Working our way forward

Written By: - Date published: 11:50 am, October 13th, 2008 - 15 comments
Categories: economy, election 2008, labour, national, wages, welfare, workers' rights - Tags:

It was inevitable that the focus of media coverage of Labour’s announements yesterday would be the deposit insurance, it’s a good self-centred middle-class story. But the important stuff, as Irish pointed out last night, is the re-training money, the speed-up of infrastructure construction, the money for sewerage, housing, and anti-erosion projects.

The deposit insurance simply acts to prevent runs on the banks and to give people the security to put their money into deposits, giving financial institutions credit to lend to businesses. As you know, financial institutions hold only a fraction of the cash they need to pay out their depositors (fractional banking). If people stop depositing or people panic and try to withdrawal their money in large numbers, the institution runs of cash and the house of cards comes tumbling down. Deposit insurance gives iron-cast confidence; paradoxically, insuring people’s deposits if institutions collapse actually all but eliminates the already small chance that they will collapse.

So, that secures the private finance system but it doesn’t get the economy humming. To do that in a time of global depression, history shows we need the State to utilise the slack in the economy from the contracting private sector.

Allow people and plant to sit idle and the economy grinds to a halt. People languish out of work and, as their standard of living stagnates or declines, so does their demand for goods and services, forcing more people out of work. Wages fall as workers compete for scarce employment. Crime and suicide rise amongst purposeless, alienated young men. That was National’s response to a relatively minor recession in 1991. They let unemployment climb and climb (which was to their advantage, it weakened the unions and blew out the welfare budget allowing National to undermine work rights and cut benefits). National’s only solution, then and now, is to lower tax on the rich, as if we can spend our way out of recession.

Labour, in contrast, is looking at the experience of the 1930s. It knows we have to work our way back into growth and, if the private sector can’t lead, the Government must. Just as in the 1930s, government infrastructure and housing developments will soak up otherwise idle labour and capital. Additionally, retraining allowances will give workers the opportunity to upskill, rather than sit unemployed. Both the infrastructure work and the retraining will keep workers’ incomes up and the cost of benefits down. We’re not talking make-work schemes either. We’re talking about using this crisis as an opportunity to do the work that can’t be done when the economy is stretched to full capacity to create more assets and a more productive New Zealand in the long-run.

You can compare National and Labour’s differing approaches to work in different factories. In some factories, when machinery breaks down (as it always does) everything grinds to a halt. Other machinery in the chain has to stop and workers have to sit around waiting for the problem to be fixed (the difference is in factory work that’s a chance for a cup of tea or a smoke, it’s less fun being unemployed). In other factories, when a machine breaks, the management works out something else you can be doing in the meantime – maybe working around the broken part of the production chain or going off and learning another process somewhere else in the factory so that you become a more useful worker. No prizes for guessing which factories do best in the long-run, are better to work at, and end up paying more.

Labour has wisely rejected the opportunistic suggestions of Mark Weldon and David Skilling, which are just veiled get richer quick schemes for the very people who have pushed us to the precipice in the first place. Instead, they have gone for an updated version of the policies that the First Labour government put in place to boost us out of the Great Depression. The great thing is that, this time, we needn’t wait through six years of dithering from the Right before we get the action we need. In just under four weeks, we can choose whether to go with the Left’s plan or the Right’s inaction.

15 comments on “Working our way forward”

  1. Greg 1

    National actually cam up with a similar policy a few years back. It was called ‘Think Big’.

    When a government interfers in the free market incentives are distorted, unintended consequences result. I can see a few of these coming from this policy.

  2. Matthew Pilott 2

    Which free market are you talking about, greg? I haven’t spotted one, and I’ve been looking for a long time.

    In all seriousness, there isn’t any such thing as a free market, but there are distortions every which way. Some distortions are for the better, others for the worse. They’re all interrelated and can’t be viewed in isolation, but claiming a new distortion is going to mess up a free market is claiming that a tangible is going to destroy a myth – can’t happen.

    Any negative impacts of these ‘dostortions’ will surely be less than the impact of the market continuing to act as it is now.

  3. Ari 3

    Greg- and when the Government DOESN’T interfere, priorities are distorted, and workers lose big. We need a government that can touch lightly, but still do what it needs to for society. The problem with National is that they think “touch lightly” means “let go completely”. Labour spends on a few things that don’t necessarily need to be spent on, but it does a LOT to avoid waste.

    And as Matthew P points out, we’re going to be even worse off without some positive interference right now. This is actually the sort of time where a government that can really swing the hammer could get away with some good economic initiatives, and I’ve been impressed by Labour’s plan so far. (minus the whole “taxing productivity” rather than “taxing waste” thing)

  4. Felix 4

    You must forgive Greg, he’s just finished his second econ paper and his first Ayn Rand book.

    Now he’s considering a career in trolling.

  5. Ari 5

    Curse Ayn Rand for trying to imply that her ideology was somehow objective rather than subjective.

  6. coge 6

    So Steve. I take it you’re handy with a shovel?

  7. Not bad, i’ve spent some time shovelling a variety of stuff.but most of my factory experience was in a tanning factory, which is smelly work, you cut your hair short when you’re working in that all day, get the stink out easier. there was one process packing wool that was was removed from the skins before washing with a caustic paint. The paint leaves a nasty scar, got some on my overalls on the eg, when i took them off all the leghair came away too smooth as, left a bit of a burn though (which is why it worked on the sheep skins). Anyway, the wool was put through an oven after being washed off to dry it before it came through to the packing machine. Thing was the joker running the oven always tried to get too much wool in at once, it would catch fire and then we’ld have a hell of a time getting the burnt stuff out before getting up and running again. Plus, I was never given any training on the woolbailing machine so I kept fucking that up.

    some asbestos work too, scares the lving hell out of me but i’m a worrier and various general labourer, landscaping (ie digging) work. Something satisfying about seeing a trench or a embankment or whatever and saying – ‘yup, i dug that out, i made that with my two hands’, pay’s crap though, your body breaks down, and people who sit on their arse all day assume they’re better than you.

    [lprent: Urggh I’ve smelt tanning factories when looking at their furnaces. I hope that the nose shut down (eventually). It is enough to make one a vegetarian.]

  8. randal 8

    everybody knows the nats policy of unbridled nepotism…its not what you know its who you know. the sooner winz are instructed to find jobs for people instead of the current bullshit then we might get some where. those buildings are filled with bun eaters and people who knew someone when the nats were last in power and have stubbornly held on to their sinecures ever since.

  9. Joanna 9

    Yay – plan for universal student allowances just anounced! Another iniative to help NZers upskill. And about time too – though sadly too late for me:(

  10. randal 10

    yes well I owe $100,000 and still cant get a job…why is that?

  11. coge 11

    Well I started my working life cutting scrub for a property developer, and it was a good learning experience.

    So back O/T, is Helen Clark attempting to score points by selling us a depression? I thought it would be preferable for every Kiwi if such a situation was
    avoided. As T E Lawrence said “Nothing is written”

    Hands up if you’re in favour of a depression!

  12. Draco T Bastard 12

    Matthew Pilott:

    Which free market are you talking about, greg? I haven’t spotted one, and I’ve been looking for a long time.

    Well put MP, well put 😀

    In all seriousness, there isn’t any such thing as a free market, but there are distortions every which way.

    And the biggest distortion of all is ownership which is why I’ve gone from calling our present system a capitalist free-market to a capitalist’s free-market.


    Hands up if you’re in favour of a depression!

    Whatever made you think we have a choice?

  13. Felix 13

    People skills, randal.

  14. Coge, read the post (that’s some really good analysis) – you may learn something. I really don’t understand you far-righties, you either ignore the truth or you’re just so narrow minded and cut off from the rest of the world that I feel sympathy for you (much like the Palin crowd). Govt intervention is what’s needed in times like this – couldn’t be more obvious.

  15. T-Rex 15

    “Curse Ayn Rand for trying to imply that her ideology was somehow objective rather than subjective.”

    Amen to that. “No one should give anything to anyone else without expecting something in return. Unless they, you know, like them… or are part of the same family… or make that the same social group… or in fact better just make it share the same (confusing) values structure or something… umm… BLUDGERS!”

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