the proportion of the population who are contributing to the production of goods and services in the market economy, and about increasing the productivity of those people. what scope is there for increasing the proportion of the population who are contributing to the production of goods and services in the market economy? not very large. certainly, not nearly as large as was the case in ireland and finland when they began their period of rapid growth, with very high levels of unemployment. participation in the workforce by those between 15 and 64 is currently around 66 per cent in new zealand, not far below participation rates in singapore and ireland ( 68 to scobie and mawson, op. cit. 70 per cent ) currently, and unemployment, while higher than anybody feels comfortable with, is already approaching levels which are relatively low by oecd standards. getting still more people into employment in the market economy may involve making some difficult social and political trade - offs. for example, does the present welfare system – with largely unrestricted access to benefits of indefinite duration, and with a very high effective marginal tax rate for those moving from dependence on such benefits into paid employment – provide appropriate incentives to acquire education and skills and to find employment? nobody that i have ever met in new zealand wants to deny those who are temporarily down on their luck sufficient income support to enable them to get back on their feet. in that respect, we are not willing to pay the price which singapore paid to achieve very high growth, a society almost devoid of taxpayer - funded income support. but increasingly it is recognised that we will not achieve a radical improvement in our economic growth rate while we have to provide income support to more than 350, 000 people of working age – 60, 000 more than when unemployment reached its post - world - war - ii peak in the early nineties – to say nothing of the 450, 000 people who derive most of their income from new zealand superannuation. this is partly because of the huge fiscal costs of these transfer payments – amounting to an estimated $ 13 billion this financial year, or some 11 per cent of estimated gdp ( both figures include the fiscal cost of new zealand superannuation ). this cost substantially constrains the government from devoting more resources to education, law and order, research and development, and tax reduction. indeed, it is probably fair to say that there is no other part of the government budget which can provide resources for these things. certainly, it is hard to see scope for big

individuals, circumstances differ hugely. young people starting out in the housing market probably always will borrow a large proportion of the price of their first house, and a large amount relative to their current income. such loans are risky for the individual borrower if bis central bankers ’ speeches something goes badly wrong. but for a well - managed bank ( and for the economy as a whole ) higher risk loans like those will typically be balanced with other loans which have gradually been being repaid for 20 or 30 years. for whole economies, “ too much ” debt can cause problems. but researchers are not really sure quite what is “ too much ” ( among other things, measurement and institutional differences complicate things ). historically, a much better indicator to watch out for has been large increases in debt ( relative to incomes ) for several years in succession. as reinhart and rogoff have documented, financial crises are often followed by tough economic times. but even without a financial crisis, periods of rapid increases in debt tend to be followed by periods of economic stress – recessions that last longer and prove more troublesome than a “ plain vanilla ” recession, in which any lost output is recovered very quickly ( new zealand ’ s mild 1998 recession might have been an example of that sort of recession ). there are good reasons why a large and rapid increase in debt ( to gdp ) seems to matter. debt is not taken on in a vacuum. people are readier to take on debt when they are relatively more optimistic than usual about the future. banks are keener than usual to lend when times feel good. and people make choices, re - organise their balance sheets and their spending patterns on the basis of that heightened optimism. any number of factors, often at least a couple in combination, can result in a credit boom getting started. countries ’ experiences differ on that score, even in the most recent boom. but, typically, something causes spirits to lift, and with them spending and business activity. people become more willing to take the risk of buying a house or farm, of consuming more of their incomes than previously, or of expanding a business. once credit is growing rapidly, the process tends, for a time at least, to be self - reinforcing. easy credit tends to lift asset prices ( strengthening expectations of further price increases ), and people feel wealthier as a result. experience tends to confirm people ’ s initial heightened sense of optimism. expectations of future incomes are revised up and people make