http://www.interest.co.nz/ratesblog/index.php/2009/11/16/top-10-at-10-south-canterbury-losses-china-bubble-to-pop-mad-butcher-vs-chrisco-dilberts/comment-page-1/#comment-47427

The debate over asset sales needs to start now as it might as well be broadcast on TV 1 News that National is lining up the asset sales. The treasury report is an early announcement and part justification. “Live within your means” New Zealand but in the mean time we will clock up some debt and then say 2 years from now that you have spent too much and it’s time to sell of the silverware again. Sel

http://www.mea.org.nz/events.aspx

The books are,

1) Culture and Prosperity: the truth about markets – why some nations are rich but most remain poor. John Kay, 2003, Harper Business. He cites and analyses Argentina and New Zealand(!) as examples of countries that were onces rich but are now in the “intermediate-rich list” – not far off being considered poor.

2) The Origin of Wealth – Evolution, Complexity, and the Radical Remaking of Economics. Eric D. Beinhocker, 2006, Harvard Business School Press. This might be a useful chapter for you, ‘Politics and Policy – The End of Left versus Right’ that includes a very interesting section entitled ‘Left-wing Utopias and Free Market Fantasies’.

You might also want to have a read through an article/thread by Selwyn on Interest.co.nz:

http://www.interest.co.nz/ratesblog/index.php/2009/11/06/opinion-how-neoliberalism-has-failed-new-zealand/

And these by John Walley:

http://www.interest.co.nz/ratesblog/index.php/2009/11/04/opinion-rbnz-needs-effective-tools-to-control-non-tradeable-inflation-and-volume-of-credit/

http://www.interest.co.nz/ratesblog/index.php/2009/10/23/opinion-why-new-zealand-needs-to-follow-singapores-example/

It is not as though we are lacking options. What we do lack is LEADERSHIP and the WILL to change, and both have been lacking for a considerable time, which is undeniable.

Les Rudd
Invited Member
NZMEA

Yes there are always choices beyond those considered as wise or prudent to those making the decision.

We are all victims of both our formal and informal education and that drives us to make calls that to others seem illogical or at least ill considered. I see this both in peoples personal and business lives all the time where they say “but there were no other options” and I can see three or four but they couldn’t as the emotional pain of making them was just too high.

The over reaction to the command economy of Muldoon is still part of our decision making in New Zealand as is the swing to arguably the most open economy in the world with the government that followed.

The “fear” of being perceived as part of either camp is still making many politicians impotent today. The market doesn’t decide, people do. If we leave our future entirely to the market forces this country is doomed to maintain its long downward spiral (IMHO).

Those economies that advocate Neo Liberal policies seem to be ones that benefit from its adoption elsewhere and typically started from a position of significant strength. Our journey of faith and it’s lack of success was in hindsight totally predictable.

There were, of course, plenty of alternatives. Just not ones that the received wisdom at the time agreed with.
Yes, the devaluation in ‘84 was inevitable and unavoidable. We didn’t have reserves left to defend the currency with. But the subsequent floating of the exch rate and related policies were by choice.

The freeing up restrictions/controls on the goods (production) markets carried some sanity. But, the sequence of freeing up markets is important.

The freeing up of financial flows was undertaken earlier than the freeing up of goods markets, and this at the time caused a shift in resources away from production towards financial speculation. Sound familiar?

This earlier freeing up of financial versus goods markets only accentuated our fundamental external current account imbalance which continues to today.

In 1984 media speculation followed a leak that an incoming Labour government would be likely to significantly devalue the dollar upon election. The Reserve Bank advised the then Prime Minister, Sir Robert Muldoon, that the dollar should be devalued. Muldoon ignored the advice, owing to his misheld belief that it would hurt poorer New Zealanders in the medium term. In June 1984 Muldoon announced a snap election to be held in July. This caused an immediate run on the dollar, as currency speculators believed a Labour win would mean devaluation. Despite a deepening foreign exchange crisis, Muldoon continued to refuse to devalue, forcing the Reserve Bank to take some extraordinary steps, such as the temporary closing the forex markets for a short period of time to slow down devaluation.

Leading up to 1984 the NZ Treasury, which had been unsuccessful in the battle against Muldoon’s disastrous ‘Think Big’ government investment projects and the two-year wage and price freeze, had clear views on what needed to be done. They were pulled together in the few weeks following the announcement of the snap election in mid-June 1984, as a post-election briefing for the incoming government.

The day after winning the general election in 1984, the Labour government was informed that it faced a foreign exchange crisis. Within days the situation had escalated into a constitutional crisis. Decisive corrective action was required, and was boldly taken. The currency was devalued and interest rate controls were removed in order to allow monetary policy to defend the new exchange rate. Price controls were quickly removed.

Two enormous tasks followed. The spiral of fiscal deficits, public debt and credit downgrades had to be reversed, and markets had to be freed up to allow the private sector to generate sustainable economic growth. These twin tasks of stabilisation and liberalisation took most of the next decade. The programme constitutes what a former OECD senior official, David Henderson, has called “one of the most notable episodes of liberalisation that history has to offer”.

It is fair to say that the course of action Lange and the new Labour government took was the only “prudent” one to take at the time. If NZ wanted to avoid a complete and utter collapse of its currency and economy there were really no alternatives.

More detailed info and be found here: http://en.wikipedia.org/wiki/1984_New_Zealand_constitutional_crisis