Gareth Morgan, Director of Gareth Morgan Investments
In providing forceful forecasts of where the economy is likely to lurch economists with only one hand run the risk of being gunned down by people who are irked by hearing views that alarm them. We have been attacked on numerous occasions for passing comments that were regarded as giving too negative a view of the economy. Like all forecasting there is room for error. Unfortunately for those wishing to brand us as irresponsible doomcasters, we have too often been proven overly optimistic about our economic performance and indeed the sort of policy likely to be implemented. For instance our forecast of the likely new superannuation scheme startled many by its vigour but the scheme announced in the Budget was several degrees more draconian.
Recently we have made some comments about the decline in house prices. About two years ago we set out arguments that suggested that owning a house wasn’t a smart idea in the forthcoming low inflation environment. Some people close to the industry pooh poohed the arguments set out. It’s no surprise that our most vehement critics were those closest to the housing market. Shattering the faith comes hardest to those most deeply imbued with it. But it was another case of a message being eschewed because it was bad. Real estate people continue to take this buried-head approach to the new economic environment and seek to persuade the public against accepting anything but the traditional view.
It’s not so much that the economic news has been predominantly bad, it is more a case of analysts being able to be more honest about the economy given greater political reality with respect to the many serious problems facing the economy. This honesty often emerges as a railing against our economic performance and points to painful structural changes in the way things work. Nobody wants to hear this, and many accuse those who comment on these issues as undermining confidence. The truth is, it undermines some people’s vision of how they would like to have the world and their discomfort is taken out by labelling the comments as a bad news conspiracy. Though we have been indicted by one journalist recently with maliciously spreading good news. Funnily enough those commentators who disagree strongly with the current policy path are inclined to be more prodigious purveyors of bad news than those who attempt to impartially interpret economic policy.
Trying to persuade people that it is all sweetness and light out there is hard on one’s credibility. Ruth Richardson is a mistress of the good news anecdote. Recent GDP figures show the economy was in steep decline over the first half of the year. Miss Richardson regards this as old news – it is neither good nor bad news just out of date. Falling interest rates are good news and confirm that economic recovery is on the way. A more honest interpretation is that they’re down because the economy is in contraction.