I had the misfortune recently to lunch with an economist. Economists are generally despondent about government stupidity, ineptitude and profligacy. But this chap was in utter misery.
He arrived at our gloomy lunch straight after interviewing a leading politician about public policy. The interview went something like this:
Economist: So, the 2017 election was about spending the fiscal surplus. Job done. Only deficits in sight now. What is 2020 about?
Politician: It’s about “put it on the tab” spending. We were watching Donald Trump explain his road to success – OPM – spending Other People’s Money. He’s wrong about nearly everything, but not that. We can’t trump OPM.
Economist: But how are you going to pay it back?
Politician: Silly boy. We won’t pay it back. You or your children will. But not while we are in office. Keep spending and voting for us in the meantime.
Economist: But who will keep lending to us at such low interest rates?
Politician: You! Along with everyone else with a bank account. The government outspends its revenue by a $1 billion each week. The extra goes into people’s bank accounts electronically. The banks get the $1b and deposit it with the Reserve Bank. The Reserve Bank pays the banks a lousy rate of return on the deposit, so your bank pays you a lousy return on your deposit. It’s all good.
Economist: Wait a minute. You left something out. Why are people buying stock in government bond tenders at such lousy yields?
Politician: For heaven’s sake. Don’t you economists understand anything? The buyers of the billion-dollar bonds expect the RBNZ to take them off their hands in short order for, say, $1.05b.
Economist: But won’t the RBNZ lose more money when interest rates go back up?
Politician: Absolutely not. The government has indemnified it. Only the taxpayers will lose money. Think of the Reserve Bank as an inexhaustible ATM.
Economist: Does the quality of all this government spending matter?
Politician: Of course not. We have shovel ready projects to dig holes and fill them up again. It’s all about jobs. We must subsidise spending just like we must subsidise KiwiSaver.
Economist: Why not give them spoons instead of shovels then? To hell with it, I need a stiff drink.
Politician: Good idea; keep at it until after polling day.