Ill fares the land, to hastening ills a prey, where wealth accumulates, and men decay. Oliver Goldsmith, The Deserted Village, 1779
This is the by-line to the 2010 book entitled “Ill Fares The Land” by Tony Judt on the growing inequalities of wealth and opportunity around the world.
I recommend the book, which David Cunliffe and Shane Jones each recommended to me. It examines the different outcomes for social cohesion and equality of social democratic cf conservative policies.
It describes well what is obvious to many in Labour. “We have entered an age of insecurity – economic insecurity, physical insecurity, political insecurity. ….. Insecurity breeds fear. And fear – fear of change, fear of decline, fear of strangers and an unfamiliar world is - corroding the trust and interdependence on which civil societies rest.”
There is much in this book which is worth reading. It has relevance to debates about total tax, our unjust tax mix, NZ’s appalling corrections policy, wealth inequality and the reality that our best assets now can only normally be afforded by NZers lucky enough to inherit wealth (and overseas investors from societies with concentrations of wealth).
We now see the differences between left and right playing out most weeks in parliament. This very week in parliament we are considering an Infrastructure Bill which has a rotten amendment by the government. It is another example of the sort of change in society caused by right leaning governments, which are described in the book.
The Bill as introduced by Labour included provisions relating to affordable housing. Now I concede there is a proper debate to be had between Labour and National whether all of those provisions are appropriate. Labour says yes, National no. But there should be no argument about the provisions in the Bill banning restrictive covenants in subdivisions against low cost housing
Make no mistake, in effect National are saying they see nothing wrong in the developer of land being able by private covenant to exclude those who can only afford less expensive housing from a new suburb. These sorts of restrictive covenant are new in New Zealand and ought to be stamped out. Allowing private planning to exclude those less fortunate from living near them is not right. National thinks that gated communities of wealthier New Zealanders are the way to go. It is yet another practical example of National’s right-wing values. It is wrong makes New Zealand a worse country.
It shows what a flawed set of values guides their decisions.
@Jeremey M Harris in that case, for me, you better add politics/democracy along side your mandatory financial literacy education.
Re: binding referendums – what do you envisage being the best way to educate the public on and debate the issues around each referendum before it comes to be voted on? It seems to me that would be an excellent idea – but people need to be interested and informed on the topics and arguments well in advance before they can cast a vote which is at really meaningful. (As opposed to a vote which might as well be random).
Well if we lowered the signatures required to trigger a referendum from the ridiculous 10% it is currently, to say 2% (some parts of the world it is under 1%) and make the results binding, I think we would have 2 referndums every 6 months…
We could therefore have referndums every 1 March and 1 Sept with the General election on Sept 1 every 3 years and Local Government elections on 1 March 18 months after the General… I think it may be possible to do the whole thing online, with some polling booths for those without the interest keeping down cost, by making the referendums regular people would get used to debating the issue in the lead up and we could have a televised debate on TVNZ the night before each one…
Just some thoughts…
I like the idea of weighted votes depending on the issue
For instance if it was an issue that primarily affected those why should votes in Auckland be worth as much. The Swiss have some sort of weighting in their system.
missing text – affected those “in Canterbury”
It’s ridiculous though isn’t it? No matter the semantics it’s a legal monopoly enforced by the state. The same as every other central bank.
Same as the federal reserve. There’s more to money creation than simply printing money.
You’ve yet to put forward an argument on that point. You’ve only made an assertion.
Nick – It was created by an act of government. It is granted a monopoly by government. It really is a state institution.
From the Federal Reserve website:
Here’s a prescient quote from Thomas Jefferson:
@Quoth the Raven
Curious do you think a “Gold Standard” dollar is the answer or a Global currency? Not a leading question; I don’t know.
I think that quote is actually, “the corporations that grow up around them will turn them into slaves in the land their fathers conquered”…
(If a central bank is created)
@Quoth Yeah I agree with you on that. The federal reserve in the US is ridiculous it behaves much more like a private enterprise than our central bank does. An example being that the US fed reserve has private shareholders, our central bank does not http://www.rbnz.govt.nz/faqs/0149175.html
I do trust our own central bank though. While they print money they do it less than America they don’t run around loaning billions to ordinary banks on interest on a regular basis and they work hard on implementing monetary policy that counteracts inflation too e.g the OCR, the OCR has been a great invention by aussies and NZers. The US doesn’t have an OCR or any reasonable equivelant.
I am yet to put foward a point on inflation not being the govt.s fault? Do you really want me to go there (- _ – ) Ok here is a point:
It’s the middle of winter in happy free market new zealand, it’s a cold winter so demand for heaters has increased. Now from this two things can happen to avoid shortage, the firm can increase quantity supplied to restore equilibrium or they can restore equilibrium by lowering demand by raising the price. Either way it would make extra profit, increased sales would obviously bring in extra profit, less obviously an increase in price which they would set to the point just before it offsets the loss of sales (they wouldn’t lose a proportionate amount of sales right away) Now the latter will always appeal more to buisnesses because the former involves the extra cost of producing more and they would therefore make less profit (this is a small glimpse into marginal analysis). There you go inflation occuring with no government intervention.
This isn’t only inflation but is a deadweight loss which looks extra bad for the unregulated free market.
The above is occuring under imperfect competition (are electrical appliances an oligopoly in NZ? IDK but assume so for examples sake since we have plenty of other oligoplies which could be used as examples). Now we have gone over in the past how imperfect competition nautrally emerges in free market’s, if you want to go over that argument again to recap or something I would be happy to. (to add something to that argument we had long ago. perfect/near-perfect competition does occur alot in free markets and those markets need to be left alone by the govt. And you were right in how govt. manipulating imperfect competitors further strengthens (the already basically imepenetrable) barriers to entry which is why I think the govt should just take them over
)
So there is yer point
Sorry, where I said (they wouldn’t lose a proportionate amount of sales right away) that’s because the demand has increased afterall.
@Dylan I once though the OCR was good, it isn’t it hurts the NZ economy where it counts our, Export sector. It is a blunt instrument that damages our productivity.
Richie, of course it damages our productivity it impedes the growth of the entire economy and that’s the whole point of it. That’s the only way you can fight inflation which will damage productivity even worse in the future if you just leave it be. Growth has to be steady and slow inflation is the bane of economic growth and can’t be taken lightly
@Dylan
I’m not going to write screed on it but give this a read, it is worth it.
http://www.erosgroup.co.nz/myfiles/ILSS_Submission_ExecSummary-final.pdf
You don’t need to destroy jobs to control inflation and pay foriegn investor for that service, it is that simple.
@Dylan ps -also an excellent chapter in Brian Gould book Rescuing The NZ Economy also.
@Dylan – From the Manufacturers & Exporters Association
Another way to manage inflation
http://www.mea.org.nz/documents/36-a_case_for_compulsory_superann.pdf
Our monetary policy has not delivered wealth creation and one of the main tools the “OCR” does the opposite, it transports it overseas and screws us on the way.
Dylan – The point was not inflation occurring without government intervention. The point is monetary inflation in the current context is government’s fault. You haven’t made the case that in the absence of this monetary inflation we would have the widespread inflation we do now you have only given a mechanism by which inflation would occur and one could equally give an example of deflation.
Imperfect/perfect competition is another red herring. I don’t claim that there would be perfect competition on the free market and I don’t think it follows from that that we need imperfect government intervention.
@Richie
While high interest rates impede economic growth, are you aware that the OCR could be set at a position at some point where bank’s interest rates could be even higher without the OCR? The OCR does lower sometimes they’ve lowered it alot in recent years and I wonder if those interest rates would be even higher without the OCR. But anyway that aside. If you want to manage inflation in any way whatsoever it is going to involve impeding economic growth. Your second link suggests forcing people into superannuation to make us save more, which reduces inflation And economic growth at the same time. While that could be a good idea isn’t that what the OCR does already? Fiscal policy tries to increase economic growth and monetary policy tries to manage inflation I don’t see any reason to change it if you change the tools/management in the way the govt. manages things it is going to produce the same results just in a different way.
@Quoth
I said inflation occurs in the free market, you argued against that by saying it’s the govt.s fault. Sometimes its the govt.s fault sometimes its the markets fault. That is where our conversation has gone hazy I think we’ve both assumed for whatever reason the other is trying to say the possibilities we are raising are absolute know what I mean? Your saying monetary inflation is the govt.s fault I am not saying that is not true, all I was ever trying to say was inflation occurs in the free market nothing more.
But what is your alternative to a central bank managing the money supply by the way? Do you think there should be some sort of competition in the supply of money how would that work?
@Dylan
The OCR does control inflation, although it began to show problems end -08 in the face of the housing boom and energy prices. I accept that dampening economic activity is a method of controlling inflation.
I contend the OCR has significant unintended consequence that have negative effects on our economy both in the short and longrun.
BOTH the alternatives supplied allow the OCR mechanism to be kept as a back up.
Ill address you point by point
1)While high interest rates impede economic growth, are you aware that the OCR could be set at a position at some point where bank’s interest rates could be even higher without the OCR?
Yes I have a mortgage and grew up in the 80s and 90s.
Both alternatives I have highlighted raise the level of personal saving, so money can be found locally and without the OCR as a surcharge. Investment by New Zealanders in New Zealand, fancy that?
Our risk profile would be lower so money would be cheaper in the longrun.
Remember we have some of the highest interest rates and debt levels in the OECD but not the strongest economy -don’t you find that perverse? It is because we invest in property that doesn’t actually produce anything apart from capital gain and we know where that takes you.
Therefore the OCR supports the unproductive part of our economy and this helped create the property investment monster that almost sunk us.
2)The OCR does lower sometimes they’ve lowered it alot in recent years and I wonder if those interest rates would be even higher without the OCR.
*As above
3) But anyway that aside. If you want to manage inflation in any way whatsoever it is going to involve impeding economic growth.
Yes, the goal is to reduce the money supply hence reducing economic activity. So why does the money need to go offshore in the form of a debt surcharge to foreign investors?
Why not save money in New Zealand for New Zealanders to use in developing new businesses?
One unintended consequences of the OCR system results in an over traded NZD creating volatility. Over the last decade it has resulted in a dollar that is to high. This has resulted in unnecessary costs to our exporters.
4)Your second link suggests forcing people into superannuation to make us save more, which reduces inflation And economic growth at the same time. While that could be a good idea isn’t that what the OCR does already?
No the OCR doesn’t do this, it does the opposite, it makes the cost of debt higher and makes us send more servicing it. The resulting reality is more money moving offshore. This has been our experience with the OCR.
The super scheme allows the contributions to be set according to the inflation risk. High inflation risk high savings required, low inflation low contributions required. Singapore does it.
What is the better option make people save or make them pay higher costs?
The first link I gave, takes money out of the economy in the same manner as the OCR; that is a surcharge on debt, but the difference is the individual keeps that surcharge in a kiwi saver account. This surcharged is manipulated according to the inflationary risk. It can be even targeted regionally, why hit drought stricken Canterbury farmers with a cost increase when it is Waikato farmers doing well?
Fiscal policy tries to increase economic growth and monetary policy tries to manage inflation I don’t see any reason to change it if you change the tools/management in the way the govt. manages things it is going to produce the same results just in a different way.
It isn’nt going to give you the same result. Yes inflation will be controlled but the way our economy is set up will be fundamentally different.
1) Our savings rate will improve,so we don’t need foriegn capital.
2)Balance of payments will improve, higher debt payment won’t be heading offshore.
3) Our currency won’t be so volatile as the Market will set the dollar. It won’t be indirectly set through the OCR and speculated on for short term gains as a result. Giving our exporters a even playing field on the international market.
4) Our economy will get the right signals about investment and production. Our exporters will be left to get on with making stuff at the right price with the ability to access local money for investment.
I think we have given our current framework enough time to deliver and it clearly hasn’t.
The first link I gave you goes through it in minute detail, I haven’t done it justice.
@Richie
‘I accept that dampening economic activity is a method of controlling inflation.’ Don’t you mean it’s THE method of controlling inflation? The only other method I can think of is the way which I believe we should control inflation, getting the government either through regulation or ownership to make buisnesses increase quantity supplied instead of price when demand increases. Of course that is only countering demand-pull inflation and only to the extent where we have utilised all of our capacity. Cost-push inflation is inevitable inflation that is a correct free market signal and if you mess with that, well, your f***ed.
‘Remember we have some of the highest interest rates and debt levels in the OECD but not the strongest economy -don’t you find that perverse?’ No, I don’t. It sounds logical to me.
Now there is one thing I want to go over with you about the OCR before I talk about the rest of your comment. Are you aware that when the OCR increases, savings increase not only domestically but with foreign investors aswell? Increasing interest rates doesn’t only refer to the cost of borrowing, it refers to the returns on saving too. If you increase the OCR people are not only less likely to borrow/spend they are more likely to save because they get more interest and that also brings in foreign investors wanting to save their money here.
On the other hand if you Decrease the OCR… well that just changes everything we are talking about and inflation management isn’t the issue anymore. When the OCR decreases That is bad for savings and keeps our foreign savers, sure. But if this is what your referring to, this is in a situation where we are experiencing economic decline and the economy needs stimulus. Can you please clear this up with me, how exactly does the OCR send our money overseas and how is supperannuation a better alternative, obviously assuming Inflation is the issue in the first place and we need supperannuation / the OCR to rise?
This has just made me realise another problem with compulsory superannuation. What if the economy experiences economic decline? The thing about the OCR is it’s flexible, when we have economic growth it rises to counter inflation, when we have economic decline it lowers to counter that. Compulsory superannuation locks those savings into place because you can’t get them out until you retire, and in periods of economic decline inflation isn’t the issue, so it’s a much less flexible policy than the OCR.
’2)Balance of payments will improve, higher debt payment won’t be heading offshore.’
Oh, so are you referring to how our banks are foreign owned so when we pay back debt+interest the money goes overseas in that way?
For a really interesting look on how the OCR affected NZ during the 80s and 90s check out this doco:
http://www.nzonscreen.com/title/in-a-land-of-plenty-2002
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10664062
Note the Chair is from Fletcher building and one of the recommendations is more private parties in the housing provision sector. Given, Fletcher’s probably have a decent contract to build houses for the Govt (?) perhaps they are impartial. I just worry when a company that has to date walked away cost free from the leaky home debacle is in a position to give credible advice on the best way forward in the provision of quality housing stock.