As the parent of a teenager, with teenage friends and acquaintances, you will understand when I say that sometimes I despair as to the future of the human race. But then I read what passes as economic commentary in some quarters and realise that my despair need not be limited to the observations of teenage behaviour. Let me provide some illustrative examples.

There continues to be regular pronouncements as to the health of the housing market. Further, the recent enthusiasm of some commentary implies that a housing market upturn (which is really code for “an increase in the price of one’s house”) is a prerequisite for an end to our economic malaise. Nothing could be further from the truth.

Given that living and behaving on the basis of on-going increases in house prices is what got us into this mess, it would seem a bit scary that some of us are still hoping for a return to such conditions. In short, another house price-fuelled spending binge would be the worst-case scenario for the New Zealand economy. It would indeed be a scary, if not reckless, repetition of past mistakes.

House prices are not critical indicators of business prospects, or of a prosperous job-rich and income-rich economy. So let’s stop highlighting house prices and real estate sales indicators as if they are primary barometers of economic recovery. Might it not be better for our leaders, officials and commentators to enlighten the populace that we need to shift from a country fixated on financial markets and house prices, to one focussed on creating wealth via establishing and maintaining competitive export-oriented business enterprises.

Another example would be the recent restatement of the OECD’s oft-repeated prescription of selling state-owned assets to re-balance the Government’s fiscal position. We have done this before, and the much-promised productivity improvements arising from private sector ownership have been conspicuous by their absence. Meanwhile we are left with the legacy of many of our infrastructure assets in varying degrees of disrepair, sacrificed on the altar of the textbook of free market enterprise.

Similarly, calls by some for across the board, cavalier, razor-gang type cuts to government spending bear an eerie resemblance to those of the 1990 era. If memory serves me well, this experience resulted in increased government deficits, as tax revenues dived and welfare payments soared, in the face of growing joblessness and economic enterprise struggling on life support.

Another example is the reporting of the latest CPI inflation figures. There has been a focus on the higher than average rise in food prices, with the implication that inflation fighting needs to be ever vigilant. Yes, this may be true. But why, oh why, have the reports not equally noted that there were some prices that rose at less than the average inflation rate? Actually, a rudimentary grasp of School Certificate arithmetic (okay, NCEA level 1 mathematics) would tell you that there will, by definition, always be some prices that rise at a faster pace than the average, and that some will rise slower than the average. That is the very nature of an ‘average’ figure.

The search for the ever present inflation threat foreshadows a continuation of the mistakes of the past 20 years. Inflation is indeed cancerous to an economy. But I wouldn’t consider it a successful outcome if, in curing the cancer, the patient becomes permanently disabled.

Common to these examples is the flaw of viewing economic problems in isolation. Invariably, without a wide context problems can have quick and easy solutions. It is the consequences of these quick and easy (and, usually, textbook) solutions that sometimes cause more damage than the original problem.

In the New Zealand economic scene, the export sector usually bears the brunt of the collateral damage, as the exchange rate fluctuates widely in response to these quick and easy, but dubious, solutions. The export sector should be nurtured as the engine of advancing prosperity and its considerations should be paramount in our search for solutions.

So let us not repeat past mistakes and continue to look for quick and easy solutions. The likelihood of repeating the mistakes of the past should, rightly, haunt us. To err may well be human. But, to not learn from past errors is just plain unprintable. And it also adds to my sense of despair.

One solution that would help, rather than hinder, the export sector would be a managed exchange rate. This is neither quick nor easy. My critics say we can’t fix the exchange rate. But read carefully. I wrote ‘managed’ not ‘fixed’. There is a difference. And no I am not repeating the mistakes of the past, because I am definitely not suggesting ‘propping up an uncompetitive exchange rate’. I suggest parts of the Singapore exchange rate regime as a useful starting point, but the detail must await another column.

 - This article was first printed in the May/June 2009 issue of INBusiness