Sunday, May 19, 2013

An Alternative Budget.


An alternative Budget, From Matt McCarten.
  Matt has posed this as a "left wing" budget.

However many of the ideas would have been considered centrist economic thinking not long ago.
Just shows how much right wing extremists have dominated economic thinking.

"1. Abolish 15 per cent GST. Replace with 1 per cent financial transaction tax as recommended by the New Zealand Bankers Association. Same money."
An idea which is being looked at seriously all around the world. It does need adoption by many countries at once to prevent banks dodging it.
"2. Abolish PAYE on wages and salaries. Replace it with a wealth tax and a capital gains tax when shares, businesses, land and property are sold. People are taxed when they're cashing up, not when they are making it."
Actually an idea of that noted arch socialist, economic thinker, Adam Smith. "Tax the owners of capital and land, not labour and entrepreneurs, because they produce the wealth".
"3. 90 per cent Death Tax. You can't take it with you. Grown-up kids should earn their own money anyway."
True, but I think their should be a threshold, say, a million dollars. No reason why one family should be allowed to accumulate ever increasing wealth over generations., and many sound economic and social justice reasons why they shouldn't. However parents should be able to pass on some to their kids.
"4. Rent-to-buy homes underwritten by the state. Limiting homes to two a family and having a capital gains tax will keep prices affordable."
Exemptions for family homes or restrictions on the number of homes a family has may not work. How do you define family?  Better to again have a threshold. Maybe set at the current median price.
"5. State-created work schemes for all long-term jobless."
Not bad, but I think a Guaranteed income is better, bearing in mind that in a steady state sustainable economy we do not need all those working hours.
"6. A living wage set at $20 an hour minimum. It would be a stimulus package."
Contrary to often expressed opinions from the rabid right, minimum wages increase demand and increase jobs and business profits. A better form of stimulus than gifting money to the banks, who lost it in the first place.
"7. No tax on profits kept in a business."
An incentive to invest in business growth, entrepreneurship and employment, not speculation.
"8. Free public transport in major cities. That would get people out of their cars."
Likely to save on roading, energy, and other costs long term.
"9. Victims get 100 per cent state compensation for loss or injury. Offenders work it off if necessary.
I hope that is extended to those who knowingly sell harmful products and politicians who work against their constituents best interests.
"10. Make KiwiSaver a state-owned fund and buy all the Government's non-core commercial assets."
Still doesn't give the investment in sustainable productivity we need for the future, but better than putting it in the financial lottery that is overseas financial markets. The same ones that lost all the US pension funds.

All in all a much more progressive and sound budget than National's recent mean spirited and dysfunctional, joke. 

Saturday, May 18, 2013



It is notable that ordinary citizens, whatever their political views, do not trust politicians to act in the best interests of New Zealanders.
A distrust that is richly deserved!
And vote by overwhelming majority, for any measures which restrict politicians power and increase democracy.

It is no accident that Switzerland is the most stable, prosperous and peaceful state on earth.

Compare Switzerland to so called "representative democracies". An oxymoron equal to, "intelligence agencies".

The magical world of New Zealand's, Neo-Liberal, right wing.


 The magical world of New Zealand's,  Neo-Liberal right wing.

It has been obvious that some people live in a different world than the rest of us. 

One where Chicago school economics, work!
One where you save the village by blowing it up! 
One where global warming can be stopped, Canute like, by legislation. 
One where dropping wages and giving everything to bloated financiers, makes us better off!
One where removing money from an economy makes it work better.
One where every country is going to get rich by out exporting every other country.
One where enabling greater inequality than the dark ages, works!

 The one with the trickle down fairy. "Give us the money and we will p-- on you".

The market fairy. "Leave it to the market and we will cut your wages,impoverish your children, and tell you it is a brighter future".

The Austerity fairy. "We will become better off by becoming poorer".

The catching up with Australia fairy. "We will catch up with Australia by doing almost the opposite of everything they have done".

The Democracy fairy. "We will let you vote, to change the names in Government, or on a few social issues which do not affect our making money off you, but not to make any meaningful changes to the way the country is run".

The privatisation fairy. "We will ensure that the NZ current account is forever in deficit, by selling all the income earning assets"

The debt fairy. "We will cut debt by borrowing $300mill a week, to pay for unaffordable tax cuts, to pay for our Hawaii holidays".

The Job fairy. " We will increase the number of jobs by putting thousands out of work, and cutting the unemployment benefit".

The "We support business" fairy. While ensuring New Zealanders have no money to buy from local businesses, and increasing small businesses costs.

The better future fairy. "We will give you a better future by paying you less, charging you more and cutting services".

It is pretty obvious which side of the political spectrum is on another planet. Planet Key! 
(New Zealand's,  financial industry shill, Prime Minister).

Tuesday, May 14, 2013

The Reserve Bank, Debt and the Property Market


In New Zealand we have the "Reserve Bank Act".

Which basically requires the reserve bank to kill the rest of the economy, whenever Auckland house prices, or wages, rise.

Originally enacted, as a circuit breaker, to cap excessive inflation in the 80's, politicians have kept it, long past its use by date, because in their limited view, what works once, briefly, will work perpetually.
It could be argued that it was somewhat successful in curbing very high inflation, on that limited occasion, though others would note that the end of very high inflation ended with the slowing of the rise in oil prices.

Now, every time the New Zealand productive economy struggles off its knees, the reserve bank delivers another knockout.

Howdaft.  Puts it so much better than I can.  I have republished his article here.

I have highlighted some in bold.

"The issues of house price rises in Auckland and Christchurch is prompting comment that it may be time for the Governor of the Reserve Bank to raise interest rates.   It is noted in the media that an increase in interest rates will result in foreign money seeking higher returns to enter the domestic market and this will also increase the value of the already overvalued dollar. 
What hasn’t been commented on is that an increase in interest rates will also penalise every business and household in the country including everyone resident in Auckland and Christchurch who already have a mortgage and have no intention of buying or selling a home.  There will be no beneficial behaviour change within that wide group who are not seeking to get further into debt but it will impose hardship and constrain the rest of the economy.  The interest rate rise would be imposed simply as an attempt to limit price rises in response to artificial shortages of housing in two localised parts of the property market. 
The more sensible action would be to address the cause of these shortages rather than attempt to alter the market response by raising interest rates.
The Reserve Bank Act is not only completely ineffectual at slowing property prices it is the root cause of property price inflation.  Because the Reserve Bank Act obliges debtors to pay over the market price for debt, it also guarantees lenders greater than normal market returns on investments.  The result is that foreign cash looking for high and secure returns has flooded into the New Zealand property market.  The banks are incentivised to actively inflate the property market because of the high returns it provides (thanks to the Reserve Bank Act) and because of the flood of money that they have to invest.  As a result the more the Reserve Bank increases interests rates above the natural rate for the marketplace the more money that flows into the property market, the less risk averse lenders need to be because they receive higher margins on loans and this results in banks adopting laxer lending practices, this then leads to property price inflation which results in the rate of increase in capital value of the property (in the overheated parts of the market) to exceed the cost of debt - for a while at least – the negative real rate of interest in this small part of the property market consequently further incentivises borrowing.
The end result is that we are as a nation carrying far more debt than is necessary for the economy to function effectively, we have a ruinously over valued property market, we have a grossly overvalued exchange rate, we are bleeding our scarce foreign earnings on interest payments on all the debt and meanwhile our productive sector is crippled by both the cost of borrowing and by the over-valued and highly unstable exchange rate, Instead of suppressing inflation, the Reserve Bank act causes inflation.
The Reserve Bank Act is singularly the most stupid element of the reforms of the 1980’s.  It is utterly illogical in that it defies the simplest of precepts of economics.  The answer to the problem of inflation is simple.  If a government wishes to increase the cost to the consumer of any element of the economy without increasing the supply of that element it imposes a tax not a compulsory price increase – alcohol and tobacco are excellent examples of this concept in action.   The government also targets only those activities it wants to constrain.  So when it taxes alcohol it does that based on alcohol content – it doesn’t tax all liquids.
A tax also allows for redistribution and targeting by the government to occur so if the tax imposes on lower income households this can be resolved through social payments with the tax on debt as a source of funds.  Similarly the tax can be linked to the asset class or region causing the problem so there may be a lower tax on business debt.  This is not difficult; the banks already set interest rates by the manner in which the debt is secured, the tax could be similarly targeted.   This is only one possible mechanism as there are is a range of possible taxation responses to this problem which these need to be linked into a wider strategic review of the role of taxation in the economy.
At a more fundamental level any market failure or physical circumstances causing the price pressure also needs to be addressed.  Auckland prices are being driven by a range of other policy actions by government that put inflationary pressure into the market.  These include allowing uncontrolled foreign ownership of residential real estate, immigration – from both within New Zealand and from off-shore - and from a failure to fully price the true cost to the national economy of growth of the major cities and the cost of internal migration of business and residents.  Property in the larger cities but particularly in Auckland is being subsidised in a number of ways while the rest of the national market is in one form or another languishing with surplus housing and infrastructure.  In addition to fostering policy that actively inflates the cost of housing nationally and causes our international debt to be excessive and our currency to be over-valued we are not as a nation using our existing investment in infrastructure wisely. 
We need to be asking ourselves collectively why we, who as a nation have the highest natural capital per capita and arguably the best system of society in the world, are one of its debt basket cases.  We are only being prevented from being another Greece or Cyprus by the dairy industry.  We also need to ask why we are not so much better off as a nation when countries like China and Singapore are doing so much with so comparatively little.  The answer is quite simple and that comes down to the vision and courage of their political leadership, could I commend you to read George Monbiot’s recent post as it very accurately describes the malaise that we have inflicted upon ourselves with our reforms and our reliance on “The Market”  to provide."

Tuesday, May 7, 2013

Government should be run like a business? Privatisation.


Many business people say that a country should be run like a business.

Maybe they are right. It should be run like a SUCCESSFUL business.

It is appropriate for Government to take lessons from business success, and the reverse.

But when it comes down to details, right wing Neo-Liberal business does not want Government and country they govern to become too successful, or democratic. They are doing too well by taking advantage of slack regulation (regulation which favours them over the rest of society) and politicians foolishness.

In business a manager who fails to plan for the future would be sacked.

Right wing Neo-Liberal business say that Government should keep out of strategic planning. 

Successful business constantly plan advertise and strategise to “beat the market”.

  Right wing Neo-Liberal business insist that Government should muddle along, leaving it to “the market”.

Successful businesses involve as many people in decision making as possible.
Successful businesses involve their staff in decision making,.

Right wing Neo-Liberal business want Government dictatorship, so long as they run the dictators, and oppose democratic moves like MMP and BCIR.
Even New Zealands, non binding, referenda, the only Democratic voice allowed in New Zealand, have such a freshold for a triggering petition that they are guaranteed to be very infrequent. 

Successful businesses ensure they have a competitive advantage. Monopoly is even better.

Right wing Neo-Liberal business insists that we give up any competitive advantage with so called “free trade agreements”  and open licence for foreign corporate to plunder and selling profitable assets.

Successful business gets Government to bend the rules in their favour.

Right wing Neo-Liberal business insists that we remove trade protections and rules which work in our favour.

Management silo’s that only look at small part are known to be dysfunctional.

Right wing Neo-Liberal business says that every part of a countries infrastructure should be stand alone, dependant on individual profit and loss without regard to social and economic costs to the country as a whole. Giving small business and consumers inflated prices for utilities, so utilities make a profit, for example.  North Americans will remember ENRON.

Successful businesses work for the future of the entire company.  They know that if any one part cannot take excessive capital, or resources . 

Right wing Neo-Liberal business oppose any attempt by Government to rein in unjustified excessive profit taking from the rest of the economy. There is a propaganda war in New Zealand from the right wing at the moment to prevent the extraction of  excessive power profits.

Successful companies train, nurture and look after their staff.

Right wing Neo-Liberal business insist on dropping wages, and starving those who cannot work “pour encourager les autres”   regardless of the costs in lost demand, (A cost to business also) welfare and crime.

Successful business has consistent and effective policies, procedures and rules.

 Right wing Neo-Liberal business wants Government to refrain from regulation, except that which protects them,  of course.  (For example  taking away workers rights and protecting  big corporate rights to take as much as they can)  Giving us leaky houses, worker deaths, finance company failures, wage cuts, full jails and  tax payer bailouts.

Lastly, successful business use all their resources as effectively as possible and use the co-operative efforts of many people to meet goals.

Right wing Neo-Liberal business would rather countries do not have goals and that we are all turned into competing worker units.

Right wing propagandists pay lip service to the idea of running a country like a successful business. In reality they oppose Government being too good, because it would limit their ability to steal from the rest of us.  They are happy to continue profiting from a Government that does what they tell them.

One famously wanted to “drown Government in a bathtub”, because it affected his profits. Several famous NZ business men openly gloated about how they profited from  stealing tax payer owned infrastructure companies, and asset stripping them.

Good Government, real democracy, improving decision making by Government,  and  good effective regulation and protection, for the majority of a countries citizens, would destroy their gravy train.

Hence the hysterical overreaction to a minor piece of addition to Government regulation of power companies in New Zealand. 

Because it, if it is allowed to happen,  is the beginning of the end for the idea of “the market” and the mean spirited Neo-liberal,  consensus which has delivered so much wealth and power to a greedy few.