Illusions of History: How misunderstanding the past jeopardises our future

Dr Bryce Wilkinson
Insights Newsletter
24 September, 2021

Who thinks that the current Labour government should seek to emulate the “great traditions” of the 1935 Labour government?

At least one person thinks it should, and his opinion counts. He is our Minister of Finance.

In his Budget Speech last year, Grant Robertson saw a rare opportunity to “hit the reset button” for New Zealanders. Labour was making decisions that “will define the lives and livelihoods of many people for years to come”.

Those who would prefer to define their own lives and livelihoods should take heed.

Robertson applauded the 1935 government’s big increases in capital and welfare spending. However, he did not acknowledge that its policies led to a major overseas funding crisis in 1938. (In the three years to March 1936 it had increased real per capita current spending by 40% and public works spending by 225%, with further big increases underway.)

For emphasis, he pilloried the policies of the Fourth Labour Government (1984-1990) and the Fourth National Government (1990-1999). These policies successfully extricated New Zealand from a foreign exchange crisis. He did not acknowledge that either. Instead, he asserted they caused economic carnage”, “wreaking havoc in our communities” and were based on a “tired set of ideas”.

This week we released my report Illusions of History. It exposes the illusions in these interpretations and the dangers in the indicated direction. Economic historian, Professor Gary Hawke wrote the foreword.

A strong economic recovery was underway before the First Labour Government was elected in November 1935. Higher incomes bolstered tax revenues. The government’s spending plans came to exceed its capacity to borrow.

It hid the developing crisis from the public during the October 1938 general election. Two months later, it imposed draconian foreign exchange controls as a last-ditch measure. In 1939, then Finance Minister Walter Nash spent two humiliating months in London trying to avoid default.

In the event, imminent war with Germany impelled the UK government to twist financiers’ arms to help him. Soon, comprehensive war-time measures buried the issue of why strict peace-time foreign exchange controls were necessary.

The report points out the parallels with the policies that preceded New Zealand’s 1984 foreign exchange crisis. It also rebuts six myths about the post-1984 policies.

By diminishing the governments that fixed the 1984 crisis, Robertson seeks to justify a return to a bigger and more intrusive and directive government. He does so at our collective peril.

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