Liam Dann 's Opinion

Business editor of the NZ Herald

Liam Dann: Labour must drop monetary madness

129 comments

Fiddling with the Reserve Bank Act when inflation is a threat is no way to improve the economy, or win votes.

So far this year it is Shane Jones who has delivered Labour's biggest hit. Photo / APN
So far this year it is Shane Jones who has delivered Labour's biggest hit. Photo / APN

This year's procession of positive economic statistics seems to have had the effect of knocking the economy out of the political debate. Last week we had improved migration numbers, more strong trade data, business confidence at another record high and another increase in Fonterra's forecast payout to farmers.

None of these things attracted much media attention and perhaps that is not surprising.

Not when we've got incest and fake moon landings. And cyber-hackery and internet parties. And Winston Peters in pretty good form.

I find it frustrating because the economy is not suddenly perfect just because the economic cycle has turned for the better. There is still serious work to be done, hard decisions to be made including some big ones about addressing social inequality. The upswing of an economic cycle is surely the best time to address these things.

But I can see the appeal of these personality driven sideshows. Politics is the original reality TV soap opera.

It is unlikely John Key will be too bothered about all the noise.

Juggling his MMP coalition partners is proving problematic and this is putting otherwise undue media emphasis on fringe political players.

It is generating some colourful stories and attention-grabbing issues but not necessarily issues that people will actually be moved to vote on when push comes to shove.

Key can't have been thrilled that two of his coalition partners have now grabbed headlines for such politically bizarre comments.

"What is David Cunliffe offering? A dramatic experiment with a winning formula? A worrying fix for something that isn't broken?"
Liam Dann

Even if you think the moon landing is fake, or you can make a logical case that incest is not an issue for the state, the sheer political naivety of these statements has to be worrying for the Prime Minister.

What are these guys going to say next?

To be fair, Act leader Jamie Whyte does seem to have realised that he's not in a philosophy tutorial any more. One wonders if he got a call from the Prime Minister's office last Thursday morning to remind him of that.

More generally, though, the gentle distraction of an electorate that is otherwise feeling comfy about its economic outlook seems to be part of Key's strategy.

For example, his enthusiasm for the New Zealand flag debate suggests a desire to keep the debate at a fairly superficial level. It's an interesting topic but, really, why is this the time to go with talk of a referendum.

What all this does do is create an environment where Labour struggles to get any momentum for issues that people might actually swing their votes on.

Preferred prime minister polls suggest David Cunliffe is falling into the same trap as David Shearer. He is failing to put himself at the centre of the issues that are grabbing the public's imagination.

It's a Catch 22 because as long as those issues are so lightweight, why would he want to.

But to succeed as leader of the opposition you need to define the debate.

So far this year it is Shane Jones who has delivered Labour's biggest hit. He's generated a great deal of media enthusiasm and public debate about the price we pay for our food.

As an issue that hits voters in the pocket it doesn't get much better.

But given that Jones is currently on the outer edges of the Labour leadership one wonders how much of his success will translate to increased support for the party.

Meanwhile, Cunliffe and his quietly spoken deputy David Parker seem determined to turn away a large and valuable chunk of the electorate - the business community.

Positioning yourself so far to the left that you don't think business is worth fighting for is not a strategy that has worked for Labour since Norman Kirk. The Lange government took business with them, the Clark government at least convinced business that it represented a tolerable and temporarily necessary change.

A begrudging acceptance of change from the business community, even if most won't change their vote, is something that reassures the nervous middle classes who do swing their votes.

Helen Clark talked knowledge-wave and delivered a free trade deal with China that has ultimately been our lifeline through the global financial crisis.

What is David Cunliffe offering? A dramatic experiment with a winning formula? A worrying fix for something that isn't broken?

Labour's embrace of Green Party policy to reform the Reserve Bank Act is a big stumbling block for the party if it wants mainstream acceptance from the business community.

It surely gains the party few fresh votes from the wide pool of mainstream voters who find monetary policy debate arcane.

Yet it makes Labour almost impossible to endorse for many of the nation's most powerful and influential business leaders.

The monetary policy reformists are full of ideas about the magic a broader definition of the Reserve Bank Act might achieve. But they ignore the extent to which having one target - inflation - has worked. And just how fundamental controlling inflation is to creating a stable economy on which growth can be built.

Why, when the Act has just seen us through such an enormous global downturn so efficiently, would you change it. In the hope it might bring the dollar down?

Well, if you damage the economy the dollar will certainly fall. But it seems a brutal path to take.

And why, if you were going to make changes, would you loosen the shackles during the growth phase of the economic cycle - just when inflation starts to become a serious risk.

We should be grateful we don't have to make radical changes to our economy. We've come through the downturn well, and while National can take some credit for steering the ship, so too can the last Labour Government for the healthy growth it oversaw.

Radical change is for those nations that have run out of options. Let's leave it to the Greeks.

New Zealand has options, including dedicating more effort to improve the lot of our poorest people if we choose to.

So that's my advice. Everyone seems to have some for David Cunliffe these days. Drop that economic experiment and convince the business community that your election wouldn't be an absolute disaster for the country.

Debate on this article is now closed.

- NZ Herald

Liam Dann

Business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

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