Politicians sometimes, as Hillary Clinton once put it, “mis-speak”,
and in doing so, can often reveal more than they intend.
A case in
point was John Key’s surprising statement on TV One’s Breakfast on 13 February to the effect that “any
tax sucks money out of the economy. There’s a limited amount of money in the economy.
So when you put up a new tax, or you tax people more, then it sucks that money out.”
The Prime Minister would presumably admit, on reflection, that no one claiming to
understand the economy would stand by that statement. But, like so many “mis-speakings”,
it provides us with an insight into how the speaker really thinks – in this case, about economic issues.
Let us put to one side the dubious assertion that “there’s a limited amount
of money in the economy”; the money supply is never a fixed amount and varies greatly according to its price (the whole
basis of using interest rates to control inflation) and varies even more according to the banks’ lending policies which
are responsible for creating by far the greater part of the money in our economy.
really interesting part, though, of John Key’s brief foray into economic theory is his apparent belief that money raised
through taxation, and then spent on public purposes of various kinds, is somehow no longer part of, or of any value to, the
If it is “sucked out” of the economy, where does he think
it goes to – into the stratosphere? And does he think that all those schools and hospitals, all
those police and servicemen, all those roads and railways, all of those elements that are critical to our living
standards and that are paid for out of taxation, are of no economic value?
The question is not a fanciful one, as we await a much-heralded speech from the Prime Minister in which
it is expected that he will announce yet more cuts to the public sector and in the number of public service jobs.
At a time when domestic demand is at best flat for a fifth year in a row, and
export receipts are constantly (and literally) decimated by an overvalued currency, the economy surely needs stimulus
rather than further enforced contraction. We should be looking to the government to lift its level
of activity – through investment, for example, in education, skills, research and infrastructure - rather than
to cut it further.
A government that was serious about recovery
from recession would not treat the reduction of its deficit as its most pressing priority. But
if John Key really does believe that tax revenue and what government can do with it are of no value, then we can
perhaps begin to understand why his government has adopted the priorities it has.
there are wider issues still. The notion that the only economy that matters is the private sector, and
that government is always a drag on that economy rather than a partner and supporter, is peculiar to that form of Anglo-American
capitalism that is now having to struggle with its demonstrable failures.
remember an occasion in the 1980s when a delegation of British parliamentarians met the leaders of French industry.
The British MPs were surprised at the willingness of the French business leaders to work with their government.
The French were equally surprised that the British found this unusual. “Mais,” they
said, as if the British were mad, “c’est pour la France!”
the US and the UK, though, (and, if we are not careful, in New Zealand as well), it is an article of faith that the best
thing the government can do for business is to “get off our backs.”
In other, more successful economies, however, there is a different view – and historically, it has
always been true that economic development is best achieved when the government takes a major role in supporting
and enabling economic activity.
That has been true of the first countries
to industrialise, in Britain, then Europe and the US, where the laws made by government to protect property and
contractual rights, the limited liability company, and insurance have been essential components, and even more true
of the more recently developing economies in Asia – China especially, where government remains the main economic
driver, but also Japan, Korea, Singapore, India and many others.
the US, despite the ideological reluctance to acknowledge the role of government, the military-private sector defence
industry complex has been a powerful underpinning of the economy.
We are entitled
to expect our government and industry leaders to understand the value of following successful examples, rather than
their own ideological prejudices. If government continues to treat its role as – to quote
Ronald Reagan - part of the problem, rather than part of the solution, we will continue to render redundant and ineffectual
an important and productive part of our economy and fail to utilise the full range of our productive potential.
When the Prime Minister makes his speech in a couple of weeks, let’s remember
that “mis-speaking” can be forgiven. “Mis-acting” cannot.
Bryan Gould 19 February 2012