Editorial: Let's firm up our economic plan

20:28, Nov 02 2012

New Reserve Bank Governor Graeme Wheeler has ruffled some feathers. Good.

Mr Wheeler's job is not to pander to politicians preaching economic gobbledygook. It is to provide a stable environment in which businesses and individuals can invest with confidence.

The way for him to do that, as he outlined in his first speech as governor, is to control what is in his power to control – inflation. Making him responsible for employment and the value of the dollar will not make a jot of difference to either in the long term.

The high exchange rate – which has attracted the attention of the Greens and Labour – is not a consequence of bank policy but of the global financial crisis and the failings of successive governments. The kiwi has risen against the United States dollar, the euro and the British pound, because the value of those currencies has fallen as the US, European and British economies have weakened.

The New Zealand dollar is traditionally over-valued because we do not save enough and our governments spend too much. Overseas borrowing pushes up demand for the dollar.

Printing more money, as Green Party co-leader Russel Norman advocates, will not solve either problem. Nor will broadening the bank's targets as Labour proposes. There is nothing the Government or the bank can do to strengthen the US and European economies, but if the Greens and Labour are serious about assisting exporters there are several things that can be done to bring down the value of the dollar.


Top among them is reining in government expenditure. New Zealand cannot have its cake and eat it too.

If the country continues to spend money before it has earned it, it will continue to be vulnerable to fluctuations in international markets.

In the US and Europe, where the Greens and Labour are looking for inspiration, central banks have gone into the money-printing business. But, as Mr Wheeler notes, doing so is an act of desperation by banks which do not have the luxury of being able to cut interest rates to promote economic activity.

The Reserve Bank still has that option. Further, as Mr Wheeler notes, there is little evidence of "quantitative easing" having any appreciable impact in the US, Europe or Japan.

New Zealand is in the fortunate position of having weathered the global crisis better than most nations, thanks to the strength of the Chinese and Australian economies and the surpluses banked during the economic boom in the early-to-mid 2000s. Desperate measures are not required.

However, the economy would be immeasurably strengthened if politicians had the courage to grasp the nettle. The choice for Mr Norman, Labour and all politicians is simple. They can advocate policies which will equip New Zealand for the future or they can curry favour with voters by pretending superannuation for all at age 65, interest-free student loans and middle class welfare are affordable.

They can't do both. The Greens and Labour should stop pretending the bank can magically make things better with the wave of a wand and advocate for policies that will put the economy on a sounder footing.


Damian Lewis, star hit television drama Homeland, sat next to Barack Obama at a recent state dinner, the US president made a confession.

"While Michelle and the two girls play tennis on Saturday afternoons, I go in the Oval Office, pretend I'm going to work, and then switch on Homeland." The president is not in finding the taut drama compulsive viewing.

Lewis is compelling as Nicholas Brody, a marine sergeant who has returned to the US bearing a dark secret after eight years as a captive of al Qaeda. Claire Danes, his co-star, is extraordinary as Carrie Mathison, an obsessive CIA agent, who tiptoes a fine line between sanity and insanity as she tries to reconcile her attraction to him with her conviction that he has become a terrorist.

Emotions flit across her face like squalls across sea. The plot is fantastic – in the old-fashioned sense of the word.

Viewers are called upon to suspend more than the usual quotient of disbelief. How could a congressman and potential vice-presidential candidate disappear for entire days without anyone but his wife noticing?

But the acting is riveting and the tension – whether it is a chase through the crowded streets of Beirut or a showdown in a CIA dungeon – heart-stopping. In fact, the less the action, the more viewers see happening beneath the surface.

The Dominion Post