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None so blind

Written By: - Date published: 12:01 pm, July 17th, 2009 - 19 comments
Categories: economy - Tags:

I read Reserve Bank Governor Alan Bollard’s speech on Tuesday with great interest. It’s an informative, if very mainstream review of the recession thus far and the outlook. He points out “The international financial crisis actually played little role in the early part of New Zealand’s economic recession. Rather, it was drought, falling house prices and high petrol prices that dragged New Zealand GDP growth negative over the first three quarters of 2008”.

Bollard says we have avoided another Great Depression. That’s thanks to the proactive and coordinated response from the major economies, who were willing to spend the money when it was needed to avoid a downward spiral getting out of control (NZ has been a free-rider on this). Bollard, like the banks, sees growth resuming in the fourth quarter of this year but says it will be weak. Things will get better as long as we avoid another housing bubble (which I think we will do because the demographics underlying the bubbles here and overseas have changed).

OK. That all sounds reassuring. Key has been jump on the ‘no worries folks, problem solved’ bandwagon. The problem is, it’s the view through rose-tinted glasses:

  • – no mention that the number of jobs will continue to fall
  • – no mention of swine flu, which the Reserve Bank says will cost 0.6% of GDP this year
  • – no mention of falling dairy prices
  • – no mention of the rising dollar
  • – no mention of the risk of another oil spike, as predicted by the IEA
  • – no mention that the baby-boomers start retiring next year. The boomers were behind the housing bubble, when they look to cash up it could result in a much deeper price crash, hurting the construction industry
  • – no mention that Treasury predicts total workers’ remuneration, the main determinent of consumer demand, will fall for the next two years and not be back to current levels by 2013. Funny thing, a recovery where employment and ordinary Kiwi families’ incomes keep falling. Wonder whose getting the growth?
  • – no apparent concern that the financial/housing mess in the US has still not fully unwound and there may bemore shocks to come

Will we have weak growth in the December Quarter this year? Probably. Recession technically over? Yes, for now. We all live happily ever after? No, I’m afraid not.

The risk is that in this very premptive euphoria that the recession is over (we won’t know until next March for sure) we will lose the will to deal with the fundamental economic problems we face.


19 comments on “None so blind ”

  1. Bright Red 1

    It’s kind of funny to think that it takes so long to confirm that a recession is over but I guess you have to have a quarter of positive growth, and that growth has to be reported, and it take nearly four months for a quarter’s GDP to be reported

    so, like you say, even if there’s growth in the December quarter (I don’t see it somehow, not while so many people are losing their jobs still) and that means the recession is over, we won’t know until the end of March 2010.

  2. randal 2

    its all a question of mind over matter.
    they dont mind and we dont matter.
    problem solved.
    now how a bout a nice little war?

  3. So Bored 3

    Few more not mentioned:
    * international oil price volatility if industrial demand picks up. that will wreck any recovery.
    * massive debt from bail outs could become highly inflationary.
    * toxic loans from last bubble sucking the life out of any recovery..

    I could go on, but on your point of None So Blind have to agree, myopia rules.

  4. Ianmac 4

    Thanks Marty. But do those risks mean that Key/Bollard are not being truthful, or that they are just bound to talk up the optimism to forstall a business bail-out? Who do we little people believe?

  5. Tom Semmens 5

    It all begs the question, who does Bollard think the economy is for? If unemployment is climbing and wages and conditions are suffering, can you EVER say you are “recovering” from the recession?

    • So Bored 5.1

      Like Randall says, they dont mind and we dont matter. Apart from that all you need to know is that the economy belongs to those who own everything that makes / attracts money (and by implication own you and I). Economists are their high priests, their role is to justify and spread the faith (so we dont challenge it)…..

      • Zaphod Beeblebrox 5.1.1

        Sounds like the Roman Catholic Church in the middle ages. The Priests pass down edicts from God about how we are to live and the get the authorities to pass laws accordingly. This is all of course for our benefit. If we complain, we are told that it is all inevitable.
        Miraculously those handling down the rules seem to always profit.

        • stormspiral

          An alternative description is feudalism.

        • BLiP

          Good point – previously I had thought of scientists as the new preisthood but, you’re right, the bankers are now the messengers of God. Makes me sick.

          • stormspiral

            Who funds the scientists? There’s a lot of bad science out there, including econometrics and the so-called ‘models’, which seem to me to be examples of outdated and poor maths.

  6. George.com 6

    Some people I spoke with yesterday were thrilled to be told by Misters Key & Bollard that the recession was nearly over. They didn’t believe it at first, but were happy to know the current misery in the real economy was simply a figment of their imagination. I wonder what cloud Key bounced on to to find this ‘good news’. I remain far less optimistic that all will soon be over.

  7. stormspiral 7

    It will never be over for too many people in our society. The philosphy is totally wrong. Why do we take note of discreted so-called ‘ratings agencies’? They are part of the problem.

    …not that it’s easy to ignore even the most ridiculous gnomes, but we do have to start looking at the philosiphical underpinnings of the present version of the capatilist system. When does an ideology become a religion?

    And at the very least we MUST reduce that tragic and increasing gap between rich and poor, knowing as we do that unemployment is a personal tragedy for ALL people who have become jobless–not just the middle classes.

    Case in point. NatRad’s Jim Mora said yesterday that the middle classes who are made redundant for the first time, suffer MORE than people who have been in and out of employment, as they’ve had plenty of practice, so it doesn’t hurt them as hard as middleclass unemployiod people–effectively placing the sick, the disabled, single parents, young people, the unskilled and others in a category of their own ie worth less than him and his likeminded mates. This is the result of people demeaning these people (yes they are people) over a long long time.

    And while we’re at it, even when we had ‘full employment’ before the crash, there were still approx 5% of the workforce who were unemployed. They are the poorest of all, and they receive the worst hammering, while Key and Co, and Goff and Co, and some minor parties, spout on about ‘improvements’. Maybe they are real improvements, but my point is that they will not reach those in our country who can’t cope now, let alone when the big stick comes down on them once again.

    And finally, what’s this about ‘the lower paid; the lower socialogical classes?’

    The unpalatability of referring to people as ‘poor’ rather than using a lot of euphemisms is a disservice to the poor. and to everyone else. because it implies two things:

    1) The poor are ‘lower’ in the minds of the speakers. (they must be because theyre not like us)

    2) It’s not happening to me, and I’m ok, so everything must be ok, but let’s jail them anyway.

    …for people who are out of work it never does get easier; it seeps into the mind an soul of each unemployed person

    • Draco T Bastard 7.1

      When does an ideology become a religion?

      When the basic assumptions of that religion are provably wrong but the practitioners still blindly follow them. Yes, this does seem to be true of neo-liberal economics and capitalism.

      • So Bored 7.1.1

        To be fair Draco, the same could be said about the big “isms” of the last century (Communism, Fascism etc). The problem is faith as opposed to informed scepticism and doubt.

        That said, get into those unthinking neo lib b*****ds.

  8. BLiP 8

    Thoughtful comment, Spiral, thanks.

    The failure of current economic thinking with its concomitant reduction of society down to the status of a business is criminal. It seems a real shame to me that at a time of economic depression New Zealand has decided to put its future (for the time being) into the grubby hands of a money changer. There are, however, “green shoots” for solace in that the leading economic thinkers have realised the harm they have caused and are taking steps to reshape their models. I note:

    In the last of his Lionel Robbins lectures at the LSE on June 10th, Mr Krugman feared that most macroeconomics of the past 30 years was “spectacularly useless at best, and positively harmful at worst’.

    . . . and this from The Economist! Fingers crossed the fuckers learn their lesson.

    • stormspiral 8.1

      Yes, and others are also stirring

      See also The BBC Reith Lectures 2009, given by Michael Sandel at various top universities around the world. Listen especially to number 4 in which he ‘considers the expansion and moral limits of markets’.


      I think there’s going to be a bit of a fight. It reminds me somewhat of the fights that were going on many many years ago when I was a very junior reporter on The Standard newspaper. That wheel really does need to be reinvented..

      • BLiP 8.1.1

        Excellent link! Again, my thanks.

        Have you come across the “Rolling Stone” piece about Goldman Sachs? It’s the best primer about the current depression I’ve read and provides an indication of the sorts of forces rallied against implementing the changes that have to be made. Its going to be a real struggle.

  9. SPC 9

    The recession occured because of the high OCR pushing up mortgage costs (also raising the dollar to diminish exporter income). It was created by the RB to end the housing bubble – which could have been prevented from occuring in the first place and should have been countered better by a more selective response (requiring larger deposits for those investing in existing property to rent it out and also placing a surcharge on such mortgages).

    I doubt that baby boomers caused this asset bubble anymore than other investors with access to cheap finance or that they will cause any property value decline later either. Boomers will live into their 80’s and stay in their family homes – thus occupying so much of this sort of property that any upsurge in migration will soon cause housing shortages.

    The trick will be how to realise new property building while diminshing speculation in existing property assets.

    PS While boomers may divest themselves of their rental property, under current policy settings others investors will buy them up.

  10. SPC 10

    Ways of encouraging new rental home building include exempting them from any capital gains tax applying on rental property – and not applying any of the restraints that could be imposed on existing property for rent (such as minimum deposit criteria and surcharge on such mortgages).

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