The Christchurch earthquake was a catastrophe that was national in its impact and significance but that required the people of Christchurch to pay its terrible price. In the four years that have since elapsed, they have had to shoulder the burden of rebuilding shattered lives and a devastated environment.
There has been no shortage of sympathy and encouragement from the rest of the country, and the government has played its part in financing the restoration of essential infrastructure. But the government’s help – provided to Christchurch on behalf of all the people of New Zealand – has been limited by a hard-headed and largely artificial distinction between what is seen as properly the responsibility of central government and what falls to be dealt with by Christchurch itself.
We now see the impact of that distinction. It means that the people of Christchurch must face a substantial financial burden on their own, in addition to the other losses they have suffered. They are to face substantial rate increases over the next three years and their city’s finances will suffer from a further loss of income as a result of the forced sale of up to $750 million worth of city assets – assets built up over many years.
They are faced with the need to shoulder these burdens because the law, as presently defined, takes no account of their special circumstances and requires them, come what may, to balance their books. The people of New Zealand, through their government, may in other words offer sympathy, but when it comes to costs, Christchurch must – from this point on – take responsibility for re-building the city on its own.
The government’s position on this issue is hard to fathom. No one doubts that the national economy has benefited greatly from the investment that has been made and will be made in re-building the city. Our GDP growth, and the level of economic activity, have been stimulated by the increase in public funding; the earthquake forced the government’s hand to increase public spending that they would, for ideological reasons, not otherwise have undertaken.
The re-building of Christchurch, however funded, will continue to provide great benefits to the national economy in terms of employment and output. But the priority given by the government to the short-term problem of reducing its own deficit means that it is unwilling to invest in gaining the further benefits potentially available to the national economy from not leaving the people of Christchurch to find the money on their own.
There must be the suspicion that the government is not unhappy at the prospect of asset sales and the opportunity thereby offered to private investors to make a profit. But, setting aside issues of fairness and national solidarity, the government’s stance is in any case hard to justify in purely economic terms.
We can see this clearly when we examine the responses of governments around the world to crises of various sorts. In the aftermath of the Global Financial Crisis, and the threat then posed to the stability of the banking system, governments like those in the US and UK had no hesitation in creating new money to bail out the banks and to get the economy moving again.
The US Federal Reserve has created no less than $3.7 trillion of new money – so-called “quantitative easing” – and the Bank of England has done likewise to the tune of £350 billion.
The Bank of Japan, at the behest of the Japanese government, has created huge quantities of credit directed to productive investment and even the European Central Bank – so long demanding austerity and reduced government deficits – has changed course dramatically.
In New Zealand, we saw our own smaller version of the willingness to bail out financial institutions in the $1.6 billion help provided to South Canterbury Finance. If it can be done to help the banks and finance companies, why can’t it be done to help the people of Christchurch – especially when that investment would provide such a good return to the economy as a whole and wouldn’t just disappear into the balance sheets of financial institutions?
There is, after all, a powerful economic pedigree for such an approach. John Maynard Keynes famously articulated two great insights. First, he said, while there are obviously intrinsic reasons for a scarcity of land, there is no intrinsic reason – in a country that is sovereign in respect of the creation of money – for a scarcity of capital. And secondly, he observed, the creation of credit for productive purposes will not be inflationary if the increased production it is designed to bring about actually materialises.
And, for those who are still nervous about the government stepping in to help in this way, consider this. If we don’t object to the huge volumes of new credit for housing purchase created for their own purposes by the banks, why should we be so reluctant to see the government act on a much smaller scale in the public interest to help the economy as a whole and the people of Christchurch?
That would be the proper response on a national scale to what is a national and not just a Christchurch issue.
1 March 2015