Liam Dann: Big government is back – let’s hope it’s smarter this time

OPINION:

Bidenomics sounds good.

The word, I mean. The jury is still out on the policies.

The word has a ring to it that hasn’t sounded so catchy since the days of Reaganomics.

We don’t know much about Bidenomics yet but we know it won’t be that.

Reaganomics, Thatcherism and, locally, Rogernomics came to define the neo-liberal era.

A core belief was that government was best when it was small and it kept out of the way of businesses and individuals who were best placed to make rational economic decisions.

Now whether we like it or not, big government is back.

Thanks to the pandemic, borrow and spend are no longer dirty words.

To be fair, there was already a cyclical shift underway which has seen even right-wing parties rejecting globalism in favour of a more hands-on nationalistic approach.

But the pandemic was a crisis that demanded strong state intervention and so it has effectively sealed the deal.

I’m a fan of globalisation. I think it has driven huge lifts in living standards throughout the world in the past 40 years.

I also cling to the liberal ideal that we’re global citizens first and national borders are largely arbitrary constructs.

But there’s no doubt it is out of fashion.

Too many people felt disenfranchised by the outsourcing of labour and displacement of local products.

Not enough was done, through years of strong economic growth, to address widening social inequalities.

Covid is accelerating the change – just as it has done with technology and workplace trends.

But growing social inequality and climate change are also seem to require some more direct intervention to shift the course we’re on.

Massive government stimulus is providing the credit and cash flow to keep economies moving.

As a child of the 80s, I remain wary of debt, inflation and government excess.

There doesn’t seem to be signs of anything too radical in the Biden camp.

He and key appointees – like his pick for Treasury secretary, Janet Yellen – are careful centrists.

Proposed tax hikes are moderate and policies like large-scale investment in green infrastructure seem sensible from any vantage point on the political spectrum.

In fact, a lot of it sounds similar to the way the Government here is looking at the economy.

As in the 1980s, there seems to be some macro-economic alignment between the US and New Zealand.

Economic trends really do turn like the width of our trouser bottoms.

There has not been a sharp lurch to socialism – although some will fear the thin end of the wedge.

It is a relatively gentle interventionist hand, working in small brush strokes.

That’s frustrating the left in New Zealand, where many are looking for big, bold policy action.

It is likely to frustrate the left in the US too.

In the absence of ideological fervour, it means the defining characteristic for the post-Covid era is likely to be competence.

So far the Ardern-era has been defined by a highly competent response to Covid-19.

But as anyone struggling to get a foothold in the housing market can attest, successfully avoiding a Covid-induced collapse has not solved New Zealand’s economic problems – not by a long shot.

In fact, the elimination of Covid-19 (touch wood) and the big economic stimulus policies have quickly brought structural economic problems we were grappling with a year ago back to the surface.

Our economy is bumping up against capacity constraints and we need to address them if we ever want to get beyond tepid economic growth and beat the widening inequality gap.

We dodged a bullet in 2020.

For about 10 months it has been hard to assess the economy without first feeling a sense of great relief.

But, that sense of relative success can’t last. Or, at least, it shouldn’t. We can’t afford it too.

Our Government has committed to solving the housing crisis.

That some kind of state intervention is required to do that now seems to be accepted by both major political parties.

But there are other structural issues that underpin the housing issue.

I think low productivity and capacity constraints on growth should be a key focus for government policy.

It came through clearly in last week’s NZIER Quarterly Survey of Business Opinion.

The survey of more than 4000 firms through the last quarter of 2020 found that sentiment had picked up significantly.

But what stood out to me was that many businesses now consider their biggest problems to be on the supply side not the demand side.

With the likely exception of those in tourism, businesses are not short of paying customers.

They are just struggling to find the staff and in many cases the materials to meet that demand or to grow their business.

That was particularly acute in the construction sector. But also notable in sectors like retailing.

Of course, some of this is a direct result of the pandemic – shipping delays and the border closure.

But pandemic problems and longer-term problems are intertwined.

As the pandemic recedes, opportunity will emerge to reset key policy – like immigration – for the new era.

Both Biden and Ardern will be in a powerful position to shape our economic history.

Neither is offering revolutionary reform.

But if they can deliver competent, consistent change then their long-term impact may ultimately be just as grand.

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