The benefits of hands off

February 3rd, 2013 at 8:09 am by David Farrar

writes in NBR:

The bigger the lie, the more likely it will be believed.

Today’s left wails that the global financial crisis has undermined the case for so-called neoliberal economics: free and open economies, price stability as the primary goal of monetary policy, freely traded currencies, prudent fiscal policy and private ownership of productive assets.

David Shearer says “the hands-off, leave-it-to-the-market approach has failed all over the world.” Labour/Green will be “hands on.”

Matthew provides a table to compare how well hands-off and hands-on countries are doing:

OpeningSalvoTable2-440x312

 

Hooton notes:

According to the Heritage Foundation’s Index of Economic Freedom, the world’s six freest economies are Hong Kong, Singapore, Australia, New Zealand, Switzerland and Canada (see table).

These six have avoided anything like the deep and prolonged recessions of more interventionist countries.

The IMF continues to forecast higher growth for the six than for countries further down the freedom list.

Even more important, both unemployment and youth unemployment are lower in the more free-market economies.

While I don’t think the labels hands-on and hands-off are particularly meaningful, I absolutely agree with Matthew that the freer the economy the more it tends to grow, and the more jobs are created.

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35 Responses to “The benefits of hands off”

  1. Scott Chris (6,178 comments) says:

    Perhaps it’s a question of balance. Germany seems to be doing okay. There’s a big difference between effective intervention and ineffectual intervention.

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  2. Scott Chris (6,178 comments) says:

    There’s another argument that states that effective market intervention is impeded by politics. Case in point – the Fiscal Cliff ‘resolution’.

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  3. Graeme Edgeler (2,972 comments) says:

    Except of course, that the Key government is not hands-off:

    http://www.kiwiblog.co.nz/2013/01/not_very_hands_off.html

    So if we are doing well because of what the government is doing, then we are experiencing the benefits of hands-on economic management.

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  4. kowtow (8,935 comments) says:

    Of the top 10 ,
    7 are from the Anglosphere
    and the 2 Asians are former British colonies populated by hard working, socially conservative Chinese who have retained their British legal traditions.

    Adam Smith would be proud of the British Empire. We should be too.

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  5. slightlyrighty (2,096 comments) says:

    The issue of youth unemployment should be highlighted. Personally I do criticise this government for not re-introducing youth rates. It is the simplest way to help young people get their start in the workforce. It recognises that Salaries and Wages are an investment by the business, and like all investments, a good business will put that money where it will get the best return. A school leaver in his first job is not a viable investment when for the same amount of money, one can employ a proven worker.

    Australia still has Youth Rates, and it shows in the figures above.

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  6. Manolo (14,166 comments) says:

    Facts and statistics will never stop the Luddites and socialist Labour from spreading lies and falsities.
    Both parties are against the the free market and capitalism.

    Adam Smith would be proud of the of the the British Empire. We should be too.

    Very much so.

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  7. tvb (4,553 comments) says:

    Who says Shearer and his allies will get things right with their hands on approach. Governments can certainly stuff things up. They can stop things happening they can waste money. Labour Governments are all very well until the money runs out. And that has been the history of Labour Governments over the last 50 years.

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  8. wat dabney (3,840 comments) says:

    Like all Labour Party leaders, Shearer is just looking for any pretext to start directing vast amounts of taxpayers’ money towards his union backers and handlers.

    “Intervention” is just another word for corruption.

    By the time the inevitable Greek-style collapse comes – with people scrabbling on rubbish tips for scraps of food – him and his mates will all be nicely retired on gold-plated pensions. Bastards.

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  9. duggledog (1,620 comments) says:

    Slightly:
    Yeah my first job out of school in the mid eighties I was paid $70 a week. My boss told my parents straight up if I proved myself, and if they would contribute some money towards my rent & living expenses, then he would have me full time as soon as possible. He was as good as his word, I was full time six months later and thirty years on I’m still in the same industry. And I’ve done OK out of it.

    I could have been all insulted about the $70 a week. Thank god I wasn’t!

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  10. wreck1080 (3,999 comments) says:

    Why is Qatar missing? .4% unemployment, GDP growth around 18%, and highest per capita incomes in the world.

    But, conveniently missing?

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  11. Paulus (2,707 comments) says:

    Singapore’s low unemployment is due to the fact that if you have no job – off the Island.
    Singapore employs a considerable number of say Filipinos to support the menial jobs, housemaids, childminders and other low paid roles that the Singaporeans will not do.
    Lose their jobs – goodbye.

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  12. Sonny Blount (1,809 comments) says:

    Paulus (1,495) Says:
    February 3rd, 2013 at 10:29 am
    Singapore’s low unemployment is due to the fact that if you have no job – off the Island.
    Singapore employs a considerable number of say Filipinos to support the menial jobs, housemaids, childminders and other low paid roles that the Singaporeans will not do.
    Lose their jobs – goodbye.

    Sounds fine.

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  13. Yoza (1,926 comments) says:

    It takes a committed fanatic to brush of the ongoing Global Financial Crisis as being disconnected from the neoliberal agenda.

    Hooton’s opening observation “The bigger the lie, the more likely it will be believed.” struggles to explain the hatred engendered by those ‘banksters’, businesspeople and politicians who precipitated the current economic disaster and the inability of the PR industry to quell that discontent through telling bigger lies.

    “Moreover, it wasn’t free-market economics that created the crisis.

    The US’s troubles were driven by fiscal profligacy and the Clinton Administration’s populist housing policies.”

    As Salons Matt Stoller points out, ‘And in terms of deregulation, Bill Clinton was one of the patron saints of the crisis: pushing through the final repeal of the Glass- Act, which legalized the heretofore illegal merger of Citigroup; signing the Commodities Future Modernization Act, which fully deregulated derivatives; and reappointing bubble blower Alan Greenspan to the chairmanship of the Federal Reserve.’

    Clinton was to the right of New Zealand’s Roger Douglas, the real estate bubble in the US was a consequence of easy credit looking for high returns from speculative ‘investments’ – people were not buying houses as a life time investment in which they would live or in the belief they would benefit from income generated buy renting them out over decades; they were buying houses because they believed that six months to a year down the track they could sell the house at a huge profit. A similar paradigm underpinned the ’87 sharemarket crash in New Zealand, people buying shares not as an investment in some long term plan, but as something they expected to increase in value in the short term.

    As long as we continue along the path of enriching the privileged few at the expense of everyone else there will continue to be social, economic and ecological disasters. Disasters which will recur with increasing regularity and ferocity.

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  14. Reid (16,681 comments) says:

    It takes a committed fanatic to brush of the ongoing Global Financial Crisis as being disconnected from the neoliberal agenda.

    Yoza no conservative knows what is meant by “neoliberal” and we don’t care. Why have lefties invented a new word which no-one except them understands then pretended it portrays a political philosophy? Isn’t that kind of stupid?

    The GFC has been caused not by conservative politics you idiot but by corruption in high places, which spans both Dem and Repub Administrations. It was caused by de-regulation of the financial industry because banks gave politicians on both side heaps of campaign money which continues today under Obama – der. Bush 41 was and is a traitor, so was and is Clinton, Bush 43 and Obama. ALL of them are responsible and if you don’t understand that then you understand nothing about it.

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  15. JeffW (327 comments) says:

    I wish we had a hands-off government. Such a thing doesn’t really exist anywhere, and we are far, far from it.

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  16. Jack5 (5,274 comments) says:

    Hooters writes like a lobbyist and a political insider. You always wonder whose barrow he’s pushing at the moment.

    In his NBR article he wrote this:

    …the world’s six freest economies are Hong Kong, Singapore, Australia, New Zealand, Switzerland and Canada …

    The facts:

    Switzerland has been staging a highly successful (at least till now) central bank intervention to cap its currency.

    Singapore controls its currency with a monitoring band, in which the Singapore dollar is in a controlled float against a concealed basket of currencies of Singapore’s major trading partners and competitors.

    Hong Kong, through the Hong Kong Monetary Authority, controls its dollar with a currency board system. This links the Hong Kong dollar to the US dollar. In the Asian financial crisis the Hong Kong Government required the HK Monetary Authority to buy 15 billion US dollars’ worth of blue-chip shares in a two-week market intervention, beginning 12 August 1998. This was to punish currency speculators.

    Canada – Political Correctness Paradise – free? Perhaps economically, but otherwise quite Leftist.

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  17. Griff (8,419 comments) says:

    Reid “Yoza no conservative knows what is meant by “neoliberal”
    As a neo lib I hate to tell you and the rest of the conservotives that you are not the right wing you are mostly what is wrong in the right wing.

    Wiki
    Neoliberalism is a political philosophy whose advocates support economic liberalizations, free trade and open markets, privatization, deregulation, and increasing the role of the private sector in modern society.

    In other words Yoza is using it as a compliment.

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  18. Reid (16,681 comments) says:

    Griff thanks for the clarification. I’m not attaching myself to a new propaganda label called “neolib” however, simply because it’s a propaganda label and I refuse to participate in the lefties’ evil little games.

    The fact is if you apply ideology to economics you colour the view. Economics is a hard science, in that the right move is knowable through data and application of known theory. Applying ideology to that analysis poisons it. Whichever ideology it is.

    The thing that lefties don’t get when they use the new label they’ve invented is that conservative advocacy of open market policies is what the science says and it doesn’t come from ideology. But they can’t see that and they think it is an ideologically derived position. Which shows how fucked in the head they are, doesn’t it.

    My theory as to why this is is that lefties are driven by ideology in their economic analysis, therefore they think everyone else is as well.

    So you can choose to participate in their stupid little label game if you like, but count me out. If you don’t understand what the label game is then think about some other labels the lefties have invented recently like “the one percent” and the “Occupy” movement (with the Guido masks as a visual). This label is in the same class as those and for the same reasons.

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  19. Flyingkiwi9 (55 comments) says:

    —- On the Global Financial Crisis:

    It started because of the U.S. housing market collapse. The market collapsed because the houses people were buying with easy credit suddenly had no value because the credit had no value.

    The credit had no value because the government makes money out of fresh air.

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  20. Yoza (1,926 comments) says:

    You rock, Reid. I especially enjoyed this particular gem:“Economics is a hard science, in that the right move is knowable through data and application of known theory.” It is admirable that you should contribute something so ludicrous as to illustrate how far removed from reality you actually are. It flies in the face of the popular cliche that God invented economists to make weathermen look good. (a bit harsh on the modern meteorologist considering the accuracy of the modern day forecasts using weather satellites.)

    “I’m not attaching myself to a new propaganda label called “neolib” however, simply because it’s a propaganda label and I refuse to participate in the lefties’ evil little games.”

    Neoliberalism was coined by Alexander Rüstow at the Colloque Walter Lippmann in 1938 to describe a system of economics promoting the illusion of being at variance with increasingly stale Classical Liberalism while remaining antonymous to collectivism and socialism. The reason ‘free-market’ apologists flee from the modern day usage of the term is its association with the social decimation of post-industrial society (1980- present). It is the Thatcherites, Reaganites, Rogernomes and their ilk who adopted this odious ideology basing it on the weird premises that:

    -Economy is a self-regulating entity that always balances out.
    -Government is inefficient and costly.
    -Private business is efficient and therefore the best way to solve our problems.
    -Wealth trickles down from the wealthiest to the middle class and the poor because businesses create jobs that then puts more money into the economy leading, in turn, to more jobs.

    Or Hooton’s offering:

    - free and open economies, price stability as the primary goal of monetary policy, freely traded currencies, prudent fiscal policy and private ownership of productive assets.

    I would be interested to see any evidence you could supply where beneficial social outcomes are a consequence of ”… the right move is knowable through data and application of known theory.
    As the application of this philosophy has seen wild fluctuations in commodities as vital as petroleum products, basic staples and any number of primary resources from timber to gold. International currencies are traded on a massive scale by speculators, such as the George Soros attack on the British pound, meaning vulnerable nations are subject to the profit motives of global financial institutions. The terms ‘free’ and ‘open’ are left for corporate think-tanks like The Heritage Foundation to define. Where ‘prudent fiscal policy’ is short-hand for throttling everyone else for the benefit of the privileged few and ‘private ownership of productive assets’ has seen rapacious corporate raiders asset stripping and profiteering from formerly strategic public assets until those utilities begin breaking down due to a lack of maintenance when the public is expected to step in to socialise the loss (see New Zealand Rail and Air New Zealand).

    Harry Shuut in Beyond the Profits System points to the blindingly obvious when critiquing the ‘neoliberal’ agenda, ”…the present system has become not only outmoded and hopelessly dysfunctional in terms of its impact on human society but unsustainably destructive of the biosphere on a finite planet.” (p.133)

    The system changes or the human species faces the very real prospect of extinction.

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  21. wat dabney (3,840 comments) says:

    Yoza,

    International currencies are traded on a massive scale by speculators, such as the George Soros attack on the British pound…

    Soros’ “attack on the British pound” was an attack on the false price which politicians tried to fix. He succeeded simply because he had reality on his side. If politicians hadn’t tried to deny reality and impose an entirely made-up price on the pound he would have had no target to attack.

    And if you wish to have a go at “speculators”, remember it was the politicians who were the ones trying to manipulate the price in this case.

    …meaning vulnerable nations are subject to the profit motives of global financial institutions.

    He did the people of Britain a great favour by forcing the Pound out of the Exchange Rate Mechanism, allowing it to float to its true price.

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  22. Yoza (1,926 comments) says:

    “He did the people of Britain a great favour by forcing the Pound out of the Exchange Rate Mechanism,…”

    Yes, I am sure Soros was acting out of purely altruistic motives.

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  23. itstricky (2,021 comments) says:

    DPF, a few days back you had a piece about “hands-on” being a systemically bad approach, whilst at the same time saying the Government was actually more “hands-on” than the public thought/knew. Now you’ve gone back to the first again. You’re swaying in the breeze worst than most politicians.

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  24. Reid (16,681 comments) says:

    It is admirable that you should contribute something so ludicrous as to illustrate how far removed from reality you actually are. It flies in the face of the popular cliche that God invented economists to make weathermen look good.

    Economics gets clouded by human behaviour which is not completely predictable but the extent to which this “fudge factor” affects the data is well known.

    It’s not exact but it’s at the point where if politicians weren’t involved and stayed completely out of it, the proper economists could make the engine run like an Aston-Martin DB-9’s does, all the time.

    But that never happens, because politicians insist on being involved plus the proper economists who know what they’re doing, aren’t allowed publicly to contradict their “masters.”

    Which is pretty fucked, for us, isn’t it.

    I would be interested to see any evidence you could supply where beneficial social outcomes are a consequence of “… the right move is knowable through data and application of known theory.”

    Free markets vs Keynesian Yoza.

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  25. exile (34 comments) says:

    The Singaporean government is well known for juking the stats as far as international rankings are concerned. They consider anybody who declares income on investments for the purposes of tax ‘employed’. As there is no pension as such, and the compulsory savings scheme (CPF) makes it incredibly difficult to access your funds, *everybody* has private investments. Private investors must obtain a license if they play the market directly, and if they invest in a mutual fund, reporting of investments to the government happens automatically.

    There are a lot of professionals that were laid off since 2008, in their late 40s and 50s, that are unable to get a job. They are living a pretty bare bones existence on their investments, and from the financial contributions from their children, who tend to live at home into their 30s. If the children don’t support their parents, they can be sued.

    And the reality of Singapore is that it is not at all a free market. 75% of land is owned by the government (most property is leasehold). The government also owns the controlling stakes in nearly all of the infrastructure, telcos, banking and huge amounts of manufacturing. 85% of housing is built by the government, and is sold at artificially low prices. Any successful business in Singapore that wants to remain in business should sell part of the company to a GIC in order to cut the government in on the success, stat.

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  26. pq (728 comments) says:

    20 demerit points Farrar.
    Graeme Edgeler (2,733) Says: February 3rd, 2013 at 8:24 am Except of course, that the Key government is not hands-off:
    also itstricky (61) Says: February 3rd, 2013 at 9:24 pm : DPF, a few days back you had a piece about “hands-on” being a systemically bad approach, whilst at the same time saying the Government was actually more “hands-on” than the public thought/knew. Now you’ve gone back to the first again. You’re swaying in the breeze worst than most politicians.

    http://www.kiwiblog.co.nz/2013/01/not_very_hands_off.html

    The heritage foundation is linked within Farrars article.
    http://www.heritage.org/index/ranking
    It is described in Wikipaedia as to “formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.

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  27. Yoza (1,926 comments) says:

    Reid (12,931) Says at 10:34 pm: “Free markets vs Keynesian Yoza.”
    First off ‘free markets’ is a myth, without massive state intervention the modern global market place would not exist.
    The markets are entirely dependent on the state: to provide a stable trading environment; to quell mass dissent when the inevitable massive wealth disparities occur; to build and maintain costly public infrastructure on which they rely; to train a relatively obedient, quiescent labour force through the public school system; to provide ministries which serve private capital (MFAT being New Zealand’s most obvious example); to administer to the well-being of the workforce through the public health system; to participate with the media to define the parameters within which economic debate is acceptable; (and in the case of the US and its ‘lieutenants’) to provide a massive military complex as a means of coercing the ‘cooperation’ of insubordinate states.

    What Hooton and Friedman euphemistically describe as ‘free markets’ are little more than welfare scams for huge corporate entities. These corporate parasites spend vast sums in PR and on lobbying governments globally to ensure the system serves their interests.

    The Keynesian model would only serve to slightly ameliorate the most damaging effects of the ‘free market’s’ impact on human civilisation. As a species we are lost if we cannot come up with an alternative to those two models as they both maintain decision making processes which marginalise the general population in the service of preserving the status and influence of a select few.

    Both systems perpetuate themselves for the benefit of those at the top, to achieve this end they must necessarily forsake probabilities (externalities) that threaten the beast – if acting on global warming, deforestation, human rights violations, pollution, etc… will threaten the system, then those ‘externalities’ will only be confronted as a matter of last resort.

    Ideally, we require a socio-economic system that ensures the decisions people are most affected by are decisions into which they have meaningfully participated in creating. The polar opposite of the plutocratic fiasco provided by both the Keynesian and Neoliberal economic models.

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  28. Yoza (1,926 comments) says:

    Yoza (271) at 10:51 am
    “It takes a committed fanatic to brush…

    Heh. 23 thumbs down, is that the record?

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  29. Alan Johnstone (1,087 comments) says:

    Youth unemployment is too high every where. 18% in NZ is bad enough, 20% – 40% woeful.

    We need to get young people engaged and into the workforce; if people leave education and aren’t working within 12 – 24 months it becomes hugely difficult to turn things round.

    It stores up all manner of social and economic problems for the future; The risk of a lost generation is clear.

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  30. kowtow (8,935 comments) says:

    I take it then that when yoza talks about decisions affecting people and meaningful participation etc that the taxpayers who are fleeced by the welfare system will get a meaningful say or decision making power over how their money is spent.

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  31. Scott1 (588 comments) says:

    I think one really needs a decade and to include a wider range of countries

    http://www.ey.com/GL/en/Issues/Business-environment/Rapid-growth-markets–2–Who-are-the-rapid-growth-markets#

    I suspect the problem with the Eurozone is not just economic freedom, but also that they have forced together countries that don’t share the same economic cycle.

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  32. Scott1 (588 comments) says:

    Or maybe I should look at a half century…

    In that case NZ appears to be the worst performer of all of those countries, by a wide margin.
    The best are obviously Singapore and then Hong Kong, followed I think by Portugal and Finland.

    http://en.wikipedia.org/wiki/List_of_countries_by_past_and_future_GDP_(nominal)_per_capita

    and this is interesting

    http://en.wikipedia.org/wiki/List_of_countries_by_past_and_future_GDP_(nominal)_per_capita#Citigroup_estimates.2C_2030.E2.80.9340

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  33. Yoza (1,926 comments) says:

    kowtow 8:19 am:“I take it then that when yoza talks about decisions affecting people and meaningful participation etc that the taxpayers who are fleeced by the welfare system will get a meaningful say or decision making power over how their money is spent.”

    Exactly, although in a society in which everyone participates in a meaningful fashion the concept of a ‘welfare system’ would have a radically different meaning to the current definition.

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  34. CharlieBrown (1,054 comments) says:

    All the people rubbishing the article should have a look at how the Heritage foundation measures economic freedom:

    http://en.wikipedia.org/wiki/Index_of_Economic_Freedom#Method
    http://www.heritage.org/index/about

    What is obvious is there is no such thing as a trully liberal state. All of todays democratic goverments subscribe to a mixed economic model. And what is also obvious is the more the government gets involved in a mixed economy the worse it performs relative to similar countries with a less government centric economy.

    So you are economically illiterate if you think that liberal free-market economies have failed or caused the GFC.

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  35. SPC (5,664 comments) says:

    I think the failure of banks in Europe and the USA does not speak to the relative merit of economic systems or policies – except for the better regulation and practices of banking in Oz, Canada, Hong Kong and Singapore.

    As for the Swiss their QE has obviously helped them remain competitive and sustain jobs and enhance growth.

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