Socialist economic views on current inflation

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1. pat 1

   5 August 2022 at 10:21 am

   Shes right…but (and there is always at least one) the solution is itself inflationary, which is fine so long as our trading partners are experiencing the same or greater inflation….history suggests that as the screws tighten protectionism will increase and NZ is very vulnerable with a substantial negative trade balance and a lack of capability when it comes to providing the necessities of an advanced economy.

   The solutions all take considerable time (even if possible)..and patience is not a widespread virtue.
   • weka 1.1

     5 August 2022 at 10:34 am

     Her point about the UK prioritising renewables as a medium term solution seems pertinent. For NZ, the solutions are a bit different, but having foundational goods and services localised as much as is practicable seems wise. Large scale electric PT transport systems (and freight lines) would be my choice over everyone having and individual EV.

     In terms of trade, what can we replace mass industrial tourism with? Ag seems an easier switch, regenag will be more in demand and presumably fetch a higher price.
     • pat 1.1.1

       5 August 2022 at 11:07 am

       What did the world do after the last energy shock?…globalised labour and capital.

       That trick has run its course and is unable to be repeated.

       We have had 40 years to find alternatives to bulk ag commodities and migration (both short and long term) and havnt found them to date so it dosnt bode well that we will suddenly discover them…even if we do how long before the benefits are felt?

       As said patience is not a widespread virtue….understandably so in this instance.
       • weka 1.1.1.1

         5 August 2022 at 11:32 am

         really? I thought we'd had 40 years of avoiding looking at alternatives and instead milking the cash cow, so to speak.
         • pat 1.1.1.1.1

           5 August 2022 at 11:36 am

           Think its reasonable to observe that capital and business will seek to find the best return they can….in our case that appears to be bulk ag, migration and a property bubble.

           Ask yourself why that has been so the past 40 years.
     • Sacha 1.1.2

       5 August 2022 at 11:30 am

       Aotearoa needs to export high-value creativity and services, especially digital ones – not bulk commodities. And our sustainable infrastructure needs to be digital as well as physical, including education and governance.
       • weka 1.1.2.1

         5 August 2022 at 11:34 am

         I was thinking digital goods and services too, but wasn't sure how well we compete internationally and how much earnings it would bring. The Greens were promoting policy on this for a while. Details would be good. Exporting regenag/digital hybrid models seems like it's got lot of potential.
         • Sacha 1.1.2.1.1

           5 August 2022 at 11:45 am

           We seem to have no trouble getting overseas income for our IT and screen industries. Need to stop relying on ships full of stuff. Exporting the expertise, yes.
           • Poission 1.1.2.1.1.1

             5 August 2022 at 11:57 am

             The money is borrowed and the interest rate is going up.
             • weka …

               5 August 2022 at 12:00 pm

               what money?
               • Poission …

                 5 August 2022 at 12:10 pm

                 The money required to pay for imports,hence we also need to import money ie debt to fund our deficit.

                 The financial account shows the flows of investment into, and out of, New Zealand.

                 In the March 2022 quarter, the financial account recorded a net inflow of $4.5 billion from overseas investors. This inflow helped to partly finance the current account deficit.

                 https://www.stats.govt.nz/news/current-account-deficit-continues-to-widen/
         • arkie 1.1.2.1.2

           5 August 2022 at 11:53 am

           One of the more profitable digital business models is to take advantage of our time zone, work can be done here during our regular hours and can be provided seemingly overnight to the clients by the local sales team.
           • weka 1.1.2.1.2.1

             5 August 2022 at 12:01 pm

             this is the creative thinking I like. How much is this being done currently?
             • arkie …

               5 August 2022 at 12:11 pm

               I know of at least one business that operates like that exclusively and any business that provides digital products and is large enough to have international sales will probably be using it to an extent.
             • Ed1 …

               6 August 2022 at 9:36 am

               For more than 20 years. There have been stories of New Zealanders getting ''work from home'' contracts to work for USA companies doing IT work; some of our companies employ workers from Bangalore – as well as the huge ''outsourcing'' firms that operate there. I know of one business that did overnight translations for international conferences in Europe, so they could provide translated transcriptions the next morning.
           • Populuxe1 1.1.2.1.2.2

             6 August 2022 at 11:14 am

             Profitable for whom though? That model mostly relies on bulk low wage, high skill labour to staff call and data centres, and given we're only two hours ahead of the Philippines it's debatable how competitive we'd actually be.
             • arkie …

               6 August 2022 at 11:37 am

               In the example I was referencing it's not that at all, they sell digital products, designed and built here by highly skilled and educated workers who are better paid than others doing the same work for local clients. lprent provides more details of the type of model I was referencing below.
         • lprent 1.1.2.1.3

           5 August 2022 at 1:01 pm

           IT services and goods are now our largest non ag / forestry export sector by every measure I know of. From employees to profit. Read the TIN reports.

           We have a stupid problem in that we don't actually measure this in our stats in any useful way because the gross categories haven't been updated from about the 1950s. So you'll find IT exports scattered all over the manufacturing, services, and ag/forestry sectors.

           We are pretty damn competitive as well. I haven't worked for anything apart from a company exporting mainly software (as in embedded hardware or network services on international servers) since 1995.

           Wages keep rising as we now have a permanent skills shortage in the IT sector.

           Almost all of those businesses were either founded by overseas immigration, funded by overseas capital, or brought up by overseas capital. That is because the local IT companies can't get expansion capital or often even startup capital. Investment capital here gets squandered on capital gains tax free housing.

           But over the last 25 years with IT it has gone from mostly having to work in local service companies to almost all IT jobs being in export businesses. Certainly almost all of the well paid ones are exporters.

           Now the current trend is for local programmers to be working offshore – while in a house here. Slack jira and google meet and similar programs make that a breeze.
2. Ad 2

   5 August 2022 at 10:33 am

   New Zealanders continue to work hard and long and cheap.

   That is mostly because there are nowhere near enough companies who can afford decent salaries.

   We are going to stay cheap while our base is agricultural commodities. No sign this government or a National-driven one is moving to assist us to change that.
   • Phil 2.1

     5 August 2022 at 12:47 pm

     New Zealanders continue to work hard and long and cheap.

     Average incomes in NZ are on par with the UK, France, and Japan. Behind Australia but ahead of Italy, Spain, and South Korea. The idea that we are a low wage economy is, to put it bluntly, fucking nonsense.

     Example data here: https://www.worlddata.info/average-income.php
     • KJT 2.1.1

       5 August 2022 at 1:47 pm

       Try comparing wages with living and housing costs.
     • Ad 2.1.2

       5 August 2022 at 5:00 pm

       We were a low wage economy in 2016.

       Bill-Rosenberg-on-NZs-productivity-paradox-v3.pdf (aut.ac.nz)

       We were a low wage economy in 2017.

       Why is New Zealand a low wage economy? | The Spinoff

       That we are a low wage economy was again noticed in 2018, together with its causes.
       https://union.org.nz/economicbulletin208/

       We were further analysed as a low wage economy in 2019.

       'Low-wage economy': What you need to earn to be an above-average earner in NZ – NZ Herald

       And that's despite having one of the higher minimum wage rates in the OECD, and fairly low ‘tax wedges’.

       Minimum wages to the maximum | The New Zealand Initiative (nzinitiative.org.nz)

       We work very long hours but get very little for it:

       Working longer hours but producing less: NZ's poor productivity | Stuff.co.nz

       As noted by the now head of the Productivity Commission Ganesh Nana:

       "We're a low-wage economy and have an export sector that is now even more focused on commodities rather than on value. We are driving everything down – it's almost the race to the bottom in terms of income and wages," Nana said.

       The mentality of the public sector, and society, to reduce costs and wages to be rewarded a project, for example, did not incentivise quality or value, he said.

       "We're not getting productivity growth that we would like and some of the productivity growth that we do get doesn't translate into wage growth. Behaviour that has been set in place over the last few decades has reinforced that disparity."

       In my reasonably extensive experience of very large project bids with the state, Ganesh Nana is dead right and the state has a heavy hand in driving Lowest Cost Confirming prices. Unless you are a consultant where you can charge what you like and no one gives a damn.
3. SPC 3

   5 August 2022 at 12:55 pm

   I would have said shortages drive inflation, and that includes more than energy.

   The obvious one being the loss of labour during both lockdowns and worker infection and isolation – which played havoc with the global (and domestic) supply chain.

   Since then the impact of the Ukraine war/sanctions on Russia and the decision of China to continue to run a zero COVID strategy.

   A tighter monetary policy will not resolve any of this.

   But we will anyway

   1. if we do not then the dollar falls (because others are doing it) and pushes up imported cost.
   2. it helps correct a flawed and artificially created asset bubble.

   However if I was in charge there would not be a 0.5% OCR increase, but one of 0.25% and a 0.25% mortgage surcharge (until there was a 1.0% mortgage surcharge).
   • pat 3.1

     5 August 2022 at 1:17 pm

     It depends upon which type of inflation you are describing.

     The worlds central banks crashing demand could well resolve it…though not necessarily in a good way. ( its the only tool they have)

     Unfortunately there is no easy solution, as much as we may wish it….and as always those least able to weather the storm will be the most exposed.
     • SPC 3.1.1

       5 August 2022 at 1:32 pm

       Most of the shortages are not caused by excess demand (reduced by monetary policy) but by shortage of supply.

       Reducing capacity to afford down to the level of currently available supply is akin to supplying a man with drugs to suppress virility every time he is between relationships.
       • pat 3.1.1.1

         5 August 2022 at 1:42 pm

         If there is a shortage of supply ipso facto there must be excess demand.

         Not sure about that analogy but NOT reducing demand when you are unable to impact supply is akin to giving drugs to everyone whether they want them or not.
         • SPC 3.1.1.1.1

           5 August 2022 at 1:56 pm

           If there is a shortage of supply ipso facto there must be excess demand.

           And what's starving during a famine? Too much demand for what you do not have?

           Reducing gross aggregate demand down in response to a temporary decline in supply (causing inflation) is neither properly identifying, nor managing, the causes of the inflation. And it would leave the economy less able to resume normal function once the supply problems were resolved.
           • pat 3.1.1.1.1.1

             5 August 2022 at 2:00 pm

             'If' the supply problems are resolved…they may not be able to be for either physical or political reasons.

             You may note I said there is no easy solution (and who bears the brunt) but by allowing inflation to run the results are ultimately the same or worse.

             The solution was not to let the problem develop in the first place…..its a bit late for that now.
   • SPC 3.2

     5 August 2022 at 1:27 pm

     Household mortgage debt is $250B – a 1% mortgage surcharge would raise $2.5B pa.

     Farm debt $60B – a 1% mortgage surcharge would raise $600M pa.

     If one also had a wealth tax on assets over $1M, there is the capacity to provide a better health system, more state houses, plan for better aged care capacity and still get debt down.
     • pat 3.2.1

       5 August 2022 at 1:36 pm

       The underlying cause of our economy's woes is the level of debt…adding further to the costs of those carrying that debt is only going to accentuate the problem.

       It is essentially what the RBNZ are doing with the OCR increases.
       • SPC 3.2.1.1

         5 August 2022 at 1:44 pm

         First a higher cost of debt does not increase the level of debt, it will in fact constrain any growth in debt level (it grew because of the cheap debt cost 2020-2021).

         And in any case with the OCR 1% less than it would have been, with a 1% mortgage surcharge in place, there would be little change in the mortgage payment made.
         • pat 3.2.1.1.1

           5 August 2022 at 2:13 pm

           It grew long before 2020-2021.

           You make too many assumptions about the interest rate…have a look around the world and consider what our interest rates might have been IF we didnt allow the liquidity into the housing market.

           That housing inflation is what has driven the inability of the productive sector of NZ to be more competitive in the international market for all manner of goods and services….and is a prime reason why households are not able to cope with the current supply shock.

           It is the straw that has broken the camels back and so now we are staring at a price wage spiral.
           • SPC 3.2.1.1.1.1

             5 August 2022 at 4:22 pm

             A wage price spiral is the only way incomes will close on property values and makes rents more affordable.
             • pat …

               5 August 2022 at 4:43 pm

               Not the only way….in fact thats not likely to achieve that goal at all….if we allow inflation to run property values will only continue to increase until such time as the market collapses with even greater debt defaults.

               However a reset of asset values may ultimately return some sanity to the market…..after the pain.
               • SPC …

                 5 August 2022 at 8:27 pm

                 Consider the 1976-1981 house prices.

                 5 years little change in value but a lot of inflation and income increase.

                 Market value falls do not lead to defaults, unemployment (and inability to make payments) does.
                 • pat …

                   5 August 2022 at 8:29 pm

                   Yep..and a constrained banking sector. That world is long gone.
                 • Poission …

                   5 August 2022 at 8:36 pm

                   Large concomitant interest rate increases constrained housing inflation.

                   https://teara.govt.nz/en/graph/23100/interest-rates-1966-2008
   • Poission 3.3

     5 August 2022 at 2:01 pm

     The three drivers of inflation are.

     1 Low interest rates.

     2 Excess liquidity (QE)

     3 NZ dollar depreciation (14.5% 12 months)

     Adding to that are an over stimulated internal economy (reliant on imports) such as housing and civil construction,an a large stimulus to the non productive sectors that do not earn overseas incomes.
     • SPC 3.3.1

       5 August 2022 at 4:19 pm

       Then why is our inflation lower than the OECD average?
       • Poission 3.3.1.1

         5 August 2022 at 4:49 pm

         Food costs are not so import dependent (although fungible for exports).

         Electricity has limited exposure to FF volatility,with good availability of hydro and wind renewable generation has been high and the drop in spot prices last week $62 to 44 mwh is the lowest average since December 2021.This in turn has sustained inflation in some of the large manufacturers.

         The next inflation releases will start to show the rates increase from the local government birdbrains,which will impact retail and commercial sectors,retail getting higher input costs and demand destruction.
     • Mike the Lefty 3.3.2

       5 August 2022 at 4:36 pm

       I remember old seventies Federation of Labour president Tom Skinner saying that inflation was caused by too much money being in circulation.
       • pat 3.3.2.1

         5 August 2022 at 4:45 pm

         Did Tom Skinner define money?
       • Nic the NZer 3.3.2.2

         5 August 2022 at 5:01 pm

         What he said is a crock. NZ abandoned monetary targeting in official circles around the year 1986.

         What actually broke the back of inflation where it started the 1970s was the reduction in trade union ability to compete for wage and condition increases.
         • Stuart Munro 3.3.2.2.1

           5 August 2022 at 5:43 pm

           Meh – the back of inflation was never broken it merely moved into capital appreciation of property, which economists (for reasons they will not admit) chose not to include in their numbers. We've had rampant inflation for decades – untaxed too – which is why workers will never own a house, but are expected to drudge on indefinitely regardless.
           • Nic the NZer 3.3.2.2.1.1

             5 August 2022 at 6:00 pm

             This is simply untrue.

             1) House price inflation (price movements) are recorded.

             2) The CPI is only one measure with limited property price inclusion.

             If the measure of inflation combining these was interesting then it would be paid attention to by the media, but they are focused on the two separately. Combined they make less sense of the state of the economy.

             https://www.brookings.edu/blog/up-front/2022/05/18/how-does-the-consumer-price-index-account-for-the-cost-of-housing/
             • Stuart Munro …

               5 August 2022 at 6:19 pm

               I'm not sure your link is particularly explanatory – but I am sure the neoliberal miracle that was going to lift all boats has accomplished the opposite, despite official economists being broadly satisfied with the frankly doomed and risible government policies that have laid waste to the decent society.

               So a glib pile of economic nostrums won't cut it anymore.

               Show us the money.
               • pat …

                 5 August 2022 at 6:50 pm

                 you may find this more useful

                 https://www.stats.govt.nz/assets/Uploads/Reports/Consumers-price-index-review-2020/Download-data/Consumers-price-index-review-2020-Stats-NZ.pdf
                 • Stuart Munro …

                   5 August 2022 at 8:15 pm

                   Yes – I still believe that the largest item of inflation in recent times has been real estate – by a considerable margin. But effectual action to remedy that was not suggested until the last year or so.

                   We are finally seeing minor movement in that area – but as the country with the sixth least affordable housing in the world the question needs to be asked:

                   So what's with Treasury? Were they drunk? Were they suborned? Or are they merely incompetent and grossly overpaid? These explanations are, of course, not mutually exclusive.
                   • Barfly …

                     6 August 2022 at 11:03 am

                     Randian fanatics?
                   • pat …

                     6 August 2022 at 11:24 am

                     Whats with Treasury?

                     You'd have to be inside to have any chance of answering that question….it is curious however that it is an issue that appears prevalent in the western economies.

                     China appears to have a similar issue but perhaps for different reasons.
                   • pat …

                     6 August 2022 at 11:41 am

                     A further thought…optimism bias.
       • Poission 3.3.2.3

         5 August 2022 at 5:18 pm

         Money supply availability what was M2 (still used by the FED) it is made up of two parts broad and narrow money ( narrow is cash in circulation and transaction accounts) broad includes term and savings deposits ( it does not include credit)

         This shows the shape of the expansion ( with the covid response) the y axis in US$ equivalents.

         https://www.ceicdata.com/datapage/charts/ipc_new-zealand_money-supply-m2/?type=area&period=5y&lang=en

         Fed expansion here with around a 6 trillion injection.

         https://fred.stlouisfed.org/series/M2SL
4. tc 4

   5 August 2022 at 1:48 pm

   Let's not forget the inflationary impacts of our uncompetitive markets.

   Supermarkets, power, fuel, banking, building products, road construction etc.

   Price gouging gets passed on to consumers, inflates profits, dividends, overpaid execs etc…..record profits is a warning sign not a celebratory event.
5. Poission 5

   5 August 2022 at 9:13 pm

   The Governor of the BOE ,and economic speakers (Broadbent yesterday) and Huw Pill (on bloomberg now) have stated that there is an Energy Shock in the inflation figures across all energy classes (and hence different from the 70's)

   https://twitter.com/JavierBlas/status/1555168660704169984?cxt=HHwWgMC8sYjqiJUrAAAA

   Huw Pill (chief economist BOE) quantified the core inflation (from energy) at 6% and the indirect effects (cost of transport,food production etc) at 3% that is 9% of the 13% forecast.

   The UK problem is also a result of contracting out its energy security leaving it exposed to outside influences.Closure of nuclear reactors ( french owned) and an electricity retail market made up of ticket clippers (who all failed) who had no generation capacity.

   The leading imbecile for the PM job (Truss) is talking of tax cuts and reversals of tax policy which as a fiscal response will be inflationary.

   The BOE (whilst not commentating) has modelled on existing fiscal policy,and brought out QT as well as interest rates.The announced 80 billion QT at 10b per 1/4 will decrease liquidity and see UK banks increase deposit rates to attract funds,and this will have some appreciation of the pound (mostly against the Euro)

   The BOE has almost surely seen the problem with the ECB and its so called fragmentation tool ,The BOE has 3 main parts of its Charter,monetary policy,supply of currency,and waging war on the French, hence meeting its charter in full.
   • pat 5.1

     5 August 2022 at 9:18 pm

     And worst of all, unlike the seventies , we have been operating at full capacity….there is no guarantee we will be able to increase energy production, indeed we will likely have to adapt to reducing energy availability from here on in…..and all the creative accounting in the world aint going to solve it.
     • Poission 5.1.1

       5 August 2022 at 9:47 pm

       The UK and Europe are still in extended holiday mode,wanting to have o/s holiday before they have to cut up their credit card.

       Here slightly different as a lot of inflation is forced (non tradeable) by building costs,rents,and increased rates.Food inflation is coming down (fresh yields dependent on weather) and oil pricing moving down on recession fears and demand destruction (US gasoline volumes down on price and substitution ev etc)

       Australia will be hurt by high demand for its energy resource , but large current account surplus reduces effects.

       here our large CA deficit needs to be addressed and there needs to be some fiscal responsibility to debt by both central and local government as we are at risk of a firesale of nz owned assets by the new proprietors next year (especially our electricity generators)

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