Better economic advice to the Govt will be one measure of the shake-up of Treasury’s leadership team. This wasn’t an exercise in staff-shedding. It was an exercise in reasserting the Treasury’s leadership role in the state sector. It also gives expression to the Govt’s yearning for public-sector advisers who will earn their keep not by being subservient (the style fostered under the Clark Govt) but by acting in partnership with the politicians, giving them good and dispassionate advice and robustly challenging whatever dubious proposals their Ministers might be promoting. All going well, other departments will follow Treasury secretary John Whitehead’s example.

Reminder of “better” days? Whitehead has attracted Gabriel Makhlouf as a deputy chief executive, a fellow whose CV includes chairing the OECD’s tax rule-making body and service as Principal Private Secretary to Gordon Brown when he was Chancellor of the Exchequer. Appointing a chief economist is a welcome move, too: the job goes to Norman Gemmell, a former economic adviser for the World Bank, European Commission and the UN Development Programme. Old-timers are reminded of an era when Henry Lang was Treasury secretary, recruiting the brightest and best arts and commerce students and shaping an office culture where debate was nurtured and disputation encouraged between (for example) Keynesians and monetarists. Lang would insist they explore fundamentals and compromise on a common sensible policy. Brian Easton credits Treasury then attaining the excellence which it prides itself on but does not always attain.

Economic Psychology important. Finance Minister Bill English’s need is to know the flaws in whatever he might suggest, the traps it poses and the experiences of others who have tried it. Moreover, he wants fresh approaches and greater questioning of the orthodoxy which has shaped economic policy for 30 years. This orthodoxy is the notion, albeit corroded under the Clark Govt, that the market knows best. He is interested in new approaches, such as behaviouralism which blends psychology, economics and neuroscience and argues emotion plays a big role in how people make economic decisions. Hence people aren’t perfectly rational creatures who always act in their best economic interests. A recent New York Times article, examining the Federal Reserve’s role in events which pumped up the asset bubble, asked why Alan Greenspan and Ben Bernanke got things so wrong. The answer seemed to be more psychological than economic. “They got trapped in an echo chamber of conventional wisdom.” It’s something English wants to avoid.

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