The Wrong Stuff

Written By: - Date published: 12:03 pm, March 16th, 2011 - 16 comments
Categories: disaster, Economy - Tags:

This week’s Sunday Star-Times was full of stories about unaffordable food, housing and fuel affecting the country’s urban dwellers, nowhere more so than in Auckland. Meanwhile the shortage of housing after the earthquake promises huge rent and house price hikes for Christchurch, assuming the locals don’t flee and push up house prices elsewhere.

Much has been written about the need to invoke some kind of Churchillian / First Labour Government / Ministry of Works spirit, of rolling up our sleeves and overcoming the shortages. But let’s not forget that there was another side to the economy in those days, the spivs, bootleggers and black marketeers who made money out of shortages and stolen goods, even basic necessities like penicillin in The Third Man.

In fact given that speculation in housing seems to have been the national obsession ever since the 1980s, it could be that we’ve been living in a “spiv economy” all those years. An economy of permanent and somewhat artificial shortages that neither the government nor the private sector are actually too keen to overcome, lest it undermine current super-profits.

Being a small, remote island, New Zealand is vulnerable to the development of that kind of economy. After all, if houses are in short supply, they can’t exactly truck them in from somewhere else in significant numbers; whereas that is possible in the USA. Inefficient transport systems prop up the value of existing urban land; and our most characteristic private sector market form is a cosy duopoly, as with supermarkets. And having four foreign-owned banks lending to all sides in bidding contests for local land and houses, like arms dealers supplying all sides in an African war over diamonds, ensures that the winner is—the Bank.

The political economy of the First Labour Government, and indeed every New Zealand government up to 1984, recognised that the profit motive had to be kept in check in New Zealand, for precisely that reason. Remember the Farmer’s Co-op, the Ministry of Works and Development, and State Insurance? That is, when it belonged to the NZ state and not to Australian owners, who’ve kept the old name for the mug-punter Kiwis.

So the question is, can National and its backers actually summon up the spirit that is needed to break the back of the shortage economy? A spirit that necessarily means bringing back some of the institutions, and habits of mind, that were abolished under the Fourth Labour Government? Or could it be that from increasingly unaffordable housing, fuel and food, there is more money to be made than there ever was in the 1980s, the era of all those Dodgycorps?

As the mobster Frank Hugo puts it to ex-serviceman Lucky Gagin in Ride the Pink Horse (1947) “This guy makes me laugh…. Guys like you work all their lives breakin’ their backs trying to earn meat and potatoes. You end up borrowing enough money to buy a hole in the ground to get buried in. Then when you get a chance to make some real scratch, what do you do? Mice like you and Shorty, you ask for peanuts. You know what’s gonna happen when you get outta here? He’s gonna give you a lotta gas about duty, and honor. Fill you with a lotta fancy words like responsibility, patriotism…. And what are you gonna have? Nuthin…. I don’t know why I talk to a lug like you.” View the clip here.

On a more positive note, the growing crisis of shortages overt profiteering and general let-them-eat-cake could be National’s weakness as we count down to the November election and National and its backers are exposed as having the wrong stuff. But only if a still 1980s-tainted Labour can in fact talk the language of responsibility, and persuade us that they mean to act upon it. Otherwise, as Hugo says, all this talk of rolling up our sleeves, bringing back the Ministry of Works and so on, will be a “lotta gas.”


16 comments on “The Wrong Stuff”

  1. Draco T Bastard 1

    So the question is, can National and its backers actually summon up the spirit that is needed to break the back of the shortage economy?

    National want the shortage economy to continue and grow. That’s why they’re looking at selling our assets to themselves – it allows them to produce even more shortage and so make higher profits.

    It’s like being in a country run by Arthur.

  2. Selwyn Pellett has said at a few Labour meetings that our basic problem is that we have been borrowing more and more money from Australian banks so that we can buy the same houses off each other for more and more money.

    This sums up our current predicament well.

    Is Labour intent on doing something?

    Selwyn’s comments have struck a chord each time they have been said. I know that David Cunliffe agrees with this analysis. If and hopefully when he becomes Finance Minister in November then I would expect an approach to ecomomic policy that will directly address this problem.

    The fourth Labour Government is to my mind an abberation. It was formed at a time when the economy was on the ropes because of Muldoon’s mismanagement and an economic crisis was forming. The country was broke. Foreign exchange reserves were pretty well exhausted.

    I agree this does not justify Douglas’s policies and the party went too far but it was strange times.

    The 5th Labour Government adopted a much more traditional ecomomic approach. Perhaps they should have been braver but given the economic situation at the time their policies were successful.

    I also agree however that current circumstances are such that something more radical and progressive needs to be done.

    • Herodotus 2.1

      The 5th Labour Government adopted a much more traditional ecomomic approach. Perhaps they should have been braver but given the economic situation at the time their policies were successful.
      – Are yo for real there MS. The 5th did as much damage as the 4th. Sucessful as national debt increased to umimaginable size. The accounting manipulation by the govt increasing student debt from $1b to $10b and then using balance sheet accounting so as not to be included within operating surpluses. Allowing a building industry to collapse. By allowing the industry to service housing demands at the time beyond its capabilities and then we suffer from the resulting crash (Still think there is more with property values to come).
      And then as rave finishes – A country to grow (GPD wise) that was unsubstainable and had little in its foundations to build on. e.g. Dairy, housing etc and was maxing out in infrastructure e.g. power supply to limit future growth. Lab was at the right place at the right time, and did not allow us to max and build on this potential.

      • mickysavage 2.1.1


        This issue has been gone through so many times. Crown debt was REDUCED DRAMATICALLY. In fact in net terms the Government was a net creditor.

        Private debt INCREASED DRAMATICALLY. Perhaps the Government should have stopped the dollar floating and brought back foreign exchange controls but this is such a radical step that it would have been difficult to put in place.

        Student loans? Been there for years. The 5th Labour Government made it easier to repay.

        And the building industry crash? I guess you are saying that Helen was responsible for the sub prime mortgage crisis in America. Boy she is more powerful than even I thought.

        And dairy? You mean we should have converted the whole country to a dairy farm. After all climate change is a hoax, isn’t it?

        • Herodotus

          “Crown debt was REDUCED DRAMATICALLY”
          MS dont want to push this too much (as I have placed “some” value on your comments) Yet where are the nos. Overseas crown debt increased in $. Sure I have no issue with you commenting re debt/GDP, net debt I have issues with, as this includes NZS, Cullen fund, ACC, E&W damages (Not sure10% re E&W)that are not available for general use but increases of investment ahve to be reported within the operating surpluses due to the accounting standards we adhere to.
          Student loans did increase dramatically (this can be viewed as transferring the spend from govt concern (operating cost to balance sheet i.e. increase operating surpluses and we the public have to fund the $500m servicing this debt)and to individualise the cost in debt that is questionable as to its collection
          I have never placed ownership of the sub prime to Helen. Just saying that 03-06 there was a massive unabated building boom that Lab did not want to control (with tax or ability to manage indebtness), also the banks were allowed changes in their ratios to lend more as a % based on reserves and the amount of reserves placed in the res bank were reduced, allowing more debt to be placed on the public. this boom lifted GDP but this increase was not substainable and there was always going to be a major reduction in activity, thus resulting in stagnation of GDP.
          The Dairy comment ws directed that GDP lifts yet this is not due to any govt measures and can easily drop off as well. As a commodity there is no increase in productivity.
          I am sure MS you know all this , just have a bug with the spin as to how strong the economy was under Lab, and nothing has come out of Lab as to changes in direction, we are told wait. I am sure if Lab had some great ideas that Nat would not beable to steal them for their purposes, unless it involved moving a few deck chairs about, and then Lab deserves what it gets for not being bold and accepting that this economy requires a redirection 😉

          • lprent

            The basic issue I have with your analysis is simple. You are correct BUT…

            And it is a big set of BUT’s ..

            1. The Reserve Bank Act severely constrained what the government of the day could do to constrain private debt.
              Early in the term the range was increased, and they slightly widened the criteria to include other criteria than inflation. But politically that was about as far as it could be taken.
              The issue was not external, it was all of the people who like me grew up in the massive inflation of the 70’s caused by a National government diddling around with the money supply. We weren’t and still aren’t willing to give the government access to that power again. So I suspect it’d be political suicide even now to do more that tinker with a independent reserve bank.
            2. The same kind of thing applied to student debt. Quite simply the previous National government had set up the student debt system to as you said – move the liability from the government to students. This allowed them to bypass the Fiscal Responsibility Act by requiring them to only set the liability to an estimate of defaulting ex-students. This was based on a smallish (and understated) percentage of the money expended in each year. That meant in the early years there are a pile of ‘extra’ government revenue that could be and was used for tax cuts.

            Labour inherited that and had to continue it, because the only way to reverse it was to increase taxes. Frankly there were better things to do with the small amount of extra tax revenue from the one tax increase that was made. As the tax take rose as the economy recovered from its mismanagement under National, they progressively improved the burden of new students along with the other services that National had slashed for tax cuts. But there was never a political mood for tax increases required to get rid of the monkey.

            In short, the problem wasn’t with the Labour government – it is with the voters of NZ. The Nats are having a similar problem in reverse this time. The voters aren’t willing to cut services while the Nats are still committed to giving their mates tax cuts when the country cannot afford it. So inevitably debt is rising.

            • Herodotus

              “The Nats are having a similar problem in reverse this time. The voters aren’t willing to cut services “. There services thatthe govt provides may not be cut, yet what they deliver on dimishes. e.g there is more that private security firms are required to do to cover what use to be done by the police. Not wanting to take a punch at Lab of past , M.Shields I think it was who stated that protection private property was not of a concern for the police – it was on protecting the person. Also by the lack of hospital services an increasing no of people are “forced” to go private. These are examples of cuts by stealth.
              Re tax cuts part of this was IMO a consequence of tax rates not being adjusted to cover inflation. thus resulting in a reduction in real terms of disposable income, this in conjuction withthe headline govt surpluses that were reported. This was at a time when household budgets were under pressure of high interest rates, petrol , milk, power etc with the 1st spike of 2008, it has only got worse of late, and it hitting all but the elite in the stress.
              Thanks for a more detailed filler up of my comments.
              Irrespective of fault we require action (that many incl myself thought Nat could deliver better than the tired 5th Lab govt). Justy hope someone delievers very soon, and I dont think it will be from a leader who was in parliament last century.

      • Colonial Viper 2.1.2

        Don’t you worry Herod. I’ll be agitating for a (much) braver foot forwards on some of LAB’s next economic policies.

        MS – the much more “traditional economic focus” you speak of, from Cullen et al, has only appeared since the advent of the hyperfinancialisation of global economies and the rise of Chicago school neo-liberalism in the 1980’s.

        In other words, its not traditional at all, it just fell into the new orthodoxy that most western OECD countries embraced.

    • just saying 2.2

      You make the excesses of the fourth Labour government sound like an innocent and understandable mistake (or series of mistakes).

      Comment 4 in the above link by Bryce Edwards details some of the outright corruption of the fourth Labour government. Not misguided fellows doing their best in difficult circumstances: corruption.

      Only last year Labour was praising that government as courageous (Cunliffe’s speech). One of its keenest advocates now leads the party.

      Not getting at you Mickey. There are many good people in Labour. Just can’t abide any kind of minimisation or apologism of what happened. Many people were badly hurt by it. The country was damaged, probably irrevocably, and some fat-cats got very very rich (some of those were knighted to add insult to criminal injury.) The intergenerational poverty that ensued, continues.

  3. ChrisH 3

    Quite right Draco re Arfur Daley, that is a hole in one concerning the problem we face. Back in the 1980s the critics of Margaret Thatcher used to call this the “car boot economy” as well as the “spiv economy.” Scott Lash and John Urry also called it the “makler economy,” in their book The End of Organized Capitalism (1988) using a German term for trader. Another term is “mercantile capitalism.”

    What all of these concepts have in common is that the economy is dominated by trade in secondhand goods, so that there is a big vested interest in keeping actual new production to a minimum. Of course there’s nothing wrong with secondhand trading up to a point, but when the secondhand traders dominate, production dies.

    The ultimately over-dominant secondhand good in this sense is investment real estate property, at least as regards the element made up of land and existing buildings. Obvously the real estate industry does build new buildings and houses, but that is not its primary activity. Actual production in real estate is, all too often, a bubble on a Keynes’s proverial whirlpool of speculation. Hence the jerry-building shortcuts that are taken.

    Likewise for long-lived monopoly public utilities or household-name private firms built a long time ago by the Ministry of Works or NZED, or by some relatively heroic pioneering entrepreneur, and these days flicked from one collection of guys in suits to the next, whether we are talking about the Railways or Whitcoulls.

    It’s a huge conceptual failing of most forms of Anglo-American economics that they do not distinguish between firsthand and secondhand forms of capitalism, that is to say founders and traders, producers who respond to shortage versus those who merely exploit shortage. The trader/producer distinction is absolutely fundamental in most of forms of Continental European and East Asian economics, a perfectly respectable mainstream idea. But in the Anglo-world it is regarded as a radical notion, part of an “economic underworld” inhabited by such polemicists as Thorstein Veblen and Henry George.

    The trader economy is by definition innovation-free, devoid of jobs for scientists; a lot of the specifics that people are posting on, such as NIWA layoffs, are symptoms of the wider malaise caused by the rise of the traders. This is in turn correlated with the fact that Anglo-world financial institutions prefer to back traders rather than the messy business of founding new industries; history shows that industrial capitalism generally requires state financial backing if it is to survive competition for investment funds from trading activities such as investment real estate.

    The eventual result of an overly trader-based economy and its laissez-faire financial institutions may well be that the English speaking countries become junkyards full of industrially unemployed, under-educated people selling each other increasingly elderly pieces of bric-a-brac: a fitting end.

    • Bunji 3.1

      My other great Selwyn Pellett comment (as someone who is big on the productive economy versus speculators/traders) is:

      Calling John Key a businessman is like calling a real estate agent a builder.

      From his work, John Key knows about the trader side of the economy, not about the side that actually creates wealth.

      • RobC 3.1.1

        I googled Selwyn Pellet and got this from Red Alert dated October 2010 (Mallard):

        “Selwyn gave the Party a bit of a serve on the need for being public on an economic policy difference asap.”


        • Shane Gallagher

          Yeah… wish someone would actually remind Labour they are meant to be planning their next term in govt. It is almost like they think they have another 3 yrs up their sleeves. It is pretty depressing.

    • Draco T Bastard 3.2

      The eventual result of an overly trader-based economy and its laissez-faire financial institutions may well be that the English speaking countries become junkyards full of industrially unemployed, under-educated people selling each other increasingly elderly pieces of bric-a-brac: a fitting end.

      Seems that we’re already well on our way.

      And, yes, people actually do buy stuff off Trademe just to turn around and sell it again on Trademe.

    • billy fish 3.3

      Niwa Layoffs

      By any chance a morsel thrown to the Associtaion of Complete Tossers and thier fantasy about the majority of the scientific community lying about lcimate change?

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