New Zealand Comes Back From A Greece-Like Death Spiral

   In a democratic state, every man is equal to every other man up to the point of exertion.The Human Comedy

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

      Wherein we see that even the worst case can be saved. The progressivist race to death is not irreversible. Bad news for government workers, but there is every sign that government workers and friends of the government will continue to benefit until the Greek-like collapse.

How Economies Can Rise from the Ashes: The Kiwi Plan

Yes< You Can Save Democracy from itself
Bill Frezza

The signs of floundering entitlement democracies are everywhere these days — from poster child Greece to bankrupt Puerto Rico.

Runaway deficit spending, calamitous monetary policies, bloated public employee payrolls, incentive-killing welfare programs, confiscatory taxation, unfunded entitlements, dishonest government accounting, corporate cronyism, and job-killing regulations have mired most Western democracies in such a deep quagmire of voters’ own making that one despairs of finding a cure.


   This is just what libertarians have been warning about for centuries. When the state becomes the solution to all problems, the state becomes the problem.

And yet, a cure has not only been found but has already been put into practice with great effect, offering practical lessons for any reformist who cares to look. New Zealand today stands as a beacon of freedom and prosperity, ranking number three in the Legatum Prosperity Index.

It wasn’t always so. In fact, few know the story of how that country transformed itself from a socialist basket case into one of the world’s most prosperous nations.


   The government in New Zealand used to take a hand in many bizarre ways. Dairy farming, which has near-mystical status in some countries, was a case in point. In keeping with the control of everything philosophy, a New Zealand government agency decided how much whole milk should be sold. If the dairies produced more, the agency, rather than dumping the milk (that would be silly, right?), made it into skim milk powder which was then sold cheaply. Dairy farmers found it was economical to feed this skim milk powder to their dairy cows. Hmm.

That story is updated and retold, with practical advice for activists, in my new monograph published by the Antigua Forum, New Zealand’s Far-Reaching Reforms: A Case Study on How to Save Democracy from Itself.

Two prime movers stand out, finance ministers from opposing political parties who made common cause to rescue the country they loved: Sir Roger Douglas and Ruth Richardson. It was a privilege to interview these elder statesmen in depth, capturing their remembrances, recording their advice, and putting it all in the context of the voluminous legislation they championed together.

The story of how they defied their own party leaders and convinced voters to endorse a radical overhaul of New Zealand’s body politic stands as perhaps history’s greatest national transformation that didn’t first involve a country being bombed into rubble. Like life-saving surgery, it involved nothing less than cutting out the parts of democracy that had grown cancerous in order to save the whole.

Predictions that voters would rebel when special privileges, subsidies, and entitlements were taken away were all proven wrong.

What Douglas, Richardson, and their allies bequeathed us was a virtual how-to recipe for saving a government that had, as Margaret Thatcher so aptly put it, “run out of other people’s money.” Their accomplishments are too many to list in depth, but here is a brief rundown. While it took years of hard work, at the end of the day, they

    privatized most state-owned enterprises, allowing competition to both stop the fiscal bleeding and raise the level of service
    ended phony accounting practices designed to hide the truth from voters by shifting reporting of government finances to GAAP standards used in private industry
    opened the government’s books, publishing monthly departmental income statements and balance sheets for all to see
    repealed protective tariffs and eliminated farm subsidies, ushering in an era of free trade and a boom in agricultural productivity and export prowess
    put the civil service bureaucracy on pay-for-performance contracts, while giving career administrators a free hand in hiring, firing, compensation, and outsourcing
    halved top marginal income tax rates from 66 percent to 33 percent, while eliminating capital gains and estate taxes and shifting to a growth-friendly consumption tax regime
    eliminated foreign exchange controls, allowing the New Zealand dollar — popularly known as the “kiwi” — to float
    put the central bank under contract with the finance minister to deliver a published, targeted level of inflation
    gave every employer and employee the right of free contract by eliminating forced-unionization labor laws and industry-wide multiemployer contracts
    broke the public-education monopoly by shifting to an all-charter school system that allows any child to attend any school, determined only by parental choice

These changes took a decade to enact across the 1980s and early ’90s, a decade of political upheaval that nonetheless delivered results that have stood the test of time.

Most remarkably, predictions that voters would rebel when special privileges, subsidies, and entitlements were taken away were all proven wrong when New Zealanders were presented with a coherent plan boldly executed by competent leaders. The study reveals the precise political tactics used to overcome the fierce opposition from entrenched special interests.

The results remain clear for all to see. GDP increased fourfold, while the government debt-to-GDP ratio dropped to 30 percent (despite a short-term debt spike in the aftermath of the 2007–08 global recession).

Today, New Zealand operates under a system described as being designed by Hayekians, run by pragmatists, and populated by socialists. But because the rules of the game were permanently changed, there has been little backsliding to the electoral malaise described by H.L. Mencken as “a sort of advance auction sale of stolen goods.”

In fact, thanks to the fiscal transparency brought about by GAAP accounting and open books, most elections since the mid-1990s have seen the unusual — and pleasing — spectacle of both parties trying to outdo each other over who will be more fiscally responsible.


   If only that could be transferred to other countries.

There is no reason why the same remedies couldn’t be applied across the bankrupt southern zone of the European Union, or even in the United States. All it takes is the will to make it happen, the courage to stand up to politicians and cronies devoted to protecting the status quo, and a little


  Will the shackles of government be struck? Will the standard of living start to rise again? Will the government shrink?

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.
Cui Bono–Cherchez les Contingencies


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