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.