Recession? Surely Not!

I confess I did a double-take when I saw the headline “Recession Likely Under Ardern” this week.   I wondered what new development or brilliant piece of analysis could have led to such a rush to judgment.

All became clear, however, when I looked further.  The piece that was headlined in this way was written, it seems, by one Jared Dillian – described as a “US-based Lehman Brothers trader” – and, since it was the collapse of Lehman Brothers that triggered the Global Financial Crisis, one must accept that Mr Dillian might know a bit about what causes recessions.

Furthermore, the piece was published on the Forbes Magazine website; Forbes magazine, of course, is the house journal of the richest people in the world and famous for ranking them in terms of who is the richest, so one can expect that their readership might be easily disconcerted by any thought that a new government might prove to be somewhat interventionist.

My initial reaction was one of amusement at the transparency of the motivations of those involved in concocting such a piece, but my amusement quickly turned to exasperation.  A further perusal of the article revealed that it was based on literally nothing of substance.  The best Mr Dillian could come up with was that a government that sought to make it more difficult for foreigners to buy existing housing and that limited the numbers entering the country would be seen as putting up the shutters – and that could then have a depressing effect on economic activity.

An obvious rejoinder is that our new government is grappling with a deep-seated problem inherited from its predecessor – and that problem is one of a raging asset inflation that has made decent housing both unavailable and unaffordable for many of our young families.  The limits placed on foreign purchasers are merely a sensible attempt to damp down the demand that is fuelling an unstable asset inflation, the dangers of which and the risks to economic stability they pose should surely be apparent to Mr Dillian, given his experience with Lehman Brothers.

Interestingly, while Mr Dillian professed to see the threat of recession implicit in the new government’s policy stance, other commentators hostile to a left-of-centre government are quick to point up what they see as the supposedly inflationary consequences of measures like raising the minimum wage and more spending on health and education.  The two sets of right-wing commentators might have more credibility if they could only get their acts together – they can’t have it both ways.

I then further noted that the Forbes magazine piece had been seized on by the National Party and given wide circulation in social media – and all this before the new government has had time to draw breath.  Then the penny dropped (don’t ask me whether that is likely to be recessionary or inflationary!)

It struck me that the episode tells us something important about the neo-liberal hegemony which has dominated politics and economics in the west for the past decade or two.  The favourite tactic of those who would defend the inevitable tendency of “free-market” policies to concentrate wealth in just a few hands is to warn that any attempt to frustrate those market forces will threaten the prosperity and living standards of ordinary people.

So, a huge effort is made to deter any such attempt and that means that we are constantly assured that a government that tries to intervene to produce fairer and better outcomes will inevitably produce adverse outcomes.  That effort is not limited by national boundaries – the attempt to stop government from intervening in the operations of the “free market” is made these days on a global scale.

To be successful, any such attempt to persuade people of the unlikely proposition that governments that try to produce fairer outcomes are the problem rather than the solution must be coordinated – and the only way of doing that on the required scale is to engage the support of international media.

The essence of the attempt is not to win the argument – hence the lack of any substance in Mr Dillian’s piece – but to dominate the headlines.  A headline that links “recession’ and “Ardern”, even if there is nothing to support it, is a victory of a sort because it confirms in the public mind that there is always something risky about electing a left-of-centre government.

The Forbes magazine article was not in other words really aimed at a New Zealand readership, although that did not stop New Zealand politicians and their supporters from trying to take some advantage from it.  It was aimed instead at an international readership, and was intended to offset the news that a left-of-centre government had taken office in New Zealand.

In the absence of any facts or persuasive argument to support it, the Dillian hatchet job is best seen as just another manifestation of the constant campaign to discredit anything at all that might encourage voters to use their power to say to the fat cats, in whatever country, “enough is enough!”

Bryan Gould

23 November 2017