KEY POINTS:
One thing I don't understand in all this talk of an unhappy new year: why is the promise of Keynesianism not working?
The world has known for 75 years what to do when markets crash. Grandparents assured us that if Hoover had done what Roosevelt subsequently did, or
Forbes and Coates had possessed the saintliness of Savage, the Depression would never have happened.
True, economic historians quibbled that the world economy was recovering anyway when governments acted on Keynes' principle that budget deficits were sometimes a very good thing. But the principle was cast in stone, so much so that for the next 50 years governments acted as though deficits were always a good thing.
Even when monetarism arrived, urging balanced budgets to help defeat inflation, its challenge to Keynesianism was more academic than real. Academic economists damned Margaret Thatcher, and Ruth Richardson in this country, for cutting public spending in a recession.
But that recession was induced by deliberate economic change and the prime concern at that time was inflation. Once inflation was defeated, Keynesianism could be practised exactly as the 20th century's greatest economist intended, budget surpluses in good times and deficits in a downturn.
Michael Cullen was one of its strongest disciples, as was Bill Clinton. George W. Bush, unfortunately, was not. He blew Clinton's surplus in the boom, helping fuel the bonfire created by the US Federal Reserve's failure to fight property price inflation.
John Key and Bill English echo Cullen. English says he is not expecting to produce a surplus this term or the next. More tax cuts and public works are promised, though the Treasury points out that those programmed by Cullen already amount to a stimulus as big as any that others have promised for their economies.
So why isn't it working, why, despite the billions allocated for bailing out banks, the indemnities offered their savers and lenders, the universal invocation of Keynesian stimulation, can we not hear some confidence out there in the world?
But for the state of the world we would have every reason for confidence in our economy right now.
Thanks to the budgeting of Richardson, Bill Birch and Cullen, in harmony with the sound monetary record of our Reserve Bank, we entered a recession this year with very low public debt.
New Zealand has been quite remarkably well governed for a long time now. The record is greater than any particular person or party, though if I had to nominate a New Zealander of 2008 mine would be the Reserve Bank Governor Alan Bollard.
Ours was not the only central bank to worry about the housing bubble in recent years, and with our tax favours for property it had to raise interest rates higher than most.
Bollard withstood criticism for his obsession with house prices and for the high dollar that resulted from his interest rates. The bank burst the housing bubble about April of 2007.
By the beginning of this year the inevitable contraction in building and declining house values, plus a summer drought, had sent the New Zealand economy into a recession we could have weathered as easily as the last.
Remember the last? Not many do. It happened 10 years ago, after Asian currencies suffered a loss of investors' confidence in them. Here in New Zealand it felt like nothing compared to the aftermath of the 1987 sharemarket crash and the disinflation of 1991/92.
The recovery in 1993-96 was rapid and refreshing. When wailings of woe returned in 1997 we were simply sick of the tune, largely ignored it and worked our way through to 1999 and the beginning of the long boom.
The world allegedly had a contraction around 2001 but again we ignored it. The dollar was low and agricultural prices were good. We motored through.
Conceivably we could ignore this one if we chose. The New Zealand economy is in good shape. The latest quarterly growth figure, issued this week, shows the contraction to the end of September was a cumulative 0.9 per cent of GDP, only half that at the same stage of the recession 1997/98.
Had it not been for the events in the US since September we might have been through the trough of our cycle by now and looking up at the new year. But since September Bollard has kept his head. He resisted pressure to copy Australia in making unscheduled deep cuts in the base interest rate, keeping to his more calm and measured programme. He still has his eye on the long ball.
This country's only reason for fear is effect on export markets of all this Depression-speak. The world has talked itself into a fearful state despite adopting the recommended prescription for depression. There seems no reason to think it will not work, no reason we cannot say Happy New Year.
