The Government printed money to keep the economy afloat during the Covid crisis. Now inflation has induced a sinking feeling. By Jane Clifton
It's getting to the stage where being Reserve Bank Governor is a gig thankless enough to rival coaching the All Blacks. Everyone else in New Zealand knows better than you how to do your job.
Life for Adrian Orr is a gushing fountain of furious hindsight. If only he had raised interest rates a year ago – or preferably before he was born – we wouldn't be in this pickle. If only he had loosened, tightened or bare-handedly strangled the money supply, we'd be in clover. If he hadn't forced the banks to give money away, and/or made it impossible to borrow a bean, we could all be wealthier than Singapore by now, and very possibly buying Singapore as our holiday home.
In this crowded field, former Act and Labour MP Richard Prebble takes the cup for cheekiest armchair critic with his exhaustive retrospective seminar on preventing inflation. He's the former associate finance minister who, in the 1980s, hailed an 18 per cent inflation rate as a triumph on the grounds that prices were really "fluctuating around a downward trend", and if you took out a few items – he only just managed to stop himself suggesting excluding food – the "underlying" rate was much lower.
However, Prebble makes the fair criticism that the Government should have stopped quantitative easing (QE) – colloquially known as printing money – a good deal earlier. Inflation is the long Covid of QE, in which the after-effects can seem worse than the malady. Agreement is gelling among economists on this point, but there wasn't exactly a howling chorus of complaint at the time the government was doing it. Rather, there were some reflexive niggles – and mainly from the opposition, which would also have niggled if the Government hadn't used QE. Covid was rampaging round the world, everyone was petrified their economies would go into recession, and the prevailing mood was, "whatever it takes".
Now we're complaining that economies stay stabler when states fund emergency packages with "real" or borrowed money rather than with printed money, and that QE is best used short and sharp.
New Zealand was unusual in resisting QE during the 2007-09 global financial crisis, despite some shrill Labour and Green opposition carolling for it. This country's minimal exposure to the rickety American sub-prime mortgage market, and the other baroque financial instruments that caused that crash, meant we avoided cranking up the mint back then.
This time, the Government – like most others in the developed world – decided it was expedient. Now, like every other developed economy, New Zealand faces heaving inflation and stricken mortgage holders, with insufficient supplies of essential goods, from food to appliances to building products, making the first two problems worse.
Russia's invasion of Ukraine tightens the screws further, pitching not only petrol and wheat into hyper-inflationary mode, but touching off a severe northern hemisphere energy crisis. Eerily, the latter is a customary harbinger of out-and-out recession.
The Government's emerging problem is that a growing tally of voters now resent having to pay the ferryman for getting them across Covid in such a buoyant boat. They rightly feel that they weren't warned there'd be such a penalty for maintaining a robust Covid economy. They myopically feel it's up to the Government to make these new costs go away – despite no other country having the immediate means to fix their near-identical crises, either.
The Beehive response has been the only one available to it, short of access to a time machine: think up six Band-Aid palliatives before breakfast. The first two it has come up with – suspending some of the tax on petrol and opening the borders several months early – will ease inflation by an estimated 0.5 per cent. Given economists say $4 a litre for petrol and 8 per cent annual inflation are not out of the question, there had better be more palliatives.
The only thanks the Government has had is a flurry of – admittedly justified – querulousness about how it's going to make up the shortfall in road funding that the temporary tax cut will cause, and how it will staff hospitals if a tourist-wrought Covid surge overwhelms emergency departments.
This sort of doom spiral is every Government's tenth circle of hell, the self-digging pit where you're damned for doing pointless things, knowing you'd be more damned if you didn't do them.
Tax cuts, suspensions, subsidies, bailouts – they're all hard to target equitably and can't come within a bull's roar of compensating people for inflation of this order.
It's this can't-win realm of politics that consoles those MPs who, in the time-honoured euphemisms, have Made Their Contribution and Want to Spend More Time With Family.
Into this serene afterlife goes Simon Bridges, to general astonishment. Although possibly the least popular opposition leader of modern times, he seemed on course to be one of those rare twice-rising soufflés. He managed a partial reset of his public persona, after being rolled as National leader, by writing a jaunty memoir. Ordinarily, such an act of vanity would just deepen one's slough of irrelevance. But somehow, Bridges' big, belligerent personality finally blossomed with the addition of a key – and, indeed, a John Key – ingredient: sunniness. He relaxed a bit, and became the sort that the late David Lange would have termed "a refreshing hoon". His comeback cemented by the finance spokespersonship, he seemed set to do a Bill English: earn a generous public reappraisal after catastrophic failure.
What went wrong? The age-old mistake: be careful how you treat people on your way up, because you're sure as hell going to meet them again on your way down. Bridges' colleagues knew his assessment of Maureen Pugh – f---ing useless – was not an isolated put-down. Worse, he never succeeded – possibly through not deigning to try – in mending fences with Todd Muller's supporters, or the many other caucus grandees he'd disrespected over the years.
With National resurgent in the polls, Bridges' long-slighted colleagues saw him as taking a place in the next Cabinet that could be theirs. He has been cold-shouldered, but his leaving now, rather than at term's end, is an unmistakable bird-flip gesture.
Young enough – and sufficiently talented and connected – to have a brilliant new career, he may now be in a position to embody that other useful adage: living well is the best revenge.