Phil Goff’s landmark speech to Federated Farmers today is a highly significant step.
It has three major themes:
- boosting technology to grow productivity in our primary sector
- a strong stand on including agriculture in the ETS (given NZ’s emission profile ag can’t be left out);
- ending two decades of consensus on monetary policy.
This monetary policy announcement is historic. It will help shape Labour’s economic policy into the next election and beyond.
The core problem is that the officail cash rate (OCR) acting alone has not achieved inflation control alongside reasonable stability of exchange rates and money supply. Combined with an imbalanced tax structure, high real interest rates helped suck in hot money that drove the housing bubble.
That was great for banks and baby boomers who already owned houses, but bad for productivity, the foreign debt and younger Kiwis trying to realise their dream of home ownership.
The writing is now on the wall: New Zealand has to earn more, export more, save more and be more resilient: combining a sustainable environment and a decent society with a real plan for growth and high skill, high value jobs.
Kiwis can’t just keep borrowing ever greater amounts of foreign capital, then periodically electing National to flog off what’s left of the family silver to cover the debt.
Government debt is not the principal problem (although the Nats are planning to massively increase it through pollution subsidies to big emitters). Private debt is. And the way out of that quicksand is more savings combined with monetary policy that achieves a better balance between inflation control, growth and external stability.
These are tough problems, and more work is being done to learn from overeas experience and to refine solutions.
It is important to note that Labour will continue to support an independant, full service central bank. We will continue to fight inflation and guard against inflationary expectations. There will continue to be an important role for the OCR.
But as the recent banking Inquiry rightly pointed out, the OCR should not bear the whole weight of adjustment on its own, nor can one instrument be addressed at several objectives. Complementary tools are required.
We can’t expect exporters to thrive with exchange rates swinging from 35c US to 76c US in a year.
We can’t grow without serious investment in smarts and technology that give us in-country commercialisation and manufacturing capability.
And we can’t deepen domestic capital markets through an effective tax subsidy to real estate speculation, or a banking system that is 97% owned offshore!
Labour is on the move to solve these hard problems. Good on you Phil – great speech!
I agree, good on Phil!
The Reserve Bank Act 1989 is one of the reasons why a whole generation of young New Zealanders are on the scrapheap and why workers have been struggling for pay rises for years.
The sooner we ditch it and find another way, and cut out all this PC neo-liberal BS.
Hey Spud, do you just spend all day refershing Red Alert?
So, specifics? Is the plan to replace s8 of the reserve bank Act with a more balanced objective including full employment?
Agreed, David (and Phil). Spend the next two years repeating until you’re blue (red) in the face: Earn, Export, Save, Invest. Earn, Export, Save, Invest.
We know the answer. It’s EESI.
Love it Sammy! EESI!
Idiot/Savant – some Reserve Bank Act reform is certainly possible, but you will have to wait until nearer the elction for details.
“Hey Spud, do you just spend all day refershing Red Alert?”
No, but today I have other windows open and I thought I’d keep checking what’s going on, and why not? I have the time today. Now I’m going to go back to the other thing that I’m doing and keep refreshing Red Alert as the mood takes me.
“The writing is now on the wall: New Zealand has to earn more, export more, save more and be more resilient: combining a sustainable environment and a decent society with a real plan for growth and high skill, high value jobs.”
Probably the smartest thing I’ve ever heard a politican say…
Sounds very positive, and much needed.
It’s a snappy headline alright “breaking 20 years of consensus”, and does give some optimism for Labour’s future electability, but, the detail has to include the full employment goal as I/S suggests. Various treasury minions will be feeling rather queasy today. I realise Phil Goff has just kicked off this process, it will need attention from all who understand the significance of such a move, and the will to educate those who do not.
@ millsy, you must spend part of your day here too by implication if you know what spud is up to!
@Tiger Mountain LOL
It is long overdue to put some constructive thought into how to maintain a workable exchange rate. Much of our manufacturing has already been lost overseas with the evils of unemployment the result.
“breaking 20 years of consensus”, seems to have been ok when in power but strangely not now. It sounds like a catchcry seeking a cause.
Sorry Phil but without any policy specifics its only hot air.
“you must spend part of your day here too by implication if you know what spud is up to!”
I have been on leave from my job for 2 weeks.
Strangely I get more money when I am on leave than when I am actually working…
I think Phil Goff was a major player in the original policy??
I am also on leave millsy .. to reduce the liability on the companies books, we all have to reduce leave to a maximum amount of days .. as we get about 2 days allocated each month, I take a couple of Fridays and I too get a bit more .. happy times. (well not really but I’m sure you know what I mean)
Just to be clear, you’re complaining about high interest rates AND low rates of saving?
And the way to increase rates of saving is by reducing interest rates?
Bill English’s 21% is starting to look quite impressive!
For some useful and interesting ideas read ‘The Grip of Death’ by Michael Rowbotham who forecast our current difficulties 10 years ago.
Also Selwyn Pollett’s Productive Economy Commitee, and the Swedish Riksbank site.
Go,go,go… at long last!
Michael Rowbotham
I’m sure Mr Rowbotham is a nice person, but as far as economics goes he’s a social-credit relic, part of a bygone era of lousy idea’s well past used-by date.
As for ‘forecast our current economic difficulties 10 years ago’, I can’t help but laugh. Ever heard of the Boy who cried Wolf?
“he’s a social-credit relic”
Now where did I see Terry Heffernan lately?
Phil Anderson
I think you may be one of those who caused the problem…definately not one to find a solution.
This is the smartest thing I’ve seen the Labour Party do in the last 10 years.
Actually – make that the last 20 years.
…and the media reaction begins, already the business sector and the government are ripping into Phil Goff with the fervour of Red Gaurds denouncing counter-revolutionaries.
Over the coming weeks we will have the editorials of the country’s newspapers taking their turn in the mass denounciation of the heretic Mr. Goff.
I think that the Reserve Bank should be abolished altogether. The market will work fine without any central control. The followings may be an interesting reading for all of you policy-makers (both left & right). Note the conclusions of the findings from the paper which stated (page 2, last paragraph) that: …flexible exchange rate regimes policy makers have more degrees of freedom to absorb shocks into the economy, as exchange rates may absorb partially such shocks.. In other words, flexibility means, that no central control at all.
Econophysics of interest rates and the role of monetary policy
Phil/David – It’s good to see the consensus has been broken. The single focus on fighting inflation has meant NZ has been a major attractor of hot money while our productive sector has suffered through abnormally high exchange rates.
This direction needs to be built on.
The NZCTU has written a draft Alternative Economic Strategy which is going to be the subject of a number of seminars of union members around the country during the first half of next year.
Some of the ideas in this paper mesh in with the new thinking put forward in Phil’s speech.