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Stimulus packages and a curious omission from Sir Roger’s plan

  • February 12th, 2009

Phil Goff’ was carping again last evening that John Key is failing to pretend to be an economic Messiah. Goff wants grand packages while John is "dripfeeding" careful measures. 

John and Bill English may be doing just what behavioural economists would recommend.

The vast packages announced by the panicking ‘left"  leaders in the UK, Australia and the USA may defeat their own purpose. We the people know that things must be desperately serious, when politicians who would normally argue endlessly over a few billion, are prepared to throw all caution to the wind, and hunt for ways to spend trillions. Too many of us will think to ourselves, "I’m glad they’re going to prime the pumps and persuade all the idiots who’ve already been spending too much to spend even more but if things are that desperate I’ll just sit this one out, and spend nothing (seeing as how what they are doing confirms that everything must be catastrophic). That way at least my family will have something left when the others are destitute".

In other words the scale of the government responses is reinforcing depression sentiment. And renewed spending confidence is what the packages are all about.

John and Bill’s cautious "steady as she goes’ seems to be just what the doctor ordered, maintaining our improbably blithe mood as the rest of the world goes into a self-reinforcing spiral of depression. I’d been putting the mood down to summer in the sun, but perhaps it is also attributable to good leadership. Long may it last, whatever the source.

Even more promising for our futures would be for John and Bill to pick up Roger Douglas’ challenge at the traditional Orewa venue, to end middle class welfare dependency. It is an important speech, likely to be the first of a number I’m sure.

 Whale Oil’s usual cynicism is absent from his eyewitness report of the speech.

DPF’s analysis notes a key problem the speech does not address.

There are fish hooks though. The Centre for Independent Studies had a seminar on this a couple of years ago, and the challenge is how do you cope with people wanting to move from one option to another. Should the decision you make at 18 be unchangeable throughout your life? But if you let people change, they might take the low tax option when healthy, and then when older the high tax option.

The other challenge is what if someone has gone for the low tax option and pledged to look after their only health and retirement costs – yet they lose their savings. As a society do you let them die because they can’t pay for their health care?

Sir Roger has an answer I’m sure, but this time he does not offer it. 

In earlier times Sir Roger has been less coy. He would have bluntly made sure people provided for their old age and could not renege, by compulsory saving or insurance. They would still have a choice of providers, and choice around the qualities of service, but they would be compelled to make provision, just as he would have made superannuation saving compulsory.

Curious that the speech, at least in its written form, leaves that element unexplored.

I’d like to see compulsion debated seriously between Bill English and Sir Roger. Commentators never noticed (because they pigeon-holed Roger and Bill in their "extreme free market" and "centrist" roles respectively) that they seemed to hold strong views on a touchstone compulsion matter that made a nonsense of that pigeon-holing.

Roger’s the centrist on that issue. And so am I.



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