Remembering Muldoon

I’m old enough to recall Rob Muldoon striding across the 1970’s New Zealand political landscape like an enraged garden gnome, and this week was starkly reminded of how little has changed since he was around.

National is dead keen on more tax cuts, despite the precarious state of the economy, and it seems there are only a few ways that this can be achieved. The alternatives seem to be cutting government spending, increasing other government (i.e. non-income tax) revenue, asset sales, or borrowing.

It’s likely that John Key will attempt a mix of all four, whilst fudging the figures to make it all look affordable. And in truth, any incoming government will have to grapple with striking a balance between a set of relatively unpalatable alternatives.

But the one that scares me the most is the potential for borrowing – largely because I vividly remember the economic hangover that resulted from Muldoon engaging in exactly that approach.

For those who weren’t around at the time, Muldoon reacted to the economic shocks stemming from the 1970’s oil crisis by trying to insulate the New Zealand economy from world events. (OK, that’s an oversimplification, but will serve our purposes here.) One of his long-standing policies was to run large external deficits, which over the 9 years of his reign resulted in a massive external debt and a resulting currency crisis. It arguably took a decade or more – and a benign international economic environment – for the country to recover.

Whether you agree with the actions that Roger Douglas took once he assumed power in 1984, there’s no getting away from the fact that New Zealand was damn near broke, due to Muldoon’s complete mis-reading of the global economic situation. In practically every major economic decision over those long nine years, Muldoon zigged when he should zagged, and persistently made the wrong calls. Arguably he did so because he had the best interests of New Zealanders at heart, but his track record as an economic manager is truly shocking.

And the parallels with John Key are obvious. He’s promising what probably can’t be delivered, and clearly intends to borrow to make good on promises he should never have made. The only redeeming feature I can see is that the current seizures in the international credit markets may make it impossible to fund the kind of overseas debt he’s contemplating.

As the saying goes, history doesn’t repeat, but it sure does rhyme.

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