Can the U.S. Economy Survive the Republicans' Definition of Success?

Written by Dean Baker   
Sunday, 27 March 2011 13:29

That's what millions are asking after the Republican staff of the Joint Economic Committee (JEC) put out a paper outlining their strategy for achieving economic prosperity by cutting government spending and laying off workers. The central claim in the paper, that cutting spending even in the middle of a downturn will lead to growth, is contradicted by a careful analysis of this topic that the IMF published last fall. But maybe the problem is more basic than a disagreement on economic research and a reading of data. It seems that the problem might stem from the meaning of the word "success."

Readers of the JEC report will see that New Zealand in the years since 1986 is highlighted as one of the success stories. The Republicans tell us that if we make the same sort of harsh cuts in domestic spending as New Zealand and have the government take comparable steps to weaken the power of labor unions then we can look forward to the same sort of economic progress as New Zealand.

This should have people really worried. If we go the OECD and look up New Zealand's growth in real per capita income since 1986 we find that it came in third from last, beating out only Switzerland and Iceland. According to the OECD data, real per capita income in New Zealand grew by a total of 18.9 percent in the 22 years from 1986 to 2008.



Source: OECD and Bureau of Economic Analysis.


This is less than 40 percent of per capita income growth in the United States over this period. Do the Republicans really wish that we had followed New Zealand's path back in the mid 80s so that we could be 20 percent poorer today? 

We were not the only ones who outpaced New Zealand's "success" story. Germany and France both had almost two and half times as much income growth as New Zealand. Those flaky Scandinavian types in Denmark and Sweden also had more than twice as much income growth as New Zealand over this period. If we think there is a regional aspect to New Zealand's slow growth it does not appear to have infected Australia, which also had more than two and half times the income growth as the Republican role model.

In fact, even depression wracked Japan had more than two and half times the income growth as New Zealand over this period. Japan has certainly had its problems over the last quarter century, but they don't seem to have damaged its economy to the point where it performed worse than New Zealand's by this basic measure of economic progress.

Clearly the Republicans have some other measure of success than the ones that economists usually apply. New Zealand's economy did grow slowly but there was also a large increase in inequality and a serious weakening of the rights of workers. Perhaps that is what they see as the country's success since 1986.