Nonetheless, Singapore differs from NZ in many other respects. There is little in the way of a welfare system, and the government sector takes up around 25% of the GDP (as opposed to our ‘close to’ 40%). Taxes are low, monetary and fiscal policy has always been conservative. There’s an open-door policy to multinationals and foreign investment.

This is backed up by a very high savings rate (supported by a timid welfare system and compulsory savings). In turn there have been little in the way of severe macro-economic imbalances, making the peg a bit easier to sustain. The “actual” exchange rate is close enough to the peg for there not to be a departure from economic fundamentals.

NZ tends to acquire large macroeconomic imbalances under the weight of imprudent fiscal policies. The high interest rates + high exchange rate we had under Labour weren’t actually the problem. They were the symptoms or warning signs of problems being generated by Cullen & Co.

Interest rates and exchange rates are the two things that affect us most so its beyond time we had a more informed look at our system. One that isn’t driven by class politics.

Yeah, who cares about inflation? Why not have inflation at 10 percent? What could possibly be wrong with that? Or maybe have it at 10% sometimes, and 5% other times, thats even better right? Because the average would be lower. Durrrr.

Hell, when was the last time we won the rugby world cup? Must be the fault of monetary policy too. And all those awful reality TV shows that have been spawned in the last decade? Monetary policy is to blame for that.

As Matt says at TVHE, monetary policy is about the amount of money. Thats all. Go read his posts, they will explain it better than I can here.

Creating wealth is about turning inputs we have into something that someone, somewhere else values more. That’s ultimately a private sector decision, which means it is the incentives facing local entrepreneurs that matter. That means things like taxation and red tape issues matter.

When Labour came into power I folded up my nascent consultancy business in Asia. My costs rose when ACC was nationalised. My return fell when the tax hit 39%. And people in similar households earning half my salary, got the same spending power with their welfare top-ups. What is the point?

The root problem is that we have a political culture that says we want people to make wealth, but we don’t want them to keep it. If you succeed, we want to plunder that and give it to others. Aah, how we laughed when Helen exhorted NZ businesses to engage more with Asia after the raids on our wealth.

Having an independent Reserve Bank and a focus on inflation has not only had wide political and economic support, it has largely kept underlying inflation in the narrow bands prescribed by the Act.

It has certainly not been a miserable failure in this sense. The idea that you can with monetary policy achieve multiple policy goals (noting the old RB Act gave RB the goals of managing the balance-of-payments, controlling inflation, growth and increasing employment) has little empirical or theoretical support.

The only practical thing we are aware of that the RB can do to sustain economic growth, is to have low and predictable inflation. That creates a better environment for long term planning and investment by businesses.

If the RBNZ does not focus solely on inflation, then inflation expectations WILL rise. It is that uncertainty which will damage the NZ economy much worse than anything you would want to fix by removing inflation targetting as the RBNZs sole concern.

Goffs talk the other day is fair and it is time we considered if paying the Reserve Bank Governor bonuses based on his control of inflation is the way forward. Its failed misserably for 20 years and will continue to do so.

Here’s a better authourity than me on the subject of NZ’s demise.
Go do some learning.

http://www.stuff.co.nz/business/blogs/stirring-the-pot/3049405/New-Zealand-as-it-is-warts-n-all

The problem is that Labour refuses to recognise that their fiscal stance was in any way responsible for the mess we found ourselves in in 2008.

I would be fascinated to hear opinions on this hypothesis.