Banking on brighter times
What makes Tony Alexander, one of the best-known ‘celebrity economists’, tick? CATHERINE HARRIS finds out.
These are precarious times, but Bank of New Zealand chief economist Tony Alexander believes that the world would be a better place if people understood a downturn is necessary every now and again.
‘‘Sometimes you need to have a recession and the reason is, you need to . . . weed out the inefficient operators: buildings only partly used, machinery partly used, people employed when they’re not useful.
‘‘So you actually need a recession now and then to wipe the slates. In some regards, it’s a necessary thing.
‘‘It would have been useful if we had had a recession around the world a few years ago, to stop this happening now. No-one would want this repeated,’’ he says of the credit crunch and the ensuing slowdown.
Recent events have meant chief economists are in as great a demand as ever, and Alexander is one of the most familiar.
He is on the road 20 to 30 per cent of his time, and his ability to make economics understandable to the ordinary businessman or homeowner has made him a media favourite.
He obviously enjoys talking ‘‘to the coalface’’, but admits to a lovehate relationship with the media, whose demands can be ‘‘overwhelming’’.
‘‘You’re always out there in the public eye, you’re out on a limb and there’s always somebody who’s going to disagree with what you’re saying, so it’s very dangerous.’’
So, after 14 years in the job, he plans to reprioritise his workload a little, doing mainly bank events and staying at home more, to help his partner with their five children.
That doesn’t diminish the reason Alexander took the position or why he became an economist at all.
‘‘Initially I got into economics from reading about the Great Depression and what went wrong. As a calling as such, I just found I enjoyed it, I found I understood it. Later on, I found people would pay for it!’’
Another compelling reason was the failure of his father’s building business during a slump in the late 1970s.
‘‘My goal, as it were, has always been to minimise the number of businesses that get weeded out in a downturn through not realising there’s a recession on the way.’’
Graduating from Canterbury University with an MA with firstclass honours, Alexander headed to the Reserve Bank of Australia in 1984 to do economic modelling.
He did not stay long, citing five years of hard study and some ‘‘appalling management’’ as ‘‘a recipe guaranteed to produce a quick exit’’.
However, it confirmed what he always knew: ‘‘That working the back room beavering away did not suit me. I needed to be closer to the coalface.’’
Returning to New Zealand in 1987, he was ebullient about the country’s direction away from strong regulatory control, only to watch the sharemarket crash and the country’s growth stall for six years.
The role of a chief bank economist – previously more of a management job requiring strong government contacts – was also becoming more prominent.
‘‘When [Sir Robert] Muldoon was still in power there were some high-profile people like [Think Big critic] Len Bayliss who was chief economist at the BNZ, and I think what many people learned then was having a high profile could get you in trouble.’’
But as the country deregulated, Alexander says banks realised they needed economists experience.
‘‘They needed economists [who] understood what made floating exchange rates go up and down, and monetary policy – which was changed by the central bank rather than government – fit. And everyone else was interested in the same thing . . . People just kept calling up.’’
Alexander took a job as treasury economist with Westpac. His communication skills soon saw him doing daily radio slots, and after several years he left to spend a year as an economist with brokerage Garlick and Co to build up his research skills.
With more experience under his belt, he felt ready to go back to what has turned out to be a very mediafocused job with the BNZ.
He started in 1993 as deputy chief economist, assuming the top job 18 months later.
As a bank employee, Alexander admits he can’t always say what he wishes, but is largely unconstrained.
‘‘It’s been explicitly said to me by a number of senior people in the
with market bank that they value that I amseen as an almost independent voice. Almost.’’
We talk about the economic importance of superannuation. Alexander recalls how Muldoon scrapped the country’s compulsory superannuation scheme in the mid-1970s. He says it was a lost opportunity but would never have survived.
‘‘He’d have spent it all. He’d have thrown it down the gurgler on more Think Big projects.’’
Today, the National-led Government has pledged to direct 40 per cent of the NZ Super Fund toward local investments, which Alexander also thinks is a mistake.
‘‘The capacity of the New Zealand economy to absorb that kind of money and generate good returns on it is limited.
‘‘It could go to the sharemarket, but it would just end up being the dominant factor in the sharemarket. If you use it to create infrastructure, you’ve got to remember it’s got to be sold off at some point . . .and it’s got to generate a return.
‘‘The risk is, you may not generate a good return on the money and political imperatives may stop you selling the asset in two or three decades’ time when you have to sell.’’
As a student of the Great Depression, Alexander is confident the world will skate ‘‘nowhere remotely close’’ to those days.
The world’s major economies will not get near the unemployment rate of 20 to 30 per cent they did in the 1930s, he says. But when one in 10 jobs in New Zealand is related to tourism, it could well go north of 6 per cent.
The credit crunch has not shaken Alexander’s faith in capitalism, but like former US Federal Reserve chairman Alan Greenspan, he’s found flaws: ‘‘ The borrowers who borrowed too much money, the banks that lent too much, the regulatory authorities who turned a blind eye and the central banks for mucking around with monetary policy, for failing to realise that sometimes you need to have a recession.’’
Cleansing force: BNZ chief economist Tony Alexander says recessions wash away economic excesses such as unproductive machinery and people.