I am travelling to the US and UK to discuss my ideas on monetary policy with some of the best economic minds in the world, including former World Bank chief economist Joseph Stiglitz, Harvard academic Jeffrey Frankel and IMF chief economist Olivier Blanchard.
My last meeting in Paris was with a senior economist well versed in monetary policy.
He came straight to the point. There was no ambiguity. In his personal view:
- “It is totally crazy how New Zealand runs monetary policy”.
- “It is the most pure form of inflation targeting of any small country”
- The pure type of inflation targeting New Zealand has run “strikes me as madness”
He believes there is a need to focus more on our exchange rate.
He thinks the differential between New Zealand and overseas interest rates has been bad for New Zealand. He also believes the mix of capital investment in New Zealand has been problematic.
He made reference to changes suggested to “the Taylor rule” for smaller countries.
As we leave Europe to get the views from the IMF and various leading USA-based economists, I am struck by these main points:
- No-one thinks we should ignore inflation.
- New Zealand’s approach to inflation targeting has been extreme.
- Even before the GFC, other countries were more concerned about their exchange rate than New Zealand
- Since the GFC, unorthodox practices have increased, and even the arch defenders of inflation targeting now concede other countries are properly pursuing other interests
- It is common for other countries to use additional mechanisms to guard against liquidity and asset bubbles
- Smaller countries are different to larger economies
- To grow the breadth of our exports we have to counter the additional risks faced by our non-dominant exporters
- Some answers lie in a more nuanced approach to inflation targeting compared with exchange rates, including the greater use of tools other than the interest rate
- Other answers lie outside monetary policy in tax and fiscal and industrial policy, the most important of which is to introduce a capital gains tax.
Australia of course doesnt have inflation as its sole policy target
” Bank has a duty to maintain price stability, full employment, and the economic prosperity and welfare of the Australian people” -RBA
Successive governments have been lying about inflation for decades. How about committing to calculate the CPI without resorting to rogueries like quality adjustment?
Looking forward to the policy that evolves out of this.
Although many kiwi economists and others have been saying this for at least the last decade.
Isn’t is funny how we need international experts to validate what is blindingly obvious.
Yes, New Zealand’s monetary policy is totally crazy.
The structure of our economic system is crazy, underlying that is the structure of our monetary system.
It requires perpetual growth, in a finite space. THAT’S crazy. It’s mathematically impossible.
Yet Labour will tinker with focussing on inflation control or exchange rate control. All the while aiming for more growth. In a finite space!!
When will you acknowledge the elephant in the room??
David did you ask any economists you met about the wisdom of taking on billions of dollars of social spending when the economy is flat lining as you did from 2005 to 2008? Did you also ask them about the wisdom of taking on fifteen billion in more debt? Did you discuss with them the economic orthodoxy of the mixed ownership model?
Tinkering may be all that you are allowed to do as international bankers control NZ.
If some intelligence and courage was applied then most economic palaver would be viewed for what it is; tinkering whilst ignoring the main barriers to having a future.
Meanwhile the tripe discussed prevents substantial discussion and any change from the growth of empire ruled by bankers.
Economic crises are caused by predatory action of a few manipulating the money systems for their own gain. Be it wars between countries or classes, embargoes, “free trade”, insider trading, vagaries of a stock market system or other gambling opportunities which are rife and destructive.
The long term destruction is largely ignored, no intelligent discussion prevails as it is ridiculed, categorised derogatorily and largely ignored.
http://www.alternet.org/hedges-we-distract-ourselves-petty-spectacles-while-world-goes-hell?paging=off
Some have given serious thought to an economic system that would allow a future. This paper advanced as a thinking stimulus , looks at locking money systems and economies to a structure based of carbon footprint. There is no long term with the current system with or without tinkering.
http://www.timun.net/index.php?nID=1
NZ is poisoning its soil with phosphate containing Cadmium yet the only solution being looked at is to add lignite to support longer term addition of more cadmium.
Another legacy of this generation using up future generations natural assets. Cadmium is toxic and while regulations have been changed to allow further poisoning of our soils so the economics of dairying are not affect, the revealed accumulative damage is profound although the research is minimal to date.
A Kiwi Speaks Out
http://www.interest.co.nz/rural-news/60810/opinion-long-term-poisoning-our-rural-soils-heavy-metal-cadmium-threatens-vast-trac
Lara , the growth is inherent, whether is a coral reef or a hive of bees. It also gave you a job without it being inherited from your parents
Growth isn’t inherent, in fact Bees and coral reef are in serious decline. We are just another species after all, and their will be a point in nearish future where ecological principles dictate there are to many of us and a reduction will occur.
Plenty of example of human culture and society that haven’t and didn’t rely on continual growth. If you mean we require growth to maintain our current social and economic system, then yes.
Plenty of human societies that havent relied on continual growth ?
So you would have a list of 20 to 30 then ?
Except the current Key government which has negative growth per capita in the last 4 years
yep
Could you mention this to the people who didn’t vote last election ! Whilst giving them some hope that there is an alternative? Thankyou
John Key and Bill English do not have a clue how to run an economy, they are trying repeat something which has been an abject failure over the past 20-30 years.
Doing the same thing trying to get a different result is the definition of insanity.
To have a floating exchange rate which can be manipulated by Merchant Bankers in the USA is a nonsense.
The pidgeons will come home to roost with this lot and the damage they have done to the NZ Economy while filling the pockets of their wealthy mates.
John Key was head hunted by the BRT to carry on the asset sale/transfer program to the wealthy that control this country.
He and Bill English are merely puppets for the puppet masters who control this country.
@ghostwhowalksnz So you’ve figured out mathematically how to have perpetual growth within a finite space have you? Please do tell. Mathematicians would be very interested to hear this one.
Yes, there are plenty of civilisations which did not rely upon perpetual growth, Ancient Egypt and many communities within European middle ages prior to 1780 (about), and many hunter gather societies including some still living as they have for a long time within the Amazon.
BUT – Even if there were none the point remains the same. Earth is a finite space. New Zealand is a rather small finite space. It is simply impossible to have perpetual growth in a finite space.
If you are having trouble understanding simple mathematics (which you seem to be) watch this clear easy to understand (and surprisingly entertaining) lecture on arithmetic and exponential growth from an old Colorado physics professor:
http://www.albartlett.org/presentations/arithmetic_population_energy.html
We need to restructure our economy to one which can cope with zero growth.
I have spent several years reading and learning about this and discovered there are different ways to structure how money works which would create a very different economy, and it can be done to have zero growth and true sustainability.
This is the best resource I have found which explains the problems with our current system and outlines a simple elegant solution:
http://issuu.com/margritkennedy/docs/bue_eng_interest
Zero growth is a start for the necessary shift in thinking – if we are to plan some sort of long term future.
But we are already too many, with the human population requiring one and a half Earth’s to support the present population at a level of material lifestyle far below what we are used to in NZ.
Human population will reduce, it is just a matter of how much damage is done while this occurs. The greater the impact humans have on the natural resources then the smaller the long term Human population will be.
Justification for exploiting and consuming our great……..grandkids platform for life, is not only immoral by most human codes but is symptomatic of a dangerous state of mind. Our self appointed “leaders” need to be not only kept in check , but we cannot rely on them for information and education.
Any thinking that supports consumerism and the greater exploitation of natural resources is counter to our best interests as a species. Economics often represents structured excuses for ignoring fundamentals. A convenient state of avoiding looking at the inevitable.
Management of our existing position must include change with reduction of ongoing damage to the biosphere and natural resources. Secondary to this is the state of human lifestyle.
Do we carry on bowing to the ruthless bullies who are driving this bus we are on toward a cliff, with increasing speed.
Growth has been exponential driven by coal then oil and greed of the banking system, which issues money but the interest attached forever drives the crazy whirlwind of destruction with increasing velocity.
Growth is often quoted as a job creating element but you have to ignore fundamentals to swallow that assertion. Every day mechanisation swallows jobs as our technologies as hell bent on reducing work.
Redistribution of wealth is simple as we don’t have to work as we did in the past.
Instead we have concentration of wealth with a raft of slogans and rationales to keep the myths alive; that are shown to work for the few and against the many.
Who’s kids are you going to get rid of John W? Or, to phrase it differently, who shouldn’t be allowed to have children. Who should have only one child per family, or who should have a late term abortion if the officials decide their family is large enough as per China?If you’d ever traveled you’d know that the world is not actually that populated.
Monique – How reduction in human population occurs will unfold with time.
There are many predictions but patterns that have some credibility include reduction of population associate with:
education, changing social attitudes, restriction of family size by some form of regulation, warfare, disease and epidemic, starvation, disaster; toxic conditions such as nuclear radiation, poisoning of soil, insufficient fresh water and salination, pollution, dietary imbalance, genetic aberration – you may well add to the list.
China’s move to planned restriction of families has been modified over time but already the plan has slowed the human population growth by a number estimated to equal the present population of the USA.
It takes more than land space to support people. The amount of fertile land is shrinking as intensive cropping, irrigation, use of fertilisers, genetically modified toxic crops and rogue pollen, irrigation and pollution damages the soil and range of available food crops, and now climate variation is linked to drastic reduction in crop output.
The coastal zone holds ¾ of the world Human population yet is about 5% of the landmass. Rising sea level affecting fertile river deltas and flood plains will change life for a billion people.
A wide biodiversity of species contribute to an essential gene pool for future regeneration of the biosphere, to soil fertility and climate balance. Vast uncultivated tracts are extremely important to human existence directly and indirectly.
The oceans have been plundered and many species fished out. Ocean acidification with high atmospheric CO2 [ presently nearly 393 ppm and climbing at an increasing rate ], is killing off micro organism vital the the marine food chain. Large and growing areas of ocean damaged by bottom trawling, have lost viability. Pelagic species once fished in abundance are being decimated specie by specie. The availability of fish has long past peak catch levels. We don’t have another ocean to raid.
Fresh water shortage is looming and we may have to substantially change our diet away from animal products.
Listen to Dr Jagerskog on the National Programme, 9:40am this Sunday morning.
NZ’s population is near to static before immigration is included. A small change could see our birthrate fall below natural replacement, and that is before we take into account our export of Kiwis to Oz.