The tail’s preparing to wag the dog

Mixed Member Proportional Representation (MMP) is a vast improvement over our old First Past the Post voting system. Sections of the community who were marginalised under First Past the Post now have a voice. That’s certainly true of Maori, the Greens, and Winston First’s indefatigable blue rinse brigade.
To a degree it’s a good thing.

How long before it becomes an anchor around the legislative neck and makes government impossible?

Where will it all end?

Somebody tell me what to do

I’d like a Gray Power Party to boost my New Zealand Superannuation. What about a Kate Sheppard Ladies’ Party with a persondate to banish manholes to Personchuria. Can we do without a Jockstrap Party to declare the Rugby World Cup ours as of right? There’s definitely a need for a Petrolheads’ Party for the promotion of phallic exhaust pipes for the under-endowed, and a Wouldn’t Work in an Iron Lung Party for the equitable redistribution of filthy capitalistic gains.

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Lies, damned lies, and statistics

John KeyMr Key, you’re bending the truth

Last night, in a party political broadcast during the TV news, Prime Minister John Key looked us all in the eye and said that the National-led government will double exports by 2025. Can one lie about something that hasn’t happened yet? That statement was a valiant attempt. Even more blatantly misleading than the abandoned policy of “Catching up with Australia”.

The doubling of exports by 2025 has been National policy for some time and so far it is totally off track. Mr Key’s servants in Treasury and some fairly basic arithmetic blow his grossly misleading claims out of the sky.

Yesterday, in the Sunday Star Times, economic commentator Rod Oram (hardly a bastion of left-wing idealism) had this to say about current fiscal and economic policies:

…It is missing by miles its two key goals. Its first is to double exports by 2025. That requires exports to grow by between 5.5% and 7.5% a year. But Treasury forecast they will grow by 1.6% a year 2014-2018, even though our trading partners are growing by more than 4% a year…

I suspect that Rod is being overly kind. My loyal readers (both of us) who have heeded my rantings about the economic nonsense of perpetual growth in a finite universe will recall an easy way to work out doubling times for a given growth rate:

It’s called the rule of 70

To estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly used with an annual compound interest rate to quickly determine how long it would take to double your money.

In this case divide 70 by 11 (years until 2025). You get 6.36%.

It’s all total nonsense

For years, National have been making growth predictions based on Treasury forecasts. Almost invariably, those forecasts have been hopelessly optimistic and the rosy outlook has had to be diluted. In order to make National’s fantasy world a reality, we’d have to have growth of about 10% per annum from 2019 until 2025.

Global growth is probably not going to recover to any significant degree under current developed world economic and energy policies. Every time international growth picks up, fossil fuel prices rise and put the brakes on. China’s economy is precarious, and by extension, so is Australia’s. As the biggest oil-fields dry up, and the false dawn of fracked wells fizzles out, that problem is likely to continue indefinitely.

So is it hopeless?

No.

We can get back on a modest growth path by adapting to new technologies. Just as we did 100 years ago when we were the richest nation on the planet. Eventually, we’ll all have to adapt to a near zero growth economy, but that will require a new economic system in which banks can’t create money out of thin air and then enslave the rest of us with inflation-building interest on money they didn’t earn.

If you have a spare half hour read my series of articles on New Zealand’s economic decline and what we (or any other economy) need to address if we wish to maintain our relative prosperity.

Tax cuts? Yeah, right

You’re gonna pay

It’s my birthday today. I’m contemplating how much the gifts in the offing are going to cost me. Michael Cullen, with no obvious signs of embarrassment, is finally talking tax cuts from those extra billions of your money which Treasury have “misled” him over for years. Nothing to do with poll ratings and looming elections of course.

The National Party will now be sucked into the race and we’ll all be the losers in the end. Just in case you’ve missed all the expert comment here are a few points to ponder:

  • Any amount a tax relief worth having will be inflationary. The inflation pressure is already there thanks to oil prices, open slather borrowing for consumer items and punishing interest rates.
  • $15 a week more in the average earner’s pocket is a risible amount for all but those on the very lowest income rung.
  • If consumption driven spending occurs following a tax cut the Reserve Bank is obliged to drive up interest rates yet again. The rates are already obscene and the exodus across the ditch would turn from a flood into a raging torrent.
  • Interest rate rises will lead to increases in your mortgage or your rent and wipe out any tax cuts – and then some.
  • Who profits from our disgustingly high interest rates?
    • Overseas investors.
  • Who loses from said usury?
    • Mortgagees, tenants, consumers, business owners, investors in local business, employers and employees.
    • In other words, everybody.
    • That’s you and me.
  • Interest rates go up, so does the Kiwi dollar. Exporters take it on the chin again. More cheap plasma TVs, more borrowing, even more inflation. You get the picture.
  • Eventually the Kiwi will come down. Then what happens to oil prices?

There are alternatives

  • Give a substantial tax cut.
  • Tie that tax cut to compulsory KiwiSaver investment. Never mind that most KiwiSaver accounts are making less than money in the bank. That will change. Markets go up, markets go down, in the long term KiwiSaver will be a boon.
    • If we’d done this when Big Norm wanted to (even Winston First – one of his better ideas) we’d now have hundreds of billions available for local investment
  • Don’t keep on killing the golden goose with interest rate rises. Instead of controlling borrowing by making it more expensive, control it by making it more difficult.
  • Stop the disgusting bribery in the hire purchase industry. No payments for 3 years. No interest. Who are they kidding? If you fall for that bribery you’re paying up front. The TV that you buy under those deals is being sold at a huge profit. Do you believe that Harvey Norman are in the business of doing favours for the downtrodden consumer?
    • Go back to the days when you had to have a 20% deposit for HP. Sure, it’ll contribute to a downturn in retail, but the medicine has to be taken sooner or later.
  • Stop non-residents buying our land. We’re a low wage economy. You can’t tell me that people from higher income economies like the USA, Australia, the UK, et al are snapping up high country stations, coastal farms and cheap rentals in Whanganui for New Zealand’s benefit. And if you don’t believe that those purchases are inflationary I’d love to hear your argument.
  • Instead of talking up a storm about it, we need more action to grow the cake. The only way to increase each individual’s share of the cake without creating inflation is to increase productivity. Instead of wasting $1.5 billion on negligible tax cuts, invest that kind of money into R & D and into reducing compliance costs for business.
  • Slash interest rates. Use alternative measures to curb spending.