Analysis by Keith Rankin, 16 December 2025
RNZ news item, 12pm 9 Dec 2025: “Finance Minister Nicola Willis has challenged one of her predecessors Ruth Richardson to debate her on how to best manage the country’s finances. Our political reporter Anneke Smith has more: ‘The taxpayers union is poised to launch a pressure campaign targeting Nicola Willis in a campaign to convince the finance minister to cut spending and reduce debt. Ms Willis says it’s clear the campaign is being driven by Ms Richardson, chair of the Taxpayers Union; and she has a clear message for her, “Come and debate me face to face, come out of the shadows, I will argue toe for toe on the prescription that our government is following. I reject your approach, and instead of lurking in the shadows with secretly-funded ads in the paper, come and debate me right here in Parliament.” Ruth Richardson says that the Taxpayers Union is simply doing its job by challenging the government to address its finances. “We are seeking to hold the feet of the Minister of Finance to this fiscal fire. Her Treasury are shouting ‘Fire! Fire! we have a structural deficit, this cannot go on, it needs to be addressed.” Ms Richardson laughed when RNZ asked her if she would debate Ms Willis, saying it was up to the Minister of Finance to front government decisions.'”
The narratives on the classical right and the fuzzy right
Where are the libertarian right and the fuzzy right coming from? There must be more to their visions than ‘balancing the books’; in Victorian times, families might balance their books by selling their children.
What are the narratives which these actors are speaking to? Who are the defunct economists whose ideas are driving them? There are actually three narratives of the liberal conservative right. Present Minister of Finance Nicola Willis represents the fuzzy fudgy right. Ruth Richardson represents one purist branch of the classical right; the other is represented by former United Kingdom Prime Minister Liz Truss.
Note this oft-quoted (and, here, slightly massaged) passage from John Maynard Keynes’ General Theory (published 1936): Practical [wo]men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Keynes used the word ‘practical’ with irony. One intellectual ancestor who Ms Richardson may not be aware of was the prolific Mrs Marcet, (b.1769 London, d.1858 London) who was praised by Jean-Baptiste Say as “the only woman who had written on political economy and shown herself superior even to men”.
We note the context that the present recession (in terms of total fall of per capita GDP, and duration of fall) is now understood to be the second-worst in New Zealand since the Great Depression (1930 to 1935 in New Zealand). The worst since 1935 is unquestionably that which peaked in the early 1990s, and was very much associated with the fiscal governance of Ruth Richardson. We should note that a structural recession, also known as a balance-sheet recession, is an extended period of near-zero growth which typically follows an initial fall of economic output and income.
Dramatis personae
Four defunct economists feature in this story about Richardson, Willis, and Truss; all four associated with the first two decades of the nineteenth century: Jean-Baptiste Say, James Mill, David Ricardo, and Thomas Robert Malthus. In the chronologies relevant to most people alive today, these four men are all very much defunct (and pre-democratic in outlook), though their ideas are increasingly driving western economic policy today. They are the founding fathers of the classical school of economics. (Mrs [Jane] Marcet was the midwife.)
Today there is a curious kind of intellectual Benjamin Button process going on, with the most important post- industrial revolution contributions to economic policymaking (those of Alfred Marshall, 1890, and Keynes, 1936) having been unpeeled, with the most recently written (Keynes) having been unpeeled first. Intellectually, economics – or at least the loudest economic narrative – is moving backwards in time.
The unpeeling process has further to go. The mercantilist economics of DJT precedes the classical political economy which became fully formed in the 1810s’ decade; and it precede the partial demolition of mercantilist economics undertaken by Adam Smith in 1776 (The Wealth of Nations). And it precedes the scientific revolution most associated with the name of Isaac Newton. The heyday of mercantilist ‘thought’ was the first half of the seventeenth century. (The most mercantilist of organisations in history were the Dutch East India Company, which ‘discovered’ New Zealand in 1642 [and subsequently named it, along with New Holland to New Zealand’s west], and the Dutch West India Company, which founded New York in 1624; these companies’ narratives give the best possible insight into the strategic thought of the current United States president, a man of New York, and his acolytes.)
The paradigm of classical economics was formed from 1798 to 1823, mainly in England; formed during the peak years of the Industrial Revolution, but almost completely without reference to (and with minimal application to) the dramatic economic events (also mostly in England) of that quarter-century.
Aggregate spending as a driver of economic growth
The central issue in New Zealand’s economic politics today is about whether (and how) aggregate spending is a driver of economic growth. The Richardson supply-side version, which denies that aggregate spending has any role, falls directly in line with the doctrine of the godfather of classical economics, James Mill, and his mentee David Ricardo. The Truss version, however, follows Malthus in his later dispute with Ricardo, and represents what has been popularly known since the 1970s as trickle-down economics. Conservative and centrist western policymakers today mostly follow a fuzzy fudge version of classical economics, where they selectively allow for increased aggregate spending to facilitate economic growth while disavowing the role of central government as an autonomous spender.
The first principle of classical economics is called Say’s law (of markets); though it could have been called Mill’s Law, and its ongoing presence in liberal-conservative economic narrative is more due to Mill’s role in overseeing the classical economics’ project than to Say after whom the ‘law’ is named.
Say, in looking for an argument to show that a general glut (the term then used for a recession) is impossible, noted that aggregate income must be equal to aggregate output, and believed that all income must be spent (on that output) in one way or another. He understood an apparent glut (ie unsold goods) to be a simple mismatch between what goods people produced and what other goods they wanted to buy. In other words, Say argued that an apparent excess of output was equally matched by a less visible shortage somewhere else. (In subsequent neoclassical economics, most associated with the name of Alfred Marshall, it was the price mechanism of markets which would resolve such an apparent glut, by providing the information required to ‘signal’ to firms what they should be producing.)
In the days of Say and Mill, it was true that producers blindly supplied goods to the marketplace. Today’s world is very different, as most of us do understand. Today, the norm is to produce goods and services for the market; in other words, today’s producers directly and indirectly respond to market forces. Today, when people buy more, firms respond by producing more. The connection between prior spending and output has become so obvious; yet few push back when economic policymakers and liberal conservative commentators repudiate that connection by constantly promoting the supply-side mantra of ‘increasing productivity’. (In reality, firms most increase their productivity when they have more customers, not when they reduce their costs. Henry Ford raised rather than cut his employees’ wages!)
Say’s law is easily repudiated; just look at any basic Economic Principles textbook. We see that some income is saved rather than spent, and that some previously saved income is spent; there is no necessity that the two will cancel out. As a result, much spending is (necessarily) a result of lending, and there is no simple relationship between saving and lending. It turns out that banks and governments act as pumps and sumps. If they don’t pump enough, then there will be a ‘general glut’, a recession; there will not be enough spending to buy everything that people would like to produce, and maybe not enough to buy all that they have produced. Falling prices (deflation), a possible consequence of insufficient spending, acts as a further deterrent to spending; that’s what happened during the doom-loop we now know as the Great Depression. (Irving Fisher described a debt-deflation spiral; when debtors stopped spending in order to repay debts, there became too little aggregate spending, meaning that prices and incomes fell and debts increased relative to incomes.)
Ricardian economics – named after its most precise theorist, David Ricardo – includes Say’s law of markets as a core axiom. Another core axiom was Malthus’s theory of population; first published in 1798. The central idea was that wages could never permanently rise above the level of absolute subsistence, because whenever wages did increase to higher levels then fertility would increase leading soon enough to competition in the labour market sufficient to beat wages back down to subsistence levels.
A third premise was that profits fall as rents increase; rents would inexorably increase as rising populations forced capitalist tenant farmers to rent lands of decreasing quality, meaning that the better lands would command higher landlords’ rents. (Famers, the quintessential capitalists in the Ricardian system, could slow down this profit decline by increasing their productivity.) The argument depended on competition between tenant farmers, comparable to competition between wage workers.
The end result of classical economic growth would be a dismal stationary state in which only landlords (the one-percenters of ancien régime times) would have access to discretionary income. The sociology which accompanied that perspective on agricultural capitalism was that the early capitalists would seek to acquire land and become one-percenter landlords; in the classical system, farmers had displaced merchants as the archetypal capitalists.
(David Ricardo was a particularly successful specimen of capitalist, though neither farmer nor merchant; he was a financial capitalist and speculator, who made sufficient money to acquire for himself the Gatcombe Park estate, now the country residence of Princess Anne. War times generally provided better opportunities than peace times for speculators to make fortunes; the backdrop to classical economics was the Napoleonic Wars – effectively World War Zero – which featured the most glorious years of the British Navy.)
Malthus’ contribution to classical economics went well beyond his renowned theory of population; the theory which begat the concept of the tragedy of the commons. That tragedy is playing itself out today, through both escalating military conflicts and the barely restrained use of fossil fuels; nobody is making the news today by advocating ‘green warfare’.
Malthus became the first dissenter, among classical political economists, to Say’s law. He argued that general gluts were perfectly possible, and that aggregate spending did need to be topped-up under certain circumstances. Malthus favoured policies such as debt-relief and tax-relief to landlords, so that they could buy more luxury goods, thereby helping to keep servants and the like employed and fed.
None of the classical thinkers came close to understanding that, in a mature industrial economic system which focusses on the mass production of consumable commodities (later known as ‘wage goods’), wage workers would need to have a sufficient share of overall income to be able to buy the mass-produced goods which they made. They should have. The John the Baptist (ie precursor) of classical economics – Adam Smith – made a detailed description of a 1770s’ pin factory; Smith had more to say about mass production than did the founders of the classical school.
Malthus, by favouring a stimulus which directly favoured the rich, became the founding father of trickle-down, the variant of liberal conservative economics favoured by Liz Truss.
In the meantime, namely the 1970s and 1980s, new classical economists (including Robert Barro, a sometimes visitor to New Zealand in the 1980s and 1990s; who I and colleagues lunched with on one occasion in Auckland in the 1990s) rediscovered a more technical version of Say’s Law, and called itRicardian Equivalence in honour of David Ricardo.
The pure classical school to which Ruth Richardson adheres uses the Ricardian Equivalence argument to claim that, at best, extra government spending makes no difference to the rate of economic growth. She is of the school of Mill and Ricardo that supply always creates its own demand, and that – exempting a few essentials such as national defence and the law courts – government spending simply crowds out allegedly-superior private spending.
The fuzzy Willis fudge
While Prime Minister Luxon inclines towards the ‘making-money’ mercantilist economics of DJT – mining, exporting, and acquisition of resources through one-sided deal-making and military threats; Luxon clearly emphasises exporting – his Finance Minister Nicola Willis is much more in tune with Treasury’s liberal conservative macroeconomics.
While essentially schooled in the new classical macroeconomics of the 1980s, and increasingly sceptical of the market-corrective economics of Marshall and his disciple Arthur Pigou, Willis adopts an ambiguous attitude towards the general proposition that more spending generates higher levels of GDP (gross domestic product) than would otherwise occur.
This Treasury view values foreigner-spending; and business-investment spending, believing that firms should invest liberally in cost-cutting techniques even if consumer markets are weak and getting weaker. Generally, the Treasury view substantially underplays the ways that working-class consumer spending and government spending can revive a stagnating economy.
But Treasury points to monetary policy as a source of stimulus. In the old days monetary policy as a stimulus meant a stimulus to new business borrowing and the funding of consumer durables through hire-purchase. Nowadays, this ‘price effect’ of monetary policy is understated. Rather, the story we hear is that ‘mortgagors will spend more when they refix their home loans at lower rates’, and that new spending by relieved mortgagors on middle-class goods will prove to be a critical factor inducing economic revival. This is called an ‘income effect’; traditionally neoclassical economics has downplayed income effects while upplaying price effects. The change we see today represents part of the disavowal of neoclassical economics, and the Benjamin Button style return to its predecessor, classical economics.
The supposition is that rational mortgaged homeowners will spend more when their mortgage liabilities decrease (including when the equity in their homes is decreasing as a result of ‘softening’ house prices), because their disposable incomes have increased. Yet that same rationalist logic is almost never applied to governments. We should be hearing Nicola Willis saying, now that interest rates are much lower the government can and should borrow and spend much more. But we are not hearing that. It worked in the late 1930s – increased government spending was very popular with households and businesses, and annual economic growth reached double-digit percentages – but is not even being considered today.
Despite what Ruth Richardson says, Nicola Willis is an austere money-woman.
Richardson is obsessed with the fiscal deficit. But the deficit is the result of our present recession, not the cause of it. (Look at the section on automatic stabilisers in the economics textbook.) Ricardian equivalence, if it truthfully applies under any circumstances, certainly does not apply to an economy in the midst of a recession. Arguably monetary policy is enough to get an economy out of a normal recession (a ‘gumboot recession’?), but spending by government (or some other ‘countercyclical players’) is the only known method of getting an economy out of a structural recession. (The only known method, that is, other than waiting for an export recovery. We’ve had our export recovery since 2024; so far it has not been enough, and is unlikely to bring the New Zealand economy back to its counterfactual growth path.)
The political problem is that you cannot simultaneously repudiate Keynesian economics and implement it. Unless you fudge it, of course!
The Debate?
Will Richardson and Willis have a media debate this week? I’m guessing not. If it does happen, will Ruth Richardson talk about the merits of Ricardian Equivalence? Probably not; but if she is to be honest, she must tell us that it is the concept at the core of her macroeconomic belief system.
At least Willis is a pragmatist, of sorts. Richardson and Truss are classical dogmatists, standing on opposite sides of the Ricardo-Malthus controversy.
(If the money-women have time to swot-up on their defunct economists, a debate could probably be hosted at short notice by the New Zealand Society for the History of Macroeconomic Thought. Thursday-week at the site of Unitec’s Penman House; “feet to the fire” not compulsory, bring your own umbrella and hose. We could invite, from London, Liz Truss; and a descendant of Charles Dickens who could reflect on the political economy of high-density housing. Complimentary screening of Christmas Carol the musical if a power source can be arranged.)
By the way, the way to remove the fiscal deficit is to invest in economic growth. Governments, like businesses, have to spend money to make money. Say’s Law is old hat. What is your real agenda, Ruth?
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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.
