Liam Dann: GDP is great but how good is the economy really?

Finance spokesman Grant Robertson talks during the opening of the China Construction bank branch in Auckland. Photo / Greg Bowker

How good is this economy really?

It has been one of the fundamental questions in New Zealand politics for the past few years.

On the one hand we have a good GDP growth stats, low unemployment and solid crown accounts.

On the other hand we see evidence of rising inequality, homelessness and poor mental health statistics.

The previous Government stuck to its mantra of economic success to the extent that it failed to acknowledge a housing crisis or growing child poverty.

One of the smartest moves the Labour opposition made before the election – other than switching to a charismatic leader – was to stop arguing that the economy itself was in bad shape, as finance spokesman Grant Robertson realised arguing about the finances looked naive against a narrative of Government surpluses and GDP growth.

Picking up on a new wave of post-GFC economic thinking, Robertson recognised it was more useful to acknowledge the strength of classic macro-economic data but to question its relevance in a society where poverty and inequality appeared to be getting worse.

That shift has successfully put the Government right on trend. Even the International Monetary Fund now argues the stronger global economy should be viewed as an opportunity to address structural issues around poverty and inequality.

But I don't think we should give up on GDP as one of the big important numbers in economics.

I spent the last week wading through New Zealand's historic GDP data to get a sense of how this era rates against other post-war booms.

Of course it gets nowhere near New Zealand's golden age in the 1950s and 1960s – 54 quarters of growth for an 86 per cent increase in real GDP.

The era currently (based on the latest available numbers to September 2017) sits at third equal by duration (34 quarters) and but just sixth for total GDP growth in that time (25.7 per cent).

In other words the data does match with anecdotal evidence that this expansion phase feels less like a boom than others.

But the good news is it isn't over yet. If we don't see a global meltdown in the next few months forecasts suggest this era will soon rank as second-longest period of growth and fourth strongest.

We're catching up on the length of the pre-GFC boom (1998-2007) although some way short of the pace of growth in that era (41 per cent).

Still, there is something to be said for long periods of stability.

In the real world of ordinary lives – graduations, first jobs, weddings and mortgages – stable growth allows time for us to make plans and take some control of our economic destiny.

When you look at the ups and downs of the New Zealand economy relative to real lives, its clear there is an element of luck involved.

I came of age into New Zealand's worst economic downturn since the great depression. I left school and graduated from university during an almost continuous recessionary period from 1988-92.

Unemployment was very high, so despite having a degree I faced periods of unemployment and actually got my start in journalism on a Task Force Green social welfare programme.

I had to leave my hometown and work in small town community newspapers until jobs came up on city papers.

The slow start to my career will have a sizable impact on my retirement savings and total wealth.

On the flip side, two of New Zealand's strongest growth periods (1998-2007 and current era) coincided with my starting a family, buying a house and my career progression towards senior roles.

A few years older and I might have seen my savings smashed by the GFC – or had money in finance companies.

As it stands this era of low interest rates couldn't have been better timed for me and my mortgage.

A few years younger and I might have been locked out of the housing market.

My point is that despite all the structural change and social issues facing economics there is still meaning to be found in the historic arc of economic data.

The data we use to write the history is not in itself flawed.

But if we uncritically accept New Zealanders are all doing fine because GDP growth is steady, the emphasis we are putting on the data is flawed.

We need to view positive GDP growth in a contemporary context – a time of high immigration, low inflation and low interest rates.

We should look at unemployment stats in the context of structural change for the job market – rising numbers of part-time and contract workers.

But I remain skeptical of efforts to broaden the analytical scope of the Reserve Bank and Treasury.

Wellness and happiness measures are important – particularly where they reflect real data on child poverty, youth suicide rates and so on – but they are outside a pure economic brief.

A growing economy ensures a stable platform, enabling governments and social agencies time and resource to deal with these issues.

In good times there's a risk we start to take GDP data for granted - its failings appear more obvious in light of a world that remains far from perfect.

But anyone who has lived through a major recession will remember how a contracting economy removes choices - and why it is so important to keep that data in positive territory.