Thought for the Day: Cycling Tourism

Wednesday, 11 February 2015, 10:52 am
Column: Keith Rankin

I heard a radio news item yesterday (Radio NZ, 10 Feb) about how cycling tourism is revitalising provincial economies (audio here). I think this growth of cycle trails is great; indeed my teenage son and I had wonderful experiences cycling the Hauraki and Central Otago Rail Trails in 2013. An important part of the latter trail in particular was meeting a variety of interesting foreign visitors to our country.

It's interesting though to see which benefits of cycling tourism are most emphasised in these reports. It turns out to be the spending of, in particular, foreign visitors.

By emphasising spending as a benefit, we are making the presumption that our economies are essentially demand-constrained; ie limited by a lack of spending.

When we discuss many other economic issues we tend to make the opposite assumption. Economics textbooks posit that it is normal for resources to be scarce and for buyers to compete with other buyers for scarce resources and hence scarce goods and services. If this were generally true, then foreign visitors would be a problem, crowding-out domestic consumers and aggravating an endemic inflation problem.
(This scarcity dynamic may of course be part of our housing story, at least in Auckland. However the issue of supply-constraint in housing is much more nuanced than simply a shortage of land being made available to build on. There are many unoccupied and under-occupied houses in Auckland.)

But no, scarcity of labour and capital is clearly not the main economic problem in our provinces (and not in our cities either). We sensibly observe that our capacity to provide services to tourists is plentiful, and assume that the spending of cycling tourists helps to reduce unemployment. And of course such spending does lessen unemployment, especially because this spending does not displace other spending. The spending of some (eg cycling tourists) represents the employment and income of others.

We need to apply the assumptions about spending in this story, to a much wider range of stories. A good start would be in our analysis of youth unemployment. As we live in demand-constrained economies, then the continued fulltime employment of older people must be a cause of the paucity of such employment opportunities for younger people. In a demand-constrained economy – where a lack of spending is the main problem – total employment is unrelated to the job-seeking efforts of people without jobs. If there are three job-seekers and enough spending for one job, two job-seekers will miss out no matter how good their personal marketing has been. (Demand constrained economies are like the game of 'musical chairs'; someone always misses out, not matter the quality of the contestants.)

Back to the cycling story, are there any particular benefits arising from foreign visitors using our cycle trails, and the associated services? The answer is 'yes' especially if our economy is largely indebted – characterised by net outflows of interest payments (definitely true of New Zealand) – and our visitors mainly come from creditor (ie interest receiving) economies (true of visitors from northern Europe and Asia). This represents a rebalancing of international trade in services; debtors (us) providing goods and services to creditors (them).

Of course this story is a vignette of a much bigger story. The world economy is demand-constrained, and substantially so. And the world economy is financially unbalanced, again substantially so. The more we can encourage creditors to spend more and save less, and to encourage them to buy services from debtors, the much better and less scary will be the future of the world economy.

ENDS

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Keith Rankin

Political Economist, Scoop Columnist

Keith Rankin taught economics at Unitec in Mt Albert since 1999. An economic historian by training, his research has included an analysis of labour supply in the Great Depression of the 1930s, and has included estimates of New Zealand's GNP going back to the 1850s.

Keith believes that many of the economic issues that beguile us cannot be understood by relying on the orthodox interpretations of our social science disciplines. Keith favours a critical approach that emphasises new perspectives rather than simply opposing those practices and policies that we don't like.

Keith retired in 2020 and lives with his family in Glen Eden, Auckland.

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