The 2.8 percent jump in GDP in the June quarter 2021 does not mean that the government’s economic strategy is sound. In fact, it is dangerous wishful thinking based on a false reading of history, according to a new research report from The New Zealand Initiative.

Illusions of History: How misunderstanding the past jeopardises our future, warns that the government’s economic policy settings risk a repeat of past mistakes.

The Minister of Finance disclosed the basis for the government’s economic strategy in his Budget speech last year. He saw a rare opportunity to hit a “reset button". Government could make decisions to "define the lives and livelihoods of many people for years to come”.

“That presumption rang a few alarm bells”, says report author and New Zealand Initiative Senior Fellow Dr Bryce Wilkinson. “Who would not prefer to define their own lives and choose their own livelihoods?”

For direction, Grant Robertson extolled the “great traditions” of the First Labour Government (1935-1949). He criticised the policy responses to New Zealand’s foreign exchange crisis in 1984.

Illusions of History examines both historical events and finds alarming parallels with our current policy settings. Economic historian, Professor Gary Hawke, contributed the report’s foreword.

Despite its other merits, the 1935 government mismanaged the recovery from the Great Depression. Its big spending plans brought New Zealand to the brink of default on its overseas loans in 1938. Long-lasting draconian foreign exchange controls were a result.

The 1977-1984 National Government’s big spending plans also required heavy overseas borrowing. It also resorted to ever tighter economic restrictions. Its policies also precipitated a foreign exchange crisis.

Grant Robertson decries the post-1984 policies that resolved the crisis. This is akin to blaming the cleaners for the carnage caused by the previous night’s party revellers.

The report also rebuts six myths about the post-1984 economic policies.

“It is said that those who do not learn history are doomed to repeat it. Worse yet is when historic myths with little basis in reality are used to justify our current policy settings.”

“Those who wish to learn from the past should first make sure they understand it,” concludes Dr Wilkinson.

Read more:
Illusions of History: How misunderstanding the past jeopardises our future is available here.

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