New Zealand May Have a Solution for the World’s $100 Trillion Public Debt

In the early 1980s, New Zealand was on the brink of economic collapse. Two oil price shocks had saddled the country with high inflation, and the UK’s decision to join the European Economic Community a decade earlier had cut off access to a key export market. Successive governments had compounded the pain with a series of policy errors — throwing around subsidies, awarding inflationary pay deals and trying to control prices, while keeping interest rates too low and taxes too high. The result was soaring unemployment and mounting debts. No wonder some dubbed New Zealand the Albania of the South Pacific.

Yet over the remainder of that decade, New Zealand was transformed into one of the most prosperous countries in the world. A new Labour government took office in 1984 and embarked on a form of shock therapy that came to be known as “Rogernomics,” after Finance Minister Roger Douglas. The government removed exchange controls, slashed subsidies, privatized services and handed responsibility for setting interest rates to a newly independent central bank. New Zealand also introduced a different accounting approach throughout the public administration.