Some jobs attract intense interest at social events: lawyers, doctors and accountants are pestered for free advice, chefs are drafted to taste-test everything, journalists are quickly surrounded by bores telling them what’s wrong with the media.
Liam Dann is a journalist, but he’s business editor at large at the NZ Herald, so he finds himself fielding questions about mortgage rates and house prices. BBQ Economics is a distillation of Dann’s wisdom, dispensed over hundreds of bowls of potato salad and thousands of beer cans fished out of ice-filled paddling pools. What is GDP? Why is the OCR? How is cheese $15 a kg?
Dann gives us a basic introduction to economics: supply-demand curves, inflation, marginal utility, price elasticity. He has financial advice – buy low, sell high! – and offers more substantive wisdom from figures such as Sirs Stephen Tindall and John Key and even Buddha. Key’s advice to young New Zealanders: live within your means, understand the power of compound interest, buy property. The Buddhist scriptures counsel us to partition our wealth thusly: “One part should be enjoyed, two parts invested in your business and the fourth set aside against future misfortunes.”
There’s an economic history of modern New Zealand, and this is where BBQ Economics transcends the limitations of barbecue banter and media columns. We get the familiar stages of the post-war story: the export boom, the cradle-to-grave welfare state, the economic dysfunction of the 1970s and early 80s; Muldoon then Roger Douglas, Ruth Richardson and the Mother of All Budgets. This story often trails off in the mid-1990s when the subsequent MMP era is seen as a period of comparable stability. There are shocks like the GFC and Covid but no sustained crisis. Dann wants to tell a more coherent and more troubling story about the nation’s economic direction over the past three decades.
It starts with housing. Dann cites a graph illustrating the housing market and its decoupling from rents and wages over the past 20 years. A number of factors – low interest rates, lack of a capital gains tax, high immigration numbers, lack of housing supply, the high cost of construction – have generated a sustained property bubble. The lending for this is fuelled by the Australian banks, which now collectively hold half a trillion dollars in mortgage debt for New Zealand residential property.
The property bubble doesn’t generate any wealth, it’s just a massive liability as we bid our own house prices up. But it makes it hard for new businesses to raise capital. Why would anyone invest in a promising young start-up when they can make guaranteed tax-free profits by following Key’s advice and buying a rental property?
So, while other developed economies around the world are investing in research and development, founding new companies, inventing new products, creating high-income jobs and getting rich exporting high-value goods to the world, we buy our houses off each other and ship milk powder to China.
Every new government gestures towards solving some or all of these problems but fails because the status quo seems to benefit so much of middle New Zealand. If the home you bought in 2001 for $200,000 is valued at $1.2 million today you feel like a millionaire, and you don’t want to pay tax on your hard-earned million – but of course it’s the same home. The only thing that’s really changed is that your kids will probably migrate to Australia when they graduate because they can’t afford to buy property here.
Despite all this, Dann is optimistic about the future, declaring: “The fundamentals of this economy remain strong,” even though much of his book suggests our fundamentals – productivity, goods diversity, value-adding – are dangerously weak. He thinks developments in artificial intelligence will deliver some of the economic gains of the early stages of the IT revolution, only more so. He’s probably right, but it’s also likely to deliver the social and political turbulence of the 2010s and early 2020s, only more so.
Dann is also a realist: he thinks our obsession with property investment will endure – and a few days before his book was published Key predicted that house values will double over the next decade.
