You can't tell an economy what to do

Last updated 09:30 15/11/2012

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An economy is much more of a living system than most people realise. Most people are accustomed to dealing with very small-scale economies such as a household budget, or that of a company, where you have a predefined structure which you are working within and you have control over how and where money goes in and out.

But when you combine thousands of small economies to get a national or global economy, there is no longer anyone in direct control - it becomes a living organism which responds to stimuli. An economy can be nudged by practices such as adjusting the OCR and instituting policies, but no one can instruct an economy specifically. Instead, we try to create conditions that cause an economy to move the way we'd like.

New Zealanders have a terrible expectation that the government has a responsibility to "fix everything", and we see it all the time. An article on low-income families will draw comments stating that the government "should do something about it", and be echoed with comments deriding whichever prime minister happens to be elected at the time, as if they are personally responsible for every citizen's wellbeing. The economy is no different here, and the popular opinion among Kiwis will certainly be that it is solely the government's responsibility to "fix the economy".

The truth is that while the government can guide the economy through dark times, it can no more "control" it than you can "control" your own runny nose when you have a cold. Sure, medicine and rest (read: fiscal policy and initiatives) can help make the ride less miserable and end sooner, but it's the collective actions of the people, influenced by policy and actions, that determine the outcome.

So, don't look to the government to "fix" the economy - it's not "broken", it's just not as good as it had been previously.

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