The Productivity Gap is a National Fantasy

The number 8 wire legend and the productivity lament are two sides of the same coin. Why New Zealand’s economic architecture is built on lack.

Recently the OECD published its Employment Outlook for 2026, and buried in its charts was a distinction New Zealand rarely achieves at anything: first place. Out of 37 countries analysed, we recorded the worst real wage growth over the past five years. Nice. On the OECD’s measure, the purchasing power of New Zealand wages in early 2026 sat 6.4% below where it was in early 2021. The report added, almost as an aside, that real wages remain stuck near the trough of the cost-of-living crisis in only two countries in the developed world: New Zealand and Australia. Everyone else has climbed at least partway out of the hole. We have made ourselves (un)comfortable at the bottom of it.

Now, you might expect this finding to produce something resembling alarm. What it produced instead, in the RNZ write-up, was a genre of commentary so perfectly New Zealand that we really should frame the fucker and hang it in Te Papa. Our leading economists examined the data showing we had the worst wage performance in the developed world and offered, as their considered professional response, that things were “not quite as dire” as they looked. Bro, come on.

As far as I can tell, the argument runs as follows: The OECD used the Labour Cost Index, which adjusts for changes in the skill composition of the workforce, and those adjustments may overcorrect. If you use the unadjusted index instead, real wages haven’t fallen 6.4% since 2021. They’ve fallen 0.1%. Five years of zero. And if you use a third measure, the OECD’s annual wage series, we actually grew 2.6% over five years, which one economist conceded was still fairly dismal but pointed out was only slightly worse than the OECD average, and hey, Australia did worse on that one. Oi!

So the good news is that wages have merely flatlined for half a decade. The consolation prize is that our stagnation, measured charitably, approaches the average. Somewhere in Wellington a man in a cardigan wipes cold sweat from his brow, genuinely relieved.

I am not mocking the economists. The measurement points are worth making; the Labour Cost Index is, apparently, a strange beast and Gareth Kiernan is probably right about its quirks. What interests me a lot more is what the argument does. Because whichever index you choose, the substance is conceded. Real wages in New Zealand have gone nowhere or backwards for five years, an outcome so familiar that our national instinct is to argue about the measurement tool rather than the fevered labour market. And that instinct, I want to suggest, is not an accident of the news cycle. It is a symptom. It belongs to a structure that has organised New Zealand’s economic self-understanding for at least forty years, and to see it properly we need two toolkits that are almost never used together: the psychoanalysis of Jacques Lacan, and the monetary economics of what’s come to be called Modern Monetary Theory.

Strange bedfellows, but whatever. One is a French theory of desire built on the proposition that we are constituted by a lack we can never fill. The other is a school of macroeconomics built on the proposition that a currency-issuing government faces no financial lack at all. But hold them together and something clicks beautifully into place. Because New Zealand’s economic policy for four decades has been organised around a lack that does not exist, while systematically producing a lack that does. We have treated money, which the government creates, as scarce. And we have treated the real things money can mobilise, the workers, the machines, the houses, the productive investment, as expendable. MMT explains the con. Lacan explains why we enjoy it.

The lament

Let us begin with the oldest song in the New Zealand hymn arsenal: the productivity lament.

You know the words. New Zealand has a productivity problem. Our output per hour worked is dismal. We used to be one of the richest countries in the world, in the top handful by income per person in the 1950s, and we have spent seventy years gently sliding down the table. We work longer hours than most of the OECD to produce less. Our GDP per hour worked sits far below the United States and well below Australia. Every few years an official body is convened to investigate this, and it dutifully reports that the problem persists, and recommends reforms, and is thanked for its service.

The lament has been sung continuously since at least the 1980s. It survived Rogernomics, which was supposed to fix it. It survived Ruth Richardson, whose Mother of All Budgets was supposed to fix it. It survived the Employment Contracts Act, the state asset sales, the flattening of taxes, the inflation targeting, the fiscal responsibility legislation, the free trade agreements, all of which were sold, and explicitly, as the cure. In 2011 we even established an entire Productivity Commission to study it, a body which produced thirteen years of careful reports establishing that the problem remained, whereupon the current government abolished it. I will return to that abolition, because it is one of the most exquisitely revealing acts of policy in recent memory. So we have forty years of diagnosis and prescribed medicine, swallowed with little complaint. At yet for forty years the patient has not recovered, in fact he’s got worse, and the doctors keep responding by re-diagnosing the same illness with unbroken confidence. On the face of it this is bewilderingly stupid.

At some point an analyst is entitled to stop asking whether the diagnosis is correct and start asking what the flying fuck are we actually diagnosing?

Here is where Lacan earns his place in an economics essay. We need to think Laconomically, not economically. Those who enjoyed my previous article will recognise the importance that Lacan drew between the statement, what is said, and the enunciation, the position from which it is said and the desire that speaks through it. The statement of the productivity lament is straightforward: New Zealand produces too little per hour and should produce more. But listen to the enunciation. Who says it, from where, and with what evident satisfaction? It is said from podiums and panel discussions, in Treasury papers and bank newsletters, by people whose careers consist substantially of saying it. It is said with a particular tone, a sort of sorrowful relish, the tone of a old-time vicar cataloguing the parish’s sins. It is never said as though it might be solved next year. It is said as though it is who we are.

Lacan has a name for the object that functions this way, the lack around which a subject’s desire endlessly circles without ever closing on it. He calls it the objet petit a, the object-cause of desire. Its defining feature is that it must never be obtained, because obtaining it would collapse the entire economy of desire built around its pursuit. The mistake is to think we want to catch it. What we want is to chase it. And I want to put it to you that the productivity gap is New Zealand’s objet a. It is the sacred national deficiency. An entire ecosystem of commentary, consultancy, working groups, select committee hearings and OECD country reviews is organised around its contemplation. If the gap closed tomorrow, what would any of these people actually talk about? What would we talk about? The lament is not a failed attempt to solve the problem. The lament is the point. We are not trying to catch the rabbit. We are greyhounds, and the rabbit is the track.

This sounds flippant, so let me add some structure. A diagnosis that persists for forty years despite continuous treatment is no longer functioning as a diagnosis. It is functioning as an identity. And identities, as any analyst will tell you, are defended far more fiercely than mere errors. Which brings us to the defence mechanism, because the productivity lament does not travel alone. It travels with its apparent opposite.

The legend of the wire

Every nation tells itself stories, and one of New Zealand’s favourites is the number 8 wire. You know this one too. The Kiwi farmer, miles from the nearest town, confronted with broken machinery and no spare parts, MacGyver’s the thing with fencing wire and sheer cunning. From this image blooms the whole mythology: we are improvisers, tinkerers, practical geniuses. Rutherford split the atom with, we are reliably informed, little more than string and sealing wax. We put (one of) the first man men on Everest. We punch above our weight class in every ring we enter: sport, film, science, war. A little country that does so much with so little.

But, hang on. The same nation that tells the OECD’s saddest productivity story tells itself, in the same breath, a story of world-beating ingenuity. How do we hold both? The worst performers and the cleverest improvisers? A logician would call this a contradiction. For me it’s quite normal. Because fantasies are not required to be consistent with each other. They are required to manage the same lack, and these two manage it beautifully, from opposite ends.

Look closely at what the number 8 wire story actually celebrates. The farmer is heroic because he does not have the proper part. The improvisation is admirable because the capital is absent. Strip the romance off and the number 8 wire legend is a story about chronic underinvestment, told as a story about character. We took a material condition, the persistent, decades-long failure to equip New Zealand workers with the machinery, technology and infrastructure their counterparts abroad take for granted, and we did something remarkable with it. We did not fix it. We fell in love with it.

This is what Lacanians mean by jouissance, the enjoyment that attaches itself to suffering, the pleasure extracted from the very thing that harms us. The productivity lament and the number 8 wire legend are the two faces of a single structure. The legend enjoys the deprivation directly: look how clever our poverty makes us. The lament enjoys it by confession: look how honestly we admit our failure. Both are ways of getting off on the gap. Neither contemplates closing it, because closing it would end the enjoyment. A New Zealand with frontier-level capital investment would have no need of the wire - the Farmer’s equipment would never have broken, or the spare part was waiting in the shiny new shed, and a New Zealand at OECD-average productivity would have nothing to lament. Both stories would die. I think we would rather keep the stories.

“Punching above our weight” contains the confession in its very grammar. To punch above your weight, you must remain a lightweight. The boast requires the smallness. Listen to the enunciation again: the statement celebrates the achievement, but the enjoyment lives entirely in the qualifier. “For a country of five million!” Remove the qualifier and the sentence deflates. The fantasy is structurally invested in our staying small, because the pleasure is in the exception, and there is no exception without the rule of inadequacy. We do not want to be a heavyweight. A heavyweight who wins is merely a winner. We want to be the plucky underdog forever, and the underdog, to remain an underdog, must keep losing on average.

So here is my awry thesis: New Zealand’s productivity problem persists because we enjoy it. It holds up the lament, the legend, and the boast, which together constitute a national fantasy about who we are. And a fantasy, in the strict Lacanian sense, is not a daydream. It is the frame through which reality is organised, the screen that tells us what our lack means and how to desire around it. You cannot refute a fantasy with a spreadsheet. Which is unfortunate, because a spreadsheet is exactly what the economists keep bringing to the fight.

Bring forth the accountants of heresy

Now for the second toolkit. Modern Monetary Theory has a lurid reputation, mostly manufactured by people who have not read it, as a doctrine of free money and magic beans! Its actual core claims are embarrassingly sober, and the first of them is a simple description of how our monetary system works.

New Zealand issues its own currency. The New Zealand dollar comes into existence when the government, through its central bank, spends or lends it into the economy, and it is deleted when taxes are paid. The government is the issuer of the dollar; households, firms and local councils are users of it. A user can run out of dollars. The issuer cannot, just like the scorekeeper at Eden Park can’t run out of points to award. This is not a policy proposal. It is a description of the plumbing, and no serious central banker disputes it. The Reserve Bank demonstrated it vividly in 2020, when tens of billions of dollars materialised in months because a pandemic made them politically necessary. Nobody asked where the money would come from. The money came from where it always comes from: a keyboard in Wellington.

What follows from this is the second claim, and it is the one that matters. The constraint on a currency-issuing government is never about having enough money. The government cannot run out of dollars, but it can absolutely run out of nurses, houses, engineers, port capacity and electricity (and many other things). Spending too many dollars chasing too few real resources produces inflation. So the intelligent question about any public programme is never “how will we pay for it?” That question, addressed to a currency issuer, is meaningless. The intelligent question is “are the real resources available, and if not, how do we free them up?” This is the argument of Stephanie Kelton’s The Deficit Myth, and of the economists, Bill Mitchell, Randall Wray, Warren Mosler, Pavlina Tcherneva, who spent thirty years developing it while the mainstream giggled.

For me, MMT is a demystification. It walks up to the most sacred object in political economy, the budget constraint, the solemn national wallet that is always nearly empty, and announces that the wallet is a prop. The scarcity of money is a theatrical effect. And here is where the two toolkits fuse, because Kelton’s title is more Lacanian than I assume she intended. The Deficit Myth is a book about a fantasy: the fantasy that the currency issuer is a giant household, that the nation’s money works like a family’s money, that there is a fixed pot and the pot is nearly bare. MMT does the true accounting. Psychoanalysis explains why the truth never lands.

Because it never does land, does it? MMT economists win the technical exchanges with tedious regularity. Central bankers concede the operational points when pressed carefully. And then everyone returns to speaking of the government “finding money,” “running out of room,” needing to “tighten its belt.” The knowledge changes nothing: je sais bien, mais quand même. I know very well, but all the same. I know very well the government issues the currency, but all the same we cannot afford school lunches. Žižek’s Lacanian descriptor, fetishistic disavowal, the ability to know the truth and continue believing the fiction, because the fiction is doing something for us that the truth can’t. The deficit myth survives its endless debunking for the same reason the productivity illness survives its endless treatment. It is not a mistake. It is an enjoyable fantasy.

No country on earth enjoys it quite like New Zealand. This deserves specific emphasis, because we are not a bystander to fiscal puritanism. We are its Bethlehem. Inflation targeting, the doctrine that a central bank’s overriding duty is a low inflation number pursued through interest rates, whatever the cost in jobs, was invented right here, in the Reserve Bank Act of 1989. The world’s first formal inflation target was ours. The Fiscal Responsibility Act of 1994 pioneered the legislated surplus fetish that other treasuries later copied. Small countries rarely get to export ideology. We exported the current reigning superego. We built the global template for treating public money as a moral drama of restraint, and we remain its most devout congregation. The chase for surplus in this country is not economics. It is liturgy. The surplus is an offering, laid before a big Other assembled from credit rating agencies, bond desks, OECD reviewers and the wraith that resembles Ruth Richardson, an Other whose approval is always sought and never secured. And what do we sacrifice on that altar? Real things.

The only things that were ever actually scarce.

Five years on the altar

Which returns us, at last, to the OECD’s chart, because we can now read it properly. The worst real wage performance in the developed world is no longer a mystery to be explained by the weather, or the distance to markets, or some fatal moral flaw in the national soul. It is the itemised receipt for a sacrifice we chose to perform with both arms of macroeconomic policy simultaneously. Or as I like to call it: A dick move.

Start with the monetary arm. When inflation arrived in 2021 and 2022, driven substantially by shipping costs and energy prices following a global pandemic reopening and also, what Isabelle Weber gently calls ‘seller’s inflation’: the margins of firms that raised prices under cover of the chaos, our Reserve Bank responded with the tool it was founded to wield. It raised interest rates with the explicit, stated intention of slowing the economy until the labour market loosened. The Bank’s own communications in late 2022 said the quiet part aloud: it was deliberately engineering a recession. To stop prices rising, we must make workers frightened. The doctrine has a technical name, the NAIRU, the “non-accelerating inflation rate of unemployment,” the idea that some ‘low’ level of joblessness is required to discipline wage claims. The NAIRU cannot be observed, however. Thus, it is re-estimated whenever reality disobeys it. It has been revised so often, in so many directions, that its function is plainly not empirical. You guessed it! It is another objet a, the invisible object around which central banking desire circles, and its practical content is a standing instruction: maintain a buffer stock of unemployed human beings as an supposed inflation anchor.

MMT’s oldest argument, developed by Mitchell and others across three decades, is that this is both cruel and unnecessary, that a Job Guarantee, a standing public offer of work at a fixed living wage, anchors prices with a buffer stock of the employed instead. You may find that proposal radical or impractical, and we can argue about it another day. But consider what the orthodox alternative actually is, because it is the policy we have run for decades. We fought inflation, much of it imported and profit-amplified, by suppressing the incomes of New Zealand wage earners until they stopped asking for more and got real scared about losing their jobs. The OECD’s finding that our real wages remain pinned to the floor of the cost-of-living crisis is not a side effect of that policy. It is the policy, working in all it’s horrid glory. The wage data is not evidence that something went wrong. It is evidence that the mechanism performed exactly as designed. Gross.

Successive governments built this machine, and it must be said plainly that Labour operated it without visible discomfort, appointing and reappointing its engineers, wrapping the framework in wellbeing language while leaving foundation intact. The lament, remember, is bipartisan. However the current government deserves its own paragraph, because it pressed the accelerator with a sadist grin.

Into an economy already flattened by the engineered recession, the coalition brought fiscal contraction, hunting a fabled surplus through spending cuts and mass public sector redundancies at precisely the moment a currency-issuing government’s deficit was cushioning private incomes. This is the dick move: both policy arms tightening at once, a manoeuvre with no coherent macroeconomic rationale and a perfectly coherent theological one: the surplus is owed to the Other. While wage earners were being disciplined for inflation they did not cause, the government found nearly three billion dollars, effortlessly, for restored interest deductions on rental property, a reminder that the wallet-prop is empty only for some audiences. The minimum wage, the one lever that could have defended the floor directly, was raised by 2% in 2024 against inflation more than double that, and by a token amount again the year after, real cuts dressed as increases, so reliably that the OECD now lists us among the countries whose wage floors fell outright over the year. You have to marvel at the negation: we are absolutely not cutting the minimum wage, says the government, whilst cutting the minimum wage.

And then, the masterstroke. In early 2024, this government, elected on promises to close the productivity gap, to “rebuild the economy,” took the Productivity Commission, the one institution charged with staring at the sacred national deficiency full-time, and abolished it. In its place it created a Ministry for Regulation, an agency for the removal of rules, under the leadership of a party whose entire cosmology holds that the gap is caused by red tape. I could not have scripted this better from the couch. The objet a was getting too much direct attention. The Commission kept producing reports pointing at investment, at demand, at the actual structure of the economy, and that sort of thing threatens a fantasy. Far safer to dissolve the observatory and replace it with a shrine to the approved explanation. The gap must be contemplated, never examined.

The Prime Minister, meanwhile, tours the country performing optimism, a man reciting affirmations at a mirror on behalf of five million people, insisting we must say yes and go for growth, while every structural setting of his government says no in real terms. Regular readers will remember what happens when this Prime Minister’s enunciation escapes his statements. A leader who volunteers, unprompted, that he does not need this job has told you what the job is for him. A government that abolishes the productivity watchdog while campaigning on productivity has told you what the gap is for it. In both cases, believe the enunciation.

The causality we refuse

There is one more orthodox comfort to strip away, because it appeared, right on cue, in the RNZ coverage. The productivity lament made its ritual appearance: we are simply not very productive when we work, and our incomes reflect that. Low productivity as brute fact, wages as its innocent consequence. The national character flaw, dressed in econometrics.

MMT and the broader post-Keynesian tradition invert this causality, and the inversion is the intellectual heart of this essay, so it is worthwhile dwelling on. Productivity is not a substance that workers either possess or lack, like rhythm. Productivity is overwhelmingly a function of what workers are given to work with: machines, software, infrastructure, energy, organisation. And investment in those things is not a virtue that falls from heaven. Firms invest when two conditions hold: when demand is strong enough that they expect to sell more output, and when labour is scarce and expensive enough that economising on it pays. This relationship, output growth pulling productivity growth along behind it, has a name and a literature, the Kaldor-Verdoorn law, and it has been confirmed across countries and decades since Verdoorn first documented it in 1949.

Now run New Zealand’s forty years through that lens. What have we actually done, structurally, since the 1980s? We have suppressed demand whenever it threatened to become enthusiasm, by statute, as a founding national commitment, world leaders in the field. We have kept labour cheap, first by breaking its bargaining institutions in 1991, then by running immigration at rates that guaranteed employers never faced a genuinely tight market for long, a strategy that pumped headline GDP while per-capita incomes and capital per worker stood still. We built an economy in which the rational firm buys another cheap worker instead of an expensive machine, in which the national savings pool is funnelled into bidding up existing houses rather than building productive capacity, and in which every genuine boom is greeted by the central bank as an infection to be treated. Then we measured the predictable result, capital-shallow firms, stagnant output per hour, and diagnosed a character flaw.

We are not unproductive because of who we are. We are unproductive because of what we have refused to invest, and we have refused to invest because our entire policy architecture is a machine for manufacturing artificial scarcity, monetary scarcity that does not exist, imposed by people who know it does not exist, in honour of an Other who is not watching. The farmer reaches for the number 8 wire because the proper part was never bought. The proper part was never bought because the money was “not there.” The money was always there. We are the money. Number 8 wire is not our ingenuity, it’s our symptom.

Traversing the paddock

Lacan’s name for the endpoint of a psychoanalysis is the traversal of the fantasy. It is widely misunderstood as disillusionment, waking up, seeing through the screen to the plain truth. It is stranger than that. To traverse the fantasy is to recognise your own hand in it, to see that the lack you have spent your life lamenting was never imposed on you from outside, that you built the altar, chose the sacrifice, and enjoyed it. It is the moment the patient stops asking “why does this keep happening to me?” and confronts the fact that the arrangement has been, all along, theirs.

For New Zealand, the traversal would sound something like this. We choose wage stagnation. We maintain the productivity gap. The money scarcity is manufactured. And this is absolutely not a conspiracy, just a basic bitch policy fantasy we invented, exported, and enjoy pretty much more devoutly than anyone, a fantasy that lets us keep our three beloved stories: the honest lament, the plucky wire, the little country punching above its weight. The OECD has now told us, in the driest possible prose, where the fantasy leads. Dead last. And our national response, within a news cycle, was to gather the priests and agree that dead last was not quite as dire as it appeared. Ritualised reassurance for our enjoyment, that is the problem.

What would it mean to give it up? Genuinely to close the productivity gap, to invest at frontier levels, to run the economy hot enough that firms substitute capital for labour because labour is expensive, to treat the currency as the public instrument it is and reserve our anxiety for the real constraints, the workers we train (or fail to train), the houses we build (or refuse to build), the grid we expand (or not)? It would cost us the stories. No more lamenting our moral failure to produce, no more number 8 wire, no more enjoyment at punching up. We would have to discover what this little country wants when it is no longer organised around loving what it lacks. That is the frighteningly beautiful question. If you have spent enough time on the psychoanalyst’s couch you’ll recognise it. But as we all know, it is much cosier in the familiarity of extant misery, down in the trough of the cost-of-living crisis, where at least we know we’re failing.