Posts Tagged ‘Brain Easton’

No pain, no gain – the ugly truth. Big question is who suffers and who wins

Economist Brian Easton rightly points out there is no free lunch to be had if we are to lift our rate of economic growth.

To do this we need to invest more and that means New Zealanders consuming less.

That’s the ugly truth.

Easton doesn’t utter the words, but he talking about the old ‘no pain, no gain’ argument that was around in the 1980s and 90s and fell out of use as it became clear that there was only pain and very little gain.

However, Kiwis do need to change their behaviour in uncomfortable ways if we’re going to achieve a level of economic growth that allows us to maintain our quality of life.

We’re going to have to give up debt to fund our lifestyles, we’re going to have to invest in productive things rather than houses and for a while we’re going to have to get used to the government no longer forever trying to play catchup with our demands for more healthcare and education.

The key issue is who bears the pain. During the 80s and 90s it was mainly the poor.

This time around there needs to be a fair distribution of the pain (and the gain).

In yesterday’s Sunday Herald Easton points out higher growth is subject to laws that can’t be avoided.

“One of the simplest is that if we wish to grow faster we are going to have to invest more. The tradeoff is that we are going to have to consume less, at least in the short run.”

He says overseas borrowing could fill the gap, but then we’d unwisely be borrowing for consumption. (Again).

So who’s going to lose their free lunch. (Dunno if it’s free, but someone is certainly going to have to go without – BigCake).

Easton says cutting government spending to make room for more capital investment does not enable offsetting income tax cuts, unless all the additional private income is saved.

“At the moment the economy is spending too much relative to production (evident by our high overseas borrowing). The government has been reluctant to cut back aggregate spending vigorously. Instead it is squeezing government spending, perhaps because it does not want to precipitate an economic crisis like the Richardson measures of 1990 and 1991 did.

“Accelerating the growth rate requires even more vigorous cuts to public and private consumption.

“Critics of the government strategy who aspire to markedly accelerate economic growth need to acknowledge that their approach initially involves markedly cutting consumption – that is, people’s standard of living. One of the most pervasive tradeoffs of economics is that there is no such thing as a free lunch.”