RICHARD PREBBLE: “Twenty Economists” Letter Not Worth the Paper It’s Written On

“Group of 20 economists urge PM and Minister of Finance to urgently change course,” screamed the headlines.

When I was a finance minister, I remember similar letters — economists demanding a return to central planning and subsidies. Treasury used to roll its eyes. They knew that anyone can call themselves an economist. One prominent media “economist”, not among the latest signatories, never even earned an undergraduate degree in economics.

I used to wish someone would check the qualifications of those demanding that the Prime Minister and Finance Minister meet them simply because they claimed to be economists.

So I have done the homework.

Of the twenty signatories to the latest open letter, only two hold PhDs from internationally ranked economics departments. Another five have PhDs from New Zealand universities, giving us seven in total. Three have doctorates in other fields entirely — health, law, or politics.

That leaves twelve whose main qualifications are in unrelated disciplines. One lists themselves as studying for a PhD in economics.

Then there is the real test of expertise: do other economists cite their work? In the last five years, just one of the twenty has been cited in an international economics journal. Two more have been cited in New Zealand economic journals. Three of the twenty, in total, have research that their peers regard as worth referencing.

Many of the others are cited frequently — by journalists.

If other economists do not regard seventeen of the twenty as worth citing, why should ministers treat their letter as expert advice?

You may well ask: why listen to me?

Under the letter-writers’ own definition, I qualify with flying colours. I gained honours for my dissertation on import licensing. I have been a finance minister and have worked on economic policy for half a century.

Yet I have never claimed to be an economist. I ask that my ideas be judged not on credentials but on their merit.

By that standard, the “Letter of the Twenty” fails. It is a political polemic, not an economic analysis. Any economist should be embarrassed to have signed it.

The letter cites statistics such as unemployment without context. It makes misleading international comparisons. Yes, New Zealand’s unemployment rate is higher than some countries, but it remains lower than Canada or the European Union average. Food prices are up — as they are everywhere — but we are simultaneously enjoying a global dairy boom.

The authors ignore the real causes of our recession: inflation fuelled by $50 billion of money printing, and a reckless borrow-and-spend binge under the previous Labour government.

Some of their claims are plainly wrong. Take “public sector cuts”. The latest Public Service Commission data show that there are more people employed in the public sector today than at the last election.

But the heart of the letter is its extraordinary assertion that “New Zealand does not have an urgent need to reduce public debt and expenditure levels.” That is simply false.

Treasury’s latest fiscal projections show deficits stretching indefinitely into the future. Even after years of so-called “fiscal consolidation”, the books never return to surplus. The government is borrowing just to pay the bills.

Treasury itself warns that expenditure and debt must both be reduced to restore fiscal sustainability. While its short-term forecasts can miss — no one can predict next year’s commodity prices or election-year spending — its long-term projections have proved consistently accurate. Every previous warning of unsustainable spending has been borne out.

When an agency as cautious as the Treasury says the Crown’s operating balance will remain in deficit for the foreseeable future, it is not alarmism — it is arithmetic. New Zealand’s fiscal problem is not cyclical; it is structural.

Unless spending growth is restrained and debt begins to fall, we are headed for permanently higher interest costs and a reduced capacity to fund essential services.

The letter also omits the most important factor shaping our fiscal future — demographics. Treasury’s long-term fiscal statements show that an ageing population and rising health and superannuation costs will drive debt above 50 per cent of GDP within a generation unless policy changes. That is the path that led France into its debt crisis.

The “Twenty Economists” letter is not worth the paper it is written on. It substitutes ideology for analysis and advocacy for arithmetic.

Real economists — and taxpayers — deserve better.

The Honourable Richard Prebble CBE is a former member of the New Zealand Parliament. Initially a member of the Labour Party, he joined the newly formed ACT New Zealand party under Roger Douglas in 1996, becoming its leader from 1996 to 2004.