Mike Hosking: Adrian Orr's optimistic view is gobsmackingly naive

OPINION:

For the record, I hope Adrian Orr is right.

He painted, on my show last week, all things being considered, a gobsmackingly optimistic view of the economy.

The trouble was, I cannot for the life of me work out how he is going to do what he is trying to do, and this is where I am grateful to Don Brash for wading into the debate.

My view is fairly simple.

I cannot see how 1, inflation has peaked the way he claims it has, 2, how he can get inflation down to between 1 and 3 per cent given, if Grant Robertson is right (which he isn't), the inflation we are fighting is all imported because of China and the war, and 3, how he can get inflation down while at the same time we are expecting pay rises of at least 5 per cent and also growth to be virtually non-existent. Those forecasts, by the way, are to be found in this year's Budget.

Oh and that the Government and its seemingly endless expenditure is, to quote Orr, "small beer" in terms of the overall struggle.

If you follow Orr's logic, what he needs to do is stifle demand. In normal circumstances you do this because growth is getting away a bit, we are spending up large because we are all part of vibrant prosperous businesses and we are part of a rockstar economy and, as a result, it's party time and the wallets are out.

In comes Orr, ups the interest rates in a signal that we need to tone things down a bit.

This time, he's upping the interest rates, but we aren't out spending, the March quarter figures were less than flat, they went backwards.

Every confidence survey out there has the mood as somewhere between dour and miserable, it's an appalling time to buy a large household item, it's an appalling time to buy a household.

House prices are falling, money is hard to get, spending has dropped, mood is down and Orr, by upping interest rates, does what? ... Takes an already depressed setting and stamps on it.

His defence, and he is right, is that everyone has a job and that's good. But for how long?

How many businesses can survive not being able to pass ever-increasing costs on, before they hit a wall of retail resistance? At which point surely some jobs become precarious.

It is also true to suggest that parts of the economy are doing well. Our export returns on meat and dairy and kiwifruit are great, and long may they stay that way.

But once you have stifled if not killed off the expenditure of the downtrodden Kiwi, and you can't help the price of oil or China's obsession with shutting ports through lockdowns, do you not at some point put the economy in danger of what is called a hard landing?

A recession, no growth or less than no growth.

Or worse, a scenario whereby you have hit the interest brakes so hard you still have rising prices, wage increases elevated, but unable to keep up with inflation, against the backdrop of no growth or worse, less than no growth.

Don Brash is sceptical of the Reserve Bank's peak cash rate of 3.9 per cent. Photo / George Novak

Which is where Don Brash comes in. He doesn't believe the Reserve Bank's peak of 3.9 per cent for the cash rate is real, he believes government expenditure isn't small beer, he does think a hard landing is coming.

And what's important about that is only one of them is right, and yet both of them are Reserve Bank governors.

Both see the same numbers, live in the same economy, have the same sort of experience and have made the same sort of decisions.

If Brash is right, and I think he is, what does that say about Orr and his abilities?

Is Orr, given his money programme has been historically large, now playing more of a political role in looking to defend it than he is a banker's role, which is to be fiercely independent?

Is the Robertson budget "small beer"? Because between the two of them, they've got this country in a world of unnecessary pain and they are now a bit stuck working out how to explain the mess as the pain bites.

As I say, I hope Orr is right, because this is bad enough even if he is, but if he isn't, it will be you and me paying the price and wondering why he couldn't see what Brash does.