Last week, NZ First leader Winston Peters announced his party’s bold proposal to make KiwiSaver compulsory by supporting employers through tax cuts and raising the contribution rates to 10% of wages.
This was politically significant as it puts savings reform at the centre of our economic policy debate. Peters is correct in stating that New Zealand should become a rich asset-owning country through high domestic savings rather than desperately try to rely on foreign direct investment for growth.
Deeper and more broad-based domestic capital markets provide stability and reduce vulnerability to external shocks.
Unfortunately, compared to other advanced economies, New Zealand is woefully behind in the area of retirement income, domestic savings and use of private funds to increase our investment in assets such as hospitals and infrastructure.
As one of the many young Kiwis who left to go to Australia, I am stunned by our Trans-Tasman neighbour’s financial wealth. It greatly exceeds NZ, even after adjusting for their larger population size.
Australia’s Sovereign Wealth Fund, called The Future Fund, has NZ$350 billion in assets under management.
Meanwhile, their compulsory superannuation system is world-leading. Total accumulated funds are currently NZ$4.6 trillion. It is expected to become the second-largest savings pool in the world by 2050 and is 35 times larger than total KiwiSaver balances. Every Australian has an account. Individually their balance averages 10 times the balance in one of ours.
Astonishingly, around 20% of Kiwis don’t have a KiwiSaver account, and no savings at all.
The Australian scenario would not have been possible without solid and competent political leadership. Former Australian Prime Minister Paul Keating introduced Compulsory Superannuation in 1991 to “reduce the future reliance on the age pension, and over time, give ordinary people a better retirement”. Employer contributions started at a compulsory 3% of wages per year and gradually increased to the 12% where they sit today.
Thanks to compulsory superannuation, Australia is the only country across the OECD expected to have its government old age pension spending decrease from 2.3% of GDP today to 2% of GDP by 2060. By contrast, New Zealanders’ demand on the public purse to fund our pay-as-you-go pension system is projected to rise from 4.9% to 7.7% of GDP by 2060.
There is a common theme that emerges from such comparisons. Countries that create strong compulsory savings systems can reduce the fiscal burden of public pensions and also create pools of capital which they then have available to invest in the country’s national development.
After leaving NZ to study for a master’s degree in Singapore, I was amazed to learn about the city-state’s unorthodox social security and public asset system. Its development is deeply rooted in Singapore’s national savings schemes. The country’s Central Provident Fund requires citizens to save up to 20% of their wages – with another 17% provided by their employers. It currently has NZ$834 billion under management.
Singapore’s Sovereign Wealth Funds manage more than NZ$570 billion through Temasek Holdings and NZ$1.3 trillion through the Government Investment Corporation.
Singapore’s economy is expected to continue remaining the crown jewel of Southeast Asia. It is a capital exporting nation with a current account surplus and net zero debt.
Australia and Singapore have both taken the path of focusing on long-term capital accumulation through use of sovereign wealth funds and compulsory saving schemes. It is time New Zealand follows suit.
Many older Kiwis know about how former Prime Minister Sir Robert Muldoon made an awful mistake by abolishing the compulsory superannuation scheme set up under Norman Kirk in 1974.
Peter’s new savings proposals may mark the new beginning of a bipartisan agenda for NZ’s future public asset development.
Politicians across the spectrum support this transition. Labour’s David Parker said in his valedictorian speech, “[Australia’s] universal work-based savings [is] why those clever Aussies own their banks plus ours, our insurance companies, and much more. It’s why their infrastructure is better, their current account deficit lower, their net international liabilities lower, and their growth rate higher.”
Former National Party Commerce Minister Andrew Bayly also understood the vitality of higher domestic savings. He said, “One largely untapped source is the $109 billion of capital held by KiwiSaver providers… By comparison in Australia, I understand roughly 15% of its $3.8 trillion pension fund industry is invested in alternative assets, such as private equity and infrastructure.”
Now, NZ First has proposed a policy to ensure KiwiSaver becomes a major economic vehicle for our future economy. There are gripes about the fiscal costs of the tax cuts needed to buttress compulsion – including me – but the idea behind the policy is sound.
New Zealand stands at a crossroads. Our low domestic savings rate, combined with our ageing population, poses a long-term fiscal challenge that cannot be ignored.
The late Harvard economist Martin Feldstein’s words still ring true, “The problem with the current system is that retirees’ benefits are financed on a ‘pay-as-you-go’ basis, by taxing concurrent employees. The obvious solution is to shift to a privatised system of pre-funding those benefits through mandatory contributions to individual accounts.”
Many analysts argue that foreign capital can drive investment, but as other nations have now successfully demonstrated, mandatory savings systems supplemented by Sovereign Wealth Funds strengthen not only financial stability but also productivity and national independence.
As far as I know, there are no options to addressing long-term fiscal debt problems for a country like NZ other than by hiking taxes, printing money, defaulting, or cutting public services, or by promoting domestic savings through policies that support schemes like KiwiSaver and our Super Fund.
Which one do you prefer?
Leonard Hong is an economist based in Perth, Australia who has a Master’s degree in International Political Economy from the Nanyang Technological University, Singapore (2024) with the support of the Prime Minister’s Scholarship for Asia. He is a Leadership Network Member of the Asia NZ Foundation.
The assessment of the long-term fiscal position of the United States by Harvard’s Martin Feldstein in 1997 can be applied to most of the developed world today. The ‘pay-as-you-go’ comprehensive social security system that became popular during the early period of the Keynesian Consensus supporting retirement income and healthcare is already unsustainable. Unfortunately, because of the inevitable trend of population ageing, long-term unfunded liabilities – financial obligations from governments to citizens with insufficient funds to cover future projected costs – states will be required to spend far more on healthcare and pension (Goodhart and Pradhan, 2020). In response, various governments pursued a myriad of policy options – and failed so far – to tackle this inevitable trend, including tweaks in the system including increasing the retirement age, indexation of pension and in some cases compulsory private savings towards self-provision.
The crucial question is how to accomplish and resolve this looming problem. Some suggest imposing significant tax increases – such as capital and wealth taxes favoured by the left – or cutting expenditures to an extent that undermines the poorest members of our society without an alternative safety net – which is the libertarian argument. The former option supported by the Green Party will push capital out of the nation, undermine our economy, and at best raise barely any revenue. The latter commonly from the ACT Party does not provide any alternative solutions beyond the status quo. Sentimental push from economists towards “faster productivity growth” is not a solution either (Wilkinson, 2024). In my view, there is no alternative but to prioritise raising domestic savings in New Zealand (NZ) towards supporting economic development. New unorthodox thinking and economic approach is required to resolve the challenges facing New Zealand, beyond the left-right political divide.
In response to the relatively interesting – but flawed – analysis by economist Michael Reddell (2025), this essay seeks to counter the arguments provided on the topic of savings. These were the following main arguments and points from Reddell’s article:
Economic growth has been stagnant and some analysts – including Leonard Hong – have argued for higher domestic savings and Reddell questions their conclusions.
Compulsory savings have not led to significant productivity gains and believes other variables are more important to economic success.
Reddell argues that Australia’s spending on retirement income is still relatively high for the old age pension – which is means-tested – and national savings has not risen to the extent he anticipated and productivity is nowhere near the level of the United States.
Singapore’s national savings did not play as much of a major role in the city-states’ substantial part in their economic success, but rather more from its global competitiveness and low tax settings.
The role of foreign capital and domestic capital on economic growth is still under debate, and Professor Robert MacCulloch’s argument on the “Feldstein-Horioka puzzle” is interesting, but not entirely convincing.
Savings rates are often a response to investment opportunities rather than a cause; therefore, Reddell questions the notion that low domestic savings constrain investment in countries like New Zealand.
I broadly support the idea of mandatory savings – mainly because of its pragmatism and simplicity but also the positive spillover effects as outlined from my previous academic work examining Singapore’s economic model centred around the development of public assets (Hong, 2024). Furthermore, numerically higher domestic savings increase the capital available for investment, which translates to investment in infrastructure, businesses, and innovation, and therefore higher productivity. Other scholars provided potential and feasible alternatives based on mandatory savings across various nations such as Singapore, Chile, Sweden, and Australia (Feldstein, 1998; Kotlikoff and Burns, 2004; Ferguson, 2008; Micklethwait and Wooldridge, 2014; Chia, 2016; Douglas and MacCulloch, 2018).
These are the main reasons why I have repeatedly called for a bipartisan political approach to public asset development, in the form of both supporting our KiwiSaver and our sovereign wealth fund, the NZ Superannuation Fund (NZ SuperFund). New alternative state investment vehicles in the form of institutions such as the Accident Compensation Corporation have also provided social and economic benefit to the NZ public. In contrary to Reddell – and others – I will argue that higher domestic savings, supported by a structured compulsory savings system, is essential for New Zealand’s long-term economic prosperity.
Productivity and the Role of Domestic Savings?
The productivity puzzle in NZ has been widely examined across society. Former NZ Prime Minister John Key suggested the cause of our productivity woes was our “geography” – which is in line with Jared Diamond’s (1997) argument on what mainly distinguishes rich and poor countries. Other scholars including Nobel laureates Acemoglu and Robinson (2012) highlighted the quality of political and economic “institutions”. Huntington and Harrison (2000) provided a cultural perspective on economic development and productivity, especially on aspects of work ethic, meritocracy and openness to innovation. I broadly agree with all these theories – especially the institutional argument – but the point is that the debate on what improves productivity has always a puzzle for scholars and policymakers. I am strongly convinced that higher domestic savings – complemented by overseas investment – boosts economic growth and productivity.
Australia’s Productivity
Reddell mentions that Australia’s compulsory superannuation systems set up by Paul Keating has not led to higher net national savings as anticipated despite the policy mandating private savings for retirement on the public. To his credit, it is true that savings have not been as high, but this is attributed to the ‘substitution’ incentive for Australians to borrow more money under the assumption their wealth will accumulate through their superannuation (Connolly and Kohler, 2004). This was previously examined by many behavioural economists such as Daniel Kahneman (2011) on the ‘present and status quo biases.’ However, by in large, academic studies in Australia show that compulsory superannuation still led to increases in net savings broadly (Ruthbah and Pham, 2020).
Despite the relatively mediocre net savings, Reddell points out that Australia is much wealthier than NZ with a much higher GDP per capita of around USD$20,000 stating, “Australia is, by the way, the most culturally and behaviourally similar country to New Zealand in the world.” (Isn’t the fact that the author of this essay is working in Australia somewhat ironic?). His comparison between Australia and the United States may not fully account for the unique factors that influence their economies, such as the role of the US dollar as the world’s reserve currency. Furthermore, if the United States government followed Martin Feldstein’s advice of “large-scale compulsory saving”, perhaps they would not be in such a dire fiscal situation of US$37 trillion of net government debt – culminated from the unnecessary and costly wars in the Middle East.
In relation to the comparisons with NZ, there are two major variables in my view that distinguish the two countries – iron ore and the superannuation funds sector. The former, we have limited control over – although depending on the agenda of NZ Resources Minister Shane Jones – but the latter, there is greater potential for reform.
Figure 1: Capital Intensity, 1972 to 2015
The superannuation system now manages more than AUD$4.1 trillion under management which is the fourth largest savings pool in the world which comprises of 150% of Australia’s GDP – which is expected to become the second largest savings pool by 2050. This is remarkable for the 55th largest nation in the world. This pool of capital translated to rapid increases in capital intensity for the Australian economy. As shown in Figure 1, from World in Data, the specific critical juncture was from 1991, which was when Australian Prime Minister Paul Keating decided to introduce Compulsory Superannuation to “to reduce the future reliance on the age pension, and over time, give ordinary people a better retirement.” (Keating, 2013). He had the foresight and prescience to understand that demographic pressure was inevitable. Therefore, setting up a mandatory savings scheme would allow the system to transfer more from a ‘pay-as-you-go’ system towards a ‘self-provision’ based system. To Keating’s credit, the call on the budget from the old age pension dropped from 5% of GDP in 1991 down to around 1% in 2023. Secondly, in stark contrast to NZ, Australia recently had some periods of current account surpluses starting in 2019 without needing the begging bowl to foreign investors being capital poor. However, as shown by Figure 2, there is not much difference between Australia and NZ with both countries, and I concede that this is probably the weakest point of comparison in my analysis. The differences in economic scale, trade composition, and external sector dynamics significantly influence their respective balance of payments. Although I do consider the historical hypotheticals if Keating’s original plan of raising the compulsory savings rate beyond the 9.5% to 15% was actualised, especially given that Coalition governments have frequently prioritised tax cuts over further superannuation expansion (the Morrison government did eventually raise it to 12%).
Figure 2: Australia vs NZ – Balance of Payments in Proportion to GDP, 1989 to 2023 (World Bank Data)
I am not arguing that in the short-run a current account surplus or deficit is inherently good or bad – in the long run possibly – but it is clear that Keating’s policies led to the structural transformation of Australia’s economy. Despite later Coalition governments pursuing tax cuts over further superannuation expansion, much of the accumulated savings under Keating’s framework were directed toward domestic investment, funding major infrastructure projects such as the Port of Melbourne and Transurban Toll Roads. For higher productivity focusing on capital markets, NZ can only grow by boosting both domestic savings and allowing more foreign capital into the country which will consist of cutting actual red-tape to FDI through supply-side reforms – which Reddell strongly agrees with me – and ramping up domestic savings through KiwiSaver – or other private saving investment vehicles (MacCulloch, 2024). The current National Coalition government’s emphasis has been on attracting overseas investment whilst broadly ignoring the problem of domestic savings so far.
Singapore’s Productivity
Reddell rightly praises Singapore’s economic miracle with the city-state having one of the highest per capita GDP in the world. However, he claimed that “it would be very hard indeed to argue that national savings played any very substantial part in Singapore’s economic emergence.” I believe this perspective overlooks a critical component of Singapore’s economic strategy, which was deeply rooted in their national savings system as a fundamental part of economic policy for current Singaporean politicians (Lee, 2024). Whilst the Central Provident Fund (CPF) was set up in the 1950s, it was an inherent part of the Singapore government’s fiscal strategy. Lee Kuan Yew (2000, p.97) stated he not only maintained the compulsory nature of the system but regularly raised the contribution rates to “avoid placing the burden of the present generation’s welfare costs onto the next generation.” Furthermore, according to Lee (2000, p.102-103), the critical aspect is to ensure bare minimum fiscal pressure on the state to avoid the ‘buffet syndrome’, a fact which Reddell omitted when publishing his article:
Through the CPF system, Singaporeans have access to a comprehensive self-financing social security fund comparable to any old-age pension system or entitlement system in the Western world without transferring the burden to the next generation of workers (Micklethwait and Wooldridge, 2014; Chia, 2016; Douglas and MacCulloch, 2018). The Singaporean government understood the importance that every generation should contribute to their own pension and every individual should save for their own without burdening the state. CPF has a major role on Singapore’s economy – Reddell is incorrect. The whole entire purpose was fiscal discipline which is important for long-term economic growth and macroeconomic stability (Reinhart and Rogoff, 2009).
Secondly, Reddell cites comprehensive data concerning Singapore’s current account position and national savings record in proportion of GDP from the International Monetary Fund. The question from him was the notion that the Singapore government relied on current account deficits in the early period of the 1970s and 1980s for its growth. Indeed, it is true and there is a specific reason. The East Asian Miracle – particularly in Singapore – shows that savings and investment are not separate, but interconnected variables in driving economic development.
Reddell should have considered the extensive work by development economists on the East Asian Miracle, where the initial phase of development focused on attracting foreign capital to acquire the necessary talent, business expertise, and technological spillovers that enabled these countries to build their own capabilities in the long run. This approach, championed by various economists that studied the East Asian developmental state model (Stiglitz, 1996; Chang, 2003; Rodrik, 2015; Haggard, 2018). While these nations initially relied on foreign investment, they eventually became capital-exporting economies after reaching a certain level of development and establishing competitive domestic companies and ‘national champions’. High domestic savings were critical in fostering capital formation for the Four Asian Tigers, which, in turn, led to productive investment and long-term growth.
Figure 3: Singapore Government’s NIRC and Budget Deficits/Surpluses (S$ Millions)
Furthermore, Reddell didn’t mention the importance of sovereign wealth funds for Singapore, but it is relevant to the argument in this essay – it was covered extensively across my postgraduate dissertation. Singapore relies heavily on endowment funds provided by the Government Investment Corporation (GIC) and Temasek Holdings, called Net Investment Returns Contribution (NIRC). For example, in the 2024 Budget, the Singapore government received S$23 billion through the NIRC, comprising 18% of the revenue – 3.4% of GDP. This fiscal mechanism has many benefits since it allows the state to be ‘developmental’ such as public investments in infrastructure, housing, and education, but also tax breaks for new start-ups, capital allowance on depreciable assets, 250% tax deduction on R&D expenses, low corporate tax rate of 17%. The pro-business settings – including tax breaks that Reddell gives a fair bit of credit to Singapore – was possible because of their net zero debt position with massive amount of financial assets – worth US$1.9 trillion owned by the public. As shown in Figure 3 – which is from my dissertation – seven of the ten last government budgets saw the NIRC contribute an overall surplus, despite eight budgets having a primary structural deficit.
Conclusion
In conclusion, I disagree with the premise of the article that was published by Michael Reddell. I fully support Martin Feldstein’s remarks from 1997 that the “obvious solution is to shift to a privatised system of pre-funding those benefits through mandatory contributions to individual accounts.” I do not see another alternative policy approach to tackle this looming macroeconomic problem. The mainstream economic approach currently tinkers around the edges. The status quo – even with the NZ SuperFund – will be fiscally inadequate as highlighted by the NZ Treasury’s Long Term Fiscal Position forecasts. I suggest that moving to a hybrid system like Australia with a means-tested old-age pension would be the next step by incrementally raising the minimum contribution rates to KiwiSaver – either employee or employer – as highlighted by the Retirement Commission (Katz, 2024). Andrew Coleman (2024) recently highlighted the major issue of designing the new system towards “intergenerational neutrality” without harming the younger generation to continue to pay for retirees and at the same time build a nest-egg for their future. This major issue of intergenerational fairness is a very tricky and puzzling problem for transitioning from our current ‘pay-as-you-go’ system towards a social security system based on ‘self-provision.’
Both examples of Australia and Singapore show that high domestic savings matter to a large extent on both macroeconomic stability and economic performance. I also do not see ‘domestic savings’ in a similar way to Reddell that “savings themselves are endogenous.” Savings are not entirely endogenous but can be nudged and supported through policies that incentivise individuals and households towards more private savings and investment. The fact is that NZ has one of the lowest domestic household savings across the developed world is worrisome. Therefore, reversing the trend is critical, not only for our long-term fiscal position but also our economic prospects in the future. We should be attempting to emulate parts of what Australia and Singapore have done, instead of labelling such policy proposals as ‘paternalistic’ or ‘authoritarian’.
Reddell’s statement that “retirement income policy should be approached on its own terms, with a focus on individuals and their own ability to manage retirement,” is a simple classically liberal philosophical position. The only difference from my end is suggesting that people mandatorily save rather than forcefully pay high tax rates! The state already compels the public to pay income tax, and GST, so what is the difference between taxes and being compelled to save money? A high return on private savings is achieved by investing in high-performing investments with compound interest, whereas taxes are simply a means of generating revenue for the state.
NZ is currently discussing the importance of attracting more foreign direct investment. I broadly agree that we need to make it easier for capital from overseas to invest into NZ equities, companies, land, industrial development, housing supply and our chronic infrastructure deficits highlighted by the Infrastructure Commission. However, there is a limit to this strategy as higher concentration of foreign capital also risks financial instability and tends to lead to slower growth than countries that have higher proportion of domestic savings (Prasad et al, 2007; Cavallo et al, 2016). And this idea was partially supported by Reddell who concluded in the latter part of his article stating:
Indeed, higher domestic savings by-in-large would have a positive effect on the current account, put less demand on the NZ dollar, support more exports and allow more Kiwis to accumulate foreign reserves and become a capital exporting nation.
The notion of having more savings on an individual and household level makes sense as a financial buffer and social insurance during times of personal difficulty. The prudent decision is to limit credit card debt and refrain from buying unnecessary items or making “vanity” purchases of luxury goods with credit cards. If every Kiwi behaved and understood finance like Warren Buffett and Charlie Munger, then we would not be having these policy discussions. Unfortunately, most of the NZ public do not have the appetite let alone the long term orientation or foresight to consider making sound financial decisions. If we apply this logic on a macroeconomic level, most of the readers will be able to comprehend as to why a lot of people – including myself – are advocating for mandatory savings. Former NZ Commerce Minister Andrew Bayly was pursuing important policies to kickstart financial education across our school system and I hope new Minister Scott Simpson completes the job. The average balance of NZ$38,000 for KiwiSaver is utterly woeful and nowhere enough to save for retirement – let alone purchasing a house.
I decided to respond in a comprehensive manner with this essay because Reddell is one of the most well-known economic commentators and analysts in NZ, and I have tremendous respect for his work. His compelling research with Dr Don Brash and Dr Bryce Wilkinson for the 2025 Taskforce was very useful with insightful economic suggestions. Anyone interested in economic policy should have a read – as well as his excellent blog. The debate regarding domestic savings is a necessary one, but I am confident that history will prove people such as myself to be correct in the long run.
NZ stands at a crossroads. Our low domestic savings rate, combined with an ageing population, poses a long-term fiscal challenge that cannot be ignored. Some may argue that foreign capital broadly can drive investment, but the examples of Australia and Singapore demonstrate that a comprehensive mandatory savings system not only strengthens financial stability but also boosts productivity and national resilience. In my humble opinion, there is no economic policy alternative to addressing the long-term fiscal debt problem, economic growth and productivity problems besides developing more public assets and boosting domestic savings through policies that support schemes such as KiwiSaver and the NZ SuperFund.
References
Acemoglu, Daron., & Robinson, James. (2012). Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishing Group.
Cavallo, Eduardo., Eichengreen, Barry., & Panizza, Ugo. (2016). “Can Countries Rely on Foreign Saving for Investment and Economic Development?” IDB Working Paper No. IDB-WP-718. Retrieved from https://ssrn.com/abstract=2956698
Chang, Ha-Joon. (2003) Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press.
Chia, Ngee-Choon. (2016). Singapore Chronicles – Central Provident Fund. Singapore. Straits Time Press.
Feldstein, Martin. (Ed.). (1998). Privatizing Social Security. Chicago: The University of Chicago Press.
Ferguson, Niall. (2008). The Ascent of Money: A Financial History of the World. London: The Penguin Press.
Goodhart, Charles., & Pradhan, Manoj. (2020). The Great Demographic Reversal: Ageing Societies, Waning Inequality and an Inflation Revival. London: Palgrave Macmillan.
Haggard, Stephen. (2018). Developmental States: Elements in the Politics of Development. New York: Cambridge University Press.
Harrison, Lawrence., & Huntington, Samuel. (Ed.). (2000). Culture Matters: How Values Shape Human Societies. New York: Basic Books.
Hong, Leonard. (2024). “Lessons from Singapore on getting the Government’s books in shape without paying more tax.” The New Zealand Herald.
Hong, Leonard. (2024). “Savings and Sovereignty: Comparative Political Economy on Fiscal Discipline and Public Asset Management between Singapore and New Zealand.” Postgraduate Dissertation for NTU.
Kahneman, Daniel. (2011). Thinking, Fast and Slow. New York: Farrar, Straus and Giroux.
Kotlikoff, Laurence., & Burns, Scott. (2004). The Coming Generational Storm: What You Need to Know about America’s Economic Future. Cambridge: MIT Press.
Leonard Hong shares his experience of studying in Singapore on a Prime Minister’s Scholarship for Asia.
I strongly urge students to apply for the Prime Minister’s Scholarship for Asia, it was one of the best decisions of my life.
As an undergraduate student at the University of Auckland in 2019, I finished the autobiography by former Singaporean Prime Minister Lee Kuan Yew, From Third World to First: The Singapore Story: 1965-2000. This book ignited my fascination with Singapore. From that point, I had in my mind that one day I could study or live in Singapore in order to gain a deeper understanding of the economic miracle it has achieved.
Fast forward five years later, I was able to realise both objectives. I just completed my postgraduate degree at the S. Rajaratnam School of International Studies (RSIS) in Nanyang Technological University, Singapore. With its entrepreneurial dynamism and open international economy, I was lucky to have lived in this remarkable nation. I am grateful for the opportunity as it provided me with a world-class education with a much better understanding of Singapore’s political economy as well as other Southeast Asian countries.
Some friends asked me before, “Why International Political Economy, Leonard?” I have always responded that solving complex global and domestic challenges requires an interdisciplinary understanding of political science and economics. I thought the Master of Science degree offered by RSIS would allow me to build a more comprehensive analytical framework with better technical skills.
Gardens by the Bay.
Furthermore, Singapore was a perfect place to study for me as a global financial hub of Southeast Asia reliant on international trade and investment. New Zealand has a similar demography with low corruption and pro-business practices. Singapore’s approach to governance and public policy offers valuable lessons, adaptable to our unique local context.
My dissertation topic considered the fiscal implications of its domestic savings scheme and how that translated to its accumulation of public assets – sovereign wealth funds – and its private pension schemes. I compared and contrasted Singapore with New Zealand and uncovered certain setbacks within our approach. I was able to get coverage from the New Zealand Herald’s Liam Dann’s business column on my comparative political economy analysis as well as publishing a column myself on the New Zealand Herald arguing against a capital gains tax. It was gratifying to contribute to policy debates back home, even from abroad.
The timing of my programme was also impeccable. I was fortunate to meet New Zealand Prime Minister Rt Hon. Christopher Luxon and Minister of Climate Change Hon. Simon Watts in Singapore as part of their Southeast Asia trip in April fostering greater trade and investment across the Indo-Pacific region. Their choice of Singapore as the first destination outside Australia was significant to me.
With Professor Tommy Koh.
I also had the opportunity to meet various policymakers and public intellectuals from Singapore. I had a quick meeting with Minister of State Alvin Tan about his portfolios and responsibilities. Conversations with Professor Kishore Mahbubani on US-China relations and the future of ASEAN were enlightening. I also was very honoured to meet Professor Tommy Koh who graciously signed his book for me during our conversation.
With Dr Anne-Marie Schleich for book launch.
Moreover, I served as the master of ceremonies for the launch of a new book edited by Dr. Anne-Marie Schleich—Senior Adjunct Fellow at RSIS and former German Ambassador to New Zealand—titled Perspectives of Two Island Nations: Singapore-New Zealand. This event, co-hosted by the New Zealand High Commission in Singapore, RSIS, and World Scientific Publishing, was one of the first books directly comparing and contrasting public policy in New Zealand and Singapore.
My time abroad in Singapore well-exceeded my expectations. I met various famous Singaporeans in my field of interest, networked and built a new cohort of friends for life and my understanding about Southeast Asia expanded significantly. This experience made me more resilient, adventurous, and globally minded. It taught me the importance of cultural understanding and empathy in solving global problems.
With Singaporean Prime Minister Lawrence Wong.
I encourage more students and professionals to consider studying in Singapore and building connections to contribute back to New Zealand. I share my story not for its own sake but to motivate others to pursue similar opportunities, learn, grow, and explore Singapore’s unique and unorthodox policy approaches.
The Treasury, in its briefing to incoming finance minister Nicola Willis, said a comprehensive capital gains tax would generate more tax revenue to help balance the Government’s books.
But can’t prudent fiscal policy be achieved in other ways?
Singapore provides some answers.
A couple of weeks ago, the city-state’s finance minister Lawrence Wong released the 2024 Budget.
As with other countries, immediate social spending and investment were prioritised in response to the ongoing cost-of-living crisis and challenges relevant to long-term productivity and population ageing.
However, there is a stark contrast between the city-state and other major developed economies. Singapore has net zero debt, and, in some ways, has already solved the long-term fiscal issues facing other countries.
Singapore’s government gross debt level is worth 170 per cent of gross domestic product (GDP). But this is offset by high levels of domestic savings in both the public and private sectors. The city-state is a capital exporting country that generates reserves from its large financial assets and public investments.
A large portion of the public sector comprises large government-linked companies – such as SMRT Corporation and Singapore Airlines – and its sovereign wealth funds – including the Government Investment Corporation and Temasek Holdings.
GIC has around US$770 billion ($NZ1.2 trillion) in assets under management and Temasek has US$290b ($NZ470b). In combination this is around 227 per cent of Singapore’s GDP.
In contrast to libertarian claims that governments should simply reduce wasteful spending, Singapore’s approach to fiscal policy involves an effective and strategic government that leverages the state as an investment vehicle.
Former Singaporean finance minister Goh Keng Swee said it best: “Our experience confirms some of the conventional wisdom of growth theory, but refuses much of the rest. The role of government is pivotal.”
Simultaneously, in the private sector, the Central Provident Fund (CPF) plays a fundamental role providing social insurance to citizens, but in the form of self-provision rather than a ‘pay-as-you-go’ social security system, such as in the West.
Singaporeans are required to save up to 20 per cent of their wages, and an additional 17 per cent is provided by their employers, which is invested by the CPF Board. As of 2023, CPF managed around S$571b (NZ$707b) – equivalent to 92 per cent of Singapore’s GDP.
Overall, Singapore’s fiscal management has been outstanding, and its prudent fiscal management has allowed the country to thrive as the diamond of Southeast Asia. The city-state currently has a very high net worth position.
I came to study in Singapore to understand precisely why this was possible and what policy lessons the city-state could provide for New Zealand.
I was inspired by Lee Kuan Yew’s story. It was in 2019 when I first read his autobiography, ‘From Third World to First: The Singapore Story, 1965-2000′. It sparked my desire to study in Singapore and learn about its unique and unorthodox economic model and policies.
My time in the city-state has made me realise that we have much to learn from its fiscal policies – particularly around public asset management. In contrast, our economic history has a mixed record.
For NZ, we missed the golden economic opportunity when then-prime minister Sir Robert Muldoon cancelled our superannuation scheme in 1975. It was one of the worst economic decisions made by a government. If we didn’t, NZ would have much higher domestic savings potentially as high as NZ$500b.
Sir Michael Cullen’s decision to revive a private saving scheme under KiwiSaver in 2005 was a sensible decision, but it was insufficient. The total KiwiSaver funds currently under management is NZ$105b – equivalent to 25 per cent of NZ’s GDP. It is an automatic enrolment scheme with minimum and maximum contribution rates of 3 per cent and 10 per cent. This is much lower than Singapore’s compulsory rates for both employers and employees.
Cullen also introduced our sovereign wealth fund – the NZ Super Fund. It was an innovative policy developed in 2001 based on his long-term foresight and prescience that demographic ageing would result in a significant increase in pension demands. Our sovereign wealth fund currently has a balance of NZ$70b – 18 per cent of GDP. Draw downs will start soon in 2033.
Since the passing of the 1994 Fiscal Responsibility Act, there was strong bipartisan consensus of ensuring persistent budget surpluses. This institutional framework helped our nation to weather the storm of the 2007-08 Global Financial Crisis and the Covid-19 pandemic because of our low debt position of 19 per cent of GDP in 2019.
Yet, in stark contrast to Singapore, NZ has not been able to build greater public assets that could be utilised in favour of the long term. There is no doubt that our KiwiSaver plans are competent, but their investments have not been diversified, with a significant portion of funds being invested passively abroad. Regulatory hurdles have hindered the growth of the sector and greater competition.
Although the NZ Super Fund is highly regarded internationally, with annualised investment returns of around 10 per cent over the past 20 years, the fund’s size could have been larger if the previous National-led government had not stopped contributing to the fund to reduce budget deficits.
It is clear that based on the projections from the NZ Treasury, demographic change and population ageing will have substantial fiscal implications with net debt expected to reach above 160 per cent of GDP by 2060. In the words of late Harvard economist Martin Feldstein: “The current structure of pension systems in most developed countries cannot be sustained without cutting benefit levels substantially or introducing much higher taxes”.
Therefore, whilst maintaining fiscal discipline, pursuing the development of much greater public assets and ‘nudging’ individuals and households towards greater domestic savings is fundamental to NZ’s long term fiscal position.
Singapore’s unorthodox but pragmatic economic model provides some answers to our future challenges.
Nicola Willis should consider examining parts of Singapore’s macroeconomic strategy – it’s not just about balancing the books but identifying methods in building significant domestic capital savings and developing strategic government assets in the interests of the public.
Leonard Hong is a NZ Prime Minister’s Scholar for Asia, studying for a Master’s degree in International Political Economy at Nanyang Technological University, Singapore. He is also an Asia New Zealand Foundation Leadership Network member.
On November 23, 2023, Dr. Henry Kissinger passed away at his home in Connecticut peacefully at the age of 100 years. Being a curious student of international affairs, I’ve always found him an unusual character – someone who perhaps has a terrible reputation and yet simultaneously admired by elites and academics for decades. When I heard the news pop up on Bloomberg, I felt sad in contrast to other peers around me. Many called him a “war criminal” for his actions as Secretary of State and National Security Advisor under President Nixon. But paraphrasing from his biographer Niall Ferguson, I think that claim may be quite harsh because various American policymakers have made either worse or equally destructive decisions such as President Truman’s nuclear bombing of Hiroshima and Nagasaki. Yet, I do think he deserves scrutiny and history needs to be objective.
Personally, despite what others might say, I put myself relatively more in the “admirers” camp. It is not because I agreed with everything he did – I have strong disagreements with some of his foreign policy approaches and found his brash arrogance across his books occasionally annoying – but rather to do with his academic contributions. Yes, his unilateral involvement in Chile created prolonged issues with the installment of Dictator Augusto Pinochet. His actions in Vietnam prolonged the war which perhaps caused more American deaths and unnecessary suffering of the Vietnamese people. Kissinger and Nixon’s call to carpet bombing Cambodia likely contributed to the rise of the genocidal Khmer Rouge. His decision to support the Bush Administration’s 2003 War in Iraq alongside the neoconservatives was also indefensible. However, he also made a lot of world-leading decisions. Following the initial engagements he had with Mao Zedong in the 1970s, his realist approach to international relations changed the world, paving the way for Deng Xiaoping’s pragmatic leadership. Without Kissinger’s foreign policies, the world would not have witnessed the rapid rise of globalization and exponential improvements in the world economy.
He is also someone who never stopped learning and provided important scholarship in his subsequent years even before his passing. I was fortunate enough to read two of his books, “World Order” and “On China“. I’ve also read his authorized biography, “Kissinger: 1923-1968: The Idealist” by Niall Ferguson as well, which taught me a lot about what it takes to become a master in the field of international relations and how he leveraged his networks with elites. A very charming and charismatic diplomat who be-friended Nelson Rockefeller as a Harvard Professor. I did buy a copy of his last work published in 2022, “Leadership: Six Studies in World Strategy” which I hope to read sometime after I finish my postgraduate programme in Singapore. Nevertheless, throughout his overall scholarship, he always emphasized the importance of pragmatism and effectiveness, rather than ideological crusades in the image of “liberalism”. The notion of the balance of power, the 1648 Treaty of Westphalia, and the crucial importance of “legitimacy” were all common themes throughout his books. He has historically toyed with Immanuel Kant’s “Perpetual Peace” hypothesis and was in many ways a person with strong convictions on a morally just society based on his previous experience as a German Jewish refugee to the United States. His decision-making was made broadly on the strong sentiment that there is no such thing as solutions, but only trade-offs – the worst of two evils. Whilst this might sound cruel, he always kept this sense of tragedy in his mind and viewed human nature broadly in a negative light. Machiavellianism was one of the key ideas that I think he utilised to maximize his own position. A complex ideological thinker who was a true Realist, but context-driven with strong moral convictions about what he truly believed
Lee Kuan Yew and Dr Kissinger
His friendship with Lee Kuan Yew also shaped my view of Kissinger. He was a great friend of Singapore and someone who engaged regularly with Lee Kuan Yew throughout the 60s until his passing in 2015. Kissinger also wrote forewords for both Minister Mentor Lee’s autobiographies and Graham Allison’s interview series written based on his interviews with Minister Mentor Lee. They both share a common agenda – pragmaticism and obsession with excellence. This ideal is something that I share equally. Policy of course always has trade-offs but what matters is whether the better trade-off and decision were made. Lee Kuan Yew was also criticised heavily by many across the Western media for his crackdown on opposition in Singapore’s domestic politics. Coincidently, Kissinger himself faced stringent criticism against him as he finished his tenure in the White House. Both share this unique combination of being renowned for their contributions but also heavily criticized, but they are both remarkable and outstanding individuals. That’s why I respect them in many ways– but more importantly Dr Kissinger for his immense contributions to the world.
In conclusion, I think he is a complex character that he needs to be studied more extensively, rather than simply criticized for the sake of being criticized. Of course, his decisions need to be analyzed carefully but without the personal ad hominem attacks which I have found increasingly common in today’s period of growing political polarization. I think this statement from his son, David Kissinger, provides some insights into what we can learn. David said on his father’s 100th birthday:
How then to account for his enduring mental and physical vitality? He has an unquenchable curiosity that keeps him dynamically engaged with the world. His mind is a heat-seeking weapon that identifies and grapples with the existential challenges of the day. In the 1950s, the issue was the rise of nuclear weapons and their threat to humanity. About five years ago, as a promising young man of 95, my father became obsessed with the philosophical and practical implications of artificial intelligence.
David Kissinger
Something that we should live by as we also get older. Continue to remain curious about the world, improve our decision-making, minimise our mistakes and learn from the best, like Dr. Henry Kissinger. He is perhaps the most formidable policymaker of the 20th century.
I have an announcement to make in regards to my new adventure. I received the Prime Minister’s Scholarship for Asia to study a Master’s degree in International Political Economy at Nanyang Technological University Singapore at the RSIS | S. Rajaratnam School of International Studies starting in August this year. This is an exciting opportunity for me to pursue my passion in political science and economics at a world-leading institution ranked alongside John Hopkins and Columbia University.
I decided to study in Singapore because I was intrigued by Lee Kuan Yew’s leadership and the city-state’s economic miracle. As a result of its world-leading meritocratic approach to governance and Singapore’s emphasis on excellence within its society, the nation is now one of the most developed economies in South East Asia. In particular, I am eager to learn about Singapore’s sovereign wealth funds, its interconnections with state-entities like the Monetary Authority of Singapore, Temasek, GIC and the Central Provident Fund.
I would like to thank my academic and professional mentors, notably Professor Natasha Hamilton-Hart and Andrew Bayly MP; and also colleagues and friends who have contributed to my personal and professional development. Special thanks to Education New Zealand | Manapou ki te Ao for the financial support. I’m looking forward to this new adventure abroad that takes place soon.
A famous national populist, former US President Donald Trump
The economy is not an understandable and controllable machine as assumed by conventional macroeconomic theory. Rather, the economy is a complex, adaptive system, like many others in nature and society, in which policies can have significant, unintended consequences.
Former BIS Chief Economist William R. White
We are dealing with an intellectual problem—a profession that has been absorbed by theoretical constructs abstracting from human behaviour. We are dealing with ingrained ways of thinking. The challenge is to raise questions about accepted approaches, in drawing lessons from recent experience. We need to pull economics back into the real world of political economy.
Former Federal Reserve Chairman Paul Volcker
We also have to recognize that good economics cannot be divorced from good politics: this is perhaps a reason why the field of economics was known as political economy. The mistake economists made was to believe that once countries had developed a steel frame of institutions, political influences would be tempered.
Former IMF Chief Economist and University of Chicago Professor Raghuram Rajan
Leonard’s Curiosity in Economics
My interest in the political dimensions of economic policy began while I was still an undergraduate student at the University of Auckland. I was intrigued by the rise of Bernie Sanders in the United States and Donald Trump in 2015. They both represented movements against the status quo of government. Meanwhile, in my Economics courses, I was learning about macroeconomic models of endogenous growth, the Solow-Swan theory of technological progress, Paul Krugman’s liquidity trap theory, Milton Friedman’s monetarist theory, among other frameworks. An intense interest in both Political Science and Economics led me to major in both disciplines (History and International Business were later added in 2018).
Theoretical economic models were fascinating. Yet, in my mind economists have been missing the mark.
I was particularly intrigued by the global financial crisis (GFC) of 2007-2008. What caused it? The greed of Wall Street, easy monetary policy, or institutional corruption? Globalisation? Are there political influences at play? Exactly how can geniuses from Ivy League universities make such an error? I was perplexed by the global financial crisis and remained keenly interested in it (so much so that I even co-authored a report on the potentials for the next financial crisis in 2021).
The failure of world-renowned economists – in the likes of Larry Summers – to identify the fundamental causes of the GFC (and the aggregated political effects of that crisis) convinced me that the discipline required fundamental reform.
My education at the University of Auckland contributed to my intellectual framework. However, the models and theories that I learned in my economics classes were insufficient to prepare me to be an excellent economist. I believe that the study of Political Science, Psychology and Economic History should become complementary areas for students studying Economics.
As someone who also holds a degree in History, the economic topics within all of the courses I took always intrigued me. Among these themes are, for example, the role of hyperinflation in the fall of the Weimar Republic and the rise of Hitler; the rise of Keynesian economics and the New Deal; the rise of the Bretton Woods system and its effects on international affairs; the revival of Communist China under Deng Xiaoping; and the experience of New Zealand under Rogernomics and Ruthanasia. In contrast to my colleagues who were studying other topics, I was fascinated by economic problems and how they affected the political system in general. As I see it, Economics is a hybrid of the humanities and the sciences – a social science. I was told by my history lecturer, Dr Paul Taillon, that I had more of a ‘political economy’ bent. I fully concurred with his assessment.
My involvement in Economics as a discipline was motivated by this experience. An overview of my obsession with the subject is presented in this section. It is fascinating to me and I intend to continue my studies in the future. In the next section, I will explain the fundamental causes of the GFC and why many economists got their predictions completely wrong.
The Failures of Economists: Predicting GFC
Many economists, including Nobel laureate Paul Krugman, admitted they were wrong in the wake of the first major economic catastrophe since the Great Depression. Most mainstream economists failed to predict the onset of the financial crisis in 2007-2008 (with notable exceptions such as William R. White, Niall Ferguson, Raghuram Rajan and Kenneth Rogoff). There was a great deal of hubris and arrogance in the profession.
By the beginning of the 1960s, mathematicians and engineers were becoming increasingly involved in the economics discipline, leading to the development of econometric models as a dominant source of policy analysis. One of the main reasons this occurred is the rise of mathematical economics. Paul Samuelson and other ‘technical’ economists popularised this sub-discipline. Prior to this disciplinary revolution, the subject was called ‘political economy’, not economics as we all understand it today. Through mathematic economic modelling, increasingly more experts have become almost certain that modelling meant that it will be reflected in the real world. In many ways because of what the numbers told them, many determined that the risk of financial collapse has been eliminated. Financial markets are supposedly safer as a result of the ‘Great Moderation’ and technocratic management of the economy. Francis Fukuyama’s End of History did not help. It created further arrogance and complacency among western elites, believing that they were destined to spread free markets and liberal democracy globally. However, with the bursting of the housing bubble in 2007, the Great Moderation of 1987-2006 proved to be a myth as it led to the collapse of the global economy.
The GFC taught me that economics was not an entirely objective or empirical discipline in the same vein as mathematics, chemistry, and physics. In the words of former Bank of England Governor Mervyn King, “Economists have brought the problem upon themselves by pretending they can forecast. No one can predict the unknowable future and economists are now exception”. Economists forgot a very important concept called ‘radical uncertainty’.
In terms of quantitative predictions, in many ways they are correct in the modelling. But it is correct in real life? No. The models are not perfect. Individuals are not fully rational. Statistical formulas and mathematical equations can get manipulated to provide the authors of a particular research paper with data that supports their hypothesis.
I do not claim, however, that empiricism does not matter – it does matter to a considerable degree. Using models, we can obtain an understanding of what is happening throughout our economic system. We would struggle to solve problems without the aid of hypotheses testing and quantitative methods. But it does become problematic when economists strictly rely on models, as fundamentalist beliefs, akin to the scientific fact of gravity.
Pricing for options is an example of this. The Nobel Prize in economics was awarded to Robert Merton of Harvard University and Myron Scholes of Stanford University for their contribution to calculating stock options (a form of derivatives). In the financial world, it was believed that ‘rational’ calculations of these risky investments were feasible. But this was utter nonsense. It is nearly impossible to determine the value of these complex financial instruments. Analysts have devised numbers to create an impression of credibility. It was just a bogus form of quantification. There was a quasi-religious belief among people in the financial sector that risk had virtually disappeared following the introduction of these objective models. This legitimized financial gambling. This intellectual debacle was caused by the dogmatism of belief in ‘market perfection’ and ’empiricism’. Economist Raghuram Rajan questioned this dogma of the financialisation of the world economy in his 2005 research paper. He showed that actually banks and financial institutions were making more money via more risk, not less risk as shown by these models for derivatives. As shown in the documentary ‘Inside Job’ by Charles Ferguson, to some degree it was a form of intellectual and moral corruption where economists across elite institutions brought the idea that risk was eliminated.
The failure of economists told me a few things. There needs to be a fundamental restructure in the education of future economists. Economics as a discipline needs to combine both the ‘economic history’ and empirical methods to explain and understand complex systems like the global economy. More emphasis needs to be placed on the ‘humanity’ aspect of economics. The classical scholars in the likes of Adam Smith, David Ricardo, David Hume, John Maynard Keynes and even Hayek were not entirely mathematically driven economists. All of them were experts in the political economy. Excess objectivity within the field of economics led to financial disasters and hubris.
The GFC should have been a wake up call, but have there been some changes? Not necessarily. Economists still buy into their DSGE models and macroeconomic equilibrium hypotheses. Although some economists in the likes of Dani Rodrik, Raghuram Rajan and Joseph Stiglitz have been warning others for some time about the continued failure of their fellow colleagues to diagnose the problem. What we witnessed instead were significantly political consequences in the form of both left wing and right wing populism.
Backlash against the Technocrats – Western Populists
While the mainstream neoclassical economists continued to repeat their talking points to the world, the world was shifting to a more polarised society. The GFC did not help the cause. With millions of ordinary people losing their life savings and wealth. Simultaneously, big banks and financial institutions were bailed out without any jail time for many of the financial executives that created the problem. Injustice and economic corruption led to a growing mistrust towards public institutions.
Politically, people became very angry across the world and manifested to resentment.
As shown by Charles Murray’s ‘Coming Apart‘, much of the political discontent had to do with offshoring of manufacturing and the decline of communities in former manufacturing hubs such as Detroit. These states and regions are nicknamed Rustbelt states for a reason. These same white-working class folks lost their jobs and their livelihoods through free trade agreements and offshoring of their jobs into developing countries. The rise of opioid addiction, rising divorce rates, crime, social disintegration, declining social mobility, and educational regression led to an intergenerational downward cycle. J.D. Vance’s ‘Hillbilly Elegy’ does a wonderful job illustrating the extent of the social decay. The richer urban class in states such as California and New York saw their wages increase exponentially with more households and families in these areas getting more educated, while those in the former stronghold manufacturing states such as Michigan, Wisconsin and Pennsylvania failed to see rising incomes. As mentioned by Raghuram Rajan, the premium on College education and demand for skilled work led to growing economic inequality. Social decay and free market prescriptions were a recipe for social disintegration and political discontent.
Globalisation and international economic integration was the correct policy subscription, but the short turn effects were devastating. Although globalisation and free flow of capital and labour led to overall net-positives for the world economy (3.8 billion people in the middle class as of 2018). Economists and policymakers failed to consider these people’s livelihoods. Trade adjustment subsidies and social insurance were insufficient.
Consequently, across the western world, we saw more politicians going against these mainstream orthodoxies. Anti-European Union politicians in the likes of Nigel Farage and Boris Johnson became increasingly popular, meanwhile the US saw the rise of an anti-liberal demagogue in the form of Donald Trump. Simultaneously, left-wing populists such as Bernie Sanders and Jeremy Corbyn shocked the world with their relatively successful campaigns for President and Prime Minister (and UK Labour’s leadership).
In my eyes, a healthy dose of populism is important for liberal democracies. It provides people with the sense that something is fundamentally wrong in society and that policy adjustments were warranted. But, extreme and excess populism can lead to bad consequences as we’ve seen with the rise of Hitler and Soviet Communism post-Great Depression. Economic stability and growth is significant for a stable liberal democratic system. Systems can break down and cause revolutions if it gets out of hand. This is why understanding the root causes of contemporary populism and dealing with the problems raised is crucial. However, I’m yet to see any western politician hoping to resolve the anti-establishment populist sentiment. Nor are economists willing to provide a new approach to this ongoing political economy problem.
Conclusion
“Almost every political question has an economic aspect and almost every economic question has a political aspect”.
Charles P. Kindleberger
As the prominent international political economy scholar Charles Kindleberger states in this quote, economics cannot be separated from politics and vice versa. The rise of mathematical economics and econometrics are crucial to policy evaluation and analyses, but by ignoring economic and political history, we fail to learn our lessons from what really happened. Economics is not just about models – it’s about people’s livelihoods. Humans are not just rational utility maximising robots. We are complex and we cannot rely simply on microeconomic theory, presumptions and calculations as a basis for effective economic policy making.
This opinion piece was to inform readers about understanding and staying skeptical about the economics profession. I have been heavily involved in this field and public policy in the early stages of my career and even though I don’t know much in comparison to many professionals globally, I hope this piece was relatively informative. As Kenneth Rogoff mentioned before, economics should still stay relatively objective and mathematical, but we must not ignore economic history and incorporate other aspects of social science into the equation.
I am a political economy person, and I think more economists should move in this direction.
US President Herbert Hoover once stated, “Blessed are the young, for they shall inherit the national debt.”
Right now, young people have a reason to be concerned. Since Covid-19 arrived 18 months ago, New Zealand’s net public debt has nearly doubled. Government net debt rose from 19% of GDP – Gross Domestic Product – in 2019 to 34% this year.
This is the highest ratio since 1996.
The bulk of debt increase was from the wage subsidies – around $18 billion. Other business support programmes were supplementary. These fiscal responses were intended to enable faster economic recovery.
New Zealanders were seared by the 1984 debt crisis. That experience produced a broad bipartisan consensus in favour of fiscal responsibility rules. Budget surpluses were achieved by the mid-1990s and sustained, albeit with reducing spending discipline, to 2008.
Those surpluses helped New Zealand weather the storms of the 2007-08 GFC and the Christchurch earthquake. But it took seven years of fiscal slog and expenditure restraint to restore fiscal surpluses after the GFC.
Big spending increases from 2017 preceded Covid-19 and now the challenge of turning ongoing fiscal deficits into surpluses has arisen anew.
Are current arrangements up to the task? Not in our opinion. In 2014, the New Zealand Initiative proposed a Parliamentary fiscal council to help Parliament better scrutinise government spending and fiscal prudence.
This was not out of the blue. In 2011, the OECD found that “independent fiscal institutions can buttress a government’s capacity to comply with a numerical rule.” These institutions exist in 28 of the 38 countries in the OECD.
In 2017, the-then opposition parties – Labour and the Greens – endorsed a Fiscal Council of an unclear design. The advent of Covid has stilled work on this, and there are no indications that fiscal discipline and constraint will be the heart of the Government’s priorities.
A global pandemic understandably opens the fiscal taps, but that only heightens the need for a subsequent return to fiscal discipline and accountability. That determination is not yet evident.
To fail to restore discipline in spending quality and current financing is to do future generations a disservice. It is fine for the young to inherit debt backed by assets of equivalent value, but not otherwise. Herbert Hoover’s remark is best seen as a humorous aside that would be irresponsible if put into practice.
This is a good review by Michael Reddell on my co-authored report. As he pointed out, we agree with the Goodhart/Pradhan hypothesis on the demographic implications on the global financial system.
At 11am the New Zealand Initiative released their latest report, by Bryce Wilkinson and Leonard Hong, under the title “Walking the Path to the Next Financial Crisis”. It comes complete with a Foreword from former Reserve Bank chief economist (and former Board chair) Arthur Grimes, under the title “A short walk?”, foretelling doom and repeating his recent attacks on the Reserve Bank’s conduct of monetary policy over the last 20 months, ending with the ominous – and printed in bold – declaration “This time is not different”.
The Initiative was kind enough to send me an embargoed copy yesterday. Perhaps the first thing that rather surprised me – in a document that is really quite critical of both monetary and fiscal policy and aspects of the way the Bank does other things – is that the acknowledgements include thanks to a Reserve Bank MPC member (Bob Buckle) for “valuable feedback…
Content creators are the fastest growing type of small business worldwide. Today, over 50 million people consider themselves ‘influencers’ on social media.
According to YPulse – a youth research organisation in the United States – over 72% of Generation Z wants to become online celebrities.
Nowadays, getting famous on Instagram or TikTok is the ticket to wealth and fame. According to a Harris poll, more kids dream of becoming a YouTuber than an astronaut.
Generation Z kids do not want traditional careers in engineering, medicine, consulting, and teaching. Becoming viral on TikTok through outrageous flamboyance can make you a millionaire. “Don’t need no education, don’t need no thought control”.
Intellectuals, social conservatives and cultural pessimists commonly decry this trend of ‘superficial consumerism’. “Yet another dissolute younger generation in the making”, they sniff.
Yet, pop culture meets a need. No one is forcing the youthful masses to follow ‘influencers’. Following them takes time, and buying the products they endorse swallows money.
This is not new. Teenagers have been buying ‘brands’ for decades. They having been indulging and experimenting in all sorts of things that affront their elders, probably from time immemorial.
So the followers of the influencers must be getting a benefit. In part, it will be a social group thing. I get that.
Moreover, ‘influencing’ must be a competitive and risky business. Entry is free. Anyone can be outrageous and flambuoyant – until the euphoria fades. One tweak that misses its mark could destroy months or years of assiduous cultivating of one’s followers.
Take Daniel LaBelle for example. He started a physical comedy channel on TikTok last year, and now has over 23 million followers. Podcaster Joe Rogan has to entertain 200 million people monthly on Spotify.
Imagine waking up every morning wondering what you can do next to titivate such followers, without blowing everything. Who wants that pressure?
Many influencers will crash and burn, just as pop musicians have for decades.
But pop music endures because it entertains. So far influencers are passing that test.
Leonard Hong 