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NRT: All about distribution

Written By: - Date published: 1:54 pm, April 30th, 2014 - 29 comments
Categories: Economy, equality, jobs, monetary policy, wages - Tags:

no-right-turn-256No Right Turn points out the obvious that our political parties often seem to ignore which is the effect of policy on the distribution or earnings that people (and the country) make.

Distribution – who pays, who gets what – is one of (or perhaps the) key question in politics. And as the Herald points out this morning, its the big problem with Labour’s new monetary policy:

Households struggling to keep on top of their mortgages would be the winners under Labour’s proposed interest rate shake-up, but at the expense of those who can’t afford to get a foot on the property ladder, a budgeting service warns.

[…]

But New Zealand Federation of Family Budgeting Services chief executive Raewyn Fox said the policy to keep interest rates low while forcing everyone to save more raised issues of fairness.

“The people who don’t have mortgages will be in effect subsidising the economy for the people who are obtaining an asset by buying a house.”

To be fair, the policy document addresses this (@5.21), saying that “Distributional and hardship effects for the lower paid would need to be considered”, and raising the possibility of a low-income exemption. But we’ve all seen how the theoretical ability to compensate the losers of policies which produce net gains tends to be forgotten in practice. Which means that the acceptability of the policy is going to depend crucially on whether Labour follows through on this promise. Because otherwise what they’re proposing is lowering mortgages for the middle classes (and of course themselves) on the backs of the poor – something which is against everything they’re supposed to stand for.

(Meanwhile over on Twitter we have Labour apparatchiks talking of the need for government to “set policy conditions that create jobs & lift wages”, while airily ignoring any distributional effects. Exactly the same rhetoric is used by National to justify lowering wages and employment conditions. But the whole point of Labour is that it supposed to care about the effects of government policy on ordinary people – not just steamroller them in pursuit of growth for the few).

lprent: No Right Turn linked to Clinton Smith on twitter, a former author here who consistently said that he was mostly a Green supporter. I believe he subsequently worked for the parliamentary library. Just for the record, I believe he is now a Green “apparatchik” working for Gareth Hughes. (Updated: I stand corrected “He was hired by David Cunliffe’s office earlier in the month.”)

http://www.stuff.co.nz/national/politics/9914693/Today-in-politics-Tuesday-April-8

 

29 comments on “NRT: All about distribution”

  1. wtl 1

    The analysis is missing a crucial point. Contributions to Kiwisaver are not lost to the original earner. Instead they locked away so they cannot be used immediately. As things stand, these contributions can be withdrawn to pay for a first-home, and if used this way, the scheme becomes a compulsory home deposit savings scheme.

    • One Anonymous Bloke 1.1

      Well spotted.

    • Tamati 1.2

      Try telling the power company you’ll pay the power bill when your get you Kiwisaver in 40 years times.

      • wtl 1.2.1

        Try telling the power company you’ll pay the power bill when your get you Kiwisaver in 40 years times.

        Yes, but if this occurs the problem would be more to do with the fact that people are not being paid a living wage, rather than the fact that Kiwisaver is compulsory. I don’t think the scheme is a instant fix that is going to solve everything, but I certainly think it is a very interesting proposal that is worth exploring. As Geoff said below, this proposal has to be seen in the context of all the Labour’s policies.

        • Tamati 1.2.1.1

          Indeed. They would have to implement actual policies raising wages before implementing this policy.

          • One Anonymous Bloke 1.2.1.1.1

            You mean like the promised minimum wage hike in the first one hundred days?

            • Tamati 1.2.1.1.1.1

              It would help some, but those on 16-20 dollars per hour would still feel the pinch and be worse off.

          • Ant 1.2.1.1.2

            Like raising the minimum wage to $15 immediately. There you go son, that’s an actual policy.

      • One Anonymous Bloke 1.2.2

        You mean the lower power bill once a single buyer market is implemented?

        • Tamati 1.2.2.1

          It was an example. You could replace power with petrol or groceries.

          • Ant 1.2.2.1.1

            Well with some good policies from Greens on better public transport, cycling and walking to work and school that should lessen the burden on petrol a bit.

    • Ant 1.3

      The latest Horizon poll has 70% of respondents supporting compulsory Kiwisaver so it looks like there is a reasonable amount of support out there for it.

      http://www.horizonpoll.co.nz/page/366/41-say-force-me-to-save?gtid=1329133252248JEG

  2. geoff 2

    This is why Labour will need to demonstrate how all its policies are going to mesh together.

    Any single policy is not going to solve all problems and it would be silly to think it could.

    • Ant 2.1

      Well we have from Labour:

      • Kiwipower
      • 90 day fire at will gone and rebalancing of power in the workplace
      • Minimum wage to $15
      • Move towards the living wage starting with core government
      • Favouring Kiwi suppliers in Government contracts
      • Best Start
      • CGA to try and cool speculation
      • Kiwibuild
      • Talk of easing LVR restrictions outside of Auckland and Christchurch

      The election campaign hasn’t even started properly and it looks like there is already a lot of stuff in there for people without mortgages like renters, freehold owners, or looking to get a house. The worst case scenario is that you have some retirement savings.

      • just saying 2.1.1

        Kiwipower
        -I believe this will make a difference of about $100 per year per household
        90 day fire at will removed.
        -One small but worthwhile clawing-back from a six-year blitzkrieg of war on the poor from National. What about the rest?
        Minimum wage $15 and a move towards a living wage for govt employees
        -Disgraceful
        Favouring kiwsuppliers
        -Not exactly set in concrete- more an aspiration than a promise
        Best start
        -far from best, but a small step in the right direction
        CGA
        -I’ll wait to comment until concrete details are announced
        Kiwibuild
        -middle-class welfare
        Talk of…
        -talk is cheap

        So SFA for low income earners from the puku party of the comfortably off. National takes us 20 steps back and Labour might take us one step forward if we’re lucky and we’re supposed to vote for them for it?
        -Nah
        You do get that they are still calling themselves the Labour Party?

  3. lprent: No Right Turn linked to Clinton Smith on twitter, a former author here who consistently said that he was mostly a Green supporter. I believe he subsequently worked for the parliamentary library. Just for the record, I believe he is now a Green “apparatchik” working for Gareth Hughes.

    He was hired by David Cunliffe’s office earlier in the month. See here:

    http://www.stuff.co.nz/national/politics/9914693/Today-in-politics-Tuesday-April-8

    • lprent 3.1

      I stand corrected. I’ll change the note.

      Nice to see that Labour is getting some good people. His posts here were sorely missed.

      I’ll have to send him a note about being stuffed into the war-room.

  4. NZJester 4

    By directing those savings into KiwiSaver instead of the big Aussie banks are we not in fact possibly giving those without a house a leg up in the property market?
    It does say on the kiwi saver website and I quote: “If you’ve been a member of KiwiSaver for 3 years and you’re buying your first home to live in yourself, you may be able to withdraw your KiwiSaver savings.”

  5. Lanthanide 5

    what they’re proposing is lowering mortgages for the middle classes (and of course themselves) on the backs of the poor

    Let’s consider all of the people who don’t have mortgages that are currently unaffected by the OCR raises:
    1. Poor people who can’t afford a house
    2. People who are renting, for whatever reason
    3. Rich people who own their houses mortgage free

    Of course going a bit further, we see that #1 and #2 are actually affected by OCR rises, because it factors into the rent they pay.

    The only people who do not suffer when the OCR goes up are those who are wealthy enough to live in a house mortgage free. Any other lending they choose to take in addition to that, because they can, can hardly be said to be making them suffer when the OCR goes up.

    In fact, people who own their own houses and don’t have mortgages benefit when the OCR goes up, because the interest they get on bank savings goes up.

    So truly, this is pushing the burden of fighting inflation onto the rich, more than it is pushing it onto the poor, because they poor already got hit, at least indirectly.

  6. Mike S 6

    In the NRT article, John Key was quoted as saying – “In fact, inflation’s quite often caused by rising international commodity prices for things like oil, by business spending and by Government spending.”

    Government spending doesn’t cause inflation, government borrowing does.

    Just nit picking, but you’d think being the prime minister and a currency speculator he’d get things like that right.

    • Phil 6.1

      Inflation, at the most conceptually simple definition, is “too much money trying to buy too few goods”. If the government increases spending, even if it’s all sourced from an increase in income taxes, then it will be inflationary. The reason is that households have a propensity to both save AND consume part of each new dollar they earn.

      What that means is; when you take away a extra dollar of income (through increasing taxes) from the household sector – or any sector for that matter, they won’t respond solely by reducing their consumption purchases by a dollar. The result will be some combination of reduced income and reduced savings. The end result is you get more inflation, because overall consumption has gone up.

      • Lanthanide 6.1.1

        You’re assuming that the all of the taxes raised by the government are spent.

        Well, under National that’s true. Under Labour they actually pay back debt, which by your definition must be deflationary – the government is taking $1 from a taxpayer who may have saved some and spent some of it, and in turn using that entire $1 to pay back debt.

        • Phil 6.1.1.1

          I wasn’t “assuming” anything – I was taking Mike S’ statement that ‘government spending doesn’t cause inflation’ and pointing out that the reality is a lot more complicated.

          … pay back debt, which by your definition must be deflationary

          Again, the answer depends on the mix of ‘spend vs save’ decisions that the household and the government choose.

          You’re right that, in general, when a country pays down its overseas debt you should see lower pressure on inflation, but again that is going to depend on where the repayment is coming from. It could come about from a change in the the ‘spend vs save’ preferences of a country, or it could be a change in the level of money being printed by a government or central bank; those two scenario’s produce very different outcomes for inflation.

          Of course, all of this needs to be overlaid with thinking about global economic conditions. It’s entirely appropriate that a government would change its spend v save decisions as the the global picture changes over time.

        • Mike S 6.1.1.2

          Yep, if that $1 is removed from the overall money supply it is deflationary. It’s crazy when you see it for the scam that it is. If everybody paid off all their debts and government and business did the same so nobody owed any money at all, then there would be no money at all. That is of course because all money is created as debt. The only way new money (apart from notes and coins which only make up around 3% of the overall money supply) can be created and enter the economy is if someone ‘borrows’ it into existence from a private bank or if the government ‘prints’ or ‘borrows’ it by selling bonds.

          Which is why finance ministers only half halfheartedly talk about wanting people to pay off debt. In reality they don’t want people paying off debt and saving money because that would crash the economy unless government borrowed and spent more to compensate.This is one of the many ridiculous situations that arises due to the fact that our entire economic and financial system is based upon exponentially increasing consumption and new money must always be ‘borrowed’ (created out of thin air) to fund that consumption.

          If the private sector starts saving more and paying off debt then the public sector must borrow and spend more or the economy nosedives and vice versa. You can’t have both the private and public sector saving money and paying off debt at the same time.

          just for some fun inflation examples, if the average rate of inflation over the next 50 years is the same as that for the last 50 years then within many peoples lifetimes…..

          A $10,000 car will cost $320,000

          A $4.50 bottle of milk will cost $144

          The minimum wage (if increased by inflation rate) will be $432 p/hour

          The average wage will be $32,000 p/week or $1,664,000.00 per annum

          A ticket to the movies will be $640

          A hamburger will cost $96

          An average priced Auckland house will cost $17,600,000.00 (of course currently the prices are rising way faster than the reported (not the real) inflation rate so could be much much higher.

          That’s the problem with exponential growth, when does it all come crashing down?

      • Mike S 6.1.2

        The most simple and accurate definition of inflation is that it is ‘an increase in the overall money supply’, nothing more, nothing less. In other words, any new money borrowed into existence by government, business or individuals increases (inflates) the existing overall money supply and is thus inflationary. If government spending is sourced from income tax then it is not inflationary as the money gathered from the income tax is already circulating in the money supply and therefore has already had it’s inflationary effect.

        An increase in income tax could be inflationary, if money needs to be borrowed somewhere along the line to pay for it. But if that was the case then the increase in income tax would be the cause of the inflation, not the government spending using that increased tax revenue.

        Don’t confuse inflation with price increases or the cpi which are symptoms of inflation.(if more money is in the overall money supply then prices will tend to go up).

    • Lanthanide 6.2

      He gets many things wrong. In some cases I’m sure it is deliberate, to con the public and the lack-witted media who just repeat it without question.

      • Mike S 6.2.1

        Yep, i’d say in more than just some cases it is deliberate as his legion of 30 odd PR team will know that the thing that sticks in peoples minds is generally the first thing they hear, even if that thing is revealed later to be untrue, most people still store it as factual in their minds.

  7. It’s macroeconomic policy. If it’s designed to benefit some group of voters and disadvantage others, yes that would be shitty macroeconomic policy. But if it’s designed to make the economy work better, that’s the main subject for discussion. Arguments about whether someone will have to pay something they’d rather not, or whatever, are largely irrelevant. That stuff can be sorted out at a lower level.

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