Written By:
mickysavage - Date published:
8:15 am, October 5th, 2023 - 9 comments
Categories: Economy, election 2023, labour, national, political parties, same old national, tax, uk politics -
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The headline to this post may initially seem strange but I believe that high powered capitalist organisations, including Merchant Banks, employ really intelligent people who have a sophisticated approach to and understanding of economic and social issues.
This is why Liz Truss was bolloxed by the market. The market realises that trickle down is a hoax and if you want to give the wealthy even more wealth you have to do this incrementally. That way it is not instantly evident that trickle down is a hoax. Because there can be too much of a good thing. But roll it out without any tempering and there can be hell to pay.
The New York Times has this description of what happened under Truss’s reign:
The market’s swift, withering verdict on Ms. Truss’s tax-cutting agenda shattered her credibility, degraded Britain’s reputation with investors, drove up home mortgage rates, pushed the pound down to near parity with the American dollar, and forced the Bank of England to intervene to prop up British bonds.
That repudiation, measured in the second-by-second fluctuations of bond yields and exchange rates, mattered more than the noisy departures of Ms. Truss’s cabinet ministers or the hothouse anxieties of Conservative lawmakers that ultimately made her position untenable.
For that reason, world leaders, buffeted by economic challenges, are watching the turmoil in Britain with anything but relish, concerned about the stability of Britain itself. Interest rates, energy costs and inflation are rising around the world. Labor unrest is proliferating across borders. Non-British pension funds potentially face the same financial stresses that afflicted those in Britain. The last thing leaders want is for Ms. Truss’s woes to be a harbinger for other countries.
Occasionally right wing parties can go too far. They can believe their own rhetoric and convince themselves that giving exceedingly rich people even more wealth will make things better for all of us.
Which is why the local electorate should note that the comrades at Goldman Sax have concluded that National’s policies are inflationary.
From Jenee Tibshraeny at the Herald:
Goldman Sachs analysts warn National’s proposed tax cuts risk exacerbating inflation, and therefore causing interest rates to remain higher for longer.
Andrew Boak and William Nixon believe a National-led Government would increase the chances of the Reserve Bank of New Zealand (RBNZ) either keeping the official cash rate (OCR) on hold at 5.5 per cent for longer than expected or lifting it above this level.
While National has argued its tax cuts would be fully paid for using revenue generated from new taxes and savings made from cutbacks to public spending, Boak and Nixon said in a research note these measures “may not fully offset the stimulatory impact of the tax cuts”.
They believed National’s proposals to tax foreigners who buy residential property, increase the fees people who apply to migrate to New Zealand pay, and remove the ability for commercial building owners to deduct depreciation as an expense when paying tax would have “small multipliers on domestic spending”.
In other words, these measures wouldn’t offset the stimulatory effects of National’s plans to provide income tax cuts by adjusting tax brackets for inflation, and reduce the tax burden on residential property investors by bringing the bright-line test back to two years and phasing out the interest limitation rule.
Grant Robertson and Goldman Sachs share something in common, an understanding of how the market works. I am not surprised they have reached the same conclusion.
And fellow comrades Standard and Poor think that the economy is being handled fine.
From Radio New Zealand:
Global ratings agency Standard & Poor’s (S&P) has affirmed New Zealand’s AAA local currency and AA+ foreign currency credit rating, saying the outlook for the country is stable.
S&P said it expected the country’s fiscal deficit to narrow over the next three years as Covid-19-related spending measures came to an end.
“Net general government debt will stabilise at a level that is modest compared with that of most highly rated sovereign peers,” S&P said.
“New Zealand has tipped into recession, and higher interest rates will dampen growth. However, a slowing economy should constrain demand for imports, helping to alleviate the current account deficit.”
The ratings agency said the stable outlook on its long-term credit ratings on New Zealand reflected its high assessment of various factors relating to the country.
“The country’s excellent institutions, wealthy economy and moderate public indebtedness will balance credit risks associated with a large current account deficit, high levels of external and private-sector debt, and volatile property prices over the next two years.”
Under National the S&P credit rating was AA.
I expect this blog post will attract two types of comments. Incredulity at the suggestion that Labour is a better manager of the economy than National. And disappointment that Labour is a better manage of the capitalist system than National.
But the reality is clear.
Put aside the corporate angst and the uber rich donation dollars being spent on trying to achieve even lower tax rates Labour manages the economy better than National. And at least it also puts effort into solving child poverty and environmental challenges. Sure some of us want it to do more but it has achieved way more than National.
And it will not wreck the economy in the pursuit of tax cuts for those who already have more than enough. To be paid by those who cannot afford it and the run down of public services that help us all.
Labour has been a very careful manager of the economy and despite the rhetoric the economy is in good shape. We face the prospect of a UK style economic collapse if National get into power and implement their Liz Truss style policies.
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How does national manage to keep the myth alive that they're better at handling the economy than Labour? It's not true but it's the prevailing belief. Dispelling that myth once and for all should be a priority.
Difficult. Most people's experience of 'economics' is managing a household budget – which is a poor analogue for the economies of whole countries. This makes them susceptible to messaging about balancing annual budgets, running surpluses, controlling costs.
People are deeply terrified of the horror of downward social mobility and ultimately destitution that follows from getting this wrong at the household level. And one might be tempted to speculate that having this level of ambient anxiety circulating through people's brains is actually planned – though it does sound a bit conspiratorial.
They're paid quite a lot to maintain the myth, and have the resources to drill it into the heads of the majority of people too exhausted or disinterested to question it.
Imho, Nat pollies keep that myth alive in part by 'virtue' of being wealthy – John 'tax haven' Key, and now Chris 'seven properties' Luxon.
If NZ ever has a politically successful Labour party leader half as wealthy as Key, then the ‘personal wealth worshippers’ will have ‘won’, if they haven’t already.
Good messaging but don't over-do it. Nat/Lab management style is relevant if we have neolib hegemony. We don't. Sustainability & resilience are the new paradigm & we're riding the transition wave.
If GR were to proclaim this shift, it would give Labour credibility amongst younger generations & validate your conclusion.
It is rather amusing to see Baldrick and Dracula’s daughter not taking advice from international Finance Capital! Sirkey for example would likely have got the message immediately.
These arguments will appeal to the rational among us, but unfortunately there's an awful lot of irrational types around who just want to "get back to normal" and don't see Labour as delivering on that front, either now or later. (Of course, the old "normal" isn't there any more to get back to, but try telling that to your average gammon.)
Former BoE Governor Mark Carney:
Speaking at a summit for policymakers in Montreal Saturday, Carney said that when Brexit supporters “tried to create Singapore on the Thames, the Truss government instead delivered Argentina on the Channel.
[…]
On Saturday, without specifically mentioning Truss, he said: “Those with little experience in the private sector, life-long politicians masquerading as free marketeers, grossly undervalue the importance of mission, of institutions and of discipline to a strong economy.”
https://edition.cnn.com/2023/09/18/economy/mark-carney-liz-truss-uk-economy/index.html
It's actually more that the markets do not actually believe the libertarian nonsense that cutting taxes will increase revenue.
What happened with Liz Truss is roughly as follows:
Rich people are just fine with giant tax cuts, and had Truss' tax cuts been accompanied by an equally giant slashing of government expenditure, those bond prices would not have panicked. So no, the Capitalist Class do not consider Trickle Down a Hoax. They just think borrowing to pay for giant tax cuts is bad, at least at an inflationary stage in the business cycle.