Tuesday, January 26, 2010

New Zealand a counterpoint 

Over the weekend I read this from Daniel Hannan on why we bailed out the banks:
Why did MPs and Congressmen support a policy that their constituents disliked? Partly because of the �Something Must Be Done� fallacy: the baleful modern notion that the government�s response to a crisis must be proportionate to the degree of media anxiety rather than the scale of the problem. Mainly, though, because ministers allowed their policy on banking to be determined by bankers. As Douglas Carswell says, we are in the world of Atlas Shrugged, a world of back-room deals, of ententes between big government and big corporations, of conspiracies against the public weal hatched in the name of necessity.

What would my alternative have been? The alternative to nationalising financial instititutions is, you know, not nationalising them. The alternative to rescuing some very rich individuals with taxpayers� money is to let taxpayers keep their money. I have told the story before of how, in New Zealand, the withdrawal of agrarian subsidies prompted fears of a banking collapse. On that occasion, though, ministers refused to give the bankers the bail-out they demanded, with the result that the banks had to sort the problem out themselves � thereby almost certainly averting the meltdown that a bail-out would have provoked.
I wish the story was so apt. In New Zealand the withdrawal of agrarian subsidies revised downward the value of agricultural land, but that is hardly a bubble story. It is not a story like the one some tell of home prices driven by government policies to increase home ownership.

Still, it's worth asking what the New Zealand economy is like given the change in policy. Based on this report from the government's treasury, it appears to be no better or worse than the U.S. (Be very cautious comparing NZ unemployment rates to the U.S. They are not the same measurements.) While the economy is not in decline the baseline forecast calls for a 2% growth rate for the country, slower than the previous decade.

You can look at that result one of two ways: Good, in that the country didn't implode when the government refused to bail banks out, supporting Hannan. Or bad, that the economy's turnaround is not any better than those countries that threw in for the banks. It's a question worth coming back to in a few years.