The visible hand in economics

How could the first half of the year only be a 0.5% decline in GDP?

Posted on: October 4, 2008

That is the topic of my Dom Post article this week.

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2 Responses to "How could the first half of the year only be a 0.5% decline in GDP?"

Going back a few decades we would have been producing just as much from commodities with a smaller population. In addition we would have had on average more space around us (1/4 acre), but not the flash cars. ?.

“Going back a few decades we would have been producing just as much from commodities with a smaller population. In addition we would have had on average more space around us (1/4 acre), but not the flash cars. ?.”

Hi John,

I’m not sure if we would have been producing as many commodities, and I’m not sure if the “production of commodities” is the only thing we should aim for on the production side – if that was the case we would probably want to shrink our population.

I agree with you that property would have been cheaper and cars, TV’s, washing machines, shoes, and clothes would have been more expensive if we still had our economy closed off. However, I think the benefit we have received from buying things that other countries have a comparative advantage with has been worth it.

Now, the case of housing is a special case – as it is not only a product but an asset. I believe your concern stems from people overseas buying houses as an asset however there are a couple of things I would like to keep in mind here:

1) If they buy houses as an asset here we can use the funds we sold the houses for to buy our own assets overseas,
2) If they solely buy the asset for investment value (eg do not live in the house) they will rent it to someone as a consumption good – so people still get the consumption value associated with the property
3) If they do live in the house then they are “part of New Zealand”, so if our goal was to maximise the satisfaction of people here this would still do it.

Now, the “consumption value” of property is counted as part of a consumers bundle of goods – so the change in prices, and therefore our change in real income, does take into account the change in the consumption value of property once they have been sold off. Since opening up our borders our real incomes have risen markedly.

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