Economics explained


Economics helps us make sense of the world around us, offering one way to think about why things are the way they are and how they could be different. Understanding how the economy works helps you make better decisions, engage in conversations, and challenge decision-makers.

In the following pages, we introduce some key features of our economy and the economic roles we play as people, communities, businesses and governments. We hope you enjoy learning about your economy.


Your choices

We make choices every day, and all the decisions we make affect the economy in some way. Every time you buy a coffee, show up to work, or cook for the family, you’re shaping the economy.

Many of the choices we face are concerned with how to spend money and how to use time. We have finite amounts of both, which means we are making decisions about how to use limited resources. This is one definition of economics; studying the allocation of scarce resources. There are many factors that go into these decisions under scarcity, for example, how much money you have, work contracts, and childcare. When you decide how to use limited resources, you have to think about the options you’re not choosing or the trade-offs. Economists developed some basic frameworks for thinking about how we make these decisions, which can provide a useful starting point for understanding such decision-making.  


Deciding how to spend money

We all need a basic level of stuff to live; food, clothes, bills, rent. But even within the essentials, we get some choice, and when there’s money left over and an infinite number of things to spend it on, how do we choose?

Economists simplify things by starting with the law of demand: as price increases, quantity demanded decreases. This makes sense a lot of the time. For example, avocado prices change throughout the year. When it’s summer, and the prices are low, it’s more appealing to buy avocadoes compared to autumn when they’re more expensive, and so you might fill your plate with a readily available alternative, like eggs. Since there are other food options out there, no one needs an avocado. As the price of one good rises, you can substitute away from it to a cheaper alternative. This is called the substitution effect.

Not everything has got a good alternative. With some stuff, we’re prepared to carry on buying if it gets more expensive simply because there aren’t many good substitutes to choose from. For example, when you rely on driving a car to get to work or get yourself or others to school, you’re probably committed to buying more petrol even if it gets more expensive. On any given morning, you’re stuck with the car you’ve got, and your demand for petrol is price inelastic; we don’t change our demand much when price changes. But in the long-term, there are other options available, like buying a bike or electric car, researching bus routes or even shifting closer to where you need to be. Our short- and long-term choices can be completely different because the alternatives available (and the costs and benefits) have changed.

Behaving in this way when the prices change is rational. Economists use a specific definition of rational behaviour, which puts strict assumptions on how we act to help simplify the reality we live in. This has historically been used as a starting point for developing theory, although many people study what happens when the rationality rules don’t hold.


Consumer choice theory: Getting the best bang for your buck

Consumer choice theory is a way to calculate how a person will spend their money to make them as happy as possible. It’s based on the idea of utility maximising; people will try to maximise the utility they get from their money. It’s based on some assumptions:

  • People know how happy buying something will make them
  • Every extra unit of something you buy makes you a bit less happy than the one before. A classic example is slices of pizza; the first is very delicious, the second a bit less delicious, and the third a little less delicious still. This is called decreasing marginal utility; the additional one gives you less utility than the one before.
  • More is always better. With more money (or a bigger budget), you could always be happier – even if it’s just by a little bit.

Few people think these assumptions are true all the time, and few think they are true none of the time – most settle for somewhere in the middle. That means people disagree about how useful consumer choice theory is when thinking about the way people make decisions.


Explaining economics  (3)

Behaving rationally

To an economist, rational behaviour typically assumes that people are fully informed about all their choices and how they will benefit from each option, and make decisions based on this information. It’s like doing a little cost-benefit analysis in your head for each decision.  

We can act more-or-less rationally in some situations (like with the avocado prices) – but there are other situations when we are way off the criteria. It can be hard to get full information on your choices. While we try to get as much information as we can (for example, by going to open homes or trying on clothes) sometimes it’s hard to know if it’s accurate (like when you learn too late the new housemate you selected doesn’t believe in washing up).

Since these assumptions don’t always hold, many economists use models which don’t rely on them and instead reflect how people actually behave. Behavioural economists take real behaviour as a starting point to understand how people make decisions, and include aspects like:

  • Social norms (I’ll buy it because everyone else has one)
  • Self-control and pre-commitment (I’ll do my shopping once a week when I’m not hungry, so I choose the healthy options)
  • Loss aversion (the pain I feel from losing $10 is greater than the joy I feel from gaining $10)


Economists have been using the word ‘utility’ to describe what we feel about the stuff we buy for decades. The concept has changed a bit over time, but it’s basically a measure of the satisfaction, contentment, or happiness we get from a product or service.

It’s subjective – for example, the amount of utility you get from looking at a plant on your desk can be very different from the utility someone else gets from the same plant. Because of this, utility itself can’t be directly measured in real life, but there are some techniques to get a good measure of how people feel about something.

‘Wellbeing economics’ is a discipline in itself, weaving in cultural, environmental and social values into utility to measure, for example, the existence value of biodiversity: This is the wellbeing you get from simply knowing biodiversity exists. Read more about measurement here


Deciding how to use time

We all have 24 hours to fill/use each day. Some of those hours we don’t get much choice about – for example, everyone needs to sleep. Similarly, employment contracts or childcare commitments can mean a huge proportion of our hours are already accounted for in the short term, while they can be more flexible in the long term (as we change jobs or children get older).

While we all have different starting points, it’s helpful to understand how a change in circumstances affects how we change our time use. Imagine a situation where you are earning an hourly rate and can freely work as many or as few hours as you please. (In reality, most jobs are not like this and have set work hours). In this job, imagine the hourly rate increases by 50%. Do you now work more hours or less? How much money would you need to be paid to sacrifice an hour of ‘leisure’ time?

There are two different strategies here. Either you think “I can work fewer hours to make the same money – might as well reduce my hours and enjoy extra free time”, in which leisure time has become more affordable, or “every hour of free time means forfeiting a greater amount of money than before. I should work more hours as work has become more valuable”.

There’s no right or wrong strategy, and the choice will depend on several factors;

  • The starting wage
  • The number of hours you are already working
  • The other ways you want to use your time

It’s a complicated decision, and it can be hard to know how much money you would be prepared to forego for an extra hour of leisure time. Some economists theorise that people tend to work more hours as wages increase but only up to a point; then they start decreasing the hours worked as they can make the same amount of money with fewer hours. This is called a backward bending labour supply.

In reality, this decision is rarely observed, so it can be difficult to work out how people actually respond to a change in wage, except in some very specific circumstances. Researchers use natural experiments to understand how these changes affect hours, using people with more flexible working hours like Uber drivers, food deliverers and even pear-packers. Some researchers find evidence for the backward bending labour supply, while others find evidence for income targeting, where people have a fixed sum in mind and stop work when they reach it, regardless of the hourly wage rate.

While few workplaces operate like this, understanding how people respond to a change in wages is important because it affects how businesses set their salaries, what happens as a result of income tax rates, arguments for a minimum wage, and ways to incentivise a workforce.


Everyone's choices

When we put together all these decisions about what to spend money on and how to use time, ‘the economy’ is formed. While you often hear about the economy “heating up”, “getting stronger”, or “falling off a cliff”, there isn’t a specific entity which they talk about – it’s something which we are all contributing to through the decisions we make. And when we are all earning, spending and saving, we’re affecting the overall flows of money in the economy. With a population of five million, those effects can be big.

Here, we look at some of the big-picture features of lots of people making spending, saving, and working decisions at the same time.

Feature 1: Price changes

Prices change all the time. We hear about house prices increasing because more people want to buy them, and there aren’t enough on the market, driving the price up. When the prices of some goods rise, they signal that demand is bigger than supply, and the increased profits attract extra producers into the industry.  

But prices can also change on a more general level. When people want to buy more stuff and suppliers can’t keep up by producing more stuff, the increased demand can push prices up higher across the board. Inflation is the term for a general rise in prices, measured as a percent change in prices from the year before. Statistics New Zealand is in charge of measuring price changes over time, and like other countries, it uses the Consumer Price Index (CPI), which tracks the price of a basket of goods. It’s a seriously big basket with about 700 items covering a wide range of stuff and gets switched up a little every three years to stay trendy. For example, in the 2020 review, e-cigarette devices were added to the basket, and cordless telephones were put back on the shelf.

Read more about the CPI at Stats NZ

Inflation is a problem when prices rise faster than incomes because it means that even though our wages look like they’re increasing, what we can actually buy with them is decreasing, meaning we become relatively poorer over time. It can also make other currencies look more attractive – if you hold New Zealand dollars which are becoming worth less over time, you may trade them in for US dollars instead, which hold a relatively higher value (the NZD has been worth less than the USD since 1979).

But deflation, when general prices fall over time, is also a problem. Imagine you expect that the thing you want to buy will be cheaper in the future – you’d probably put off buying it for as long as you can. When everyone does that or something similar, spending, in general, goes down, which can put people out of work. The Reserve Bank is in charge of managing inflation. View more here

 Feature 2: Stable change

Some change over time is predictable. For example, business cycles occur where people become increasingly confident and spend more. The increase in demand can prompt business owners to expand output. But it can be hard for business owners to increase output just a little bit because they might need to buy a whole new machine or factory, so they end up investing to expand a lot. This is called the accelerator effect when a relatively small increase in demand encourages business to increase production substantially. However, this can also work the other way around, with small decreases in spending reducing investment a lot as there is adequate capacity to supply the reduced demand. If there’s too much money for limited goods and services or interest rates change, people can start spending less until the cycle begins again. These fluctuations are often relatively stable but can have real effects on peoples’ employment and earnings.

Feature 3: Unstable change

In an unstable economy, there can be a sudden change at any moment. Our banks are a key part of the economy because they act as a forum for matching people who want to save money with people who want to borrow money in a way that benefits everyone. While the flow of money in and out of bank accounts can feel distant or irrelevant, it can have real consequences for everyday life. It’s hard to escape interacting with banks in some way; wages are paid into them, benefits are paid out of them, their cards let you buy stuff, their apps let you make direct transfers, and ATMs give you access to cash.


How do banks work?

When you put money into a bank account, it doesn’t just sit there. Banks lend money out to people who are happy to pay to borrow money (so you – the borrower - pay back more than you borrow). That’s how savings accounts grow over time – they earn interest which is a way for the bank to say thank you for keeping your money with us.

But it doesn’t stop there. Banks don’t physically have to hold all this money – they can lend it out to borrowers. To a bank, a loan is an asset because it’s a promise of future money for the bank. Banks can buy and sell these assets.

Since the money doesn’t stay in the banks it’s deposited in, the banks would be in trouble if everyone decided to withdraw all their money at the same time, even if the reason for mass withdrawal is really trivial (see Mary Poppins run on the bank scene). But these scenes don’t just happen in whimsical tales – at the start of the global financial crisis in 2007, people queued for hours to withdraw their savings from UK bank Northern Rock when they got wind it might be in trouble. Of course, this extra pressure made the trouble substantially worse.


The Global Financial Crisis:

What happened?

The crisis (2007-around 2010) triggered “bail outs” of banks, widespread job loss and the Great Recession, at the time the most severe global recession since the Great Depression of the 1930s (an unfortunate record beaten in 2020 by the effects of the COVID-19 pandemic). The crash was experienced in different ways for each country, based on their own financial system set-up. There were several factors playing a part in the conditions which led to the crash, but some of the key things going on:

1. US banks were lending money to people who couldn’t afford to pay it back

The US housing market was looking particularly reliable. People expected house prices to increase over time, and some banks, called sub-prime lenders, became increasingly willing to provide mortgages for people who couldn’t pay it back, or struggled to sell their houses once house prices started to fall.

2. The mortgage-backed assets were traded with other banks in the US and overseas

Other banks traded with the sub-prime lenders, and these trades included the sub-prime mortgages. These other banks went on to re-package the mortgage-backed securities with other assets, and traded these packages with other banks, especially in the UK and Europe.

As house prices fell, it became more difficult for people to remortgage, and many faced an increase in interest rates, which became even harder to pay back. Many of the sub-prime lenders were forced to close. It became clear that there was no backing for the loans which had been swapped around, and several big banks were forced to close.

3. Some lost jobs, others lost confidence

The problem with financial crises is the immediate crisis triggers a big loss of confidence. While some people lose jobs and can’t spend any more, others don’t want to spend as much because they don’t know what the future holds. This loss of jobs and general confidence meant people overall were unwilling to spend money, causing further job loss. A period of people consistently spending less is called a recession. The reduced spending and earning also means lower taxes, and following the GFC the UK announced, “austerity measures”, meaning it reduced public spending.    

The Reserve Bank

The Reserve Bank isn’t like other banks – you can’t keep your savings there or ask for a loan. It’s more like the bank for banks – commercial banks where we keep personal accounts keep accounts of their own at the Reserve Bank. It’s New Zealand’s central bank. All countries which have their own currency have a central bank with the exclusive right to produce currency. Its job is to keep prices stable, promote an efficient financial system, and print cash.


Who decides the Reserve Bank’s targets?

While it is up to the New Zealand government to choose the targets for the Reserve Bank, it can only set long-term goals, not short-term. If governments could change the targets whenever they wanted, there’s a risk they could use appealing short-term policies around election time at the expense of long-term outcomes. Instead, the Reserve Bank is bound by a “Remit”, issued by the Governor-General, which states that the Bank’s objectives are to “keep future annual inflation between 1 and 3 percent over the medium term” and “support maximum sustainable employment”.

Read more about the Reserve Bank's Remit.

Objective 1: Keeping prices stable

The Remit sets a big mandate, and fortunately, the Reserve Bank has a unique tool to influence overall prices. It gets to set the Official Cash Rate (OCR). Seven times a year, a ‘Monetary Policy Committee’ meets and votes on what rate to choose. 

How does the OCR work?

Retail banks have accounts at the Reserve Bank, which they use to transfer money between each other. The Reserve Bank pays interest on these accounts and charges interest on borrowing at rates related to the OCR. There’s no limit on how much money the Reserve Bank is prepared to borrow or lend at the OCR.

When the OCR changes, the commercial banks tend to pass on the difference to our regular bank accounts and floating mortgage rates. So, if the OCR changes from, say, 2% to 1%, the amount of interest we get from our savings accounts also falls, encouraging us to spend more. A lower interest rate means borrowing is now cheaper too, so we’re encouraged to take out loans. Increased spending and borrowing put more money into circulation, and when there’s more money competing for the same amount of stuff, there’s upward pressure on prices.

If prices are rising too fast, the Reserve Bank can decrease the OCR, which encourages people to keep more of their money in the bank and put off the loan. By using a tool that changes the amount of money changing hands every day, the Reserve Bank is essentially changing demand for stuff in general. So, if prices are creeping up, the Reserve Bank can ease the pressure by making saving more attractive, reducing demand for stuff.

Objective 2: Promoting an efficient financial system

The Reserve Bank is also tasked with “promoting the maintenance of a sound and efficient financial system” and “avoiding significant damage to the financial system that could result from the failure of a registered bank.” The Reserve Bank regulates banks, insurers and other financial companies to make sure everything is running smoothly. In this area, the Bank has specific powers, including registering banks according to its own registration criteria, authorising banks to change ownership, and recommending a bank in financial trouble be put in statutory management. As part of its regulatory role, it runs “stress tests”, which model plausible scenarios on a banks’ balance sheet to see how it holds up.

Objective 3: Money creation

The Reserve Bank designs our banknotes and coins, withdraws old versions and puts new ones in circulation. It’s responsible for printing our physical cash (although the actual printing happens in Canada), and we have more notes in circulation than ever before. But it also has tools to put more money in the economy through quantitative easing. This is where the Reserve Bank creates money which it uses to buy government bonds from retail banks as an indirect way to get more money into the economy. New Zealand used quantitative easing for the first time during the COVID-19 pandemic in 2020, committing an astonishing $100 billion to the programme.

Read more about how the Reserve Bank helped pay for the COVID-19 stimulus package



Everyone pays money to the government. People pay taxes on their earnings, businesses pay taxes, and there’s a tax virtually every time you buy anything (known as the goods and services tax, or GST). In this section, we talk about why we have taxes and how government departments and agencies make the difficult decision on how to spend them.


Why are we taxed?

Some people disagree about the main reason for taxes. Some say it’s to fund government spending, and others say it’s to create demand for money. Still, others say that they amount to the same thing.

Option 1: Fund government spending

We like having public-funded schools, roads and hospitals. The government collects taxes and spends them on public goods and services that otherwise wouldn’t be provided or would be inefficiently provided (for example, we want all children to have access to a school). Taxes mean the government can provide the services which we don’t want people to have to pay for themselves. This might be because it feels unfair (like expensive healthcare if you fall sick), or because once some services are provided, they benefit everyone (like national security or streetlights) – so people may simply leave the payment to someone else. These are called public goods.    

Option 2: Create demand for money

By demanding people pay taxes in the national currency, the government gives people an incentive to seek payment in that currency, and businesses pay their employees in that currency. This creates demand for the money which the Reserve Bank is issuing. This is the idea behind modern monetary theory, which considers that a currency-issuing country does not need taxes to pay for government spending because there is no limit to the money it can create. For modern monetary theorists, the real limit in spending comes from a risk of inflation from too much money competing for limited goods and services. As with most economic theories, people disagree about the merits of modern monetary theory, with some arguing it’s plain wrong and others arguing it’s putting a new label on what we already knew.


The other reasons

Whichever camp you sit in, people generally agree there are other reasons for taxes. They can change incentives for certain behaviours which the government wants to encourage or discourage. The 1700s “gin crisis” in the UK, which saw huge social problems arising from addiction to the cheap drink, was tackled by the UK Government with a series of “Gin Acts”, which included minimum prices. Today, New Zealand is one of the most expensive places in the world to be a smoker.

Taxes are also designed to reduce inequality by reallocating money from people who have more money to those who have less. When a tax rate is progressive (as it is in New Zealand), you pay a bigger proportion of your income in tax if you earn more.


How spending decisions are made

Government departments are required to use a limited pot of money to achieve the maximum benefits for the population. Making choices about what services to provide can be complicated; for example, is it best for the Ministry of Transport to improve existing roads or improve public transport infrastructure? Fortunately, there are tools to make sure they can allocate money to achieve the maximum benefit possible. A great example of this is PHARMAC’s decision-making. PHARMAC’s job is to decide which medicines to fund, with the aim of improving the health of New Zealanders overall. There are many different medicines out there, and they treat different diseases with different levels of effectiveness and for different prices. PHARMAC must take all these things into account when deciding which drugs to approve for funding

PHARMAC’s Cost-Utility Analysis

The cost-utility analysis (CUA) is a key feature for allocating spending in healthcare for many countries. It is used to compare the costs and benefits of one drug to the costs and benefits of another drug or treatment such as surgery, to make sure the limited funding is used to improve health as effectively as possible. There are three important components of the CUA – the cost, the outcomes, and the comparison group.


This is the cost to the health sector from funding a treatment. It includes pharmaceutical, hospital, outpatient, and primary healthcare costs. The cost side also considers savings garnered by the health sector from lower cost funding for treatment. Good CUA looks at direct and indirect costs and benefits.


Comparing outcomes is hard when treatments have very different effects. CUA uses health outcomes measured in a common unit; the quality-adjusted life year (QALY). A key component of the QALY is a measurement for health-related quality of life. This considers a range of factors that affect quality of life, including ability to work, ability to enjoy leisure activities, independence and freedom from pain. These criteria are based on surveys on New Zealanders. By mapping descriptions of symptoms onto health states, researchers can generate a utility value.

Then comes the life-year part. QALYs are calculated by multiplying the time spent in a health state by the utility score. So, for example, a year of perfect health is one QALY, and one year of half-perfect health is half a QALY.

The comparison group

What you compare one treatment to can have a big effect on the outcome. It might be the status quo (currently existing treatment), no treatment, or an alternative treatment. The comparison group will affect which option gets chosen.

Read more about PHARMAC's economic analysis



The economy depends not only on the people within it but also the natural, biophysical rules of the world we live in. The choices we make go on to affect our environment, which affects the options available to us in the future. Ecological economists focus on sustainability and development, with awareness of the natural limits on our capacity for growth. The resources we use can’t go on forever, and we are using them at an unsustainable rate. For example, fossil fuels still make up about 84% of the global energy we use, but as we go deeper into the earth to source it, it becomes more and more costly to extract. The “ecological footprint” is a way to measure how much of our natural resources are used up by a person, business or country, and shows that we are currently using resources as if we lived on 1.6 Earths.

Other economists attempt to measure the importance of nature using classical economic methods, like measuring the financial impact of flood barriers or even how much people value access to green space.


Nature in New Zealand

The geography of New Zealand goes a long way to inform how New Zealand’s economy is structured. For example, some regions benefit from ideal soil and climate conditions to produce wine. Consequently, wine production is now a major land use, source of jobs, and driver of technological innovation. New Zealand’s spectacular scenery helps make the country an attractive tourist spot, which shapes the range of jobs catering to tourist demands, like hotels and tours. But the scenery comes at the cost of earthquakes, tsunami and volcanic risk, which not only makes national disasters a real threat but affects things day-to-day, like our building standards and geoscience expertise.

The Ministry for Foreign Affairs and Trade (MFAT) comments on trade:

“With a population of only 4.8 million people, we lack the scale to produce at affordable prices the diverse high quality goods we import, and we are too small to provide a market that would sustain many of our export sectors. The jobs of more than 600,000 New Zealanders are in direct export sectors or in sectors supporting exports.”  (MFAT). 

But an economy relying on exports does bring its own challenges. Overseas demand is uncertain and prone to shift over time, affecting the people who work in the industry. For example, we export about 95% of all dairy products produced in New Zealand and about a third of these go to China. China’s demand for New Zealand dairy products tripled over the last ten years, but we can’t be sure what will happen in the future. When overseas demand changes or trade agreements (when countries agree on rules around exchange goods) fail, many livelihoods are affected.


Measuring the economy

It’s important to get a sense of the whole economy in a measurable way, so we can tell how it will affect people’s lives and what needs to change. We rely on measurement to know if governments are meeting their goals and the economy is functioning in a way that is working for everyone. However, it can be difficult to choose which things we should measure. And that decision is important because we try to improve the thing we are measuring.

For decades, ‘Gross Domestic Product’ (GDP) has been used as a measure of choice internationally. GDP is the number you get when you add up the value of all the goods and services in a country – and then you can divide it by the population to get GDP per capita, a more comparable measure. New Zealand’s GDP per capita was about US$41,000 in 2020. This number doesn’t mean much on its own – but is useful for making international comparisons and tracking changes within a country over time.

However, many have raised issues with using GDP as a measure, including;

  • How the money is distributed. A country where a small group of people are doing all the spending could have the same GDP as a country where everyone has equal access to resources.
  • Non-market activities are not counted. The distinction between what “contributes” to the economy becomes arbitrary. For example, if childcare arrangements switch from a grandmother looking after her grandson to paid day-care, the caregiving changes from non-measured to measured.
  • Disasters look good. If a destructive disaster hits a country, the huge boost in spending on construction actually looks on paper like a GDP rise, despite the terrible consequences for wellbeing. People disagree about whether this is a problem because the recovery work is valuable to the economy and the new construction is often better than before.
  • Uneconomic growth. Given that our natural resources are limited, “growth” becomes questionable as a goal. Uneconomic growth occurs when increases in production are worth less than what they cost in terms of wellbeing and resources. Some economists attempt to adjust for this by including environmental costs.


What else can we measure?


Another key measure for economies is productivity. In general, economists tend to use a specific definition of productivity – a person, factory or country becomes more productive if fewer inputs (like work hours, or farmland, or laptops) are needed to make the same outputs (like jumpers, or milk, or quarterly reports). Defined like this, productivity is much more interested in our efficiency gains than overall output. While GDP per capita shows us one type of productivity, the measure can look very different if, instead of per person, we look at output per worker or per hours worked.

Intuitively, improving productivity is generally good for improving quality of life. For example, for those who could afford them, in the 1950s, washing machines were a game-changer for freeing up people’s (mostly women’s) time, replacing the time-consuming “boiling the copper”. From a productivity perspective, the new inputs (washing machines) cut the time needed to get the same outputs (clean clothes). This is an example of substituting capital (the washing machine) for labour.

There’s also a sustainability argument for productivity: if we can create the same amount of stuff with fewer inputs, there’s less need to take resources out of the ground. Productivity doesn’t cover everything we care about, like the gap between the richest and the poorest, but it is closely linked to our wellbeing and income, making it worth keeping an eye on.

Unfortunately, measuring productivity still uses GDP and actually gets more complicated when you try to measure work inputs like hours worked.

Read more about productivity 


Why not go straight to the source and measure the outcome we really want – wellbeing? That’s actually what the New Zealand government is trying to do, with a Living Standards Framework to help policymakers understand how changes will affect the “domains” of wellbeing. The Treasury identified the key domains as:

  • Civic engagement and governance
  • Cultural identity
  • Environment
  • Health
  • Housing
  • Income and consumption
  • Jobs and earnings
  • Knowledge and skills
  • Safety
  • Social connections
  • Subjective wellbeing
  • Time use

Within each domain, there are a series of “indicators”, which are measurable outcomes using data across many sources like Statistics New Zealand and the Education, Environment, Health and Justice Ministries. Some people think the broad list of domains is useful, while others argue that the only thing that really matters is subjective wellbeing – again because that’s the outcome we really want. However, subjective wellbeing can be hard to measure and difficult to compare across people. Some economists use “utility” as a measure to capture what people value, but utility also comes with its own challenges.

Read more about utility

Read more about the Living Standards Framework

The prevalence of data in our economy today opens up a big range of options for what we measure. Statistics New Zealand maintains the Integrated Data Infrastructure (IDI), a massive database that links administrative data from across the public sector, together with Census and survey data. It can show, for example, an (anonymous) persons’ NCEA grades, medical prescriptions, ACC claims, salary and type of employment. This data is used for a wide range of research in New Zealand to understand better our economy and the decisions people make within.

But it’s important to consider how the data itself is collected, what we can and cannot conclude when using it, who it can benefit, and who it can harm. Presenting social and cultural experiences as seemingly objective neutral numbers can be damaging to indigenous populations. For example, when official statistics show a barrage of negative outcomes for Aboriginal employment, health, and education, they do not capture the real lived experiences of people involved or capture the barriers indigenous people face. Te Mana Raraunga, the Māori Data Sovereignty Network, works to promote Māori interests as data becomes more accessible and has resources on enabling Māori data sovereignty. While measuring the economy is helpful, it’s important to make sure those using the numbers understand what the data includes, excludes, and who made those decisions.



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