Alan Bollard Doesn’t Understand Economics

Alan Bollard repeats the common claim that the difference in economic performance between Australia and New Zealand is due to Australia’s abundance of natural resources:

Speaking on TVNZ’s Q+A programme yesterday, Alan Bollard said Australia had been “blessed by God sprinkling minerals” and had handled its economy well. He said New Zealand would do better to make the most of the “crumbs that come off the Australian table”.

He said it was up to the Government what its own goals were, but he did not believe catching up with Australia was possible.

I haven’t watched the show, but I’m assuming Bollard is arguing that changes in commodity prices favourable to Australia explains the fact that living standards across the ditch are around a third higher. This is just not true. The 2025 Taskforce (led by Don Brash, who does understand economics) does a good job of summarizing the evidence.

While movements in terms of trade have made Australians richer in recent years, most of its improved performance came well before any significant and sustained changes in commodity prices. Further, New Zealand has fallen in income relative to other OECD countries which should have been hurt by changing commodity prices.

Bollard seems to be stuck in a materialist mindset when it comes to economic performance. While resource endowments do matter, assuming that New Zealand’s relative lack of minerals destines those living here to a permanently lower level of income than Australians is absurd. As the Taksforce points out, many high performing countries such as Taiwan and Ireland are extremely resource-poor. Many extremely poor African countries are also very rich in minerals. People become richer when the institutional environment allows them to cooperate for mutual advantage, not when there are lots of shiny things to take out of the ground.

New Zealand’s economic stagnation has nothing to do with resource endowments or commodity prices and everything to do with poor institutions. Australia’s economic reforms since the 1980s have been much more constant and thoroughgoing than ours, and have not produced the same destructive regime uncertainty.

Advertisements