High profile US Economist Paul Krugman has written a New York Times article in which he shows in one graph the incredible resilience and performance of the American Economy. The dark blue line below tracks the pre-pandemic long-run trend in Real GDP. Meanwhile the orange line is actual real GDP. Krugman remarks that now, in the post-pandemic years, actual GDP is tracking significantly above its forecast pre-pandemic trend. As far as US GDP is concerned, America is fully back to business - as if the pandemic never happened:
I've re-produced a graph that can be used to compare the US experience to NZ's. It comes from our Treasury's Half-Yearly Economic & Fiscal Update that was released yesterday. The red-line is the pre-pandemic long-run trend in Real GDP. Meanwhile the light blue line is actual Real GDP, and the black line is actual Real GDP per capita. On a both Real GDP and GDP per capita basis, our actual performance is now 7% lower than where NZ was expected to be, before the pandemic. Treasury forecast we will keep underperforming at that level for the foreseeable future. To put numbers on these amounts, we're talking $28 billion per year in lost output. Should it go on indefinitely, it will add up to a $560 billion total loss (=28/0.05, with a 5% discount rate used). In terms of personal incomes, we're losing $4,000 per year, compared to where we should be tracking. The bottom has fallen out of NZ's economy.
So what happened? Labour Leader Hipkins destroyed it with his never ending lockdowns - he sapped our energy - took away the mojo of a generation of young Kiwis who grew up spending those years on devices. He stole the excitement of a nation. Converting the $560 billion into human lives, it equates to around 45,000. Yes, the short-term saving of lives that Hipkins touts is outweighed by a potential long-term loss of 45,000, which puts us as one of the worst performers in terms of lives loss as a consequence of Covid. Why do you think Dunedin is struggling to get its hospital? Hipkins took the money. He should get out of politics & take his wrecking ball somewhere else, just like his sister, Ardern. The above two graphs make him unelectable. Meanwhile new Finance Minister Willis' "prudent", old-school, conservative, steady-as-she-goes, Bill English approach isn't cutting the mustard to get things back on track. She's desperate not to be labelled a Ruth Richardson-austerity-Finance Minister. Who cares? Her sluggishness is insufficient to turn things round. Whatever the politics, these graphs startlingly reveal that this ain't no business cycle. The Big Bank economists have got it wrong describing it as such. No, this is "secular stagnation". Thanks Paul Krugman, for pointing it out.