach to staving off economic implosion caused by a new global health threat.
Young New Zealanders face a lifetime of debt or renting because of the huge mismatch now between average house prices and average wages.
But that doesn’t alter the fact that just 3.2 per cent of the working age population is recorded as being unemployed and labour participation rates remain among the highest in the
Organisation of Economic Cooperation and Development (OECD).
This is a strange recession, in which everyone who wants a job should be able to find one, and that’s because of the response to Covid-19 to date.
Would it really have been better to do nothing, or far less, and watch businesses fail en masse and unemployment skyrocket, just so that some “told-you-so” chin-scratcher in July 2022 wouldn’t have the pleasure, with the benefit of hindsight, of saying that we got it all wrong?
It’s hard to imagine a government doing that.
Could and should the Reserve Bank have stopped the funding for lending programme before now?
Undoubtedly, yes. Would that really have changed the broad course of the outcomes the central bank is now seeking to deal with?
Undoubtedly, no — or at least, no more than at the margins.
Fair cop
None of this is to suggest that every decision a central banker or a government minister makes in a time of crisis should not be reviewed and questioned, with possible lessons learned for the future.
Rather, the tone and manner of such post facto scrutiny would benefit from a speck of humility from those who were never in the hot seat, and a greater acknowledgement that these conditions are not just in New Zealand.
They’re showing up in most countries like ours.
If there’s a better way to respond to a pandemic, let’s work out what it might have been and should be in the future.
If central banks need reform in light of the inflation-targeting regimes of the past 30-plus years either reaching their use-by date or at least needing an update, so be it.
But let’s do it with a calm eye to the future, rather than an angry eye to what might have been done better in circumstances where not only was nothing obvious, but the challenge was unprecedented and the institutional response did in fact save a swathe of jobs and livelihoods.
And if we want lower cost housing and better paying jobs, don’t look to the RBNZ.
Policies to make those things happen are in the hands of politicians and policymakers, and the failures there are intergenerational, not a product of an exhausting virus-inspired crisis.