• We Didn’t Do Badly in 2017

    The New Year should be, and no doubt was again this year, an opportunity to celebrate as we look forward, but we also have cause for congratulation as we review the year just ended.  2017 has left us in good shape, and having successfully surmounted one of the great challenges of a democratic society – a general election.

    Not everyone will applaud the outcome of that election, but it is worth reminding ourselves that it was conducted peacefully and in orderly fashion, that there were no allegations of corruption, that there was a substantial turnout, and that we were able to effect a transfer of government from one group of parties to another without violence or threats.

    These are all the hallmarks of a mature and well-functioning democracy. The list of significant pluses can be lengthened.  Our new Prime Minister is a woman – our second elected woman Prime Minister – no glass ceiling here!  And, with her relative youth, she has taken her place in a new generation of younger leaders worldwide.

    Nor should we under-estimate the civic discipline required to remove a well-established government from office and to replace it peaceably with another.  This is a trick that many other countries have found it difficult to pull, but we managed it without any great dissension.

    We managed it, despite an electoral system that made a “hung” parliament virtually inevitable (in itself no bad thing and producing a more representative parliament).  The negotiations needed to form a government were conducted with good faith and decorum and (by international standards), in remarkably quick time.

    Whatever view we take of these matters, we should acknowledge that a change of government is healthy for our democracy.  A government that has been in power for nearly a decade and that has won three elections in a row inevitably becomes accustomed to manipulating the levers of power.  A certain arrogance creeps in, an assumption that government by that party is the norm, and that only exceptional circumstances will disturb the status quo.

    It is, in other words, good for the country that there should be a recognition that democracy always implies the possibility that power will change hands – and the big gain from that change is that a fresh approach may produce new solutions to old problems and identify new problems we didn’t even know we had.

    But the cause for self-congratulation can really be made when we compare our experience with what has happened elsewhere, and particularly in that self-appointed exemplar of how democracy should work – the United States.

    They, too, have recently had a change of government – they have a new President and a new Republican majority in Congress.  The process by which that change was effected, however, was far from straightforward, with threats, charges and counter-charges made during the campaign from all quarters – and the outcome was one that prompted marches and demonstrations by those who were appalled at what the democratic process had produced.

    The “glass ceiling” was well and truly in operation, so that one of the candidates seems to have suffered some loss of support on account of her gender – and the electorate revealed itself to be deeply divided as to the merits or otherwise of the new administration’s proposals as to racial and religious discrimination, and the priority to be given to the interests of the “haves” and the willingness to inflict further pain on the “have-nots”.

    And that is to say nothing of the growing evidence, now impossible to ignore, that the successful candidate is totally unfitted, in terms of both personal and professional qualities, to undertake his onerous new responsibilities.  That realisation is not matched, however, by any will to remedy the situation – the Republican congressional majority prefers to maintain its own ascendancy, even if it means taking major risks with the country’s future.

    Our 2017 exercise in democracy looks, by contrast, to have been pretty successful.  We have no reason to question our processes or to doubt the democratic commitment and good faith of the government we have elected.  The coming year is one we can welcome, secure in the knowledge that our new government, like its predecessor, will have to satisfy the voters – in a properly functioning democracy – that it merits their support.

    Bryan Gould

    31 December 2017

     

  • Mike Hosking’s Special Pleading

    Mike Hosking’s musings on current affairs usually follow a fairly predictable course.  But his piece in Wednesday’s Herald on the new government’s attempts to help those in need – the children living in poverty, pensioners struggling to stay warm in winter – took a rather different tack.

    He seemed to concede that the attempts were worthwhile, and might even work up to a point.  His case against them was that they were poorly directed and not adequately focused – the spending was, he said, “too loose”.   The help would go, he objected, to everyone and not just to the needy.

    He had earlier in the same piece drawn our attention to the fact that the help was being funded with the money saved from the tax cuts “we didn’t get” – spending and no tax cuts was, he said, typical of centre-left governments whereas centre-right governments offered tax cuts as a reward for national economic success.  There could be little doubt as to which of these options he favoured, though he didn’t quite get round to conceding that the majority of voters had rejected the prospect of tax cuts in favour of greater spending on better health services and education and on the alleviation of poverty.

    Now, Mike Hosking is, as the blurb that precedes his article in the Herald reminds us, one of our most successful broadcasters – and one of the most ubiquitous as well.  He must be presumed at least to know what he is talking about and to have thought through the opinions he offers us. So, when he tells us that directing help to those in need will be ineffective because it is “too loose” and poorly directed, and implies that tax cuts would have been preferable, we should sit up and take notice.

    But, hang on a minute.  Isn’t there a pretty obvious flaw in his reasoning?   If a government finds that it has a bit of money to spare, what is more likely to achieve the outcomes preferred by the voters – tax cuts, or spending to boost the incomes of poor families and to improve the level of critical services?

    The answer is surely a no-brainer.  There is nothing less well directed than an across-the-board tax cut and, if the criterion that matters is that the help must be properly focussed, the last thing you would offer is a tax cut which would fail that test at the first hurdle.  Offering a tax cut across the board will be so poorly directed that it will guarantee that a disproportionate share of the benefit goes to the better-off, and that the poor, typically enough, have to make do with the leavings.

    Those who gain the most from tax cuts are those who pay, usually by virtue of their large incomes and wealth, the most tax.  To use the available money in this way is to ensure that the benefits do not go primarily to those in need but to the well-off – and, in terms of what would most benefit the economy, it is obvious that money in the pockets of the poor will get spent and will boost economic activity, whereas tax cuts for the rich will just end up  enlarging their wealth and the income they can make from it and will do little to stimulate the economy.

    Mike Hosking purports to be making a value-free critique of the new government’s commendable efforts to help those in need.  But if we accept his argument that a clear focus and direction should be the cardinal feature of such attempts, then the last policy we should consider is an across-the-board tax cut.

    We are forced to the conclusion that Mike Hosking’s conclusion is not the product of careful and value-free reasoning but is rather the confused  product of a lazy manifestation of, at best, gut feelings (aka political prejudices).  We are entitled to expect better from “one of our most successful broadcasters” – and certainly from one who would no doubt benefit particularly from the tax cuts he advocates.

    Bryan Gould

    14 December 2017

  • Fairy Stories Are Not the True Explanation

    Shane Jones’ plan to help unemployed youngsters, particularly Maori youth in Northland, to join the workforce has received a mixed response.  Everyone agrees that something needs to be done to help NEETs (young people Not in Employment, Education or Training – there are so many of them that they now have their own acronym) but the proposal has predictably brought forth the usual stories about young people being workshy, drug dependent or ill-prepared to do a day’s work.

    The story usually follows a familiar course.  An employer is found who is prepared to say that he has jobs available but has been unable to find anyone to take them up.  The story is then repeated, with no doubt a gratifyingly substantial dollop of publicity for the originator, by high-paid broadcasters, comfortably ensconced in a television or radio studio – who, true to form, enjoy using phrases such as “let’s get them out of bed” – and is then peddled by politicians who will seize any chance to argue that youth unemployment is not their fault or responsibility.

    On this latter point, let us be in no doubt.  John Maynard Keynes established more than 80 years ago that unemployment is not the fault of the unemployed (through, for example, demanding too much by way of wages) but is brought about by failures of policy.  It is the responsibility of policymakers, he said, to run the economy so that there is sufficient demand for labour; without sufficient demand (something over which the unemployed have no control) they will remain jobless, no matter how keen they are to work.

    Little attempt is made to check whether the employers telling the story are offering a genuine job, properly valued, paid and permanent, or whether the attitude is instead that a NEET should be grateful for whatever is offered and that young people’s labour is just another commodity, to be picked up at knock-down rates, and dispensed with as soon as possible.

    All too often, one fears, the attitude is that the offer of a job should be viewed as an act of charity or generosity, rather than an economic transaction agreed between equals, with a commitment on both sides to fair value.  There is no recognition that for most young people a job is the basis on which, potentially, they can begin life as a full member of society, earn a living, pay their way, strengthen their sense of self-worth, and plan a future.  It is not just a further opportunity for society to drive home to them how little they are worth, a hoop through which they have to jump so as to land at the bottom of the pile.

    The repetition of such stories reveals more about those telling them than about those who are their subjects.  The stories are usually told with the most relish and gusto by those in secure and well-paid and reasonably interesting jobs, and by people whose good fortune means that they don’t have the least idea about the lives of those they presume to denigrate.

    The purpose of such stories is usually to allow the tellers to wash their hands of the issue of youth unemployment, and to comfort themselves and excuse their lack of concern, by telling each other that the victims have no one to blame but themselves.  All too often, as well, there seems to be a political motive – to establish, against all the evidence, that the market economy serves everyone’s interests and that it applies a moral judgment so that it will reward those who deserve it and that only the ne’er-do-wells will fail to prosper.

    In any event, the popularity and frequency of such stories is further and depressing evidence of how divided and fractured we have become as a society.   Those who are concerned about our future, and especially the future of those who seem to struggle from the outset, would do well to subject such convenient explanations of their struggles to careful scrutiny.  To blame the strugglers themselves for their difficulties is quite literally to add insult to injury. We can do without such self-serving nonsense.

    We will all benefit from living in a healthier and better integrated society oif we take the trouble to understand how the pressure points arise.

    Bryan Gould

    6 December 2017

     

     

     

     

     

     

  • Dealing with Housing Demand and Bank Lending

    Any relaxation of the Reserve Bank’s restrictions on bank lending for house purchase will be welcome to those who would then need a smaller deposit than is currently required by the Reserve Bank’s loan-to-value ratios.

    But how many will pause to reflect that this good news for today’s purchasers may simply mean that the problems that have afflicted our housing market could – if unrestrained – become even more entrenched for the future?   And will our policy-makers learn from the evident success of loan-to-value ratios in restraining the relentless inflation in house prices?

    It is widely accepted that New Zealand’s housing situation, and the policies applied to deal with it, are a total mess.  The confusion arises partly because we are faced with two problems – problems that are linked in some respects but are actually two quite different phenomena.

    The first is the problem of homelessness, and the second is the problem of unaffordability.  The first problem is the easier to explain and redress; it arises by virtue of a simple failure to build enough houses, but is exacerbated by the incessant rise in house prices and, as a consequence, in rents.

    The new government is gearing up, quite rightly, to deal with the long-term failure to build new houses; they recognise that the missing houses will not be provided by private property developers (whose interests lie at the higher end of the market where big profits are to be made), and that the houses will be built only if the government steps in.

    The constraints the government faces in taking this on do not arise because they don’t have the money – Michael Joseph Savage showed in the 1930s that a determined government can always find or create the money to build new assets – but because there could be shortages of the necessary materials and skilled labour.

    A solution to this problem will require government and private industry to work together on an agreed industrial strategy.  There can be little doubt that building the required houses, at an affordable price, would be a major step towards resolving the homelessness crisis.

    But, even if more houses are built, what further action is required, particularly in respect of the other issue – that of unaffordability?  Homelessness arises not just because there is a shortage of houses, but because rents have risen so sharply.  It is often the rise in rents that has left young families homeless.

    It is at this point that the homelessness and affordability crises coincide.  Rents have risen because speculators have been able to borrow from the banks almost without limit in order to buy up houses (often sold at knock-down prices as a consequence of mortgagee sales) and they have then raised rents on those houses so as to make a fat return on their investment.

    The Reserve Bank’s loan-to-value ratios, by making it harder for speculators to borrow, have played a valuable part in restraining this unwelcome development.  Interestingly, the new government has made a similar analysis of the problem, as shown by its prohibition of foreigners buying existing houses.

    The effect of this prohibition is to remove an important element of extra demand from the housing market – it has, in other words, exactly the same effect as the Reserve Bank’s restrictions on borrowing.  Both the government and the Reserve Bank, in other words, have at last recognised that the problem with our housing situation is not just one of inadequate supply but also one of excessive demand, caused as much by excessive bank lending as by the introduction of additional money from overseas.

    When speculators take advantage of the banks’ willingness to go on lending to them, and bring this excessive demand to the housing market, their aim is always the same – to create, and derive untaxed capital gains from, an asset inflation whose effect is to make housing impossibly expensive for our young families.  This self-serving pursuit of profit by the banks and speculators (whether from home or overseas) should no longer be allowed to distort our housing market, to the great disadvantage of Kiwis seeking a home of their own. At least the government and the Reserve Bank are agreed on what the problem is and what needs to be done.

    Bryan Gould

    1 December 2017

     

     

     

     

     

     

  • Is the TPPA Now Fit for Purpose?

    The reaction in some quarters to the outcome of the TPPA negotiations reflects a failure to understand the import of the objections made to what was initially proposed.

    There will be few who will not welcome easier access to the Japanese market for New Zealand beef, even if the big prize that was dangled before us – free access to the US market for our dairy products – was taken off the agenda when Donald Trump withdrew from the talks.

    The benefits of free trade for our exporters were never contested by those who were concerned at signing up for the TPPA as it was originally drafted.  If the reports coming out of the negotiations are correct (and we look forward to that being established when our new government keeps its promise to release the amended text before we sign up to it), the problems many had with the TPPA will have been substantially resolved.

    Those problems revolved around the attempt to use the TPPA for purposes well beyond the normal concept of free trade.  The original draft attempted to provide a guarantee to multinational corporations that their freedom of action and their quest for profits in the countries covered by the TPPA would not be restricted by laws passed by the parliaments of the countries concerned.  Foreign corporations particularly had in their sights local laws designed to protect the environment, workers’ rights, and the health and safety of workers and citizens more generally – all of which they fear could inhibit their drive for higher profits.

    As a consequence, the original draft threatened to allow challenges to anything that might interfere with the “free market” – encouraging, in other words, a free-for-all for big companies to do what they liked without any need to take account of other interests.  Anything that departed from the normal pattern, such as marketing products through co-operatives like Fonterra and Zespri, or regulating the sale of certain products such as cigarettes, or buying pharmaceuticals through an agency such as Pharmac on behalf of the whole community, could have been challenged, in a way not available to our own businesses, as contrary to the operation of the “free market”.

    Any such challenge would have meant our government being taken to special international tribunals.  If those tribunals were to find in favour of the foreign corporations, they could order the government to change the law and the way we do things – even if that meant defying the will of our elected parliament and the government being forced to go back on promises made to the voters.

    Little wonder that Jacinda Ardern set herself the difficult task of removing, or at least reducing the impact of, these clauses.  We will be able to judge how successful she has been when we see the full amended text.

    But the early reports are that substantial progress was made on these points of difficulty, and if that is so, it is entirely because she dug in her heels.  If she was indeed able to get agreement to the necessary changes, she will have acquitted herself – at her first major international gathering – very well indeed.

    She will have been helped not only by the presence of an experienced international negotiator, in Winston Peters, but also by the fact that her Trade Minister, David Parker, is one of the ablest members of her Cabinet.

    But there can be little doubt that she herself made a favourable impression with her international colleagues.  Her straight talking and the energy she brings to everything she does will have helped to show that she is not just about stamping her foot, but that she is well able to build a consensus and to persuade others of her point of view.

    Her opponents at home may try to downplay what she has achieved, but if we now have a “free trade” arrangement that is fit for purpose and does what it says on the packet, we can all celebrate – and that includes especially our exporters who have a trade deal they would not have had if it had not been shorn of the obvious obstacles to acceptance.  In the future, we might even be able to get, off the back of an amended TPPA, an international agreement that details the responsibilities of, and not just the concessions claimed by, those who seek to come into our country to do business.

    Bryan Gould

    13 November 2017