Written By: - Date published: 10:01 pm, February 28th, 2008 - 45 comments
Categories: john key, national, workers' rights -
Tags: john key, national, workers' rights
Having read our coverage of John Key’s ‘we would love to see wages drop‘ line my brother asked ‘but how can a government make wages drop?’ The answer is obvious to those of us who know about this kind of stuff but my brother’s question, along with Colin Espiner’s naïve statement that ‘[a PM] has no control over wages’, made me realise that how a government would make wages drop if it were so inclined is not clear to everyone. So, for my brother, Colin, and anyone else, an explanation of how a government can bring down wages:
The first thing to realise is that inflation will do most of the work for you. As a wage dropping government you don’t actually have to bring down wages in nominal terms. You just hold them still or have them increase at less than the rate of inflation. The number of dollars in people’s back pockets stays the same, it may even rise, but the purchasing power of those dollars will be gradually eroded.
How could Key make incomes increase below inflation? Well, he could follow the example of the last National government:
For these changes, you need to manufacture the consent of the public, you need a threat that needs defeating.
A good one is ‘welfare dependency’: there are all those ‘bludgers’ (0.3% of adults have been on the unemployment benefit longer than a year, and falling) if we cut benefits dependency won’t be so ‘comfortable’ (apparently, $180 a week is comfortable).
Another is the bugbear of the unions: paint them as ‘third parties’ trying to interfere in otherwise harmonious employer-employee relationships, rather than the voluntary, democratic workers’ organisations they are.
But Key seems to be setting up inflation as the threat (listen to his interview with Havoc and look at that full “we would love to see wages drop’ quote again). Wage rises are inflationary is the line. The solution will be to not increase benefits and the minimum wage to match inflation, and to refuse public sector pay increases; which means less consumer demand across the economy. This does mean less inflation; it also means ordinary kiwis are poorer. Unions will naturally protest. Strike action will increase. The answer to this ‘union militancy’ will be to limit union power through legislation.
They did it in 1990 and nine years later most people’s incomes were lower after inflation. Key just needs to repeat the formula (in more moderate form, naturally) and ‘hey, presto!’ he’s delivered on his promise and dropped wages. Pretty simple, really.
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RazorLight,
Labour cannot attempt to highlight the positive statistics as evidence of their policies working, and in the same breath blame the negatives on volatile world conditions.
So true. A Catholic newspaper I read made the exact same point last week. I pilfer the last few paragraphs here.
Labour is trumpeting its work to orchestrate the longest period of economic growth in New Zealand since World War II. That is a fact, but how much of that can be attributed to Labour’s policies and how much to world markets and trends?
If Labour is going to take credit for that growth, should it also be taking the blame for rising interest rates, the huge increase in the cost of dairy products and a housing market that people are predicting will soon be in tatters?
The Government can’t have it both ways.
Oh, hang on. This is politics. Our mistake.
I have been pondering Gooner’s list of criticisms (upthread) some more. This is a long ramble of a post, probably not worth reading, I’m just getting my own thoughts in order. (I’m an economic ignoramus, so some of this will need refining). I think I have three points to make, and a conclusion.
(1) We have a capitalist economy.
The government has very little control over food prices, house prices, petrol prices and so on. It could assume more control, but then the Right would scream about the interfering Nanny State, and swear that things should be left to the Free Market. (The Right believes that things should always be left to the Free Market. Right up until the moment things go pear shaped. Then the captains of industry always go rushing to the Government for a handout – it’s happening again in America right now).
So this covers some of the criticisms on Gooner’s list:
House prices: up
Food prices: up
Mortgagee sales: up
Inflation: up
(2) Our economy exists in an international economy.
The government has effectively no control over the international economy. Financial crashes in America, the price of crude oil, the damaging effects of currency speculation (hmmmm) and so on. This has effects on our economy that the government can’t control.
This contributes hugely to some of the criticisms on Gooner’s list:
Interest rates: up
Petrol prices: up
Collapsed finance companies: up
Business confidence: down
(3) There are domestic / internal things that the government can control (some quickly, some only very slowly). These include:
- the basics of economy
- aspects of employment / minimum wage / business environment
- education system
- health system
- welfare system
- via the above social indicators (such as crime rate)
- defence and international relations
It turns out that this scopes out my list of Labour government achievements:
Unemployment at a decades low.
Crime rates significantly falling.
GDP growth better than under National.
Numbers on benefits at a low and falling.
Minimum wage up every year for eight years.
Long term savings and investment up (via Cullen Fund and KiwiSaver).
International measures of:
- the health system, ahead of Australia, Canada and the USA
- educational levels high
- ease of doing business, among best in the world
- second best in the world (after Denmark) in terms of low corruption
- and so on…
(4) Conclusion.
Criticisms of this Labour led government are largely for things it can’t control. In areas that it can control it has significant achievements. Hence, this is a very good government.
Just on fuel costs, the government can do something about that such as not impose a 10cpl “regional petrol tax” which will probably turn into a huge slush fund for self important local body politicians with bright ideas but few clues who want to remake their communities in their image.
It could also stop the biofuels obligation which will add further costs to fuel because it makes selling the stuff a damn sight harder.
It could also remove the automatic inflation adjustment on the excise rate – that;s the automatic adjustment denied to taxpayers in terms of relief from bracket creep.
That’s about 15 cpl in one fell swoop.
The Government can’t have it both ways.
Don’t be silly, the Government can have it both ways if that happens to be true.
- Is the government responsible for rising crude oil prices? No.
- Is the government responsible for rising minimum wage levels? Yes.
See, both ways if it happens to be true. Now we’re simply arguing about how true it is for a range of issues. See my post above.
Just on fuel costs, the government can do something about that
Yes it can (but note that my last post refers to crude prices not fuel costs).
such as not impose a 10cpl “regional petrol tax’
It could do that and more, though it would then have a hard job funding roads. But it’s bandaid stuff. Crude is not going to stop going up, the cost of petrol is not going to stop going up. My guess is that within a decade petrol will be ludicrously expensive, and we will all be thinking about adjusting to a post-petrol world. My advice – get a bike. I hardly drive at all these days.
It could also stop the biofuels obligation which will add further costs to fuel because it makes selling the stuff a damn sight harder.
As far as I can tell from my brief reading, biofuel is a busted flush. I think we should stay out of it altogether until the situation is clearer.
That’s about 15 cpl in one fell swoop.
In the context of what’s coming – that’s chicken feed.
Ok, I tend to agree that providing a list and saying it’s all the gummints fault is not very sensible and as someone else said above it is unwise to “bandy figures around wantonly”.
However, mostly the Joe Publics in the beltway won’t give a stuff when they are paying $100 per week more for their mortgage and will vote accordingly. It is human nature.
Ok, I tend to agree that providing a list and saying it’s all the gummints fault is not very sensible
Bravo Gooner.
However, mostly the Joe Publics in the beltway won’t give a stuff when they are paying $100 per week more for their mortgage and will vote accordingly. It is human nature.
That’s as may be. Perhaps human nature, the desire to blame the gummint for all the ills of the world, will play itself out. Over time that’s the way it works, the electoral pendulum swings.
However, if it swings against Labour in the next election, it will be swinging against a competent and successful government that has been very good for NZ. So it goes, so it goes.
bOBBO
A competent and successful government that has been very good for NZ. You delusional twat.
bOBBO
That’s very good HS – did you think it up all by yourself?
A competent and successful government that has been very good for NZ.
Yup, agreed.
You delusional twat.
What? We seemed to be in agreement there!
I was thinking of quoting Michael Cullen but “Rich Prick” didn’t seem appropriate.