Some facts on Wages, Inflation and GDP

Written By: Ben Clark - Date published: 2:56 pm, May 17th, 2011 - 40 comments
Categories: john key, making shit up, wages - Tags: GDP, inflation, treasury predictions

Further to today’s Keeping The Buggers Honest, John Key made a number of claims at the same press conference yesterday that do not bear scrutiny.

He claimed that while there had been substantial wage growth under Labour, it had been eroded by high inflation. National would deliver, according to their Treasury predictions, significantly higher wages that weren’t eaten by inflation. When reporters asked how much wage growth, he wouldn’t reveal, but agreed that 4-5%pa was an educated guess.

Now I knew that his spiel wasn’t right, and was pretty rich coming from someone whose most recent statistics say: 4.5% inflation (higher than at any time under Helen Clark), 6.1% food price inflation, 1.9% average wage growth and 6.6% unemployment. So I headed to the statistics website.

Looking at each of those claims:

Wage growth under Labour meant that the median income rose by 69% during their term in office, while over those 9 years the CPI (inflation) grew 28%. ie, Wages grew nearly 2.5 times faster than inflation.
Inflation was not high under Labour – that 28% CPI increase means an average rise of 2.8% pa.
If we’re looking at 4-5% being National’s strong wage growth – 69% over over 9 years means an average of 6% per year under Labour.
If we look at National’s record? So far there’s been a 6.9% CPI increase under their watch, and a 1.3% drop in the median income. That’s right, the median income earner in New Zealand is 8.2% worse off under National’s “Brighter Future.”
Treasury predictions haven’t been great. According to them we’re meant to be having high wage growth now, not the 1.9% average wage growth we have. We were also meant to have GDP growth in 2008/9/10 of 1.5%, 2.3% and 3.2%. Instead we got -1.1%, -0.4% and -0.1%. (Bernard Hickey’s article is excellent)

At the same press conference John Key also said that a lot of people will be worse off due to the Working for Families changes, but a lot of people will be better off:

There are a number of changes and I’m not going to detail them today, but one impact is of course the CPI [consumer price index] adjustment that comes. But people are better off in cash terms.

That’s right – people are better off in cash terms because they’ll get an inflation adjustment… Because the number will be bigger, even though it will only buy the same amount. There’s some spin for you.

Of course it’s not a food price inflation adjustment, so it’ll buy less food…

* Average Wage Growth = the increase in the average wages of all those earning salary/wages – but not other income. Median Income = what the middle income earner in New Zealand is getting – including pensioners and beneficiaries and those earning income from shares etc (doesn’t include those with no income). In the last year Average Wages are up 1.9% and Median Income is down 1.7%.

40 comments on “Some facts on Wages, Inflation and GDP ”

Comments are now closed

David Clark 1

17 May 2011 at 4:12 pm

Good post Bro. I think I’ve said this to you before –

I did the GDP calculations, and it shows that the economy grew by 25% in real terms while the fifth Labour Government was providing leadership.

Contrast the situation now: GDP per capita is actually shrinking.
Zaphod Beeblebrox 2

17 May 2011 at 4:15 pm

That 4.5% inflation must be real problem for retirees at the moment. Especially given low interest rates. A lot of them would also be coughing up for the 15% GST on everything. How must they be feeling about the current situation.
Peter 3

17 May 2011 at 5:35 pm

Excellent post, a sincere dig for the truth. Refreshing compared to the disingenuous PM. Keep it coming. During the Clark era inflation below 3% was the expectation, now we are conditioned to accept higher rates.
Pascal's bookie 4

17 May 2011 at 5:40 pm

I’m guessing with Johnny trumpeting away about the big juicy wage increases that are coming down the pike he won’t have a mean word to say about unions negotiating said rises this year right? And if employers are stingy, then he might have to make a wee speech about shared sacrifice and shit, right?
- KJT 4.1
  
  17 May 2011 at 6:01 pm
  
  Watch the moans when builders in Christchurch expect a living wage.
KJT 5

17 May 2011 at 5:59 pm

Like this year.

Average wages for executives up 14%. Most other workers nil or 1.5% wage increases.
CPI inflation about 6%.
Food and necessities up between 15 and 35%, depending on who you talk to.

Mass exodus of the skilled to Australia.

Government deficit rising from a net zero under Labour.

15 billion now forecast.

Brighter future?
Sean 6

17 May 2011 at 7:38 pm

John Key tells lies. It is as simple as that.

The reason he tells lies is because for National, the truth hurts.

Good piece Mr Clark.
- Carol 6.1
  
  17 May 2011 at 7:55 pm
  
  I was watching today’s question time & was particularly disgusted by a nasty jeering Key saying that Labour makes things up & lies. I will be soooo glad when shonkey gives up politics & leaves NZ for good:
  
  http://www.parliament.nz/en-NZ/PB/Business/QOA/9/3/0/49HansQ_20110517_00000004-4-KiwiSaver-Prime-Minister-s-Statements.htm
  
  Hon Phil Goff: Why is it “borrowing” to put money into KiwiSaver but not “borrowing” to give $2.5 billion a year in tax cuts to the top 10 percent?
  
  Rt Hon JOHN KEY: That is an outstanding question. For a start off, National’s tax plan 2010—it does not matter how many times Labour members want to disagree with it; they are just making it up as they do with so much other stuff—was fiscally neutral. By the way, the entire personal tax cuts right across the board for every New Zealander totalled $2.5 billion. As we see so often, when Labour members cannot win the argument with facts, they just make it up and they say it only inside the House, not outside the House.
  - Zaphod Beeblebrox 6.1.1
    
    17 May 2011 at 9:33 pm
    
    Its a good question and Labour should just keep asking it. In a way National have already admitted the tax cuts were a big mistake. The WFF and Kiwisaver changes in this budget amount to a selective tax increase (how else could you interpret them).
    - PeteG 6.1.1.1
      
      17 May 2011 at 9:39 pm
      
      Can’t interpret them until we know what changes will be announced on Thursday.
Afewknowthetruth 7

17 May 2011 at 8:26 pm

To be writing about GDP as if it has any validity is an act of gross ignorance or insanity.

Which is it Ben?
- McFlock 7.1
  
  17 May 2011 at 9:21 pm
  
  GDP isn’t all bad, and has some validity. It just needs to be taken in context.
  GDP is a bit like BMI – I could get to my ideal weight if someone chopped off my arm, and GDP will rise as the reconstruction of Christchurch progresses. But to discount GDP as a measure out of hand is a bit … fundamentalist.
  - Afewknowthetruth 7.1.1
    
    17 May 2011 at 10:46 pm
    
    GDP has validity? Please explain.
    
    GDP measures how quickly we convert fossil fuels into waste, i.e. the faster we deplete rapisdly declining resources and convert them into poisonous wastes that pollute the environment (and will eventually make the Earthg uninhabitable), the bneter the economy is.
    
    GDP measures ill-helath and accidents as positives -the more we spend trying to recover the better the conomy is.
    
    GDP measures the covering of agricultural land in concrete and asphalt as positive, i.e. complete destruction of the planet =a successful economy.
    
    Sorry mate, ir’s all bullshit.
    
    GDP = Global Destruction Process.
    
    GDP = Global Deception Paradigm
    
    GDP = Grand Delusons of Politicians.
    
    Unfortuanetly the bulk of the populace has been very successfully brainwashed and doesn’t bother to do any research.
    - McFlock 7.1.1.1
      
      18 May 2011 at 12:05 am
      
      GDP measures the activity in the economy. Its biggest limitation, as you point out, is that it makes no judgement on the quality of that activity. Hayek had a bit to say in that regard.
      But the fact is that an economy with no GDP is an economy with no activity – everyone is dead (or ‘permanently inactive economic agents’, as a banker would say). So it serves as a broad, crude, blunt instrument, but for some things, in partnership with other tools, it can be useful.
      I suspect you would agree with me that the almost exclusive focus on GDP as an economic target over the last 30+ years was a major and harmful error that damaged societies across the globe.
      I suspect that where we differ is I think that if a hammer is a shite hex wrench it still shouldn’t be thrown out, because hammers are useful, too. Just for different jobs.
  - KJT 7.1.2
    
    17 May 2011 at 10:47 pm
    
    GDP is only one measure, but it can be useful.
    
    Such as for showing the relative effectiveness of economic policy between countries.
    
    NZ GDP rose 4% in the same period the OECD average rose 28%.
    
    In the same period we have had our great experiment in Neo-Liberal economics.
    - ZeeBop 7.1.2.1
      
      18 May 2011 at 7:13 am
      
      Yeah, we were all paid by the neo-liberal experiment to feel better as we started the long decline into debt. They took our own money, gave us a bonus from it, pocketed a nice fee for themselves, then wrote a debt contract for us to sign. When anyone whined, they would point to how the farmers were carrying us all. The farmers saw their farms rise in value, and loved the stories of those who sold off making millions. Had they looked around they’d have seen others making 100s of millions when the farmers took on more debt to expand!
Robert Atack 8

17 May 2011 at 9:19 pm

Great Ben
Now will you please read this report, http://oilcrash.com/articles/wake_up2.htm and get back to us on how Kiwi Saver is going to survive an on going fall in global GDP (unless you count cadavers)
As ‘new blood’ why don’t you act differently than the old guard? Start by telling the truth, but please read the above report first.
Thanks
- Afewknowthetruth 8.1
  
  17 May 2011 at 10:54 pm
  
  The only logical conslusion one can draw from Ben’s TOTAL FAILURE to respond points made on the crucial issues of our times is that Ben really doesn’t give a damn about the nation, and especially does not give a damn about the next generation. We must conclude he just wants to get his snout into the feeding trough, like all the rest of them.
  - McFlock 8.1.1
    
    18 May 2011 at 12:27 am
    
    dude, a “total failure” within 8 hours of the Article being posted isn’t much of a total failure. Leave it a day or two – not all of us are constantly on the net.
    - Robert Atack 8.1.1.1
      
      18 May 2011 at 7:45 am
      
      McFlock
      ‘we’ have been asking Ben for several weeks now, I will come back to this in a ‘day or two’ and see if we have an honest answer to the request to have Kiwi Saver explained – in the light of this parliamentary report http://oilcrash.com/articles/wake_up2.htm
      
      Sorry to harp on, considering all the information we have given Ben you would think he might have formed an opinion by now … on PEAK OIL verses KIWI SAVER
      
      “If you see a problem in the world and you have the ability to do something about it — then it’s your duty to take action” Don Brash
      - Ben Clark 8.1.1.1.1
        
        18 May 2011 at 9:23 am
        
        I’m not sure of your obsession with KiwiSaver wrt peak-oil.
        
        As the article quoted says, peak oil is not the end of oil. And the end of oil does not need to be the end of our economy.
        
        We do need much more action on weaning our society and economy off oil. And you are right, in that we cannot have exponential growth in our use of resources on a finite planet. Economic growth does not mean resource use growth (particularly in my line of work), but there is a correlation.
        
        But even if we take your premise and the economy were to largely collapse, KiwiSaver would seem a very sensible hedge. It would still mean you have assets stored for your retirement, that would quite probably be worth more than sticking your cash in your mattress. Saving will certainly be better for the planet that spending all your money on consumer goods. And hopefully those savings have funded the capital investments in technology companies that help us transition out of our current resource-hungry, oil-eating ways.
        
        And yes AFKTT, I’d prefer if GDP wasn’t the measure of our economy, let alone our society – there is no judgement on the quality, source or (social/ecological) cost of that growth. It’s largely got the job because it’s simple, and now because it’s established. At the absolute minimum I’d like to change the measure to GDP/capita so you couldn’t mask your figures by merely adding more people. But given GDP is our current measure, one can’t simply ignore it. We need to come up with better alternatives to GDP of course, and Bhutan’s Gross National Happiness doesn’t quite work, as appealing as it is. Oddly the Conservatives in the UK are putting up some good ideas on adding well-being into their societal measures.
        
        Afewknowthetruth 8.1.1.1.1.1
        
        18 May 2011 at 11:16 am
        
        Since every aspect of NZ industrial society is dependent on the use of oil -mining, forestry, fishing, dairy, manufacture, transport, food production in general, distribution, retailing, tourism- and since the global supply of oil is declining, the NZ economy and the global economy must contract.
        
        That contraction will accelerate as oil extraction falls by ever greater amounts, year after year. True, the NZ economy will not end instantaneously; it will suffer death by a thousand cuts over a period of a few years …. maybe as long as a decade.
        
        However, global and local financial arrangements are totally dependent on continuous expansion of the economy -to maintain the bankers’ Ponzi scheme, based on Fractional Reserve Banking and interest payments. Financial markets can and do collapse over a matter of months.
        
        Colonial Viper …
        
        18 May 2011 at 11:27 am
        
        Financial markets can and do collapse over a matter of months.
        
        Clearly, that is what tax payer funded bailouts are for 😈
        
        Robert Atack 8.1.1.1.1.2
        
        18 May 2011 at 6:44 pm
        
        >But even if we take your premise and the economy were to largely collapse, KiwiSaver would seem a very sensible hedge.
        A collapsed economy
        has no banks
        no shops
        KS is not govt guaranteed, because they are spread all over the world and very dependent on Ben’s printing press or Bull Shit.
        It would be way smarter to invest your KS funds in canned goods and gardening tools
        
        Economic growth does not mean resource use growth<
        Sorry Ben but clearly you haven't listened to Professor Bartlett, not that he is of any import, he dose such a great job of explaining it all, way better than me that is for sure.
        Everything humans do uses resources, as soon as you dig a hole you are living an unsustainable lifestyle. Everything has a limit
        What is the point of this debate??
        How about I get a group of friends together and we come into Wellington and spend a day with you, we will go through everything, climate change, peak oil, over population, etc etc bla bla bla bla you shout lunch .. for 5
        I know it is utterly fucking pointless, but the offer is on the table
        ring me http://oilcrash.com/contact.htm
        
        Ben Clark …
        
        18 May 2011 at 11:03 pm
        
        Hi Robert,
        
        I live in the North Shore electorate where I’m standing, so it would be a bit of a mission for me to come all the way to shout you and your mates lunch (not to mention the oil it would burn getting me there…)
        
        I am reasonably aware of the huge problems of climate change, peak oil, over-population etc that seem intractable but desperately need a solution. As I plan on still being on this planet in 50 or 60 years’ time, I feel I have a personal interest in trying to find those solutions however hard they may be.
        
        And if you’re talking complete collapse of the economy – no banks/shops etc, then I don’t think your lost KiwiSaver funds will be of much concern compared to staying alive…
        
        Robert Atack …
        
        18 May 2011 at 11:45 pm
        
        Ben said – And if you’re talking complete collapse of the economy – no banks/shops etc, then I don’t think your lost KiwiSaver funds will be of much concern compared to staying alive…
        
        That is why I said invest your KS funds in canned goods and gardening tools … also learn how to use them.
        
        Ben said – As I plan on still being on this planet in 50 or 60 years’ time,find those solutions however hard they may be.
        
        It isn't brain surgery, the solutions have been here before the problem, but as James Lovelock said "there is plenty you can do, it is just you will not like it"
        
        And McFlock
        I have no solutions as there are non, the main driving factor behind my 8 year 'crusade' was to point this out, then ask why have another child? http://www.vhemt.org
        The only way to reduce suffering in the future is if the person wasn't born.
        Humans are going to depart this rock in an orgy of death and violence, as we fight over the dwindling resources
        
        McFlock …
        
        19 May 2011 at 4:12 pm
        
        Oh, okay – JAFAC (just another freaking apocalypse cult).
        
        No worries.
        
        McFlock …
        
        18 May 2011 at 11:04 pm
        
        actually, yeah – what is the point of this conversation? Do you have any specific solutions on offer for the problem you identify?
        Or is it just the same as a Rapture warning – calamity for most if it happens on Saturday. If it doesn’t happen on your timeframe, there might be time to adapt a bit.
        
        And if there isn’t time to adapt, why are you wasting my time? Just so you can say “I told you so”?
morning 9

18 May 2011 at 7:16 am

Median income includes income from all sources. You’re comparing apples with oranges.
- Ben Clark 9.1
  
  18 May 2011 at 9:30 am
  
  I was comparing median income with median income (which is the best measure of how ‘ordinary people’ are doing) and explaining the difference between that and also the mentioned average wage.
  
  It doesn’t matter where your income comes from (except for tax purposes), what matters is how much you’re getting in versus how much money is going out. The median income gives us the measure of what’s going in for an everyday New Zealander, and the CPI gives us a measure of how much their out-goings are increasing.
  - Herodotus 9.1.1
    
    18 May 2011 at 10:43 am
    
    Ben, medium income does lack in that there is no consideration as to the changes of tax implications. the likes of tax creep that reduced the said increases in income. As income rose and inflations increased the real term value of wages did not increase as these stats make believe, as we were payiong an increasing % of tax than from the previous year.
    Also with the housing boom and the stresses that came on in 08 regarding mortgage rates do also not reflect as housing price increases and interest rates are excluded from inflation and the such like. So as propertry increased and the value of mortgages increased a 3-4% increase in rates that reduced “disposable incomes by $80 – $200/week did more damage than a 3% increase in inflation indicated. That is a major reason why many of us felt poorer and yetthe news headlines were not reflecting this.
    In the end Lab and Nat can have their cat fights, and botgh can throw stats to display how “their ” side is doing well and how bad the other side is- but in reality nothing changes in the ‘burbs.
  - evening 9.1.2
    
    18 May 2011 at 10:37 pm
    
    “Wage growth under Labour meant that the median income rose by 69% during their term in office, while over those 9 years the CPI (inflation) grew 28%. ie, Wages grew nearly 2.5 times faster than inflation.”
    
    So you’re saying you netted off all other sources of income contributing to median income growth during the period? If not I think you’re missing the point…
    - Ben Clark 9.1.2.1
      
      18 May 2011 at 11:27 pm
      
      Sorry, my language was a little loose there. It should read incomes grew 2.5 times faster than inflation. But it’s incomes that matter when you’re at the supermarket, not wages.
      
      But to entirely meet Key’s point on what average income did and whether it was swallowed up by inflation I’ll go find more stats for you.
      
      (…working on stats.govt.nz… …working on stats.govt.nz… )
      
      Yes average wage grew less, as part of the drive up of median income was the massive increase in employment, moving people off benefits. The move back onto benefits under National is a large part of why median income has dropped 1.7% when average wages have risen 1.9%
      
      So entirely on Key’s own terms the figures are: average wage up 45% or 4.2% per year – still significantly more than inflation, and indeed what he’s apparently aiming for with his rosy Treasury stats.
      - lprent 9.1.2.1.1
        
        18 May 2011 at 11:46 pm
        
        *sarcasm mode on*
        
        So pushing lower waged people onto the dole is good for average wages because they are not receiving wages. So they stop reducing average wages. So that nice Mr Key can keep pushing up average wages by simply making more people unemployed. It must be obvious to any currency trader that this makes the country more wealthy……..
        
        Ok – that explains his current inspired strategy that drives tomorrows aspirational budget.
        
        *sarcasm mode off*
        
        But of course it is lousy for average incomes — which includes under employed, and does cause problems with government revenues and expenses. That probably explains the rapidly rising government debt levels.
  - Afewknowthetruth 9.1.3
    
    18 May 2011 at 10:44 pm
    
    Isn’t it interesting that the rising energy costs, rising food costs, collapsing values of fiat currencies and environmental degradation we repeatedly warned everyone about for so many years (and were ignored) are now showing up as meltdown of so many economies, and as surging inflation in those that haven’t yet collapsed. And falling tax revenues compared to rising costs of course.
    
    The government-rigged official numbers are concealing the truth for the moment (does anyone actually believe the official unemployment, deficit, or CPI numbers?), but there will soon come a time when all hell will break lose … around 2013 the way things are looking.
    
    I guess we ill have new bunch of incompetent fools who don’t know the first thing about energy, the environment or even economics in power by then … or the same old deadbeats.
    - Tangled up in blue 9.1.3.1
      
      12 June 2011 at 12:08 pm
      
      Around 2013? Isn’t it 21/12/12? Glad to see you already have your tinfoil hat ready.
Gazza 10

18 May 2011 at 10:10 am

And still Mr Donkey has not explained to the people why when the Govt announced to the media a 3.75% cost of living increase to super & beneficiaries, and then only gave 1.85% so any tax reduction last October was wiped out with the increased cost of living.
We can imagine by this that any adjustments or promises by this current Govt will not or ever be adhered to if they ever get back into power after November.