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What Can This Government Really Do About the Economy?

Written By: - Date published: 7:35 am, January 23rd, 2019 - 108 comments
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There’s something I’d like explained.

Why is it that right now some countries can have weak governments and the economies just surge ahead? Why is political agency shearing away from economic change?

New Zealand appears to be generally protected from the vicissitudes of economic instability so long as our key markets are doing fine. New Zealand is very, very closely integrated into the economy of Australia.  As Deloittes noted in October last year:

 Unlike its politics, Australia’s economy remains on a steady trajectory. Six changes of prime minister in as many years … would suggest something is amiss Down Under. But unlike in other countries with a high degree of turnover at the top, Australia’s economy continues to perform. Annualised growth has been over 3 per cent across the first half of 2018.”

The Reserve Bank of Australia issued its November forecast was optimistic:

GDP growth is now expected to be around 3½ per cent on average over 2018 and 2019, but to ease in the latter part of the forecast period as production of some resource commodities stabilises at high levels. Headline and underlying inflation are both expected to rise to be a little above 2¼ per cent by the end of 2020. The global economic outlook remains positive. Although growth has slowed in some economies, it remains above trend in the major advanced economies.”

It’s as if Australia’s weak politics had no bearing on the performance of its economy.

The NZ Treasury’s forecasts are about the same as Aussie’s, naturally.

New Zealand’s political management of the economy is not weak, but it’s not strong either. It’s stable for a coalition, making efforts in areas fully within its power, but holding back its real capacity to fund major alterations to how we live and work within the economy. Kinder, more thoughtful, more interested, but that’s about it.

As Duty Minister Chris Hipkins said on RNZ this morning about fixing the ongoing housing affordability crisis, “We also knew that it was going to take some time to do that. You can’t magic up thousands of houses overnight.”

A year in, that’s not a red-blooded endorsement of the effectiveness of political management on the economy.

All very well for the government to be accused of “dithering”, but the Coalition is deploying most existing instruments. It will of course take years to tilt the entire housing market. They are doing an honest job but it is currently too big for them.

Today Prime Minister Theresa May sought to give confidence to Prime Minister Ardern that trade between the two countries will continue through Brexit. Theresa May is such a political undead that any paper she signs means nothing.

Theresa May’s appalling political management of the U.K. economy is now so fuzzy that actual government has been reduced to white noise.  

At least for Australia and New Zealand, the scope in which the government acts and can change the economy remains largely set. That should be reassuring: the Australasian economy is strong and trucks along irrespective of changes in political leadership.

But that evidence of economic stability irrespective of leadership also means we here should expect less from government.

Then there’s the perplexing example of the United States. The tax cuts that Congress approved in December 2017, along with the spending increases it approved in February, amounted to a sizeable Keynesian stimulus package.

According to the Peterson Institute for International Economics, the tax cuts and spending increases are adding about two hundred and seventy-six billion dollars in spending to the economy per year, about 1.4 per cent of GDP.

Sure, the stimulus had an effect, but it’s really hard to figure out why the U.S. economy is booming when their political leadership has shot its tax bolt and is now going completely crazy.

Don’t even get me going on China. Economic growth is strong by almost any measure except their own, but their great autocrat Xi Jinping has called his key leadership together today and issued quite dire portents and threats to their very leadership let alone their economic performance if stuff doesn’t change:

The party is facing long-term and complex tests in terms of maintaining long term rule, reform and opening-up, a market economy, and within the external environment,” Xi said, according to Xinhua. “The party is facing sharp and serious dangers of a slackness of spirit, lack of ability, distance from the people, and being passive and corrupt. This is an overall judgement based on the actual situation.”

With all that leadership’s direct and indirect economic controls, they see the red warning lights going on.

So much control, so much politics, so little effect.

All I have is: right now this just doesn’t add up.

108 comments on “What Can This Government Really Do About the Economy?”

  1. Dennis Frank 1

    Best guess: business folk are doing `keep calm & carry on’. Bemused by politics, they’ve decided that retreat into work is a good idea. Inasmuch as their grasp of business as usual is anchored in the practice of neoliberalism, not as sensible as they think.

    The future looms! On OM, I’ve posted notice of an upcoming structural adjustment in global trade that Gordon Campbell has analysed here: http://werewolf.co.nz/2019/01/gordon-campbell-on-why-shipping-is-new-zealands-big-new-trade-problem/

    The gist is that we are about a year away from the onset of a significant price hike in the entire system of the global shipping trade. I heard on the RNZ news yesterday that the latest growth figure for the Chinese economy is the lowest for 30 years. Excellent! Just what we need, to head for sustainability on a sound basis. Clean the drug-addicts out of all advisory roles ought to be next on the agenda. It’s the return of sanity.

    • Draco T Bastard 1.1

      From your link:

      Oh, and there’s yet another problem. The Marsden Point refinery does not seem able to cope with the changes that are coming down the pike:

      The cost of retooling Marsden Point to convert all high-sulphur residues to MARPOL-compliant product will be high and prohibitively expensive. The refinery is currently exploring if it is possible to produce smaller volumes of 0.5% sulphur fuel, and what may be required to achieve this. This has not yet been fully scoped nor costed. Currently, high sulphur by-products from refining have commercial value to Marsden Point. Once the 0.5 % sulphur requirement comes into force, this situation may change, affecting the refinery’s business model in this regard. In the event that there is a major shift to low SOx fuels, there is an open question as to how the high sulphur residues will be disposed of or used.

      I’m wondering how people can read that and not realise that it’s the business model that’s the problem. The thinking seems to be:
      We’ve got a working business model so why should we change it despite all the damage that its doing?

      Burning high sulphur content fuels has been known to be a problem for decades. As such, these high-sulphur fuels should have been phased out decades ago.

      • Dennis Frank 1.1.1

        Yes, I know. I’ve spent most of my adult life being baffled by the conceptual inadequacies of establishment decision-makers. Kuhn’s introduction of paradigms as belief-systems explained most of the psychology involved to leading-edge thinkers, but it took more than a decade for even them to get their heads around it by the eighties (which was when I first came upon it).

        It’s the inertial effect. Humans rely on a collective belief system because it forms their interpretive context – they use it to explain reality. Kuhn just developed his theory from the mass psychology of scientists. It was the similarity of the way religion & ideology operated in the psyche of non-scientists that enabled the physicist Fritjof Capra to develop the general theory of paradigms in The Turning Point(’83) & Ken Wilber’s The Holographic Paradigm arrived simultaneously. https://www.southampton.ac.uk/news/2017/01/holographic-universe.page

        Why this gnosis has failed to seep into mainstream society is probably due to the aversion of mainstreamers for anything intellectual. They ought to focus on how computers depend on operating systems. The analogy applies!

  2. rata 2

    The first economic event in my life was the “recession” of 1969.
    I wondered how bad life would be.
    50 years on I now take economic talk with a grain of salt.
    Even the crashes ’87 and 2008 did not affect NZ.
    What goes on overseas does not affect NZ.
    Changes of Gov’t don’t affect NZ either.
    Its all a charade.
    Its not the economy per say it’s the expectations of society
    and the allocation of resources which together make up the “economy”
    Only single unemployed males suffer.
    Every one else is assigned plenty enough to get by.
    Just don’t be a single unemployed male and you’l be fine.
    .

    • Gosman 2.1

      I take it you might be a single unemployed male then.

        • rata 2.1.1.1

          No.
          So what did you think of the rest of the points
          I made in my comment covering 50 years?

          • Gosman 2.1.1.1.1

            Your information is incorrect.

            The crash of 1987 impacted NZ immensely. The crash of 2007/8 impacted us less severely but it still caused big problems.

            Changes of governments don’t tend to impact NZ much any more but that is because they don’t really change much any more. If they DO implement big changes then that tends to have an impact.

            • Wayne 2.1.1.1.1.1

              Yes, the 1987 crash was the worst in my lifetime. Huge numbers of jobs lost, a real exodus of people to Australia. It wasn’t until 992 that the economy started growing again.

              In large measure, the 1987 crash was particularly severe because of the impact of the 1984 to 1987 restructuring. In my view the reforms were very necessary since the NZ economy was so far out of the mainstream. In fact in 1984 the IMF was about to be called in for a bailout, but the new Labour government did the restructuring themselves. However, there wasn’t enough preparation for the economic shock that followed the restructuring.

              Nevertheless the reforms of 1984 to 1987 laid the foundation for what has been a pretty successful economic story for New Zealand over the last quarter century. Not perfect, but a lot better than most OECD nations. The 1984 to 1987 reform was one of the reasons why New Zealand could withstand the 2008 GFC as well as it did.

              • barry

                …and the fact that Australia did not follow us in 1984 allowed it to withstand both the 1987 crash and the 2008 crash well and still be doing better than us.

                The reason we survived the 2008 crash (sort of well) was because our banks were not so much deregulated (thanks to their being headquartered in Australia). It was also only a credit squeeze, (our terms of trade went up), but National panicked, cut spending, and turned it into a recession.

                At the time (1980s) some commentators were saying that it was good that NZ was making the changes and not Australia as it would allow us to get ahead. 🙂

                • Gosman

                  What spending did National cut post 2008?

                  • arkie

                    Off the top of my head there was the removal of adult education funding, it was a ‘nice-to-have’ according to old mate Bill.

                    He said they had to reduce the proportion of government spending in the economy IIRC.

                • mike

                  we got through the gfc because of a massive private debt expansion that has left a heavily indebted population that has put the whole economy at risk in the next down turn in due time we will find out that the housing crises was scam all along prices were jacked up by the banks to line there pockets. new zealand as a nation rises and falls on debt and debt in new zealand and australia has reached a saturation point

              • KJT

                1984 to 1987 “restructuring” has caused a recession, that New Zealand has NEVER recovered from.

                Now 30% behind Australia that had similar economic “problems” but their trade Unions prevented the nutters in charge, from going the whole hog.

                It is terrifying how the neo-liberals still insist they were correct against all the evidence. And, Against the wishes and knowledge of the people.
                The party that wants to continue the 80’s “reforms” ACT gets enough, non National, voters to fit into a telephone booth.

                Bit hard to be honest and admit you fucked an entire country, I suppose.

                Which is why I have come to respect Jim Bolger.

                Wayne Mapp and his fellow vandals should be in jail.
                300 000 children in poverty, because they thought “New Zealand was too equal”.

                The last three decades are proof of how much Governments can stuff a country up.

                Fortunately, the scare we put into them with MMP, has put some brakes on.

            • Tricledrown 2.1.1.1.1.2

              Gossipboy the only reason the 2007/8 didn’t impact NZ severely was because the Canterbury Earthquake rebuild injected $66 billion into the NZ mostly from insurance payouts, If that capital injection hadn’t happened (Accidental Keynsian Policy) then NZ’s economy would be in a far worse state.

              • ropata

                I reject that we needed an Earthquake to inject $66 billion, it was highly damaging to a lot of households, caused a drastic decline in Christchurch population, and a decrease in the national housing stock. Yes it was accidental Keynesian stimulus, but even without earthquakes it proves the need for deficit spending in times of recession. Arguably National didn’t go far enough. (God-Emperor Brownlee and CERA caused a lot of unnecessary suffering with their penny pinching and disaster capitalism.., but that’s another thread)

                Combined with leaky homes (which has required even more expenditure than the Chch quakes btw) we have been spending billions to stand still.

                All of these housing crises could have been greatly alleviated if we had a Ministry of Works, or some other powerful government body, involved in maintaining adequate housing stock and stable house prices.

                But I agree, it could have been worse. That’s a pretty low bar.

    • Ad 2.2

      Your view is possible if you live in a small town with very low outgoings, probably own your own home, have a long term partner, are not chronically sick, and have no dependents.

      I have a few of those relatives.

      Very healthy, strong, connected, low-maintenance.

      But they lived either through the Great Depression and World War Two, and yes, sometimes it really does affect the entire country.

      The historical memory of those who were born after the Great Depression and World War Two – that sweet spot from the 1950s to the mid 1970s – even that memory will fade.

  3. Gosman 3

    Most Western countries have stable policies in relation to the economy. Most political chaos is at the fringes not in the core areas (e.g. Monetary and Investment policies). It is only those countries that mess with the fundamentals that are having major problems (e.g. Zimbabwe and Venezuela).

    • rata 3.1

      Isn’t that what I just said?

      • Gosman 3.1.1

        No, you implied that the Government doesn’t really impact what is happening at the economy. That is not accurate. They CAN do so if they choose (witness NZ post 1984 to 1992). They currently tend not to do so.

        • rata 3.1.1.1

          That was deregulation.
          200,000 jobs went and were never replaced.
          People have now moved into alternative “employment”
          Huge increase in superannuiatants.
          Much higher rates of kids staying in school.
          And remember we have much smaller families too.
          300,000 gone to Australia.
          200,000 in tertiary study.
          75,000 on sickness.
          The number of those working age currently not
          in NZ employment is close to 700,000.
          Factor in those employed to manage these industries eg WINZ and teachers
          (probably 250,000) and unemployment is closer to 1 million.
          It’s just been renamed.
          Yes I lived through the 1984-1989 cuts then the Richardson cuts.
          I know all about
          My point is that it is a social issue nothing to do with the economy.
          We can choose to share the work or employ 2 million
          and have 1 million not employed.
          I believe work sharing is fairer.

          • Gosman 3.1.1.1.1

            What a load of nonsense. You are aware there is the Labour force participation rate that can be tracked don’t you?

            • KJT 3.1.1.1.1.1

              Yes. Decades of right wing Dictatorship and corruption, do tend to make countries, unfixeable failures. Despite the degree of sincerity, of left wing attempts to fix it.

              Valenzuela of course, Honduras for one. You know. The people Trump is building a wall to keep out.

          • mike 3.1.1.1.2

            there was also a loss of skills as well when national cut the apprenticeships in the early 90s the young were pushed into university education and student debt to hid the unemployment its going to be interesting we are into the second wave this time its white collar jobs disappearing along with the middle class .

    • Blazer 3.2

      Politicians implement fiscal policy,banks implement monetary policy.

    • adam 3.3

      Spoken like a true ideological desecrating pig.

    • Draco T Bastard 3.4

      Which is probably why most Western countries have increasing poverty. It’s what happens when polities fixate upon failed fiscal and monetary policies.

      • Tricledrown 3.4.1

        DTB that’s called hands off Monetary policy let the market decide. And in most cases manufacturing and services will go to the cheapest country.

        • Draco T Bastard 3.4.1.1

          Yes, I know how it’s supposed to work.

          I’m also aware that it doesn’t.

          How some governments manipulate their exchange rate thus causing work to flow to them despite them not being the cheapest place to do it.
          How the speculators manipulate exchange rates for their own personal gain.
          And, this is important, how a country with it’s own sovereign currency, neither needs foreign investment nor even foreign currency.

          • DJ Ward 3.4.1.1.1

            One of the mechanisms is Tarrifs.
            Also pegging currency to another.

            I’m not so sure about not needing foreign currency as it’s unavoidable for any nation not to need to buy at least some things from other nations. We don’t produce Germanium, or Strontium so the products like Transistors, or high lifespan magnets have to be purchased with other currency. What do we do with excess production. How do we get that currency we need to get what we can’t make.

            • Draco T Bastard 3.4.1.1.1.1

              I’m not so sure about not needing foreign currency as it’s unavoidable for any nation not to need to buy at least some things from other nations.

              Consider what’s happening there.

              One nation is buying from another. To do this the first nation gives the other nation money. That money can be either the first nation’s currency, the second nation’s currency or another completely different currency.

              If the first nation, the one doing the buying, doesn’t have any of the latter two currency options then its only option is to give the nation its buying from some of its own currency which is a claim upon the economic activity of the first nation.

              If the first nation does have some of the second nation’s currency that means that the second nation has already bought from the first nation and the first nation is now claiming that economic activity.

              The third option should never actually happen or, perhaps, be vanishingly rare. The problem is that the world is still holding onto the Bretton Woods Agreement that the US unilaterally trashed back in 1971 when they dropped the Gold Standard. The Bretton Woods Agreement is what made the US$ the Reserve Currency and pegged other nations currencies to it.

              To maintain the peg and to trade internationally under the Bretton Woods Agreement a country had to maintain high levels of US$. This is why people still think that we need foreign currency. What they’re actually saying is that we need US$ to maintain the NZ$ peg to the US$ which no longer applies as our dollar floats and to trade but that no longer applies either as the US$ floats as well.

              In fact, more and more online stores are accepting all currencies.

              The US’ trashing of the Bretton Woods Agreement had huge implications that have not been acted upon. They haven’t been acted upon because, IMO, of politics. After all – the US economy should have collapsed because of it.

              How do we get that currency we need to get what we can’t make.

              We don’t need to – we simply pay with our own currency and thus give that other person/nation a claim on our own economy.

              But to do that we need to ensure that exchange rates are set carefully and are, as a matter of fact, related to trade flows. All the governments of the world which floated their currency skimped on that bit because they believed that forex rates would be properly set by the market – the speculative and subjective market.

              I guestimate after decades of deficit importing the NZ$ should actually be worthless then the Chinese Yuan. There should be so much demand for our products ATM that there’d be no unemployment and we wouldn’t be importing anything (Well, very little anyway).

              We don’t produce Germanium, or Strontium so the products like Transistors, or high lifespan magnets have to be purchased with other currency.

              But we could do. We do have germanium deposits in NZ and many other semi-conductor doping elements, huge deposits of silicon and, of course, a well educated populace capable of designing those things and the factories to make them.

              • McFlock

                First of all, it’s almost never nations buying from other nations – it’s people and organisations/companies buying from other people or organisations in other countries.

                I don’t want a claim on another country’s economic activity. I want cash with which I can buy other stuff in my own country. If they give me another country’s cash, I need to find someone who will accept it as payment for goods or my own country’s cash.

                To set the currency appropriately, trade exchanges need to be predicted. Nothing economically can be predicted to any useful level. Even if patterns are identified, they get thrown awry unpredictably by calamities.

                If the official exchange rate is set wrong for my needs, I will either insist on payment in my own country’s currency, or I will find someone who will pay the unofficial exchange rate. An undocumented transaction – a black market that further disturbs trade predictions. Or I’ll get as much foreign cash as possible and rort the local currency. Or the shit I want to buy will be unaffordable, or the shit I want to sell will not pay the local resources it cost to make.

                As soon as you realise international deals are between individuals not nations, grand master plans fall flat.

                A fixed exchange rate is a tool as blunt as the OCR and half as useful. All that would happen to forex traders is that they start making bets about which way the peg moves next exchange rate announcement, or three-way exchange rate transfers to exploit value anomalies (e.g. currA < currB < currC < currA, so a trader in C can end up with more currC if they buy currB, transfer that into currA, and then transfer that into currC).

                Tarriffs and levies are useful – the proposed tourist tax is simply a levy on tourism exports (they give us money, we give them a "look, sheep!" experience). But such things can be targetted. Exchange rates can't.

                • Draco T Bastard

                  First of all, it’s almost never nations buying from other nations – it’s people and organisations/companies buying from other people or organisations in other countries.

                  I simplified a bit.

                  I don’t want a claim on another country’s economic activity. I want cash with which I can buy other stuff in my own country. If they give me another country’s cash, I need to find someone who will accept it as payment for goods or my own country’s cash.

                  Isn’t that what the forex market is for?

                  To set the currency appropriately, trade exchanges need to be predicted.

                  Not it doesn’t – just the deficits and surpluses of each country known in a reasonable time frame (say, every thirty minutes) with automated adjustment done by algorithm.

                  If the official exchange rate is set wrong for my needs, I will either insist on payment in my own country’s currency, or I will find someone who will pay the unofficial exchange rate.

                  Really? I would have thought that you wouldn’t buy.

                  Interesting that you consider breaking the law in such a case to be fine though.

                  As soon as you realise international deals are between individuals not nations, grand master plans fall flat.

                  The thing you fail to realise is that your personal deals are still part of the national economy. As such, you get to make those deals on the nations terms – not yours.

                  A fixed exchange rate is a tool as blunt as the OCR and half as useful.

                  I’ve never suggested a fixed exchange rate.

                  All that would happen to forex traders is that they start making bets about which way the peg moves next exchange rate announcement, or three-way exchange rate transfers to exploit value anomalies

                  I’m in favour of the 17th century laws that had speculators hung as a matter of course. Modernised of course but we really do need to accept that speculation is seriously detrimental to the economy and society and pass laws against it.

                  • McFlock

                    Who says breaking the law is fine? It’s just stuff that actually happens. I can choose the nation’s terms, but if the reward is there, people will set up their own deals. The entire system is, quite literally, chaos.

                    I mean, you’ll have a computer that keeps track of everything in near-realtime, so good luck with that. But people will find a way. Worst comes to worst, they’ll just barter and stop using cash altogether.

                    It’s funny how the soviets and silicon valley libertarians both thought that if they could just plan things precisely enough, the most efficient system would become realised. All that really happens is that the models gradually move so far away from reality that the system eventually collapses.

                    • Draco T Bastard

                      t’s funny how the soviets and silicon valley libertarians both thought that if they could just plan things precisely enough

                      Just look at all those successful businesses that don’t plan anything

                      /sarc

                      We put in place rules and regulations and even entire institutions like the IRD to track everything. We then change them as we see ways to make them better.

                      I mean, you’ll have a computer that keeps track of everything in near-realtime, so good luck with that.

                      The private banks already do it to a large degree. Tracking most retail transactions every hour and almost all international transactions (Really, how many international transactions are done in cash? and of those done in cash what percentage of them are criminal?). It’s how we know that the NZ$ is the most traded in the world.

                      Really, you seem to be making shit up about how it won’t work because of your own fears. The ZOMG, the government will know everything I buy bollocks that every one has. Fears that they don’t apply to the private corporations that already know and use that information to make more money by selling that information.

                    • McFlock

                      Yeah, it’s only been ten years or so since the last bank-led economic collapse.

                      The only difference between capitalist prediction and soviet prediction is that the failed capitalist institutions get replaced by new ones run by the same people, whereas the old soviet system was… oh wait, not much difference at all.

                      I don’t give a fuck who knows what I buy. What pisses me off is when matrix-readers repeat the same old conceit that if they just know enough and calculate quick enough, all of society’s economic problems will be solved. Nope. Economies collapse when smart arses think they know it all and start predicting what other people will predict what the economy will do, and everyone starts allocating resources based on those predictions. Then the economy loses connection with the basics of production and consumption and everything goes to shit – and most of the decision makers still get their bonuses or dachas.

                      I’m not making shit up. This has happened again and again, right back to tulip times. You’re simply repeating the conceits of the past.

                • KJT

                  Fixing their exchange rate low is working fine for China.

                  Agree it is different for small commodity exporting countries.

                  • McFlock

                    Is that low compared to other currencies, or low compared to where traders think it should be?

                    Because China is a bigger ship than NZ, and can weather the difference between its official exchange rate and the actual demand for it a bit better than we can.

                    • KJT

                      Low considering the balance of trade.

                      The reserve bank Act, by keeping the NZ$ artificially high, has, of course, driven our manufacturing and local exporters into the ground, with the exception of dairy, which we have artificially propped up.

                    • McFlock

                      Yeah I’ll go with you on that one. Every time the economy starts moving, the Reserve Bank screws with the OCR to keep inflation down. Which affects the exchange rate.

                      But that’s the hammer method of the OCR. China, ISTR, fixes the exchange rate formally. This means that if they fix it too low compared to market price (to get more money from exports), speculators start hoarding – sort of a reverse Bob Jones 1984. high or low, the govt ends up gifting cash to speculators.

    • KJT 3.5

      Yes. Decades of right wing Dictatorship and corruption, do tend to make countries, unfixeable failures. Despite the degree of sincerity, of left wing attempts to fix it.

      Venezuala of course, Honduras for one. You know. The people Trump is building a wall to keep out.

  4. Simon Louisson 4

    The question you pose in your headline, but never attempt to answer, is simply answered in one word – taxes. More specifically how taxes are imposed. This is the main way governments influence economies.
    This government partially understands that, which is why it set up the Tax Working Group. The group’s final report is due in the next couple of days.
    Labour and the Greens understand that our tax regime is fundamentally unfair — ie earnings from salaries and wages are taxed while earnings from capital gains are not. Whether they fully understand the productivity issue of the tax question is a moot point.
    The result of our current tax set-up is that investment in New Zealand, over a long period, has been drastically skewed towards capital gains and, possibly as a result of the hangover of the 1987 share market crash, has also unfortunately been heavily tilted towards property investment (including farms) rather than investment that creates wealth for our community, not just for individuals, such as shares. This has led to the vast majority of discretionary investment going into non-productive areas of the economy.
    The government does therefore have within its hands the capability not only to make our society fairer, but the economy more efficient by influencing where people invest their money. A robust CGT regime will also help balance out the wealth discrepancies created by share investment.
    Unfortunately, all the signs suggest that TWG, will not have the fortitude to make the required recommendations. Its chair Michael Cullen kicked for touch every time the need for a CGT arose during his 9 years as Finance Minister and there is no reason to believe he will do anything different this time despite a significant change in public opinion on CGT whereby a substantial majority understand and support the concept.
    So the answer to your question is: yes, this government can do something to improve the economy, but all signs suggest it will lack the will and we as a country will continue to tread the mediocre path.

    • Ad 4.1

      I held off trying to answer anything on this one.

      2020 should hopefully be fought along tax.

      Carbon tax, income tax, capital tax.

      Unfortunately historically those are the elections that the left loses.

      • greywarshark 4.1.1

        It occurred to me the other day how GST takes 15% of everything we pay through the financial system, and the Tobin tax or FTT takes a tiny percentage off all financial transactions. Let’s scrap GST and have the tiny tax so we get treated as fairly as the big boys, not merely being consumer sheep fleeced at every turn.

        A financial transaction tax is a levy on a specific type of financial transaction for a particular purpose. The concept has been most commonly associated with the financial sector; it is not usually considered to include consumption taxes paid by consumers. Wikipedia
        https://en.wikipedia.org/wiki/Financial_transaction_tax

        Tobin tax
        Description
        A Tobin tax, suggested by James Tobin, an economist who won the Nobel Memorial Prize in Economic Sciences, was originally defined as a tax on all spot conversions of one currency into another. Tobin’s tax was originally intended to penalize short-term financial round-trip excursions into another currency. Wikipedia

        • Ad 4.1.1.1

          unlikely to be fiscally neutral.

          • greywarshark 4.1.1.1.1

            Ok then can we have a FTT and a lower GST then please, he said holding out his empty gruel bowl?

            • Ad 4.1.1.1.1.1

              i loathe gst its so regressive.

              i’d only like ftt if Aussie did it simultaneously.
              else there’ll be a sucking sound even louder.

              let’s see their courage in a couple of weeks.

              • Draco T Bastard

                This is where global governance comes in. Where we need the same laws applied and enforced globally.

                As I don’t think that’s going to happen in the near future so the only thing an independent nation can do is to state that they will not trade with any other nation that does not meet their own laws and standards.

            • Dv 4.1.1.1.1.2

              Tax take is ca 80billion, so a fit tax of 1% on 8000 billion would do.
              Would the total of bank transactions be close to that?

              And No gst, no tax no cgt

              • greywarshark

                DV
                Well I was concerned that Ad would throw my whole idea out (which probably has nil likelihood of birth, but one can hope). I question your bank transactions statement, FTT would apply to more than those of banks wouldn’t it. Big financial houses have their own money movement don’t they?

                And if there is no gst, no cgt, and you say a 1% FTT wouldn’t work, what do you propose. Good old progressive income tax? And if so what would be the bottom tax to what$ and what would be the top tax? Do you think it unsporting to take more than half in tax on the top levels?

                • Dv

                  Yes, any financial house too
                  The lack of the regressive ictax would be an incentive for the better paid.
                  But would encourage more money transaction, well maybe、
                  like to know more about about the total amts of money flow

                  Fit would capture the now non taxable money flows of the big corporates

                  • greywarshark

                    I don’t know about ‘the lack of the regressive ictax’? Does that mean that not having a regressive ictax would be good, and a progressive tax would be wise?

                    But then you say about the tax being an incentive for the better paid. Usually progressive tax isn’t well regarded by the wealthy. Oh dear they say, I like money so high that it sloshes over my gumboots. Lower the level and I can’t feel it squishing between my toes so nicely.

                    Are you musing that if the tax was not progressive, that would mean more money for the wealthy, which would mean more consumerism and other money transactions, and that would provide more on the FTT rate of 1%?

                    There is not a reasoned approach in wealthy individuals being too concerned about income tax because they are hardly touched by tax; it could be said to have been debited to their discretionary income. Their lifestyle could be handsome and not constrained by income tax.

                    But poorer individuals have less discretionary income, or none, and face tax as a primary demand on their income after which they must meet the necessities of their life, so definitely feel it diminishing their lifestyle.

                    The terms disposable and discretionary income are sometimes used interchangeably, but there is a big difference in terminology to people that work in the financial, banking, or economic worlds.

                    Very simply, disposable income is money you have after taking out/paying your taxes. Discretionary income is money that is left over after paying your taxes and other living expenses (rent, mortgage, food, heat, electric, clothing etc). Discretionary income is based and derived on your disposable income.
                    Peter J. Creedon
                    Crystal Brook Advisors
                    New York, NY
                    https://www.investopedia.com/ask/answers/033015/what-difference-between-disposable-income-and-discretionary-income.asp

                • CHCOff

                  The first thing is to have a better Democracy fit to task.

                  like in the normal world, you put in the training for the completion or enabling of the task, & good government tasks are part of the whole.

                  • greywarshark

                    Oh a better democracy. Where is the role model for that? Could you name some exemplars that you have in mind.

                    • Poission

                      I have how about independent choice?

                      This quarter-century rise of Globalization peaked in 1995 when the old system of international trade agreements known collectively as the General Agreement on Tariffs and Trade, or GATT-was reconceived as a new powerful body, the World Trade Organization. It was the last triumph. There was nothing remarkable about the creation of the WTO. It was just a centralized body to deal with commercial trade issues–not a bad thing in and of itself. The important point was the context. The reconceptualization of civilization through the prism of economics had reached a critical barrier. Beyond that barrier any international exchange that involved a commercial element would be treated as fundamentally commercial. Culture would be seen as a mere matter of industrial regulation; food, as a secondary outcome of agricultural industries.

                      What particularly caught public attention around the world was the idea that national health and food rules would be treated not as the expression of a people concerned about what sorts of things it put in its collective stomach but rather as mere protectionism–unless backed by the hardest of hard scientific evidence. That sort of evidence was usually decades in coming. The precautionary principle and the citizen’s opinion were thus to be thrown aside in favor of an absolutist theory of commercial exchange.

                      This determinist approach toward agriculture as an industry rather than as a food source–toward the implications of everything from fertilizers, herbicides, and insecticides to genetics, hormones, antibiotics, labeling, and sourcing–became the flash point for a far broader concern among citizens. This was the context in which a growing percentage of people judged the handling of key issues as different as mad cow disease, the availability of pharmaceuticals in the developing world, and global warming. They were beginning to feel that what was presented as an argument of Globalism versus protectionism was often just a confused opposition of personal choice and abstract corporate interests. So Globalization, put forward as a metaphor for choice, was organizing itself around not consumers but corporate structures, structures that sought profits by limiting personal choice.

                      https://www.globalpolicy.org/globalization/defining-globalization/27669-the-collapse-of-globalism.html

                    • CHCOff

                      An updated version of the principles in play of the first democracy is the sort of thing gws.

                      Going back to the past for a competent societal future that has control over it’s technological prowess and harmony with it’s natural resources.

                      https://en.wikipedia.org/wiki/Pericles#/media/File:Akropolis_by_Leo_von_Klenze.jpg

                    • greywarshark

                      CHC
                      They had good ideas back then, still quite a few wars. But I put up something yesterday where some thinker said that all democracies tend to go seedy and turn into Plutochracies I think he said.

                      So I like to read about what the early Greeks did and people since and then I watch Monty Python where they sing about Aristotle being a hard man on the bottle.

                      Then after a short break, back to working on how to get a working democracy with citizen participation these days. Not representative where citizens sit on their bums and direct government to do what suits the individual and the pollies themselves. I wondered about regular town hall meetings as in the State of Vermont. They have theirs irregularly and more would be needed. Perhaps I should get off my bum and go to the City Council meetings and look and listen in an interested manner at least.

                      I think that will go on my to do list. Thanks for writing CHC you have sparked off one thing that I can do to fit my own ideas.

                    • greywarshark

                      Interesting summary Poission. We need that sort of thing to put the fluidity of societal change into some firmer structure so that it can be studied, analysed, recognised.

                    • One Two

                      Iceland

                    • greywarshark

                      One Two
                      Perhaps we should do an analysis of Iceland on certain criteria and also look at its background over the centuries in building their sort of consensus that keeps them stable.

                      I can’t now as I have to get up and do something immediately useful and practical. So I would be interested in Iceland, and Scandinavia in general is interesting. Finland? How have they been affected by being under the Hegemony of Soviet Russia for quite a time. Denmark, are they as what I think of as Germanic and precise as I think? Questions.

                    • Draco T Bastard

                      But I put up something yesterday where some thinker said that all democracies tend to go seedy and turn into Plutochracies I think he said.

                      That’s the result of capitalism with the rich and powerful taking control of the democracy.

                      Then after a short break, back to working on how to get a working democracy with citizen participation these days. Not representative where citizens sit on their bums and direct government to do what suits the individual and the pollies themselves.

                      Yep, we have to get rid of Representative Democracy and have the people governing themselves instead of being governed by a select few who then get bought out by the rich and powerful.

                      We also have to get rid of the rich as we simply can’t afford them.

              • Tricledrown

                And when’s that going to happen big business is more powerful than ever they would deliberately destroy any economy the size of NZ in a flash.

          • KJT 4.1.1.1.2

            Then we ajust the rate, on GST, wealth taxes and high incomes.

            There is no reason why the poorest people in the country, should continue to be charged the highest marginal tax rate.

      • Mike Smith 4.1.2

        You need to revisit your history books. Labour campaigned on an increase in the top rate of income tax in 1999 and won the election. Labour campaigned on forgoing a National-budgeted income tax cut in 2017 and won the election.

        • Wayne 4.1.2.1

          But in both cases Labour also promised to keep the basic economic settings intact. Mike, even you would admit that a charge in the top marginal rate from 33% to 39%, as occurred in 1999 is hardly an economic revolution. And the current govt did not change any of the existing tax rates.

          The overall economic settings of Grant Robertson are relatively conservative, even if he uses the language of transformation. Not much evidence of transformation so far, not that any was intended for 2017 to 2020. Obviously a new govt does do some things differently to its predecessor, but there is no evidence of a Corbynite revolution in the current government.

          • Dennis Frank 4.1.2.1.1

            there is no evidence of a Corbynite revolution in the current government

            Because Winston would block it. He would only buy into such a scenario if it were to be carefully designed. No sign of any such endeavour currently.

          • KJT 4.1.2.1.2

            Unfortunately.

        • Ad 4.1.2.2

          I was thinking more of Nordmeyer’s tax policies that cost him his 1960 election, and Rowling’s tax policies within the New Zealand superannuation proposals for 1975.

          Both were very costly in Labour’s losses.

    • Gosman 4.2

      Earnings from Capital gains IS taxed in New Zealand. It may not be taxed in a way that you would like it but it is not true to state it is not taxed.

  5. AB 5

    The need to at least try to tackle climate change will give Governments a new set of levers to shape economies. These levers will have an existential mandate that will be strong enough to oppose the core purpose of the neoliberal revolution – which was to remove economies from democratic control. Most importantly, the existential threat will make it clear what has been deliberately obscured – that ethics precedes economics.
    I’m not actually that hopeful though. I think it is more likely that in order to prevent this happening, we will get very repressive governments even more aligned with the interests of existing capital who will take us all to destruction.

    • Gosman 5.1

      There will be no new levers just variations on the old ones.

    • Wayne 5.2

      AB
      Not likely to be the economic revolution that you think. Such a revolution would have to be explicitly campaigned on. So far the govt says it wants to deal with climate change, and no doubt will do some things to that end. But they can’t usher in an economic revolution by stealth.

      That is, they can’t radically change tax rates, reintroduce import controls, renationalisation, put up petrol taxes by say a $1.00 per litre, introduce a huge number of restrictions on what people can do. For instance there will no huge tax on SUV’s or twin cab utes. All that would require some form of electoral mandate. And of course there are elections every three years. Getting too far ahead of the people is a pathway to opposition.

      • Poission 5.2.1

        they can introduce FBT on utes and suv for non farm use.

      • Augustus 5.2.2

        I live on a highway that gets very busy during holidays. This season, I have observed a marked decline in the number of SUVs coming past. Maybe people have finally worked out that these town tractors serve no purpose whatsoever unless you actually drive off road occasionally. Or maybe it’s a result of petrol prices. Or tyre prices.

        Anecdotal evidence, of course, but hopefully the wank tanks are on their way out.

        • Anne 5.2.2.1

          Uggh, wish I could say the same thing about Devonport and surrounding suburbs.

          It s a status symbol here. The modern day yuppie mothers who have invaded the region in the last decade or so like to swan around in the beasts. Waiting for somebody to send them a warning by putting a wee bomb under one of them – when its empty of course. 👿

      • AB 5.2.3

        @Wayne
        Why do you imagine I want a revolution? They are nasty things that consume their own children. And the point that you overlook is that we are already living inside a revolution (the neo-liberal revolution), and have been for around 35-40 years.
        You are the revolutionary, not me. I’m actually conservative.

      • KJT 5.2.4

        Polls show 80% want wealth taxes, CGT, progressive income taxes, action on climate change and poverty.

        I suspect removing GST and replacing with higher top tax rates, and inheritance taxes on millionaires would be equally popular.

        Who is the Government getting too far ahead of, again?

  6. UncookedSelachimorpha 6

    Perhaps the government has only weak influence on the state of the economy, but they can undoubtedly have profound influence on the distribution of wealth.

    And when you look the economic influence on NZ’s problems (and on people’s actual lives), they aren’t caused by whether the economy grew by 1% or 2.5% – they are caused by the fact that most of the income and wealth is going to a very small number of people, while most people get very little.

    e.g.

    “The richest 1 per cent of Kiwis have bagged 28 per cent — $42 billion — of the wealth created in a single year.

    Meanwhile, the poorest 1.4 million people (30 per cent of the population), got barely 1 per cent — $1.5b — of all the wealth created in 2017.”

    I tend to think the endless focus on ‘the economy’ is a distraction and smokescreen around the real issue (distribution / inequality).

    • Drowsy M. Kram 6.1

      On those numbers, the average ‘one percenter’ bagged 840 times the wealth of an average ‘poorest 30 percenter’.

      Almost unbelievable – what chance that the TWG proposals will eventually shrink this rampant inequality?

      • Draco T Bastard 6.1.1

        what chance that the TWG proposals will eventually shrink this rampant inequality?

        Somewhere between 0 and -1

        They’re not going to make taxes proportional based upon ownership and that’s the only way to address inequality.

      • Wayne 6.1.2

        Is that so surprising, given property prices, and the way they have increased in the last eight years.

        Basically 40% of the population rent. It is probably certain that all of the 30% are in that group. So straight away, on average they will have little net financial wealth. Typically they will only have household chattels, a car and Kiwisaver. Likely net value is around $30,000. Those in the lowest 10% (in financial terms) have less than $1,000 assets.

        Max Rashbroke in Wealth and New Zealand, published in 2015, calculated the minimum net wealth to be in the top 1% is $5 million per household, with the average being a bit over $10 million. Typically a $2 to $3 million house, a beach house, a couple of rentals or a commercial property, plus a million or more in readily releasable cash, bonds and shares. The 1% is around 25,000 households. So 0.1% of $10 million (effective equivalent of 840 times) is $10,000.

        So probably the 840 times would relate to the 0.1% (2,500 households) where the entry point is more like $15 to 20 million net assets.

        What to do about that. Well, CGT is primarily aimed at this group. But it has made little difference in jurisdictions with CGT, such as Australia.

        The single biggest differentiator of wealth is being the owner of property. Probably 50% of the population where the mortgage is low or repaid have $1million in assets. Mostly people over 50. Those who don’t own their home will typically have less than 3% of that. Not surprising that a very large number of new home buyers get some of their deposit from parents, who typically have a large amount of equity in their homes.

        • Drowsy M. Kram 6.1.2.1

          “of the wealth created in 2017

          So probably the 840 times would relate to the 0.1% (2,500 households) where the entry point is more like $15 to 20 million net assets.

          Wayne, genuinely don’t understand why you think this. The 840-fold 2017 wealth gain difference is derived (very simply) from the average wealth gain of the wealthiest 1% (not 0.1%) and the poorest 30% in 2017.

          That difference would be much higher if you considered only the wealthiest 0.1%, but I understand why you might want to minimise the impact of that inequality.

          • Wayne 6.1.2.1.1

            Drowsy,

            I presume you mean the recent Oxfam Report. That has been widely debunked as it applies to New Zealand. Oxfam NZ simply took the international analysis and applied to NZ without any adjustment whatsoever. They ignored for instance that under the GINI coefficient inequality has actually reduced in New Zealand.

            Max Rashbooke on the other hand has actually analysed the New Zealand situation, and the distribution of wealth in New Zealand.

            While I might be on very different part of the political spectrum to Max Rashbrooke, I am pretty certain that his analysis is far more comprehensive and accurate than was shown by the Oxfam New Zealand press release.

            I used his figures for wealth distribution in New Zealand, which is significantly less than the global distribution. Many populous third world countries have extreme levels of wealth distribution, much greater than in New Zealand. Which is why the Oxfam NZ “analysis” was so far off the mark.

            • KJT 6.1.2.1.1.1

              You can argue about the degree, all you like, but the fact remains, it is still too much.

              The real achievement of the 80’s “reforms” is beggars on our streets.

              You can be proud.

  7. bwaghorn 7

    Critical mass .

    With such a massive world population the economic activity caused just by 7 bill going about their daily business is unstoppable.

  8. Draco T Bastard 8

    One of the things that the government can do to benefit society and our economy is to stop kowtowing to the whinging business people about ‘skill shortages’.

    Why the Apprenticeship Model is Succeeding in Corporate America

    In an analysis of more than 26 million job postings, the degree gap -“a discrepancy between the demand for a college degree in job postings and the employees who are currently in that job who have a college degree” – was found to be significant, according to a study by Accenture, Harvard Business School, and Grads of Life. The study attributes degree inflation to two key factors: the fast-changing nature of many middle-skills jobs and employers’ misperceptions of the economics of investing in quality talent at the non-graduate level.

    In other words, employers viewing training as a cost with no benefits.

    “One of the objectives of the apprenticeship program is to broaden the workforce. Whether you look at cyber or IT in general, there’s a shortage of talent,” said Kress. “Through the apprenticeship program and working with programs like the City Colleges and i.c.stars, there is an opportunity to broaden the workforce and give back to the community. It’s a win for everyone.”

    So, on the job training benefits everyone.

    Who would’ve thunk it?

    Basically, we’ve had the solution to the ‘skills shortage’ that employers are complaining about for decades – they just don’t do it because of that misunderstanding of economics.

    And still these business people try to tell us that they know what they’re doing.

    • DJ Ward 8.1

      Yep. One of the things that I hate about National was there attack on trades in the 90s. I can’t help to think it was a compo of attacking the EMU and an attempt to lower wages. We were systematically loosing manufacturing the China etc at the time but what they did was no solution. Some industries like engineering are demographicly scared by the actions of National.

      At the time a year long pre aprenterships course in palmy had 15 students. At the end on the year only one found an aprentership. Employers were saying the would take them on but they couldn’t as an apprentice because they no longer knew what the hell was going on.

  9. DJ Ward 9

    The answer is the question is nothing really. Unless we change our focus.

    We are really held hostage by debt in the private sector. The crunch comes when China hiccups due to its own dept saturation.

    NZs economy has to much reliance on housing, immigration, and foreign investment in our housing. We should shift our focus to commodity creation, and value adding. Otherwise when China hiccups we could have blood on the dance floor.

    So in our case that’s farming in all its forms, and value added products.
    Other things like more steel production, aquaculture. A sideline to steel could be Titanium production.
    Ending unprocessed logs.
    Not exporting milk powder, but products made from milk powder.
    Increasing farm product diversity.

    A big gain from.
    Identifying unproductive land and converting to high value products.
    This could be many things like Manuka Honey, tea, fruits and nut trees, renewable energy generation, new tourism projects.

    A big gain from changing to EV vehicles as our fuel imports are a big negative influence on our economy. This could be artificially forced with legislation. EG If you import a ICE car you must import an EV. The imorters will end up subsidising the EV with a premium on the ICE vehicle. Until EV becomes cheaper which is inevitable due to competition and developement.

  10. Nic the NZer 10

    “There’s something I’d like explained.”
    Sure thing.

    Going further through this post I am given to understand that economic performance is largely related to GDP, we should start there.

    GDP is a measure of income, usually in relation to an economy, so its the total income earned by members of an economy. One formula for GDP is (by considering the activities for which income is earned).
    GDP = C + I + G + X – M
    In here C is spending on consumption by the non government sector, I is investment by the non government sector, G is spending on consumption by the government sector, X is spending on exports be other economies and M is spending on imports by the economy being considered. All expenditures in the economy fall into one of these categories.
    Another formula for GDP is (by considering the uses of GDP),
    GDP = C + S + T
    In here C is spending on consumption same as above, S is income which is saved by individuals in the economy and T is taxes paid to the government. All uses for income in the economy fall into one of these categories.

    By the rules of accounting both these formulas add to make GDP across any time time period measured. This means they can be equated and another formula can be derived. This is also typically used (and is used in New Zealand) to checksum across two estimates of GDP. In practice the GDP formula is exact but only an estimate for GDP can realistically be produced as otherwise the statistics agencies would need to consider and add up literally every transaction which occurs in the economy.

    The further formula is derived from
    C + I + G + X – M = GDP = C + S + T
    so by very basic algebra
    (G – T) + (X – M) = (S – I)
    which is known as the sectoral balances formula. The main implication from this is that for every surplus (deficit) in one sector there is a matching deficit (surplus) in the other two sectors. This also applies to shift in these balances, when comparing time period. This accounting relationship holds exactly at all times. Also note that the grouping I have shown comprises 3 sectors respectively the government, external and domestic private sectors. To be more specific the government sectors deficit added to the external sectors trade surplus provides the additional income necessary to allow the domestic private sector to save income without increasing investment spending. This last behavior of an increase in saving without a matching increase in investment is basically what debt repayment looks like. Since this last formula remains in balance other changes in one sector which are not compensated by changes in another formula overflow and change GDP. From this point its possible to begin to look at how changes in GDP occur.

    Next we should apply this to what often happens in a recession. A recession (2 subsequent periods of falling GDP) will typically occur when the economy decides to cut back its spending, save more and doesn’t compensate this with increased investment. If the remaining government and external sectors don’t compensate for this then the result of this change is a change in GDP (a recession occurs). On the other hand Australia went through the GFC without recording a recession so what happened there? Well at the same time as S-I changed G-T ran a large (and effectively targeted) tax break and X-M experienced an export boom largely to China. So Australia traversed this period without a recession. In NZ there was a relatively smaller shift in the S-I balance but at the same time there was no compensating shift in the G-T sector (NZ’s tax cuts were close to fiscally neutral), or the X-M sector at the time, so NZ recorded a recession.

    The same kinds of reasoning also apply to changes like a government funded tax and spending break without a compensating change is S-I balance. So its possible to consider Trumps stimulus on this basis which apparently was a shift of about 1.4% of GDP in favour of a GDP increase.

    Unfortunately however this is just a starting point so if you want to consider how political stability or instability effects things you would have to look further into what the effects of political stability are on governments responses to a recession (or its responses to a shift in exports). Political consensus may not been a good thing here if the consensus is not towards a helpful policy response (In particular here I am considering PM Keys statements towards a shift in NZ’s export fortunes. These were colloquial ‘don’t worry NZ the change in the current account doesn’t endanger the government running a surplus’. I interpreted this to mean we won’t be seeing the government responding to help the economy at last until we start to see a recession occurring).

    A final discussion point, the US government shutdown represents a significant spending change in the US economy as it drags on. However (and since I can consider it, its plausible this could be intentional) this might be a way of boosting the US economy. It depends if the shutdown is resolved before it becomes a drag on the US economy or after it causes a significant shift in behavior (when US workers start to run short of spending reserves and start to really cut back their consumption spending). If its resolved before this however it might cause a boost as many of the US government workers have been able to access some emergency means towards their spending which they otherwise (without the shutdown) would not have accessed. The democrats have already negotiated a bill where their work without pay will be paid back when the shutdown is resolved and so when the shutdown is resolved this could see a significant release of income and a significant boost to spending. Its also fully possible that it carries on so long that the US dips into recession when US workers have to really cut back their spending as they have run out of spending reserves.

    • ropata 10.1

      tl;dr –

      broken window fallacy + ignoring environment/social costs + ignoring endogenous money creation by private banks = false economy

      Dairy farming is just one part of the NZ economy ruined by globalisation and finance. The electricity sector is another. So is education. Housing is arguably the worst, putting the whole economy at risk. Orthodox economics with its bias towards free trade and profit at any cost, is a sham and a sick joke.

      Today’s twitter rant… dairy is a microcosm of the wider NZ economy

      https://twitter.com/ropata/status/1088006023074344961

      • KJT 10.1.1

        When our two biggest industries earn less profit from offshore, than we pay offshore to the banks in interest, we are in the shit.

    • Draco T Bastard 10.2

      In practice the GDP formula is exact but only an estimate for GDP can realistically be produced as otherwise the statistics agencies would need to consider and add up literally every transaction which occurs in the economy.

      Which should actually be happening but not by statistics – by IRD. It needs to be done for tax purposes and helping eliminate crime.

      And, no, it’s not impossible. It probably was not too long ago without the internet and high powered computers where things were done manually. Those conditions no longer apply. The private banks certainly track every single transaction that goes through them and that’s most of them.

      So it can be done and it should be done.

      From this point its possible to begin to look at how changes in GDP occur.

      The main point being that we can’t have a fixed amount of currency. New money needs to be created that represents the growth in GDP. At the moment that new money is mostly created by the private banks as interest bearing loans that need to be paid back. If all the loans are paid back all that will be left is the debt caused by the interest.

      This is why the government, for the last couple of decades, has been doing nothing about the growing housing crisis. All those rising house prices represented more money in the economy and thus a growing GDP.

      As far as I can make out, it’s also why we now have student loans. That’s another few billion dollars of GDP.

      Next we should apply this to what often happens in a recession. A recession (2 subsequent periods of falling GDP) will typically occur when the economy decides to cut back its spending, save more and doesn’t compensate this with increased investment.

      You forgot to mention that in a recession people are also paying off debt rather than taking more on and so there’s less money in the economy forcing a very real drop in GDP.

      In NZ there was a relatively smaller shift in the S-I balance but at the same time there was no compensating shift in the G-T sector (NZ’s tax cuts were close to fiscally neutral), or the X-M sector at the time, so NZ recorded a recession.

      I’ll assume here that you talking when Labour was still in power and hadn’t yet got a handle on the GFC. National’s further tax cuts were most definitely not fiscally neutral and cut government income by ~$1billion per year. National also borrowed significantly while also applying austerity to the poor thus we saw growing GDP and increasing poverty. Basically, the rich remained in boom times and the poor were in recession.

  11. ropata 11

    What can the government do about the economy? Quite a lot actually. It’s just a matter of rejecting the tyranny of globalism and corporate greed.

    Aditya Chakrabortty: Panic is on the agenda at Davos – but it’s too little too late
    The results of the rampant inequality engineered by the global elite are finally catching up with them.

    Populism of all stripes may be anathema to the billionaire class, but they helped create it. For decades, they inflicted insecurity on the rest of us and told us it was for our own good. They have rigged an economic system so that it paid them bonanzas and stiffed others. They have lobbied and funded politicians to give them the easiest of rides. Topped with red Maga caps and yellow vests, this backlash is uglier and more uncouth than anything you’ll see in the snow-capped Alps, but the high rollers meeting there can claim exec producer credits for the whole rotten lot. Shame it’s such a downer for dividends.

    Where Thatcher’s shock troops led, the rest of the west more or less followed. Political leaders across the spectrum gave the rich what they wanted. It didn’t matter whether you voted for Tony Blair or David Cameron, Bill Clinton or George W Bush, either way you got Davos man. They cut taxes for top earners and for businesses, they uprooted the public sector to create opportunities for private firms, and they struck trade deals negotiated in secret that gave big corporations as much as they could ever dream of.

    The last three decades have seen the political and economic elites hack away at our social scaffolding – rights, taxes and institutions. It proved profitable, for a while, but now it threatens their own world. And still they block the quite reasonable alternatives of more taxes on wealth, of more power for workers, of companies not run solely to enrich their owners. The solutions to this crisis will not be handed down from a mountain top to the grateful hordes: they will rely on us taking power for ourselves.

    • Pat 11.1

      ‘What can the government do about the economy? Quite a lot actually. It’s just a matter of rejecting the tyranny of globalism and corporate greed.”

      That is true….but at a cost, and one id suggest the overwhelming majority of Kiwis would be unwilling to pay. It must be remembered that the only thing we really have that the rest of the world wants or needs that cannot be provided elsewhere is our relatively unspoiled and relatively unpopulated land with (currently) first world governance…..if we choose to buck the system our short/medium term prospects are bleak….but then continuing BAU means our medium /long term prospects are also.

      most have short term outlooks.

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