Are we overplaying the crisis

I noticed that there were some end of 2008 articles by Michael Laws and Fiona MacDonald.

Both take economists to task, one for doomsaying and one for obsessing about growth. Fundamentally, both articles have one theme in common – economists are exaggerating the impact of the crisis for the man on the street.

Sure, there is always some truth in this. Not everyone will be made worse off – in fact, many people will actually end up better off as a result of the recession (namely those that can keep their jobs and elevated wages). Anyone that reads this blog can tell that the authors here do not feel that the impact on New Zealand will be as severe as it will be for the US or UK. However, New Zealand is not immune to the gyrations of the international economy!

A collapse in the price New Zealand receives for the things it sells overseas is now a distant possibility (infact, in some respect it has already happened). Furthermore, New Zealand has borrowed a lot – with overseas investors now more nervous about lending this is bound to lead to some hardship.

Stating that things will be fine, or that we need further increases in real wages to remove our debt (which have been rising strongly in New Zealand, contrary to the authors statements), illustrates either a misunderstanding of what is going on or a blatant disregard for the risks we face. I would rather listen to the educated panic of the Bernard Hickey’s and Gareth Morgan’s then the arbitrary rambling provided by Michael Laws. Of course, I am an economist 😛

  • hehe, “gyrations”.

    That’s a technical term I haven’t come across yet when discussing economics:P

    This just made me think of a new tag line for the blog

    “Making Economics Sexy”

    But then again, economics is already sexy!

    can you tell I’m going crazy now that I’m back from holidays…..

  • Gyrations is a highly technical term my friend 😉

    I understand the craziness – it is amazing how much work accumulates when you are away for a few days 😛

  • StephenR

    The crisis seems overblown to me, as I hear so much about such occurences in history and for the future but in my experience nothing’s happened! Will be my first recession, so kind of morbidly excited.

    I would rather listen to the educated panic of the Bernard Hickey’s and Gareth Morgan’s then the arbitrary rambling provided by Michael Laws.

    Yeah, Laws is a professional pundit – his job is to offer opinion, not expertise. People quoting pundits’ opinions as if they are remotely authoritative are a pet peeve of mine! I guess another example would be Garth George’s attempt at climate change science…

  • “Will be my first recession, so kind of morbidly excited”

    This reminds me of how people were talking before World War One – not that I was there of course 😛

    One thing I would note with a recession is that those that keep there jobs aren’t necessarily that hurt – in fact they might be better off as prices will fall, and nominal wages might stay about the same. It is people that lose their jobs which really suffer – and the less wages adjust, the more people will lose their jobs.

  • StephenR

    Yes. I wouldn’t be morbidly excited if I thought there was a chance I was going to lose my job, which there isn’t, I would hazard.

    I think people thought WW1 was actually going to be fun though…