• Finding the Money

    So, the chickens are coming home to roost – and with a vengeance.  The tragedy for the new government is that the chickens were bred and raised by the previous government, and are only now flying in, in large numbers and with hefty price tags.

    We are now getting some idea of the price that has to be paid for those “business-friendly” policies that were celebrated for their success in producing a “surplus” (at least for the government).

    That price includes large numbers of underpaid public servants – nurses, teachers, midwives, care workers, Inland Revenue workers – and underfunded public services – health care, schools, keeping our water and rivers clean, and bio-security at our borders.  The bio-security failure alone will cost the current government around $900 million – the amount awarded by the courts for the previous government’s negligence in allowing PSA to decimate the kiwifruit industry (and that’s to say nothing of the cost of the myco-plasma bovis outbreak).

    Through no fault of its own, the new government is having to pay up for the mess made by its predecessor, and that costs money that cannot, it seems, be easily found.  Every dollar paid to clean up the mess is said to be a dollar less for the government’s real aims – to improve our public services, to rescue our environment, to save families from poverty, to provide recent housing for everyone.

    But is that really the case?  There may be other shortages – labour or land, or skills or technology, or materials – but a shortage of money should not be one of them.  How do we know that?  Because, as an increasing number of experts recognise, and as our own experience teaches us, the government of a sovereign country need never be short of money.

    This is because money, in a developed economy, is what the government says it is.  Indeed, it is often called fiat money because it exists only by the say-so of the government – and, as the economist, Ann Pettifor, says, that means that “we can afford what we can do.”

    Most of the money in our economy sits in bank accounts, and a large proportion of that money is created by the banks when they makes loans, usually on mortgage.  The fact that the commercial banks create over 90% of the money in circulation out of nothing is still disputed by some (including by those who should know better) but is now attested to by the world’s central banks, by top monetary economists (such as Lord Adair Turner, former Chair of the UK’s Financial Services Authority and a leading advocate of “helicopter money”) and by leading economic journals such as the Financial Times and The Economist.

    This raises the question – if the banks are allowed to create money out of nothing (and then to charge interest on it), why should governments be inhibited about doing so?  And indeed, they are not so inhibited – governments all around the world have over recent years pursued policies of “quantitative easing”, and on a very large scale – and “quantitative easing” is just another way of describing the creation of new money.

    The money created in this way has been directed to building up the balance sheets of the banks in the wake of the Global Financial Crisis, but there is no reason why it should not be applied to other (and more productive) purposes – as it has been in many countries, as well as New Zealand, in the past.  Japan, for example, both today and immediately after the Second World War, used this technique to get their economy moving and to build the strength of their manufacturing industry ; in doing so, they followed the precepts of the great Japanese economist, Osamu Shimomura, who is virtually unknown in the West.

    The Chinese government today follows similar policies.  President Roosevelt in the US did likewise, before the US entered the Second World War, so as to build the strength of American industry and military capability; and, in New Zealand, Michael Joseph Savage authorised the Reserve Bank to issue interest-free credit in the 1930s so as to take us out of recession and finance the building of thousand of state houses.

    All that inhibits our current government from using this technique is the fear that some will disapprove and regard it as taking risks with inflation.  But, as John Maynard Keynes observed, “there may be good reasons for a shortage of land but there are no good reasons for a shortage of capital.”   He went on to say that, if an increase in the money supply is applied to productive purposes so that output is increased, it cannot be inflationary.

    As the new Labour-led government faces financial constraints not of its own making, why not emulate Michael Joseph Savage and authorise the issuing of interest-free credit to be applied to investment in stimulating new production?   The Provincial Growth Fund would seem to be an ideal vehicle; funding investment in new infrastructure in this way would free up financial resources that could then be applied to current expenditure, such as paying the nurses and teachers what they deserve.

     

  • Business Confidence – Or Confidence Trick?

    Business is a centrally important part of our economy – and business leaders, who are assumed to understand it, are usually listened to with great respect.

    At the same time, it is understood that business leaders are not necessarily impartial commentators on the public scene.  They have of course “their own axe to grind” – they are, not surprisingly, pretty much in favour of profits and capital gains, and they don’t like trade unions or workers’ rights or higher wages very much.

    In the wider political landscape, they tend to locate themselves in the camp that believes that the market is always right and should not be challenged and they are somewhat resistant to the notion that government should do what the market cannot or does not do, and should intervene to ensure that the market does not produce outcomes that are unfair and that leave some of our fellow-citizens behind.

    When it comes to general elections, business leaders – though not all of them – will throw their weight behind parties of the right; if those parties don’t win power, then business is disappointed and is not slow to say so.

    We saw all of these attitudes and prejudices played out in last year’s general election.  It is a fair bet that the result was not the one hoped for by most business leaders.

    But the story does not end there.  Whereas most people, on the principle that – in a democracy – “you win some, you lose some”, will have accepted the result whether they liked it or not, many business leaders still seem to be “grieving” over the loss of the National government which had so clearly tilted the playing field in their favour.

    They continue to try to turn back the tide, by warning that they “lack confidence” in what the new government is doing.  So constant has that refrain become that it has assumed considerable significance in charting our economic future.

    Almost all economic commentators agree that our economy is doing well and is likely to go on doing so – with Trump’s “trade wars” the only really dark cloud on the horizon.  But, at the same time, we are constantly told that surveys of business confidence show that business lacks confidence in the economic future, to such an extent that the supposed lack of confidence has become – in itself – a possible threat to that future.

    Business sentiment, in other words, is not based on anything concrete but is rather a reflection of the disappointment felt by business leaders at having to deal with a Labour-led government – a matter of political prejudice rather than economic fact.

    It is almost as if, having lost the election, they want a second crack at it, to see whether they can unsettle the elected government and push it off its stride, through the simple mechanism of proclaiming that they don’t like it and would have preferred to carry on with the easy ride offered by the previous government.

    The tactic will not work if it is seen for what it is.  But the danger is that expressions of doom and gloom can all too easily become self-fulfilling; business leaders could end up convincing (and depressing) themselves, as well as everyone else, and important investment decisions could be delayed or abandoned for no good reason, so that a short-term political tantrum on the part of a few becomes a long-term economic loss for the rest of us..

    There is a further danger – that the new government will be so keen to gain at least some support from business (at least to the extent that the bad-mouthing will stop), that they will abandon the reforms they have undertaken – reforms that, as every day that goes by shows, are long overdue and desperately needed.  The last thing the country needs is a new government resigned, for fear of upsetting business, to continuing the mistakes we thought we had got rid of.

    We now need a government willing to fund a safe environment, better and healthier housing, more effective schools, an end to child poverty, and a health system that looks after the most vulnerable.  Business can support or oppose such goals, but – like the rest of us – business will benefit when they are achieved and suffer if they are not.

    Bryan Gould

    27 June 2018

     

     

  • Welcome, Little Neve Te Aroha!

     

     

    Britain’s post-war Prime Minister, Clement Attlee, was reputedly “a modest little man” who, as Churchill’s famous jibe had it, “had a great deal to be modest about.”

    But, as the years have passed, his reputation has grown, and stories about his effectiveness and laid-back manner now abound.  One such concerns a meeting of the Parliamentary Labour Party at which a keen backbencher was haranguing the meeting with a full-blooded explanation as to why the government should take urgent action on what the speaker felt was a life-and-death issue.  He had spoken for half an hour and lunchtime was fast approaching; his audience was getting restive; but at last, to the general relief, he sat down.

    Attlee, as chair of the meeting and Prime Minister, rose to make a response.  “We’ll watch it,” the famously laconic ‘Clem’ said, “Lunch.”  The meeting trooped out in pursuit of something to eat.

    I was reminded of this episode when, some decades later, I was at another meeting of the PLP and another enthusiast, an older colleague of mine named Martin Flannery, was speaking in impassioned terms about an issue dear to his heart.  As he went on, at some length, it suddenly became clear to me that Martin had his own mental picture of politics; in his mind’s eye, it was like a never-ending battle between mass armies.  The battle raged back and forth over a constantly renewed series of contentious issues; in such a battle, there could be no bystanders – everyone was either “for us or agin us.”

    I had long ago realised that, while politics was intensely important to its practitioners, it impinged only now and then on the consciousness of most citizens.  It was, to them, less like a constant battle, and more like – as at election times – an occasional sideshow.   For politicians to hold a mistaken and inflated view of the importance and centrality of their concerns in the lives of their voters is not healthy for our public life.

    But the failure of understanding is not just one-way.  If politicians are prone to over-state their own importance, and to misread the voters’ views of politics, the voters themselves are all too likely to view politicians as a breed apart, operating according to imperatives that are quite different from those affecting ordinary citizens.  The reality is, of course, that – especially in a democracy – our political representatives are just a cross-section of society, usually distinguished only by a desire to create a better society and blessed (If that is the right word) with a temperament that allows them to withstand the “slings and arrows of outrageous fortune.”

    It is in everyone’s interests that these barriers to understanding between voters and politicians should be broken down – and that is the real value and significance in our public life of Jacinda’s baby.

    On one level, Jacinda and Clarke are just another celebrity couple – as worthy of a place on the cover of a women’s magazine as the most popular entertainers or most successful sportspeople.  And there will be many who will welcome the new arrival as further evidence and recognition, in the international sphere, of New Zealand’s reputation for progressive social attitudes and readiness to push back the boundaries.

    But the real reason for celebration is that bringing a new life into the world is a joyous occasion for the happy parents (as it is for everyone) and one that we in the general public can share.  We can all register that our political leaders are – at a moment like this – just like us; that how they feel and what they experience is something that links them to all of us, and us to them.  It is that sense of “we’re all in this together” that is the essence of a successful democracy.  So, a warm welcome to little Neve Te Aroha!

    Bryan Gould

    24 June 2018

     

     

  • The Living Wage

    An American friend once shared with me the answer she had given to her family back home who wanted to know why she had decided to settle in New Zealand.  “Because,” she had said, “in New Zealand, there is enough for everyone.”

    Little wonder, then, that many New Zealanders are increasingly puzzled about the extent of poverty in our country, particularly as it affects children.  If asked as to what causes poverty, most would reply that unemployment, illness, and the cost of housing are the principal causes.

    Those are certainly major factors, but they fail to take account of another important issue – and that issue is low wages.  Many people may be unaware that “the working poor” are an important aspect of poverty in our society.

    A family whose principal or only wage-earner is paid at the minimum wage level will almost certainly be struggling to keep their heads above water.  The fact that a minimum wage is necessary is in itself a recognition that the market – left to itself – will not automatically deliver to a hard-working and full-time worker an income that will support a family at a decent level.

    Our new government has taken an important step by lifting the minimum wage to its current level of $16.50 per hour; that increase will certainly help to ease the problems faced by many families, particularly those with small children.  But even that increased minimum wage is not enough to lift a family out of poverty; accordingly, the government’s stated goal is to lift the minimum wage in due course to the level of the “living wage”.

    The “living wage”, currently set at $20.55 per hour, represents a level of income that would alleviate poverty in most families.  No employer is compelled to pay the living wage, but employers, in both the private and public sectors, are increasingly volunteering to pay their employees the living wage as a minimum.

    It might be thought that paying an hourly wage that would allow a full-time worker to earn enough to provide his or her family with the necessities of life should come easily and naturally to most employers, particularly in the public sector where the claims of private owners and shareholders to maximise profits might be less pressing – and it is indeed the case that some public sector employers have already undertaken to pay the living wage.

    Wellington City Council, for example, have taken this step and have been willing to face down some of the obvious objections, particularly to the effect that they were being irresponsibly generous with funds provided by their ratepayers.

    It is also objected that paying a living wage to those currently paid less than that is only part of the story, because the need to maintain relativities would mean that other rates would also have to be raised.  It is of course true that some flattening of relativities is implicit if bottom rates are raised but that is surely a small price to pay for reducing avoidable poverty.

    Tauranga City Council is now being urged by the city’s excellent campaign organisation, Closing the Gap, to follow Wellington’s example.  If councillors agree, they will have to be ready to justify such a decision to their electors.  It might be hoped that they will have the moral fortitude to explain that paying a living wage is not an act of generosity or imprudence, but a proper recognition of an employer’s responsibilities and a significant contribution to our health as a society.

    And it might be further hoped that Tauranga ratepayers would support our councillors in choosing not to have essential services subsidised off the back of, and at a cost to, wage-earners who – despite their working a full 40-hour week – are paid so little that they cannot manage to keep their families above the bread line.

    Those who are genuinely concerned about children growing up in poverty, and the damage it does to the individual life prospects of those children, and to the health and integrity of our society, should make their views known.  A council elected to reflect the values we hold should surely be confident that those values require that those working for us (and their children) have enough to live on.

    Bryan Gould

    21 June 2018

     

  • Slash

     

     

    We – and by “we” I mean all of us – have been awfully slow to learn some important lessons.  We still believe that it is permissible to despoil our environment and destroy and waste our natural resources, and that – when we do – we are justified in saying that it was necessary in the interests of “turning a buck”, or “running a business” or “providing jobs”, and that we are then free to “clean up” the mess by tipping it into the nearest waterway and letting it wash down into the sea.

    Those seem to be the attitudes of the forestry industry, if the recent episode involving tons of “slash” – the debris left after trees have been felled – that  floated down the rivers to the coast, doing enormous damage to pasture, roads and bridges on the east coast around Tolaga Bay, is anything to go by.

    No one claims that this vandalism was deliberate.  It happened because the mess was left behind and no one could be bothered to clean it up, and it was then washed down rivers swollen by heavy rain.  But it was, at the very least, irresponsible and – typically enough – a manifestation of the attitude that “it’s not our problem”; it was regarded as a problem to be “externalised”, that is, passed on to someone else. Once the “slash” had been washed away, and had left the foresters’ land, it had supposedly been dealt with.

    Only, of course, quite apart from the damage it did on the way, surely we know by now that tipping waste, whether it be plastic bags, or dairy run-off, or slash, into the sea, does not solve such problems – it exacerbates them.  Once our waste reaches the sea, it has nowhere else to go, and the whole marine eco-system then has to bear the brunt.

    The sad thing about this most recent disaster is that it all happened in slow motion.  If you live as I do in the eastern Bay of Plenty, you will have had ample opportunity to see the crisis develop and build.  You could say that we had a foretaste of things to come.  Beaches such as Waiotahi have become over recent times almost impassable, as piles of “driftwood” (or, as we now know to call it, “slash”), have accumulated on the sand in the aftermath of every spell of heavy rain.  The warning signs of the threat posed by slash have been there, but neither the forestry industry nor the local authorities have recognised them or acted effectively to avert the damage.

    It is time that we were quicker to recognise the implications of what we do or allow others to do.  We don’t have endless chances to get it right.  Every time we make a mistake, the price is paid by the planet we live on – and sooner or later, we will find it impossible to row back.  It will not be enough to say then “if only we had known”; the damage will by then be irreversible – and what is true of “slash” is true of every other by-product irresponsibly produced by our selfish and short-term drive for profit.

    And a footnote for Eugenie Sage, the Green minister who, before the election, opposed the granting to Chinese interests of permission to bottle – free of charge – New Zealand water for export, but who – as the responsible minister – has now approved an extension of that permission.  She explained her reversal on the ground that, as a minister, she had to abide by what the law said, irrespective of her personal views.

    As a former politician myself, I always understood that most people who go into politics do so in order to carry the views they hold into policy and law so that they are given effect.  The usual pattern is that those who become ministers are thereby able to tell their ministries what to do, rather than the other way round.  I am afraid that the minister’s about-face has done damage to both the resources she is allegedly committed to protect and to the reputation of politicians.

    Bryan Gould

    14 June 2018