The lucky country

New Zealand beats itself up a fair bit over its failure to keep up with Australia.

But we're not alone in it. Possum Comitatus over at Pollytics makes the case for Australian exceptionalism.

So let us take a hard look at our economic reality.

Over the medium term, our broader economic performance has been nothing short of astonishing. Before the resources boom was even a twinkle in the eye of Chinese poverty alleviation, our performance was world beating – that is worth keeping in your thought orbit. Big Dirt has a bad habit of propagandising about their own contributions and the Australian public has a bad habit of believing them when it comes to our own national development of late.

He does a great job showing just how well Australia has been performing. But, I don't think he demonstrates that it isn't largely the resource price boom. Showing growth figures pinned at a 1985 start date, when iron ore was going for $11.50 per metric ton (now $150, both figures nominal), and when the commodity metals price index that normalized to 100 in 2005 was at 50 (now 200) - I'm going to need some convincing that Australia's success is mostly due to policy rather than due to a massive resource boom feeding Chinese growth. As best I understand things, resource royalties accrue to state budgets; this site notes resource royalties in Queensland increased, in nominal terms, from $192 per capita in 2002/03 to $700 per capita in 2010/11. I'd love some numbers on the time path of resource royalties as percentage of all-level government revenues over the last twenty-five years.

Possum lauds Australian policy, which combined a slow push to market liberalization with maintenance of a pretty rigid labour market apparatus with high minimum wages (though a set of minimum wages which vary a lot by industry and by worker's experience). I'm pretty unconvinced that Australian success was underpinned by high minimum wages; the resource boom plus liberalization elsewhere more likely allowed it to happen despite labour market rigidities. I suppose some future resource price crash might provide information.

In the meantime, New Zealand can beat itself up a bit less over failures to keep up with Oz. Nobody's keeping up with Oz. We can do better, but even if we adopted the 2025 Taskforce recommendations in toto and they were effective, I'd be really surprised if it led to our catching Oz. That's not an argument against improving policy but rather for having realistic expectations.