A Fool’s Paradise?

Written By: - Date published: 11:49 am, March 21st, 2015 - 36 comments
Categories: Economy - Tags:

The pre-election, headline-grabbing, so-called “rock-star economy” may be less in evidence today, but there is still a good deal of self-congratulation about an annual GDP growth-rate of over 3%. There is general agreement that the New Zealand economy is doing pretty well, particularly when compared with what is happening elsewhere.

It is only when we look behind the headline figure that doubts begin to emerge. Unpacking the figures and the trends is an important corrective to unjustified optimism.

First, the current growth rate – a welcome relief from an unnecessarily protracted and slow recovery from recession – owes very little to merits of our own or to the way we have managed our economy. We emerged relatively unscathed from the Global Financial Crisis largely because of the stability of our Australian-owned banks and the buoyancy of our major export markets in Australia and China – both powerful and welcome factors but well beyond our control.

The belated post-GFC stimulus to our economy came from another factor beyond our control and one which on other grounds we could well have done without – the Christchurch earthquake. A government that had set its face against using its powers to get the economy moving again – indeed, that had focused on reducing its own spending so that the economy as a whole was smaller than it need have been – found its hand forced by a natural disaster.

No one doubts that the Christchurch re-build has been a major factor in lifting economic activity, particularly in the construction industry. We would not have had that stimulus to spending, employment and investment if the government had been left to its own devices.

And much of our current optimism rests on a 2014 surge in international commodity prices, particularly for dairy products. Again, we are the beneficiaries but can claim little credit for it, and its effect already seems in any case to have been short-lived.

A fourth factor that has lifted our economy and encouraged a spending spree is the asset inflation in the Auckland housing market, something that is a function of the banks’ willingness to go on creating new credit to lend on house purchase rather than of government policy. Indeed, the government professes itself to be unhappy with what is happening – and the Reserve Bank agrees that it is a problem, not a success.

These factors that underpin and explain our relative success do not in any case come without a price. The increased lending by our banks, for example, simply adds to the billions of dollars in bank profits that are repatriated every year to Australia and that accordingly enlarge the burden on our foreign payments balance.

The consumer spending spree makes inevitable a worsening of our perennial trade deficit, as we suck in more imports to meet our insistence on spending five cents in the dollar more than we earn.

The prices people must now pay for Auckland housing must come from somewhere. They are not matched by any increase in real output and therefore reflect new money created by the banks and placed in the hands of existing home-owners at the expense of those who can’t afford to own their own homes, so that the inequality gap is thereby widened.

The rise in dairy prices throws the spotlight on our increasingly dangerous dependence on a single commodity and on the Chinese market, carrying with it the risk that we are gradually being absorbed into a greater Chinese economy.

But it is when we look to the future that the doubts really begin to grow. The government makes great play of its efforts to reduce its own deficit, without apparently concerning itself at all with the deficit that really matters – that of the country as a whole.

How many of those who are inclined to congratulate the government on its prudence in “reducing the deficit” understand that we continue as a country to live well beyond our means and that the current consumer boom can only make that deficit worse?

How many understand that the government deficit is only a small part of a much wider picture – that of an economy that cannot pay its way – and is in any case virtually inevitable for as long as we have a substantial foreign payments deficit?

How many understand that the current emphasis on high interest rates and an overvalued dollar make it impossible for us to earn enough to pay our way? Or that the price we pay for the continued foreign payments deficit is that we must sell more assets and borrow more as a country to make up the gap – that we are quite literally spending away our future?

Do we understand that, despite all the talk about broadening our economic base, we are more dependent than ever on the price of a single commodity and that our power of self-government is being constantly eroded as we become more dependent on just one customer for that commodity and as more and more of our economy passes in to foreign ownership?

Should we not ask – is New Zealand the paradise we think it to be, or is it becoming a paradise for fools?

Bryan Gould

21 March 2015

 

36 comments on “A Fool’s Paradise? ”

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  1. Ad 1
    21 March 2015 at 12:44 pm

    We can take this post and the “Brighter Future” post as a pair.

    For the next thirty years at least there will still be people around who can still remember what New Zealand was like before its 20-year structural adjustment.
    The memory will hold in those who are now in their forties, just as living through the Depression did for those in their late 80s and 90s now.

    Rod Oram once remarked that New Zealand still relies largely on the same exports as in the 1920s. I am discouraged that there appears no will to form a plan that could change our economic base and make our country safer than it is. Even GIF didn’t last.

    Regrettably, we have a ruling political and economic order in which reasonable economic growth is in perfect synchronicity with political populism. The elections, the polls and the media tell us that is enough. But that reasonable economic growth, as Bryan Gould points out, masks a spectacular accelerated divide of asset and wealth ownership from 90% of us. That 90% of us are brittle, and are more likely that one life accident will send us permanently downward, than ever before.

    I believe between the Greens, Labour and NZFirst there is the capacity to write the same scale of bold plan for New Zealand that has altered our country in the past. I have no idea if in those parties there is the will to write it, or want to deliver it, or ever have the means to achieve it. I think it’s unlikely, but it’s possible.

    Meantime, we’ll have nostalgia, and 3% growth.

    • Colonial Rawshark 1.1
      21 March 2015 at 12:48 pm

      not sure if the 3% growth comment is serious? After actual inflation and population increase its more like 0.5% growth. Definitely not enough to keep up with the country’s private and public sector debt repayments. And in the modern age, exponential economic growth is what is destroying our ecosystem.

      • Ad 1.1.1
        21 March 2015 at 12:58 pm

        They are common mirages masking:

        Home ownership.
        Household debt.
        Long term unemployed.
        The black economy.
        Voting % in both central and local elections.
        % jailed
        and hope

      • greywarshark 1.1.2
        21 March 2015 at 4:19 pm

        What does GIF stand for? I’ve had a look in google and I’m not wiser. AO – they’re not informative of themselves (Acronyms Obfuscate).

    • rawshark-yeshe 1.2
      21 March 2015 at 5:51 pm

      For all the reactionary response and hatred unleashed upon Kim Dotcom, his plan, in fact, was to create a different and sustainable economic base for us.

      By making him the point of constant and unquestioned media ridicule, which delighted Key and his masters and their servants Crosby Textor, it was forgotten that Kim Dotcom has a brilliant mind as an international innovator and is worlds ahead technologically and internet-wise of anything else we might ever be planning.

      Personally, I would have made him Minister of Innovation and watched the immediate growth in our economy from new previously un-thought of areas.

      Flame away folks … so many details were lost under the weight of Crosby/Textor/Key poison and too many supped from the cup.

      In the odorous criticism of “Moment of Truth”, it by-passed most people that KDC had invented a secure video link, so safe and secure, so innovatively encrypted that all the spies in the world could not prevent the live link with Edward Snowden out of Russia and we know how hard they must have tried !! But so very few even noticed.

      And I saw a tweet last week : KDC asked people to go back and watch Moment of Truth again — everything that was said has been proven true in the months that have passed.

      Anyway .. I anticipate great disagreement, but this is my view and my great regret for NZ that we have lost the innovative talents of Kim Dotcom. He deserves better, and so did we. Sigh.

  2. Stuart Munro 2
    21 March 2015 at 1:14 pm

    I remember back in 1980, there was great concern expressed over the export of unprocessed logs, and that foreign vessels were catching our fish (chiefly squid at the time) without interacting with the local economy. NZ politicians have made no effective change to our productivity since that time. Raw logs are piled by our wharves, our fishing industry languishes at 1% of Japan’s fishery productivity and employment, and clearly no-one in parliament has a clue how to fix it. But they are experts on gender politics and family trusts.

    • philj 2.1
      21 March 2015 at 2:38 pm

      Do we not get the government we deserve? ” Paradise for foolsl” or just one that’s been sold out?

    • greywarshark 2.2
      21 March 2015 at 4:24 pm

      Hey Stuart, our government employs its MPsto each different sphere of our society
      I know that often they seem to have only one main hillock that the pillocks stand on and look in one direction. But they have the people, they can employ the experts, they have the money. So don’t blame inaction on gender politics and arranging financially advantageous legal outcomes. They are just bloody uninterested in making a good job of running the country in ITS best interests, only in theirs.
      edited

      • Stuart Munro 2.2.1
        21 March 2015 at 5:39 pm

        The problem is that they’re incapable even of selecting experts intelligently. In areas like fishing they have consistently chosen monopolistic corporate voices. Hence the eradication of small innovative enterprises in favour of an inefficient over-capitalised extractive industrial model. The future lies with artisanal fisheries – but we must wait for yet another generation of fecking stupid politicians to die off before any will get their snouts out of the trough for long enough to learn the basics of the systems they’re administering.

        • Andrea 2.2.1.1
          21 March 2015 at 11:15 pm

          In the long ago parliament was indeed for the self-interested. For the landed and for well-to-do merchants. Bankers, perhaps.

          Those people were often part of a ‘community’ – an “upper class”. Worthies and scoundrels together.

          Then disaster happened. People learned to read in larger numbers than before. Liberty, equality, fraternity, and all that.

          The doors to parliament creaked ajar and the wide-eyed lower classes crept in.

          And the old system stayed the same.

          We used to have a sort of ‘old money’ group. Still do – but they rarely enter politics now. They have better choices available.

          So we have the ‘king-for-a-day’ brigade apeing the ancien regime and failing dismally. Most of them lack even basic management experience or any sense of noblesse oblige.

          Old terms. Old ways. And the best parts failed to come forward. We get the present ignorant rubbish pretending to ‘run the country.’

          Time we grew new ways to govern, and train for the craft of government. Unless you like being ‘led’ by lackeys?

          • greywarshark 2.2.1.1.1
            23 March 2015 at 12:09 pm

            The word nouveau riche comes to mind for what happens when parliament doors creak open for the ‘lower orders’. The sort of people who get in are ambitious and channelled along the materialist, self-serving line, and they adopt the attitudes of the moneyed and the aristocrats, and so we often don’t get any better representation from the ‘people’ than before.

            Some of the ‘people’ who get in just repeat the need for charity and come across more as adept beggars for the welfare society than active thinkers as to how the poorer and disadvantaged in society can achieve inclusion and an honoured place as a contributor in some fashion. Then they are regarded as irresponsible budget-breakers and part of the problem not part of the solution for the low income group.

            For instance the children of old Labour who have gone to university and acquired higher learning, often leave their own past and their parents’ moral compass behind them. Like students getting their degrees in foreign lands who don’t return to benefit their own people, finding the returns in the more prosperous nations more seductive.

            Many unionist leaders, use the term rank and file to refer to the fee paying workers who support them in their role as representatives for the working people. And for many, as soon as they climb out of their old trucks and jalopies and into the groomed vehicles of the negotiators and dealers of the elite, they start shedding their workmates and poorer-class interests like autumn leaves.

        • greywarshark 2.2.1.2
          22 March 2015 at 6:51 pm

          Stuart M
          Your opinion speaks rason. But waiting for pollies to die off and hoping that a new and better model will succeed. Huh. Fat chance. They are just coming along like clones. Pollysaturated Mark II. Just a lot of fatheads aspirational to get the best butter for themselves. As I commented on the Southern Districts HB the other day in an Alice moment, that all works out at the end of the chain to produce people who don’t know the time of day.

          I am sure that we need to work on the chaos theory principle, not wait for evolution to produce a shining, intelligent, wiser and better politician with good community and practical economic values.
          the branch of mathematics that deals with complex systems whose behaviour is highly sensitive to slight changes in conditions, so that small alterations can give rise to strikingly great consequences.

    • Gosman 2.3
      22 March 2015 at 7:38 am

      It is not the role of NZ politicians to add value to these things. That us the role of the commercial enterprises operating in these sectors.

      • One Anonymous Bloke 2.3.1
        22 March 2015 at 8:14 am

        It is the role of government to say, limit export of raw materials – no doubt there are other less crude measures that can be used too.

      • Stuart Munro 2.3.2
        22 March 2015 at 4:29 pm

        Not true – it is the role of NZ politicians to act in the enlightened best interests of the citizens – which may well include adding value from time to time.

        NZ’s commercial enterprises are prone to taking the shortest distance between points – pocketing the cash where possible without even providing a service. This tropism is the fruit of weak, disorganised, and ineffectual governments.

        • felix 2.3.2.1
          22 March 2015 at 5:01 pm

          ‘What are these “citizens” you speak of and where can I buy one?’ – Gosman

  3. NZJester 3
    21 March 2015 at 1:51 pm

    How ever you look at it the only reason the NZ economy did not tank as bad as all the other countries is due to the fact the previous Labour Government paid down our debt and left the books in a very healthy near debt free condition. That low debt is what National borrowed against to allow them to give the rich a tax cut this country could not afford and pay for some of their other pork barrel policies.
    They then sold off some of our assets to pay for others.
    Nationals biggest lie has always been that they inherited a country in bad financial trouble from Labour as the government bank accounts had little money left.
    The previous Labour government might have received bank accounts with more money in it from the National government before them but when you look at the debt they received on top of that the real financial balance of the country was heavily in the red compared to what they latter passed on to National.
    What National inherited was actually a country with low debt and good future income from New Zealand owned asserts and taxes.
    It only took them less than a year to screw up all of Labours good debt reduction and good future income levels work!

    • rawshark-yeshe 3.1
      21 March 2015 at 5:57 pm

      Bravo, NZ Jester — such lovely and awful truth, thank you !

    • Ad 3.2
      21 March 2015 at 8:02 pm

      Good try.
      Our private sector debt was and is the problem, not public debt. Private debt was largely kept together throughout the GFC because that debt is based on the Australian banking system. This system held together fine throughout the GFC.

      We owe our stability and growth from that time to now to Aussie banks, the milk boom, immigration, and the Christchurch earthquake. We have not had such a confluence of economic momentum since WW2.

    • David 3.3
      22 March 2015 at 8:31 am

      You almost get the feeling that’s the reason for all the debt, for the bankers to finally unstabilise us like they did in Ireland, Spain, Greece… It’s possible for the bastards.

  4. ianmac 4
    21 March 2015 at 3:19 pm

    Bryan if it is too good to be true then let us be suspicious.
    (Read of your near reaching the top in Brit Labour Party in O’Farrell’s book. Life would have been different without Tony Blair.)

  5. Incognito 5
    21 March 2015 at 5:25 pm

    How many do truly understand the stuff that Bryan Gould is talking about? Not many I’d say; it certainly goes over my head, mostly, but I try. However, our elected representatives should have a much better grasp than the average Kiwi. The politicians in charge, especially the ones in Government, have access to the best in brightest such as Treasury and also the RBNZ.

    So, we have to trust our MPs and to have confidence that they’ll make good decisions for all of us on our behalf. Unfortunately, public trust and confidence in politics has slowly eroded to levels that are below a healthy threshold and they are still falling.

    I agree with Bryan Gould that NZ is or is becoming a Fool’s Paradise but not primarily for the reasons he outlines but because we continue to place our dwindling faith in politicians who have repeatedly shown to be out of their depth and who are clearly not interested in listening to good sound advice and who most definitely don’t act in the interest of all New Zealanders.

    As long as we stick with the same political ‘ideologies’ and keep voting for career politicians with outdated ideas we’ll stay stuck in this rut and things will only get worse. As Bryan Gould pointed out there are many things beyond our control and the global landscape is changing rapidly but not our political landscape and our politicians! When under pressure our politicians do what they have always down, they rely on their political ‘instincts’, and they make the same decisions (and mistakes) as before. One of Einstein’s famous quotes comes to mind.

    I don’t have an answer or solution but personally I’d like to see more independence and flexibility in our politicians. The old feudal system, the old battle lines, the party politics, the partisan politics of yesterday all breed (political) dependence and dogmatic inflexibility. I would even go as far as to suggest that the old system provides a fertile soil for corruption & bribery, nepotism, cronyism and many other negative aspects of unfettered and unchallenged power, even if this is not real and absolute power but perceived and relative.

    The Northland buy-election is a fine example of what is wrong with the current political system. Winston Peters has cleverly framed his campaign around himself (no surprise there) and the needs of Northland. National, on the other hand, is trying to frame it as National and national issues. It will be interesting to find out next Saturday whether Northland continues to be an electorate in a Fool’s Paradise or the electorate that has final woken up from its decades-long slumber. I sincerely hope that Northland will show the way for 2017 and beyond.

    Apologies for the long comment.

    • Andrea 5.1
      21 March 2015 at 11:25 pm

      “So, we have to trust our MPs”

      Yeah, right.

      Sure beats cleaning the Augean stables aka the Westminster parliamentary ‘system.’ Not.

      • Incognito 5.1.1
        22 March 2015 at 12:04 am

        Sorry, but I don’t follow; what are you saying? When I wrote “So, we have to trust our MPs” this was clearly a pseudo-imperative that had to be questioned. IMO the Westminster system is a paradigm and thus will change sooner or later.

    • Colonial Rawshark 5.2
      22 March 2015 at 12:42 am

      The politicians in charge, especially the ones in Government, have access to the best in brightest such as Treasury and also the RBNZ.

      You ignored the fucked up country with 250,000 kids in poverty and youth unemployment running circa 30%, that these “best and brightest” created.

      Did you forget that on purpose? Your placing of faith in unelected technocrats is not only worrying (due to their shite track record and damnable neoliberal ideology), but darn right undemocratic.

      but because we continue to place our dwindling faith in politicians who have repeatedly shown to be out of their depth and who are clearly not interested in listening to good sound advice and who most definitely don’t act in the interest of all New Zealanders.

      Listening to “good sound advice” from Treasury and the RBNZ. Now I know that you’re having a laugh. They are the very people who circa 1984 helped prepare the road to neoliberalism which has undercut our entire nation.

      Apologies for the long comment.

      It was one long push for handing more power to unelected technocrats and financial engineers. No thanks.

  6. Philip Ferguson 6
    21 March 2015 at 5:50 pm

    Yep, to the extent it looks good it’s only because so many other places haven’t recovered from the Great Financial Crisis.

    I came back to NZ in 1994, having been away almost all of the time since the start of 1980. It was a very changed country, the Rogernomics/Ruthanasia cyclone having ripped through the place, devastating large chunks of the manufacturing/industrial sector, while expanding the most parasitical sectors and creating the absurdly bloated financial sector and ludicrous paper values on companies that crashed in 1987. (How neo-liberalism survived after the 1987 crash and was taken seriously as any kind of credible economic theory is really quite a shocker).

    Since returning I have tried to do research and write stuff about the NZ economy, but time hasn’t really allowed me to do anywhere near as much as I’d hoped.

    But people might find these bits interesting/useful. The first one is by Don Franks, the others are by me:

    Rock star economy and the lost prophets: https://rdln.wordpress.com/2014/01/09/rock-star-economy-and-the-lost-prophets/

    Coming apart down under: the decay of NZ capitalist society from the 1970s to the 1990s (I wrote this after a 1992 visit, surveying the damage done by Douglas-Richardson): https://rdln.wordpress.com/2011/06/23/coming-apart-down-under-the-decay-of-new-zealand-capitalist-society-from-the-1970s-to-1993/

    The state of the working class in New Zealand today (1997): https://rdln.wordpress.com/2012/10/08/the-state-of-the-working-class-in-new-zealand-1997/

    The Mainzeal collapse: leaky homes, leaky loans and a leaky system: https://rdln.wordpress.com/2013/02/08/the-mainzeal-collapse-leaky-homes-and-a-leaky-system/

    The Key-English government in the context of capital accumulation today (a combination of a couple of pieces): https://rdln.wordpress.com/2014/12/12/the-key-english-government-in-the-context-of-capital-accumulation-in-new-zealand-today/

    Low pay, longer hours, less social mobility: welcome to 21st century NZ capitalism: https://rdln.wordpress.com/2012/02/08/low-pay-longer-hours-and-less-social-mobility/

    Neither private capitalism nor state capitalism, but workers power: what Solid Energy and Mainzeal reveal: https://rdln.wordpress.com/2013/03/25/neither-private-capitalism-nor-state-capitalism-but-workers-power-what-solid-energy-and-mainzeal-reveal-2/

    And, lastly, on the government’s lack of ideas:

    Key’s ‘vision’: managing the malaise: https://rdln.wordpress.com/2013/01/31/keys-vision-managing-the-malaise-of-new-zealand-capitalism/

    • Ad 6.1
      21 March 2015 at 8:08 pm

      You might also want to try:

      “Changing Places: New Zealand in the Nineties”, a book by Richard Le Heron and Eric Pawson. 1996.

      This goes through the regional damage of structural adjustment, with case studies from Wellington, Dunedin, Napier, Hokianga, etc.

      It goes through the impact of those policies from the 1980s and early 1990s through chapter headings on:
      – The Companies
      – Labour
      – Farms, Fisheries and Forests
      – Manufacturing, Services and Infrastructure,
      – The State and Social Policy
      – Environmental Sustainability
      – Urban and Regional Futures
      – Landscapes of Consumption
      – Sense of Place, and
      – Place, Scale and Context

      It’ll give you a regional and structural sense of the changes you came home to.

  7. Philip Ferguson 7
    21 March 2015 at 5:52 pm

    The big challenge is convincing people *it doesn’t have to be like this* and by taking action – by which I don’t mean voting once every three years, but taking serious political action – they can actually bring a new reality into existence. A much, much better one.

    Phil

    • Sacha 7.1
      21 March 2015 at 7:56 pm

      Idiot/Savant argues were are beginning that process of convincing people there is another way – http://norightturn.blogspot.co.nz/2015/03/expanding-window.html

      • Incognito 7.1.1
        22 March 2015 at 12:06 am

        “Meanwhile, forcing parties to take a public stand on this in the House will let the public hold them accountable for their positions. And that in turn allows the democratic feedback process to function, forcing parties to take account of the public’s views.”

        The thing is that party accountability is not the same as personal accountability. I personally don’t see, for example, why Andrew Little has to ‘inherit’ the ‘sins’ of Helen Clark. What Labour did more than 6 years (or even longer) ago is still used as a rod to hit the current team with. IMO this is ludicrous; where does this perpetuity come from? It seems that this is has also been abused as absolution at the personal/individual level but less so in political circles. Where/when does the collective or group responsibility cross over into personal/individual responsibility?

    • Incognito 7.2
      21 March 2015 at 8:15 pm

      What do you mean by “serious political action”? A one-off “uprising” or a regular kind of action that becomes the (new) norm?

      For either of these to happen people have to have a critical level of discontent or frustration, if you like, they need to have a choice, an alternative, a course of action, and there has to be a catalyst to get them out of inaction into action. The catalyst is often, but not always, a leader as in ‘a trailblazer’. Think the Occupy Movement.

      It is relatively easy to get people to act in unison but without a clear guiding vision and clear leadership most actions fizzle out quickly.

      Is the Northland buy-election an example of the “serious political action” that you have in mind?