- Date published:
1:18 pm, December 23rd, 2010 - 126 comments
Categories: Economy - Tags: recession
The economy shrank by 0.2% in the September Quarter. None of the forecasters had dared to predict it would be this bad, except yours truly 🙂 because I looked at the facts, rather than being taken in by Key’s rosy spin. The money trader’s economic record is looking pretty disgraceful now, isn’t it? GDP per capita is now lower than when the first recession ended. No ‘aggressive recovery’ in New Zealand. Hope smile and wave is enjoying the Hawaii sun.
The decline was widespread: agriculture, fishing, mining, forestry, manufacturing, and construction. The value of exports fell while imports rose.
The dollar has plunged on the news. That’s good for exporters but it’s happened for a bad reason – our debtors are beginning to lose faith in our ability to meet our massive debts.
The Manufacturers and Exporters Association has added to the bad news by releasing its Survey of Business Conditions for November, which strongly suggests this current December Quarter will be recessionary too. But you don’t the stats to tell you that – go to a shopping centre and tell me if it feels like normal Christmas trade.
Looking ahead, there’s more bad news still to come: higher oil and food prices next year, a credit rating downgrade now almost certain, and government cuts to pay for tax cuts that will further strangle the economy and put more workers out of a job. The Rugby World Cup will be a blip against these larger trends.
It’s time to accept that GDP per capita peaked along with oil some time in the past couple of years. Now, the central question of politics becomes how we divide a shrinking pie. The elite are already aware that this the fight we’re fighting, and they’re taking all they can for themselves with tax cuts, removal of work rights, lower wages, and privatisation.
It’s time to fight back.
Meanwhile, some music:
I think I’ve been agreeing with your forecasts Marty!
Good to see that Stuff is leading on Dog Mauls Woman, and the fact that we’ve started a double-dip is only 3rd. My heart goes out to the poor woman ‘n’ all, but news priorities?
I see that June quarter was revised down to virtual nil growth too…
(captcha: quiet – as in this Christmas)
Yeah I was only trying to rub the big economists’ face in it. should have written ‘we’
Down, flat line, down doesn’t count as a double dip in my books Bunji. Just one long slide on razors with a salt water bath intermission.
* Economic activity was down 0.2 percent in the September 2010 quarter, following a 0.1 percent increase in the June 2010 quarter.
I thought it was two consecutive quarters of negative growth made a recession official?
Not that the trend shown is anything positive, I’m just being a bit picky.
Yes, but once December comes in negative, the recession started in July…
yeah see the bit where it says ‘2nd recession has begun’ and then goes on to say that december, like september, will be negative?
The headline is that the recession is official. I pointed out it’s not, and you pointed out that the post speculated that it will be.
That’s not a rebuttal.
yet it is. the first data point in what will become the second recession has been officially released
That’s like saying – ‘It’s official, I won the race!’
‘But the race is only half way through?’
‘Exactly! I’m in the lead at the half way official data point in the race which I will win’
W. T. F?
That’s why they are in opposition.
Of course it takes two consecutive quarters to call it a recession but when did you ever know Marty to let the truth spoil a dishonest headline
stop crying, it belittles you.
this quarter is also going to be negative, meaning that the September quarter will then be recognised as the first quarter of the Key recession.
Told you months ago, thanks to the Auckland Skip Bin Volume Metier. I’m thinking of starting a consultancy business with only two bits of advice, the ASBVM and ” Whatever I’m in get the bloody hell out of it”. ( I’m growing Sav Blanc in Marlborough ). Absolutely 100% failsafe advice. P.s the current ASBVM says it’s not getting any better.
Yup, here you are.
We will be expecting regular forecasting now Adrian – you should outperform Treasury easily…
Yeah man you the star.
Face it, I think your methodology kills many a PhD economist’s hands down.
Your charge out rate should be $600/hr, but first you need to come up with some fancy terminology (including some in latin or greek) (ASVBM is a great start) as well as graphs. Lots of graphs.
I can beat that. August 13: “it looks like we’re heading back into recession” 🙂
I can way beat that … in about March 2000 I sent every politician an email chocka with the best available peak oil information at the time like this –
THE IMMINENT PEAK OF WORLD OIL PRODUCTION
Presentation to a House of Commons All-Party Committee on July 7th, 1999 — by C.J. Campbell
The problem is the subject line in my email was ‘Do something you fuckers’ …. So I guess that gave them an out. I continued sending emails until maybe 2 months ago – some of the early ones are on my site, along with maybe 4 examples of what others have sent ….. long before 2008 AND not with a subject line like my first one.
I have many many examples of people ‘forecasting’ this shit storm, and we haven’t seen anything yet!
Well we have , but “that will not happen to us we are all so smart”. Most are no differant than politicians we have idiots in charge of idiots … as witnessed every election day.
George says it best – http://www.youtube.com/watch?v=xIraCchPDhk That is one thing we can all agree about with regard to the future we have sure earned it;)
Also this is a small percentage of the people I and a few others have informed http://oilcrash.com/articles/whatinfo.htm
Sorry guys some of us are 10 – 15 years ahead of you.
With this lot published in Scoop http://oilcrash.com/powrless.htm since 2004 … again a tad ahead of most.
yeah but did you call this specific quarter would be the start of the double dip?
guess it doesn’t matter in the meta-sense.
Its official. Martyg doesn’t understand the official definition of a recession.
tell me sweetd. if the next quarter is negative when will the recession have begun?
Clue: in the september quarter.
But good to see you arguing semantics, it shows you have nothing else. no justification for your appalling, lazy, elitist government.
captcha: corrections – one area of the economy that is expanding
“tell me sweetd. if the next quarter is negative when will the recession have begun?”
And tell us, Bright red. If the next quarter is not negative when will the next recession have begun?
Seriously – You guys are just plain weird.
If I wrote this crap, lprent would ban me unless I retracted it.
Can you also tell us next weeks wining lotto numbers? I am picking that there will be an upswing due the Canty earthquake reconstruction and insurance payouts.
“I am picking that there will be an upswing due the Canty earthquake reconstruction and insurance payouts”
If your window gets broken and you have to replace it partly with insurance, partly from your own pocket, are you richer or poorer?
but if you just look at the economy the way GDP does one would conclude that you gained a window so you got richer.
Most commentators aren’t picking that to really start showing up in the stats until the 2nd quarter and later of next year. Not the 4th quarter of this. There have only been a few 10’s of millions dolled out so far this year anyway, which is a drop in the bucket for the country’s GDP and likely already swallowed up by the drought and pike river mine disasters before you even in add the rest of the economic malaise.
Better luck next time, though.
Stuff.co.nz don’t understand the definition of a recession. Their last piece on this claimed that a double-dip recession is when there’s “negative GDP in two consecutive quarters”. The word ‘growth’ was nowhere to be seen in that sentence. Perhaps they are waiting for actual negative GDP before criticizing the govt.
Actually Marthy you will find I predicted it on this website way before you.
I’ll give you another prediction. In the next year you will start to see civil unrest in the US on a scale never seen before and the realization by many Kiwi’s that it is not just a recession but a full scale global depression on a scale far worse than the “great” depression.
In fact I dare say that the global economic collapse will be the worst economic collapse this planet will have ever seen and one from which the economy will never recover unless we can harness alternative energy sources.
The US dollar will loose its reserve currency status and may be followed by the collapse of the Euro as more and more countries begin to realize that the US is a giant with clay feet without wealth producing assets (such as industries, all in China after all) and is printing money out of thin air unable to kick start its economy unless banks scamming with derivatives is considered a real economy and countries will take back their currencies to save whatever they’ve got left.
As populations are becoming more and more aware how the international finance “elite” has been scamming the system there will be more and more uprisings such as in Greece and with the realization that their economies have been about consuming with borrowed money rather than creating local wealth through real world industries there will be even more of a collapse as people are struggling to make ends meet and are unable to buy even the most urgent necessities.
Because of the inflation caused by the reckless (read callously stealing even more real world wealth) money printing practices of the NYFR food and petrol prices will go through the roof and while some of it is caused by peak oil most of the price rises are caused by artificial scarcity and bankster speculation and this will only stop if the worlds population rises up to stop these people.
Think Zimbabwe times Weimar republic and you will get my drift and this won’t stop until until governments through popular revolt are forced to re-nationalize their currencies and start printing it themselves rather than the international banksters.
Student riots in England of the tripling of University and school fees is only just the beginning.
We live as they say in interesting times and I for one am glad I am not living in Europe or the States.
I think it’ll be more than a year but certainly within the next 5. The US will be in a constant state of low level civil war within the next 10 years.
That realisation and it’s cause (the banksters) should be global in a couple of years.
With Peak Oil here then that scarcity will become all too real. I’m not saying that there isn’t some artificial scarcity – capitalism requires it after all to maintain profits for the worthless capitalists – but that it’s going to be less of a consideration as time goes on.
insert visions of the French Revolution and their solution to the Banksters here
Agreed, it’s going to be hell on Earth in both those locations in a few years. NZ has the benefit of being able to support ourselves, once we get rid of the stupid “free-market” paradigm and make a move back to self-sufficiency, and being isolated.
ROFL. Thanks for the French revolution visions, DTB.
Where’s a communist when you need one? 😉
Marty, you will be glad to know the dollar as recovered to above pre annoucement levels.
Made a quick couple of grand, going both ways.
Gotta love currency trading.
All the best.
money is a claim on a share of society’s economic wealth. Can you explain how you contributed to that wealth by your actions?
(gee, you must have been throwing around at least $300,000 and called the markets just right to make two grand)
Its a thing called margin, Bright red.
Don`t call markets, just follow price action.
We can`t all clean loos.
All the best
But we can all make the valuable contribution of our services in ways that improve both ours and others lots. Currency trading does nothing like that – it is just part of the global money grab.
Actually we can’t all be money traders. I’m surprised you don’t even know the right wing excuse for how money traders supposedly provide value to the economy to earn their wealth.you seem to think it’s a purely predatory action but you think it’s ok because you’re the predator and the people cleaning your loos are the prey
Your right as usual Marty,
I here by retire from trading and will sign up for the dole tommorrow.
I`ll be alot more productive.
“Can you explain how you contributed to that wealth by your actions?”
I can. Currency traders allow me to de-risk my business from currency fluctuations. I am able to lock in the cost of goods and services in different currencies for extended periods of time – Thereby innoculating my business against currency risk.
Someone else gets to take on that risk, and I pay a small fee for the service (essentially currency insurance). They get to win big if they get it right, and they get hurt big if they get it wrong.
They enable economic activity, that might not take place, by taking on the risk of another merchant (just like insurers)
Or you could just eliminate the arbitrage and have a single global trading currency.
You could. But until the entire world manages to agree on a single currency, currency traders enable a very useful service for many businesses.
Yeah that’s right, currency traders should limit their activities to enabling the real economy of different countries to function together commercially. Currency trading, and banking as a whole, should be a dead boring business. Note that assisting the real economy to function is NOT how John Key made money for Merril Lynch.
Financial services, including currency dealers, should not participate in speculative activities which have the capability to inflict massive systemic damage to players in the real economy.
And then, when the traders have put all your money into ultra risky CDOs leveraged up the waahoo the whole thing falls down and you lose you money but the money traders are sitting pretty. In other words, exactly what just happened to the global economy.
Draco. You are so far off the mark, it isn’t amusing.
a) Currency traders don’t trade CDO’s. That’s like mixing up pediatricians and pathologists. “Hey – they’re all doctors’n stuff!”
b)Once you perform a currency hedge, you can’t lose your money. It’s like buying insurance except the insurance company can’t go out of business. A currency trade, for the purposes of hedging, is safer than your average bank deposit.
But hey, don’t let the facts get in the way of a good rant.
Hey BHAT pay your taxes to support those on the dole, thats all I care about.
Bill is an expert at double dips. Double dipton first, is he now delivering us a second double dip?
“Double: double diption?
Unfortunately, the government can’t make it rain or stop the earth from shaking, two natural factors that are recognised as having a substantial impact on GDP this quarter.
The outlook actually quite bright in many respects.
Here is a quote from that article:
Our lower exchange rate will attract a lot of tourism from Australia in particular, and make our exports, especially to Australia, very competitive. Whether we technically enter into recession next quarter is a moot point. We are actually only talking about small fluctuations between positive and negative, so a swing back to positive is entirely possible.
BR “If your window gets broken and you have to replace it partly with insurance, partly from your own pocket, are you richer or poorer?”
Let me ask you several questions, BR.
1. If you have a forty year old house that is destroyed in the earthquake and your insurer pays for total replacement (i.e. a brand new house a the same size as the old house), are you richer or poorer?
2. If you are a builder on the bones of your bum due to the recession and you are suddenly inundated with work due to the earthquake, are you richer or poorer?
“If you have a forty year old house that is destroyed in the earthquake and your insurer pays for total replacement (i.e. a brand new house a the same size as the old house), are you richer or poorer?”
As an individual, I’m in poorer because I’ve lost the enjoyment of the house in the short-term and had to pay excess etc to replace it with one of the same value. As an economy, we’re poorer because we’ve lost a functioning house and had to divert resurces that could have made other stuff (you’ve heard of opportunity cost, eh?) into replacing it – ie. rather than producing more wealth, we’ve been just replacing what we’ve lost.
Opportunity cost, TS, opportunity cost.
Once again, if you’re arguing an earthquake and the recovery is good for the economy, you have to explain why you and I shouldn’t go around blowing up buildings tonight in the name of boosting the economy (apart from the fact that we couldn’t stand each other’s company).
BR”As an individual, I’m in poorer because I’ve lost the enjoyment of the house in the short-term and had to pay excess etc to replace it with one of the same value.”
Can’t agree. One of my employees will need his house completely replaced. It has bad cracks through the floor that can’t be fixed, but is quite liveable until it is replaced. So, he won’t have to pay rent until his replacement house is built. THEN his insurance company will pay rent for him, AND he gets a BRAND NEW house to replace his old one. You seem to have missed the point that new houses are worth a lot more than old ones. PLUS his land is remediated, so as a result his section will probably end up being more desirable than unremediated sections that might be the target of the next earthquake. I actually know a number of people in similar circumstances, so its not an unusual circumstance.
BR”As an economy, we’re poorer because we’ve lost a functioning house and had to divert resurces that could have made other stuff (you’ve heard of opportunity cost, eh?) into replacing it – ie. rather than producing more wealth, we’ve been just replacing what we’ve lost.”
We’ve got rid of old house stock, replaced it with new house stock, and reduced the likelihood of future problems through land remediation. Plus, we’ve brought a lot of extra money into the country through reinsurance from overseas insurers, and we’ve stimulated our flagging construction sector etc. Doesn’t seem a bad outcome to me.
BR “Once again, if you’re arguing an earthquake and the recovery is good for the economy, you have to explain why you and I shouldn’t go around blowing up buildings tonight in the name of boosting the economy”
We actually do that sort of thing all the time. Pull down old buildings and build new ones etc. The only difference is that a natural disaster has done the “pulling” down, and on a much grander scale. You never know, we might enjoy each others company if we had our focus on blowing things up rather than our political differences 🙂
Its simply being sucked back out again now dude. If the insurance industry pays out big to you, don’t worry they take that money back, eventually. From who?
From YOU! 😀
Not really new wealth is it?
“We’ve got rid of old house stock, replaced it with new house stock, and reduced the likelihood of future problems through land remediation. Plus, we’ve brought a lot of extra money into the country through reinsurance from overseas insurers, and we’ve stimulated our flagging construction sector etc. Doesn’t seem a bad outcome to me. ”
we’ve lost capital stock that we must have wanted, otherwise it would have replaced it already. Instead of using our productive capacity for things that we would rather have done, we’re going to have to use it to replace what we’ve lost.
The inflow of money into the economy from offshore insurance and reinsurance is just a transfer payment – it doesn’t show up in GDP because we haven’t produced anything for it.
“We actually do that sort of thing all the time. Pull down old buildings and build new ones etc. The only difference is that a natural disaster has done the “pulling” down, and on a much grander scale.”
Yes but the fact that these buildings were standing shows that we saw more value in them standing than in replacing them.
BR”we’ve lost capital stock that we must have wanted, otherwise it would have replaced it already.”
Na. We’ve lost some capital stock we may have LOVED to replace, but couldn’t afford to. Now we can. Also, we’ve lost capital stock that obviously couldn’t stand up to the rigors of an earthquake. Now we can replace it with better quality housing and better prepared land that will stand up better to the next one (eg the Alpine fault). Also, we’ve learned lessons we can apply to building standards generally around NZ, so the long-term pay-off of a lesson learned can be quite valuable.
BR”The inflow of money into the economy from offshore insurance and reinsurance is just a transfer payment – it doesn’t show up in GDP because we haven’t produced anything for it.”
But we will be producing things with it (e.g. new houses). Then it will show up in GDP. Also, if someone has an old house (worth say 300000) that they get replaced with a new house (worth say $500000), then there is a capital gain they can borrow against for whatever, and so thus stimulate the economy.
Plus there is all the undoubted insurance fraud going on (claiming for TV’s that weren’t broken in the quake etc), which while obviously wrong, will have the benefit of boosting income for retailers etc as the ill-gotten gains are spent.
TS, does your analysis mean that there is such a thing as a free lunch?
Won’t the price of builders, plumbers, earth moving equipment hire, etc. go up? Won’t the price of raw materials go up? Isn’t all that ‘activity’ being paid for by money which insurers would have had making money elsewhere (i.e., invested elsewhere)?
Reply to CV.
I don’t know. Insurers are always fixing up shit from a wide variety of disasters from all around the world, so an earthquake probably comes as no surprise. Given the relatively mild amount of damage considering the size and proximity of the quake to a main centre, they might actually consider NZ quite a good risk.
They might consider NZ a good risk, but they are already pulling their money back out of the system in the form of premiums.
By the way, how come injections of money into the economy by insurance companies are considered by the Right as economically stimulatory?
Hehehehe you know where I am going with this lads.
I don’t give a flying fuck where the money comes from. Money coming into an economy is good.
Especially the EQC. The EQC was set up specifically to deal with payouts for earthquake damage.
While I would normally agree that breaking windows and then replacing that broken window doesn’t make an economy richer, it is slightly different if:
– A window gets broken
– Then you get to spend money that was specifically put aside for, and can only ever be used for, replacing broken windows.
It’s essentially the same as releasing a stimulus package, that doesn’t rely on borrowing, that could never be used for anything else.
The insurers will want to recover their losses through premium increases. The insurers and reinsurers won’t simply look on this as a case of bad lcuk and write off their debt. They will want the money back. How? Increase premiums. Sure, there may be a spend of money to rebild. There will also be a hike in premiums to recover that money. That is, we will pay more for our cover than we would have had the earthquake not hit. A short term stimulus hit but a longer term financial drag.
you know old boy, that article you’re quoting doesn’t mention oil prices once. How one can get an accurate picture of where the economy is heading without considering the cost of the fuel that powers it, I don’t know.
Higher fuel prices will spur inflation which will result in the RB increasing interest rates which will raise the dollar again which will reduce the cost of imported oil……
you can’t magic away a price increase like that. If you increase the exchange rate to counteract a oil price rise then the cost is just borne by exporters facing a higher dollar.
I have actually wondered a little if the high oil price is what drove the NZ $ so high in 2007-2008, like it was an automatic counter-balance acting (unconsciously) to keep the country running. Higher the oil price went, higher the dollar goes. It’s been reflected since the oil crash in 2008 – NZ $ dropped, so did oil, now oil is going up and the NZ $ tracked with it most of the way to keep the petrol price mostly stable. The link has broken down a bit in the last couple of months though.
Compare to 2003-2004 when petrol prices went up quite high but the NZ $ didn’t.
Oh dear, not “the dog ate my homework” excuse again. Disasters – natural and otherwise – occur all the time, and governments are expected to display enough adaptability to deal with them. So ins’t it a pity that this National government seems to lack the ability to cope with the sort of unexpected events that the real world throws up all the time.
Quite right. The government should be able to magic these sorts of things away.
Actually, so far as the earthquake is concerned, I think you will find we are light-years ahead of the likes of Haiti, so I wouldn’t be too critical of the government. Considering approx half the houses in ChCh have some sort of damage, its a fairly major rebuild project that can’t be done overnight.
You don’t need to do a lot of searching on this blog to find me bagging Labour for running NZ into recession late 2007 and various people bagging me and justifying the recession using drought and oil prices. I guess when Labour are in govt these things are beyond our control and when National are in govt they should have been able to deal with it… Labour good – National bad.
I could’ve sworn that NZ only went into recession in 2008. Maybe that’s how you get the idea we went into recession before everyone else.
We did go into recession before others. But as said that was in 2008 – and it was because of domestic anti-inflation policy.
Until late 2007 house prices were still rising and the market did not really slow till the following year.
However some (export and business dependent on affordable finance) sectors of the economy were in decline because of the rising OCR as early as 2007.
By then the RB Governor had called for measures such as a surcharge on mortgages to cool the housing market rather than just lift the base OCR and harm the business/export/productive sector (rising dollar etc). The current Finance Minister said at the time that this would be a courageous thing for a government to do – which sort of killed the idea. And explains the economic stagnation at the moment as well, in its own way … .
A surcharge applied next year would allow the OCR to remain at 3% – and this would keep the dollar at c75cents Australian (their OCR is 4.75% at the moment and this explains the fall from over 90 cents Oz as our OCR has generally been higher than their’s for many years now). This is important as many exporters are struggling even now with the low value of the US dollar. But the move would be too “courageous” for Bill English …. . So let the productive sector suffer because he has no courage to do the right thing.
PS I have been advising a surcharge or GST on home mortgages for many years now (way before Bollard). Not everyone was asleep during the days of rampant house price inflation and tough times for exporters.
When you talk about 2007 and you say ‘the current finance minister’ do you mean the one that said this about Cullen;
Cullen’s mortgage tax.
Or did you mean ‘the current at that time’ being Cullen who was two scared heading into an election to do what you think should have been done?
Big spending Micheal Cullen? The same Michael Cullen who gave us 9 years of Budget surpluses?
Being criticised by one Bill English? The same Bill English who has given $9.1B to the rich in tax cuts over the next 4 years, which has helped to blow out the Government accounts to the extent that he is now borrowing $300M per week just to keep the country’s power on?
lolz burt pick better rolemodels.
Funny when the budget is in surplus (ie 2007) there is pressure on interest rates. When we are $15Bill in debt everyone is talking about holding interets rates steady. Blaming govt spending for tha last recession is a bit like trying to blame Allan Bollard for the pitiful state of our economy at the moment.
Society as a whole is poorer as resources needed to be used that wouldn’t have had to be if the house hadn’t been destroyed.
Qualified builders are fairly important people (ie, far more important than money traders) so why are we letting them lose their houses and probably move to Australia due to conditions caused by the money traders?
Draco “Society as a whole is poorer as resources needed to be used that wouldn’t have had to be if the house hadn’t been destroyed.”
Dumb argument. We don’t know what would have happened to the resources otherwise. For instance, the timber might have been burnt up in a forest fire prior to harvest, creating lots of greenhouse gases.
“Qualified builders are fairly important people (ie, far more important than money traders) so why are we letting them lose their houses and probably move to Australia due to conditions caused by the money traders?”
Good. It looks like you agree with my point in a round-about sort of way.
That’s the most pathetic piece of whatiffery I’ve seen today. Are you actually trying, or just cutting and pasting this from a joke book?
Given what we know about the way the world works, are the resources more likely to have been used productively, or to be used unproductively? For example, how likely is the average New Zealand forestry block to burn down in each year? The answer is: not very.
Obviously, that was just one possibility. However, my point remains valid.
The trees probably wouldn’t have been burnt up in a forest fire (but they might have been). However, given that the resources would be used on something (if not destroyed in a forest fire) there are a lot worse things the resources could have been used for than replacing houses. So it is not an argument to say that we are worse off because the resources could have been used for something else when we don’t know what that eventual use might be.
That P you’re smoking must be really good.
In the case of no earthquake, society would retain the original utility of the non-destroyed homes + the utility of whatever was created with the resources that would have been diverted to reconstruction had an earthquake occurred. The result will always be greater than the original, even if the resources are devoted to something that has almost no utility.
In the case of an earthquake, society would ceterus paribus only regain the same amount of utility as the homes had provided prior to their destruction.
In the first case, we will necessarily end up with greater social utility than in the second case.
TS, so you are saying that the market is not good at finding out where to shift resources and natural disasters are better at this?
yeah he’s basically saying that a natural disaster is good because otherwise another natural disaster MIGHT have befallen the resources that will be used recovering from the first one (apparently natural disasters are mutually exclusive too).
tsmithfield -President of the ‘I love massive earthquakes striking major cities’ fanclub. Membership: him and maybe grumpy.
Um, did you see my comment immediately above before typing your response?
Maybe the resources could have been otherwise used for the building of more glorious casinos and bottle stores if they weren’t required for earthquake repair. We simply don’t know what they would have been used for, so there is no argument in saying that using them to rebuild a city is a waste of resources.
Opportunity cost is a fundamental concept of economics.
If not for the need to repair earthquake damage, the resources would have been used for whatever activities would have maximised the utility gained from them, as determined by the market.
Yeah, but we like to argue that “the market” isn’t perfect.
I think ts does have a point here, and I’ll outlay an example:
Poor family doesn’t have any money to replace their old crummy house, or do anything else with it. Rich business owner has got lots of money, so uses it to build yet another cafe in the center of the city, paying builders to do so.
Earthquake strikes, poor family receives lots of insurance money which they use to build a new house. Rich business owner still builds his cafe in the central city, but it costs him more money to do so because there is high demand for builders at the moment
Essentially what has happened here is that the earthquake has redistributed money towards people who otherwise wouldn’t have had it, for a very worthwhile purpose: replacing old houses with new houses. In the pre-quake world it would have been much better for society if the rich man had used his money to replace the crummy house, instead of opening the cafe, but he had no personal impetus to do so and so it didn’t happen, but because of the earthquake, now it can.
Now where has the money come from? The insurance companies. This isn’t a free lunch, but generally you pay higher premiums on more valuable property, and lower premiums on less valuable property. So the poor family have essentially been subsidised by other rich folks paying higher premiums on their flash mansions.
Also insurance is essentially gambling; you pay $20k in premiums over 40 years in the off-chance that you need to claim $200k during that time period, so this poor family might have only paid $5k in premiums but ‘hit the jackpot’ and got to claim $300k for their house. Meanwhile everyone who lives outside of Christchurch loses because they paid the premiums that make up the other $295k (+ profit margin) of the insurance company. But that’s just how insurance works.
Sucks to be you if you’re uninsured, or your insurances companies wriggle out of their responsibilities through a loophole etc.
So while the broken window fallacy definitely is logically sound, I don’t think it necessarily applies in all cases, especially large disasters; because they open up new opportunities to spend money in ways that are more productive than how that same money would’ve been spent before the disaster.
Or to boil it down even further: before the earthquake we might’ve been able to spend $10k and gotten 40 points worth of social utility, and now after the earthquake we can spend $10k and get 60 points worth of social utility at a cost of 15 points from the quake itself: in this case the earthquake has made us better off because we can spend the same money more productively and still make an ultimate gain in social utility: 45 points instead of merely 40.
Nice analysis Bill.
It’s a nice idea Lanthanide, and I toyed with it myself.
But … if you think it through it doesn’t work (and so far hasn’t worked) like that. The houses that were damaged were largely in the low income eastern suburbs of ChCh. These are the houses and people who were most affected and who are having the most difficult time getting movement on their repairs and remediation. In addition, the ‘new houses’ will still be in low income areas and, with the fears now over liquefaction and the like, the differential in terms of selling price between these houses and those elsewhere in ‘safe’ suburbs has just increased dramatically. That leaves them even more ‘stuck’ in terms of social mobility.
With all the disruption, anxiety (e.g., see counselling services and prescriptions for sedatives like valium), depression and what will be continuing concerns over loss of value of land (for those who own in that area) and higher rents because of housing shortages (for those who rented and had to quickly find alternative rental accommodation) it’s pretty hard to see where your hypothetical gain in ‘social utility’ comes from.
The gain has actually been experienced by countless claimants with relatively small claims who have been rapidly paid out with what seems like almost a ‘no questions asked, yep, let’s call it the earthquake’ attitude from assessors (which is understandable for getting through the minor claims with the expense of hiring staff, importing assessors from Australia, etc.). These claimants are in the least affected (and, generally) higher income areas in the West and South of the city. Their social utility has definitely gone up but it’s not clear it needed to.
In the circles I mix in (I’m well off and know other well off people but I’m the exception in that I live in a very low income area of town) there are countless first hand accounts of how people got paid out at two or three times the value paid for goods (e.g., wine, ornaments, televisions, etc.) or were simply given a cheque for repairs they weren’t bothering to get done (because they were completely unnoticeable, often thought to have existed prior to the earthquake – e.g., minor cracks in paintwork – and of no structural concern).
BR “Opportunity cost is a fundamental concept of economics.”
I understand opportunity cost. However, opportunity cost is based on the assumption that some rational estimation can be made of the cost of the lost opportunity. This is simply not the case here. If not used for repairing the earthquake damage the resources might have been used at some indefinite time in the future for who knows what.
BR “If not for the need to repair earthquake damage, the resources would have been used for whatever activities would have maximised the utility gained from them, as determined by the market.”
You could have knocked me over with a feather at this statement. Are you, a self-confessed leftie, actually saying that the market makes the best decisions about the use of resources?
The market makes better decisions than earthquakes (random chance). The government makes better allocations of resources when externalities are not priced or allocated correctly or cannot be priced. Like in health.
A short term intensive burst of capital will boost GDP. It usually won’t help long-term structural conditions, and because it exhausts or draws on finite capital resources can severely hinder. Otherwise you could argue that a supermassive earthquake that destroyed all New Zealand would be a good thing for the economy. That would be completely ridiculous. Arguments that make the same claim about Christchurch are only moderately ridiculous.
George: “A short term intensive burst of capital will boost GDP.”
George “It usually won’t help long-term structural conditions, and because it exhausts or draws on finite capital resources can severely hinder.”
Same as all the economic stimulus poured in to keep the world economies functioning. Yet, even here, I have seen few argue against that being a good idea.
George: “Otherwise you could argue that a supermassive earthquake that destroyed all New Zealand would be a good thing for the economy.”
Pointing to an absolutely absurd possibility is not a valid argument to apply to a more moderate situation. For example, if your body was riddled with maggots they would probably kill you. However, a few maggots in strategic locations eating away infection are used theraputically to the benefit of the patient.
George “Arguments that make the same claim about Christchurch are only moderately ridiculous.”
Read my previous posts. I haven’t been arguing that it is a wonderful thing for Christchurch to be hit by an earthquake. I have only been pushing back against those who claim that no economic benefit, or anything of value arises from it. Very obviously there has been huge amounts of suffering and disruption from the earthquake and I would much rather it had never happened. However, on the other hand, good can arise from this situation.
everyone acknowledges that market economics is flawed in the sense that you don’t leave some things to the market and that the inherent unfairness of market outcomes needs to be corrected for. That doesn’t mean that the market doesn’t work as the best system we have for approximating utility – even communism has markets.
You’re basically trying to argue that the earthquake is costless because the resources used in repairing it would either have been wasted or not used otherwise. That’s just fucken stupid.
Marty “You’re basically trying to argue that the earthquake is costless because the resources used in repairing it would either have been wasted or not used otherwise. That’s just fucken stupid.”
Nah. Thats not what I’m saying at all. What I am saying is that on one hand we have a concrete benefit from a resource: e.g. a new house that might be better and safer than the old one in future earthquakes. Had the house not been built it is simply indeterminable as to what would have happened with the resources (contrary to what Draco claimed in the opening stanza to this discussion). So it is false to argue that an indeterminable benefit/cost has greater value/cost than a concrete quantifiable one. We simply don’t know.
ts.”So it is false to argue that an indeterminable benefit/cost has greater value/cost than a concrete quantifiable one. We simply don’t know.”
actually we can assume that the value of the alternative uses of those resources is less than the value of rebuilding, otherwise we would be doing them instead of rebuilding. – that’s opportunity cost.
the point is that the opportunity cost is greater than zero – we have given up the chance to use those resources to add to our wealth because we’re having to replace wealth we’ve lost due to the earthquake. That means we’re worse off than if the quake had not happened.
Not to mention the earlier costs in protection. But we are at least several centuries away from predicting earthquakes let alone preventing them. It is rather moot. There really is no alternative to protecting ourselves over the long term other than at a societal resource allocation. Markets are not a useful social tool for doing it. Their strength is short-term resource allocation. They aren’t useful for much over a decade.
Don’t waste your time.
He resides in another dimension.
Marty, have a look at my post 10.4.1.1.188.8.131.52 above and see what you think about my example.
It doesn’t require a market. Earthquakes are inevitable at our current stage of technology. So resources have to be allocated to handle them. In part massive resources have been allocated previously by setting building provisions, which in part (as well as some luck) explains the limited injury in the quakes in the recent decades. In the markets usual short-term hunt fo profitability, those resources would have never been allocated, nor would have the funds for the EQC. After all those paying the costs might have never received the benefit.
But this things were all done despite the markets.
I agree completely. Provisioning for these resources for a disaster both before and after an event has an extremely high value. What you are saying strengthens my point. The use of resources now for prevention and remediation of a disaster has much more value than some indeterminable use of the resources in the future.
Remember, my first response on this point was to Draco’s comment that:
“Society as a whole is poorer as resources needed to be used that wouldn’t have had to be if the house hadn’t been destroyed.”
I still think this comment is rubbish.
Agreed on one, and not on the other. We could have a earthquake tomorrow in Wellington or somewhere else, so sufficient has to remain to cover that. We could wind up in a war with Aussie within a decade – low probability but still a probability.
The use of funds has to happen with a high degree of probity. Simply because we are trying to deal with unpredictable events. The worst thing that could happen is to drain funds and not have sufficient to kickstart a recovery from a closely following second disaster. Not being able to alleviate disaster shock is probably the most destructive thing that can happen to a society or an economy.
I suppose I should read this in the flow of debate rather than in moderation sweeps, can’t quite figure out what people are arguing..
Who pays for the land to be remediated?
Who pays for the cost to government (billions) for infrastructure renewal?
Who pays for the insurers re-tooling (growing their reserves once again – including out local Earthquake and …)?
Who pays for the competition for scarce resources – other people needing the resources (rising market demand – delay or rising costs)?
A temporary growth impact (using up stored savings and the governments borrowing capacity) at a longer term cost – negative impact on longer term growth.
The one good thing is that there was spare capacity in the economy at the time (because of government choice not to deliver any economic stimulous – such as building 30,000 new homes – then selling them onto the market (the borrowing cost would be temporary). That would have utilised building capacity – maintained this economic sector though the downturn.
Generally speaking we would assume, with reasonable degree of accuracy, that the resources would either stay where they were or be used for something else. If they were going to stay right where they were then we seeing an outright loss. If they were going to be used for something else then we’re seeing a lost opportunity because that something else can no longer be done.
Nope, not even close. I was pointing out that our present system is punishing builders for what the money traders did. I was also pointing out that our “social safety net” needs to be a hell of a lot better so that, when such things happen, we don’t lose people with skills that we, as a society, need.
So everything is going exactly to plan then?
You can’t slice ‘n dice ‘n sell off social provisions or state assets if the economy is performing well. You need a tanked economic situation to provide justification for asset stripping in the name of ‘efficiency’ gains.
Meanwhile, generally critical commentaries claim that Key/ the Nats are incompetent. Not only can incompetence can be defended under a shower of excuses; but a deliberate policy of neglect isn’t incompetence.
Maybe it’s time to shift the focus from a ‘do nothing’ Key/Nat government as though he/they were merely incompetent, and highlight the Key/Nat’s deliberate neglect of the economy as a means to an end?
Key/Nat’s deliberate neglect of the economy as a means to an end?
Just cross your fingers that tinsmithy isn’t a NACT advisor: if they can claim with a straight face that disasters and rising oil prices are good for the economy, they’ll be praying for war……
Too many photo ops and appearances to worry about unimportant shit like the economy.
He is enjoying the Hawaii sun, reading this thread, drinking a beer, rich indeed. No, not reading this thread, but enjoying the sun. He deserves it, don’t you think? Is your holiday going to be a Kiwi one, where you spend money here? What a bore to spend Christmas overseas! What about friends and family, I would miss all that.
Sure he deserves his holiday, he enriched himself and his wealthy mates, PM’s job well done.
Maybe if we’re very nice to him, he’ll shout us all to Hawaii as well? How lovely, but no thanks, I’d rather go to New Plymouth or somewhere like that. I like to support the toursim trade here, when I can. Good for him though, Key made his own fortune, he has a right to holiday wherever. it’s his life. He probably enjoys it over there also, because he would be pretty much unknown, so left alone in peace. Merry Christmas to John Key, a very hard-working PM, although Keith Holyoake is my all-time favourite.
Oh, sympathy and praise for the millionaires amongst us!
Every single NZ’er has a right to holidays which suit them, not just the rich, wealthy and powerful.
That’s basically what he did with SCF investors eh. Good of him to help the rich list out.
I love the envy that seeps out of people here against those that make something of their life. Tall poppy syndrome alive and well here.
Well, if he bought US dollars to spend in Hawaii using New Zealand dollars, then all that means is that some American now has Key’s old New Zealand dollars to spend. Guess where that guy will have to spend those New Zealand dollars…
And the band played as the stern raised into the air, before scattering all in the mighty vessels plung into the abyss. Moments later the trumpeter clutched vainly at a deck chair floating by in the icy waters…………
Allowing the economic stagnation – increases the political campaign pressure against the economic costs – unemployment/welfare and increases the veracity of calls for the sale of public assets to pay down debt.
Public assets sold during a recession are cheap – meaning great profits for those who buy the shares – those with the available spare cash after tax cuts. With economic recovery these asset shares will be worth much more than they are now. Any responsible owner would defer selling for that reason alone – but National is a servant of the greed of its sponsors and they want cheap shares in the assets to make the untaxed capital gain.
Yeah National is exploiting the recession to achieve its policy goals – cuts to the cost of government and less public ownership of assets.
Remember when National said (2005) it would afford its huge tax cuts by reducing the cost of government – now it’s doing this because of the budget impact (deficit) of a recession, coz it has to be a “responsible government managing its deficit” … – they simply do what they want to and spin accordingly.
Utter frakin stupidity. At this rate we can predict that major simultaneous earthquakes wrecking major destruction on Auckland, Hamilton , Wellington and Dunedin (but no loss of life) would lead to an explosion of economic activity and the long awaited “reasonably aggressive recovery” for NZ, as well as finally close the gaps with Australia.
No wonder the Right Wingers under National have no plan and no idea.
A sense an opportunity in the Force 😀
What sort of sick bastard is happy that people will lose their jobs
I will never understand they LWNJ they pretend to give a shit for the poor and the weak but their lust for power sickens me
LWNJ plan for new zealand tax everybody so that we are all poor what a F**king great plan
90% of NZ’ers earn less than $70,000 p.a.
We are already all frakin poor. And National has no plans to raise incomes for the many, just the few who are already wealthy.
And the wealthy should be heavily taxed and those monies spent on a common wealth. Did you know the US had a top rate income tax of 91% between 1954-1962? Those were the years the prosperous American middle class formed BTW.
I always laugh when a RWNJ (they can’t even come up with original insults lol) describes stuff like this in detail because they really seem to have first hand experience of the feelings they write down lol
Like it takes one to know one 🙂
I must say I was kind of stunned when I went to stuff after seeing this, and the main headline was ‘MP’s get pay rise”. Quite frankly I dont care, MP’s if anything should be paid more. Whether the economy is growing or shrinking is far more important. I hate the troughing as much as the next guy but this obsession with what MP’s get has gone way too far, and I guess this is the first time it has really hit me that it comes at the expense of real issues :P.
To be fair it isnt official that the recession has begun. We dont know for a fact that growth in the december quarter will be negative, although you wouldnt bet against it at this point.
I also dont agree with your conclusion that the lack of growth is being caused by oil: if that were true then why are some other economies such as Australia are continuing to grow?
Also what planet is tsmithfield on? In his world, if we want real economic growth maybe we should evacuate Hamilton and carpet bomb it?
Well we couldn’t carpet bomb Hamilton ourselves (BTW good choice of city), the insurance companys probably wouldn’t pay out. But we could get the Ozzies to co-operate on an insurance job 🙂
Nick C. He argues that we should carpet bomb Hamilton because we demolish old buildings all the time.
Yeah, someone’s been into the Christmas sherry a bit early.
re your comment about Aussie continuing to grow. Think of the oil price as a car brake, for a given amount of braking power a slow moving car will be stopped while a faster moving one will just be slowed.
When I saw Aussie had only grown 0.2% in the last quarter, I knew we would be negative.
There weren’t that many old buildings in Hamilton when I lived there 30 years ago. A few around Frankton. But they are easy to live in compared to some other places.
If you want lots of old buildings then either Wellington or Dunedin are your best bets. There are some cold holes in Dunedin that I lived in that I consider demolishing would do lot to raise living standards. But at least there the walls are thick. In Wellington there are. Lot of rather rickety uninsulated villas that should be demolished prior to the big one……
How did this daft topic get razed? Who cares ? Let’s just nuke the capital investments whilst having a beer.
Agreed.. There are some pubs there that I have fond and blurred memories of. But I have never lived in Wellington
Loan standards drop to keep the bubble afloat
Well, it appears that Australia, although already in massive amounts of debt, is trying to increase debt. This takes on the appearance of growth as more money is sloshing around in the economy but there isn’t any real increase in producing goods and services. No increase in the productive economy doesn’t require more oil.
Hey remember when I said that John Key started the recession.
I was right.
What do you guys/gals care about growth? One of your authors recently wrote that GDP growth is not, or shouldn’t be, important:
When the governing party uses economic growth as the be all, end all of measures about their success then we point to the lack of growth to show that, even by their own measures, they’re a failure.
Yeah economic growth is pretty shit. We’re supposed to be growing social and environmental capital instead. Too bad NAT has taken all three down at once, the losers.
Come on “mates” – do not be so bloody miserable! The economy is on an aggressive way to recovery, you just do NOT realise the truth behind the stats! And also: Go and take advantage of the few stretches of the “National Party Cycle Way” that has already been built in true nationalistic spirits that also the National Socialist Workers Party in Germany used to build the highly progressive Autobahns! Cycling reduces or even defeats DEPRESSION! Physical exercise is good for you. So why are all you lefties and couch dwellers to negative? Because you are lazy and cannot bother to cycle or do other positive exercise. This country is on a crossroads, because the hormones we as National (Socialist) Party want to promote are the same that beneficiaries suffering from depression, alcoholism, other negative psychiatric or sometimes physical ailmenst and supposed “disabilities” (?) do lack! We need to PUMP it into them and their brains. Dear beloved sister Paula Bennett the saviour of the weak and needy is just working very effectively on doing this. We get all those negative and hangabout Invalid Beneficiaries, Sickness Beneficiaries called in to see a designated doctor we have “trained” to make the “right” decision for our all well-being (particularly the tax payer’s). They will soon see the light from heaven, when hormone induced activity will see speedy recovery from all ailments, collective working spirit, an NATiONal direction for the whole NATION to go forward in ultimate vigour and speed. NZ will again be the beacon in the South Pacific. Just trust me and my valid, expedient leadership that shines from the sunny beaches of Hawaii. I love you all my dear Kiwis, this is my X-mas message from the Great Leader from his beloved holiday camp. Sorry I cannot be with you, but I need to stay “positive” and cannot stand the NZ Media (especially National Radio) reporting so negative and destructive reflections on our honestly convincing and positive policies. My mental health must be maintianed. Hawaii is the prescription my doctor has given me. Sure you all understand. We fund Herceptin by the way, so do NOT complain. Your dear leader Johnno!
Here is the exact same post as above, unchanged except now you can read it because there are paragraphs (as best as I could make them fit):
Come on “mates” – do not be so bloody miserable!
The economy is on an aggressive way to recovery, you just do NOT realise the truth behind the stats! And also: Go and take advantage of the few stretches of the “National Party Cycle Way” that has already been built in true nationalistic spirits that also the National Socialist Workers Party in Germany used to build the highly progressive Autobahns! Cycling reduces or even defeats DEPRESSION! Physical exercise is good for you.
So why are all you lefties and couch dwellers to negative? Because you are lazy and cannot bother to cycle or do other positive exercise. This country is on a crossroads, because the hormones we as National (Socialist) Party want to promote are the same that beneficiaries suffering from depression, alcoholism, other negative psychiatric or sometimes physical ailmenst and supposed “disabilities” (?) do lack! We need to PUMP it into them and their brains.
Dear beloved sister Paula Bennett the saviour of the weak and needy is just working very effectively on doing this. We get all those negative and hangabout Invalid Beneficiaries, Sickness Beneficiaries called in to see a designated doctor we have “trained” to make the “right” decision for our all well-being (particularly the tax payer’s). They will soon see the light from heaven, when hormone induced activity will see speedy recovery from all ailments, collective working spirit, an NATiONal direction for the whole NATION to go forward in ultimate vigour and speed. NZ will again be the beacon in the South Pacific.
Just trust me and my valid, expedient leadership that shines from the sunny beaches of Hawaii. I love you all my dear Kiwis, this is my X-mas message from the Great Leader from his beloved holiday camp. Sorry I cannot be with you, but I need to stay “positive” and cannot stand the NZ Media (especially National Radio) reporting so negative and destructive reflections on our honestly convincing and positive policies. My mental health must be maintianed. Hawaii is the prescription my doctor has given me. Sure you all understand. We fund Herceptin by the way, so do NOT complain.
Your dear leader Johnno!
So, if the december quarter comes back with positive growth will you retract this post and admit you were wrong? or will we pretend this post never happened?