Election economics
Shamubeel Eaqub on growth limitations
The general election will be held on September 23. How will the economy influence voter turnout and how they vote? How will the election result influence the economy?
All tricky questions. Pointing to the economy is a distraction. Trump and Brexit show clearly that the real issues are the growing divides between generations, between urban and rural, and in our case, the housing crisis. It’s not the economy, it’s the social and policy issues that matter.
Whether people can be bothered to vote will matter a great deal. Trump and Brexit both benefited from larger turnouts from older and rural voters. Even if the majority view of the population is different from those who voted, it will mean nothing to the elected politicians.
Our elections are not representative, because young people, poor people and renters are less likely to enrol and vote. Their voices are diminishing and that needs to change. More often than not, they and their children are the ones who will be most influenced by long-term decisions being made by the Government. That’s why voting at the coming election will matter.
Voter turnout does not seem to be affected by the economic cycle. But disaffection with economic performance is a weak predictor of change in government. Although that is unfair. The performance of the economy is not directly linked to the reign of a political group. The numerous analyses we will see in coming months of economic growth, unemployment rates and house prices in one group’s reign over another, is bunk.
The levers the Government pulls are long term in nature. Changes to how we do welfare, education, corrections, superannuation or housing policy, do not change the shape of the economic cycle – rather the course of society and the economy gradually over time, often measured in decades.
Over recent years, much of the economic growth has been on the back of a strongly growing Chinese economy, the Canterbury rebuild, a very strong Auckland economy, record population growth due to net migration, exceptionally low interest rates and rampant borrowing growth – although not always at the same time. These have been largely outside of the Government’s direct influence. It seems hardly fair to vilify or give credit for influences the Government does not have.
Government decisions on taxes and spending matter in the short term. This Government provided significant stimulus in the first term. Fiscal policy since then has been contractionary (taxes exceeded spending), to bring the operating balance back to surplus, which was achieved recently.
But some of the fiscal management was merely delaying spending, not permanent spending reductions. The underlying drivers of demand for social housing, health, policing, corrections and such things have not changed.
In the state of the nation speech, Prime Minister Bill English announced a large package for police. While the announcement is new, it only partly makes up for the spending cuts in recent years and population growth. The pattern repeats across other areas too. A cynic would see it as meddling with public services for political ends.
Even in fiscal management, performance should be judged for the quality of decisions and how they align with our values, not merely aggregates of deficits and surpluses, or debt.
Asked to summarise the election, the prime minister said ‘‘growth’’. But growth in and of itself is not what we are after. That is the out-modish thinking of the 1980s. Economic growth is a proxy for broader improvements in opportunity and prosperity. This kind of blind faith in growth reflects many of our entrenched ideas around the trickle-down theory, or that the rising tide lifts all.
The ‘‘growth is good’’ ideology has become unquestioned theology. But it’s not true.
While the economy has grown persistently over a long period of time, it has not been enough to ensure rural New Zealand enjoys the same opportunities as urban. Home ownership has fallen since 1991 to the lowest level since 1956, our social housing stock relative to population is at the lowest level since the late 1940s, and millennials may be the first generation to be economically worse off than their parents. These and other erosions of Kiwi values will not be solved by growth alone.
The role of government is not to manage the economic and fiscal cycle. Government should be in the business of making long term investments, not spending, on social and physical capital. The focus should be on prosperity and opportunity, not growth per se.
Voters should not be swayed by mirages of economic and fiscal managerialism. At the voting booth on 23 September, we should be voting for those who represent our values (whatever they may be), so the next elected government can represent us in the way it taxes, invests, and makes rules and regulations.
Asked to summarise the election, the prime minister said ‘‘growth’’. But growth in and of itself is not what we are after.