Lies, damned lies, and statistics

John KeyMr Key, you’re bending the truth

Last night, in a party political broadcast during the TV news, Prime Minister John Key looked us all in the eye and said that the National-led government will double exports by 2025. Can one lie about something that hasn’t happened yet? That statement was a valiant attempt. Even more blatantly misleading than the abandoned policy of “Catching up with Australia”.

The doubling of exports by 2025 has been National policy for some time and so far it is totally off track. Mr Key’s servants in Treasury and some fairly basic arithmetic blow his grossly misleading claims out of the sky.

Yesterday, in the Sunday Star Times, economic commentator Rod Oram (hardly a bastion of left-wing idealism) had this to say about current fiscal and economic policies:

…It is missing by miles its two key goals. Its first is to double exports by 2025. That requires exports to grow by between 5.5% and 7.5% a year. But Treasury forecast they will grow by 1.6% a year 2014-2018, even though our trading partners are growing by more than 4% a year…

I suspect that Rod is being overly kind. My loyal readers (both of us) who have heeded my rantings about the economic nonsense of perpetual growth in a finite universe will recall an easy way to work out doubling times for a given growth rate:

It’s called the rule of 70

To estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly used with an annual compound interest rate to quickly determine how long it would take to double your money.

In this case divide 70 by 11 (years until 2025). You get 6.36%.

It’s all total nonsense

For years, National have been making growth predictions based on Treasury forecasts. Almost invariably, those forecasts have been hopelessly optimistic and the rosy outlook has had to be diluted. In order to make National’s fantasy world a reality, we’d have to have growth of about 10% per annum from 2019 until 2025.

Global growth is probably not going to recover to any significant degree under current developed world economic and energy policies. Every time international growth picks up, fossil fuel prices rise and put the brakes on. China’s economy is precarious, and by extension, so is Australia’s. As the biggest oil-fields dry up, and the false dawn of fracked wells fizzles out, that problem is likely to continue indefinitely.

So is it hopeless?

No.

We can get back on a modest growth path by adapting to new technologies. Just as we did 100 years ago when we were the richest nation on the planet. Eventually, we’ll all have to adapt to a near zero growth economy, but that will require a new economic system in which banks can’t create money out of thin air and then enslave the rest of us with inflation-building interest on money they didn’t earn.

If you have a spare half hour read my series of articles on New Zealand’s economic decline and what we (or any other economy) need to address if we wish to maintain our relative prosperity.