@ my wits’ end

Since I last investigated our dreadful economic performance the plot has thickened. Tbe table below is the most current comparison of GDP per capita for the richest 51 countries in the world. These figures are taken from the CIA’s world factbook. You may not like the CIA, but they do their homework.

Per Capita GDP

Mr Bollard and Mr Key please note:

• Since the 2007 update Australia has moved up 5 places, New Zealand have moved down 5 places.
• Before leaping to the conclusion that the Aussies are just digging dollars out of the ground please bear in mind that minerals (including oil & gas) comprised only 8% of their GDP in 2007.
• If you wish to find New Zealand in a hurry on this chart, we’re at the bottom of the table at #51.
• When I was very young we were #2.

Pray tell me:

• What resources do Liechtenstein, Luxembourg, Jersey, Singapore, Hong Kong, Switzerland and Iceland have that New Zealand can’t match or exceed?
• Why can’t we compete, for instance, with the Danes? Stand on a box and you can see their whole damn country. Like many other economies on this list they have very few natural resources apart from people.
• Greenland! Are they selling ice as well as fish?

We need action. Some hints:

• More Research and development.
• Proactive mentoring for small and medium sized businesses.
• Better Education services.
• More jobs.
• Less Bureaucracy.
• Bring the public sector into the real world.
• In case it’s escaped notice, the much-mailigned employers are the people who create jobs and wealth.

Our Reserve Bank Governor is of the opinion that New Zealand cannot close the income gap with Australia. He didn’t say we won’t do it, he said we can’t. This is the same economic genius who declared the recession over in 2008.

Bollard maintains that “Australia has been blessed by God sprinkling minerals across the top of the surface in very easily accessible areas in places where it doesn’t annoy people to mine them” and therefore concludes that we have no show of catching up with them.

Bollocks, Mr Bollard.

A couple of points to ponder

• Luxembourg and Singapore have very little in the way of natural resources. I’ve been to both countries, they each earn more than double our per capita GDP. No gold being dug up there Mr Bollard.
• From our dismal position Australia looks wealthy, but they aren’t doing very well in comparison to countries with bugger-all natural resources like  Switzerland and Andorra.
• Read the statistics from 2007 in the chart below (from this @MyWitsEnd page). I’ll post a more up-to-date chart later today.
• If you take Australia’s mineral sector out of the equation, they’re still doing better than we are. It’s only 8% of their GDP.
• In 2009 Liechtenstein earned 4.4 times as much as we do per capita. Mr Bollard, what natural resources does Liechtenstein have?

Per Capita GDP

The table above is a little out of date, Ireland and Iceland have taken big hits since it was formulated. However, those problems were caused by stupid borrowing policies just like those of the USA and have little to do with their ability to earn their way. Bet your bottom dollar that they’ll be back. In fact don’t bet, they’re already back. Both those nations have moved up the table since this 2007 version was published.

Since this table was published we’ve continued to decline. In 2009 we had sunk to number 51. Liechtenstein have moved to #1 with a per capita GDP of US$122,000.  4.4 times our pathetic US$27,700.

I agree with Mr Bollard in one way. I doubt that we will catch up with Australia. I strongly disagree with his assertion that we cannot catch up.

We can if we have the will to do it. Short term pain for long term gain.

Check the dismal news in the latest table here. We’ve been left in the dust by Greenland. Maybe we need to start selling icebergs.

Mr Key, bite the bullet. Keep my grandchildren in New Zealand.

Colin James, in his column for the DomPost and ODT for 25th January 2010, wrote:

Key’s core test will be his response to the tax group’s recommendations, which leave him no excuse for timidity. If he decides to trust his antennae and instincts and use his huge political capital, wide acceptability and capacity to connect to build a genuine “world-class tax system”, he would likely carry the public (and nervy doubters in his cabinet) with him. Witness the lack of fuss over the Maori flag.

“The Key who took large, well-calculated risks after thorough due diligence to accumulate a sizable fortune might have been expected to replicate that in politics. That younger risk-taking Key might also have recognised that this year’s big decisions are not about today’s issues but tomorrow’s: the post-crunch, China-rising, new-communications, mass-migration and maybe greening world. Old ideas won’t do, just as they didn’t do in the 1980s.

Right on Colin.

What do you want John?

Govern for the next election?

• Perpetuate the same old tired poll-driven incompetence?
• Continue the short-term thinking which has seen us fall from the second richest country in the world to about 50th?
• To be Prime Minister for 2 or 3 terms and disappear into historical oblivion?
• To follow the polls into mediocrity?

Or govern for your grandchildren and mine?

• Get back onto the track you started on.
• Make good on your promises.
• Give us policies which benefit us all for decades to come, not just for the next election.
• Use your political capital to revolutionize New Zealand’s political and economic life. Convince the electorate that for some short term sacrifice we can have long term gain.
• You may fail, but you’ll have failed honorably. If you succeed you’ll be  justifiably seen as one of our few great leaders.

In the past New Zealand’s voters have shown the ability to see ahead more than one electoral term. Unfortunately, our politicians haven’t.

Everything depends upon improving our abysmal productivity, rewarding innovation and finding new opportunities. You are our last best hope to lead us on that journey.

What do you have to lose?

Remember 20% interest rates?

No?

Well I do. It was rather unpleasant. The Muldoon economic miracle that wrought the 20+% interest rates also ushered in punitive taxes. After 20 years as grossly underpaid serviceman (30 years later that situation hasn’t changed!) I entered the real world — I finally started earning a good salary.

I walked from $12,000 a year as an Engineer Officer in the RNZN straight into a job as a steel mill engineer where I was soon on $20,000 with a company car.

Luxury

Except for the 66% tax rates — even on my miserly naval pension.

It could happen again.

Economics 101

George Bernard Shaw said that “If all economists were laid end to end, they would not reach a conclusion.”

Harry Truman plagiarised refined Mr Shaw’s observation by reminding us that the economists would all still point in different directions.

I’m more inclined to the oft-quoted view that if you laid all the world’s economists end to end that would be a very good thing.

There’s no shortage of jokes about economists, but like all humour, there’s an element of truth lurking in the cynicism. One of my favourites:

For those of you who don’t understand Reaganomics, it’s based on the principle that the rich and the poor will get the same amount of ice. In Reaganomics, however, the poor get all of theirs in winter.
Morris Udall

Here in Godzone, guided by these experts in economics, for years we’ve slaughtered the economic goose by making borrowing much more expensive than it is for our competitors. As a means of controlling spending and inflation it has not worked. As a means of throttling our economy, discouraging investment and keeping a damper on our pitiful productivity level it’s been spectacularly successful.

Allan Greenspan, a highly lauded and respected economist confirmed as Federal Reserve Chairman by a succession of US administrations had a big hand in starting the current economic mess and so ruining the lives of millions. Mr Greenspan was the genius who persuaded the US administration to allow the relaxation of financial regulation that enabled the grossly greedy bankers to lend on zero—even negative—equity.

Our own economic geniuses were forced, screaming and kicking, into slashing our ludicrous interest rate levels but they’ve already started muttering about jacking them up again as soon as signs of recovery are glimpsed over the horizon.

It’s madness. Instead of cranking up interest rates to stop consumers borrowing, why not just make borrowing more difficult?

When our notoriously short-sighted consumers again show signs of getting back on the borrow-and-spend bandwagon here’s a few things we should do:

• Keep interest rates down to encourage business and to keep the pressure off home mortgages.
  If oldies like myself with money in the bank don’t like the deposit rates then they’d best get acquainted with the stock market.
  Now’s good.
• Stop retailers from coercing customers into going into hock for consumer junk.
  No interest holidays.
  No repayment holidays.
  A minimum cash deposit of 25% for hire purchases.
• Only allow hire purchase for durable neccessities.
  Refrigerators are in.
  72″ LCD TVs are out.
• Impose some tough conditions on the issue and use of credit cards.
  For starters: at least 30% of the outstanding balance to be paid off each month, otherwise credit is suspended.
• No home mortgage (or other borrowing on assets) to amount to more than 80% of the cost of the house at the time of purchase.
  Exceptions only for those wishing to use the capital in their house for new business investment.
• No second mortgages.
• Capital gains tax to be applied to all real estate except owner-occupied dwellings, farms, and business premises.
• Real estate to be sold only to New Zealand residents. Believe it or not our currency is under-valued and has been for decades.
  Allowing holders of US dollars, Euros, Sterling etc. to buy our under-valued (to them) property forces up prices beyond our reach.

Don’t believe our currency is over-valued? Google the Big Mac index. It’s not a high exchange rate that’s our problem, it’s exchange rate volatility. Do you really think that if your Kiwi dollars became worth US$10.00 each overnight that it would be a bad thing?

Think about it. There would be problems for some, but oil at NZ$7 a barrel has its merits.

On the other hand, if devaluing by 20% is such a good thing why don’t we devalue by 200%? Nah, bugger it. let’s not muck around. 2000%!

Yeah, right.

Then again you could listen to Allan Bollard. Our very own economic genius who understood the system so well that he proclaimed the recession over in 2008.

God help us.

Annie Leonard’s been thinking …

Annie’s video is a must see for everyone who’d like to keep our planet viable.

It’s a must see if you don’t give a stuff about the planet but you need an excuse to get off the madcap consumer roller coaster.

How did big business create a system that puts consumer products on the shelf for a fraction of their actual cost? We’ve all wondered about it. Annie went to find out and it changed her life. She will tell you how this obscene system started, how it functions and why—one way or another—it can’t last.

She’ll tell you the real cost of our addiction to stuff and why your grandchildren will pay for it tomorrow just as the world’s poor are paying for it right now.

From Annie’s website »

The Story of Stuff is a 20-minute, fast-paced, fact-filled look at the underside of our production and consumption patterns. The Story of Stuff exposes the connections between a huge number of environmental and social issues, and calls us together to create a more sustainable and just world. It’ll teach you something, it’ll make you laugh, and it just may change the way you look at all the stuff in your life forever.

Click on the play movie button to see Annie’s movie »

Visit Annie and The Story of Stuff: click right here

But not unreservedly

I’m a very recent convert to the Mac. If I have a regret about that, it’s that I didn’t change ten years ago. After using Microsoft’s operating systems for two decades I’ve had enough of Windows’ tottering edifice. In many areas Microsoft have totally lost the plot. Now they’ve lost me too.

There’s a small irony in this. I run a website devoted to helping Windows users. 

I’m delighted with the switch, but there are issues which I’m not that happy with. The atrocious cost of Mac Pro PCs is the biggie, but there are irksome matters less hard on the wallet. One of these:

Upgrade discrimination

One of the many things which infuriated me about Microsoft was that they provided a really cheap Vista upgrade deal to Home users of XP, but only if they lived in North America. We in the rest of the world were shut out. MS are quite happy to rake in billions from foreign consumers (usually significantly more than US customers pay) for their over-priced products but they seem to think that it’s acceptable to treat us as second-class customers.

More Yankee imperialism

Now I find the same thing with Apple, albeit on a smaller scale. I applied for the much touted US$9.95 upgrade to Snow Leopard for recent purchasers of new Macs with the Leopard 10.5 version of OS X. I registered my new MacBook only to find that as a New Zealand purchaser I’m not qualified to partake of the deal.

OK, upgrading Leopard to Snow Leopard on my two Macs isn’t going to cost me anything like the cost of upgrading two Windows Vista systems to Windows 7. Nevertheless the principle’s the same.

I can hear it now. Legal constraints. We don’t control foreign retailers. Or some other excuse. I don’t buy it.

Bad call Apple.

I still love my Mac.

PS

Actually, it is going to cost me a bundle. My new Powerbook is no problem, but my 3-year-old Mac G5 Power Pro is not upgradeable. If I wish to have Snow Leopard on both my Macs I must trade in my G5 for a newer Mac with an Intel processor.

Ripping off the system

One case among thousands.

My wife’s friend works for a cleaning contractor. She’s a middle-aged solo mother and trying to avoid being a burden on the taxpayer. If you’re a New Zealand taxpayer you’re paying, through Work and Income New Zealand, for her to provide a house cleaning service to a Wanganui man who has cancer.

• His wife and two teenage sons live with him.  Why can’t they care for him? Beats me.
• One of the sons has a live-in girlfriend. They sleep on a mattress in the lounge and leave a trail of dirty socks for you to finance the picking up of.
• He also needs outside help to shower himself – although he manages to visit the library twice a week.
• He’s sick of doing nothing and wants to be employed as a relief teacher. Can’t clean his house though.

So my wife’s friend, who could be on welfare herself if she wished, is cleaning for herself and for these bludgers. They’re cleaning for nobody.

Isn’t Welfare a wonderful thing?

Time to Act

Nothing really new here, but it puts the scenario for the next century or two in perspective. If you care about our children you should pay attention to this week’s editorial in Nature Journal.

Read it here.

These folk aren’t looney-left green extremists. They’re science folk firmly grounded in reality.

Even a complete halt to carbon pollution would not bring the world’s temperatures down substantially for several centuries.

Leaving your car in the garage won’t make a detectable difference. Keeping informed, spreading the message and making sure the politicians are paying attention will.

The most sensible thing we could do right now is to put a variable tax on oil and coal to create a price floor of at least US$100 per barrel equivalent —  irrespective of OPEC’s prices . This would create a more level playing field and allow the developers of alternative energy sources and technology sufficient certainty to keep them in the business. This needs the leadership of the U.S.A.

It must be done.

As a bonus it would help to stop the developed world transferring vast quantities of their wealth to oil-financed terrorists.

No, we can’t

Amongst the few here in New Zealand who get it: Dr Gareth Morgan, Rod Oram,  Colin James and maybe Bill English. Dr Michael Cullen almost got it, but he erred bigtime in not putting the squeeze on consumer credit years ago.

What are these people on?

The Reserve Bank Governor, Dr Alan Bollard, doesn’t get it. He informed us last December that the recession had bottomed out.

The Treasury forecast a 7.2% unemployment peak. They’re dreaming. We’re either there already or close to it and there’s no sign of a slowdown in the rate of increase. Double figures are likely. Anything under a 12% peak would be a bonus.

The Prime Minister and the Finance Minister are on different pages concerning the imminent upturn. John says we’ll pick up at the end of the year, Bill says “No way.” I’m with Bill English. Nobody knows where this will end. Nobody knows when the turnaround will come. Assuming that it will come.

There are too many factors at work here which are totally out of our control. These people don’t have a clue what’s going to happen. Overseas the situation is still deteriorating, which doesn’t bode well for us. We depend upon two things to keep the over-stretched economic balls in the air: income from trade and income from borrowings. Both of those sources are in unfamiliar territory and both are out of our control.

Don’t grass over the veggie garden yet.

Wall Street ends week with biggest gains since 2007

Stocks on Wall Street capped the longest streak of weekly gains since 2007, as Federal Reserve chairman Ben Bernanke said programmes to unfreeze credit markets are working.

That’s all very well, but there are a few minor details to attend to. Paying back a trillion or two for instance.

What happened last time?

Enter John Kenneth Galbraith re The Great Depression:

A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune.

I am not among those who cry, “Why wasn’t this predicted?” As I said in the previous post at My Wits’ End, Who predicted the financial meltdown? it was predicted by plenty of people, economists and economic laymen alike.  By Paul Krugman, and by me.

Put your faith in those who knew the score before the game was up. Those who picked the result at half-time. Not the Wall Street and Government regulatory eggheads who tinkered with the rules during the game and royally stuffed up through avarice, stupidity, or both.

What about the real experts?

Dr Paul Krugman said last week in one of his New York Times must read columns:

I’m detecting a trend in commentary that I find slightly ominous. Some of the economic news lately has been slightly better than expected, which was bound to happen at some point (on average, after all, half the news should be better than expected). Mostly this is in the form of things getting worse more slowly, but it wouldn’t be surprising if we see, say, an uptick in industrial production in a few months, as the inventory cycle runs its course.

If so, that doesn’t mean the worst is over. There was a pause in the plunge in early 1931, and many people started to breathe easier. They were wrong.

He illustrated his point with this graph:

It ain’t over.

The fat lady isn’t even on stage.

This is not going to come right without major pain. There are debts to be paid. Western nations, especially New Zealand, were already too far in debt before this dose of crap hit the fan. Crap we Western super consumers created by the way. Now we’re going deeper into it. Your children will be paying for this one. Your grandkids too.

Knuckle down and make the best of it. We can build a better way in time but we’ll need to hold our leaders to account to do it.

The West is going to settle down at a lower level of consumption and consumer debt than before. That’s a good thing, but it will cause transitional pain for many. Jobs will be redistributed, less in retail and real estate, more in productive labours.

We need to get our arses into gear. Most of all we must do something drastic about our dreadful productivity. A productivity which has dropped us from the third highest GDP in the world to around 40^th.

As your modest blogger predicted, the chickens have come home to roost

Why didn’t the finance experts forsee this mess?

They did.

Well, some of them. If you didn’t see it coming you were listening to the wrong people.

You listened to the rapacious financiers whose opinions were rooted in obscene bonuses based on short term performance.

You listened to regulators – public servants who didn’t have the skills to make it in the real financial world and who were overly influenced by their political patrons. Come to think of it, those political patrons were influenced in reverse by the same lapdog regulators. A self-feeding spiral of disaster.

You weren’t listening to the people who spelled it out clearly and what’s more, you weren’t applying your own native wit and basic arithmetic.

Sadly, most people still believe in free lunches.

Here are just a few of the legions of experts who told us it was coming

1. George Soros. If anyone should’ve been listened to, it was George.
2. Dr Paul Krugman got a Nobel Prize for telling us in detail what was plain for all to see in general.
   
3. Stephen Roach, a senior executive at Morgan Stanley. In November 2004, Mr Roach predicted an “economic Armageddon” in line with exactly what transpired.
4. Nouriel Roubini, AKA Dr Doom, an economics professor at New York University. In September 2006, at an IMF meeting, he announced that a crisis was brewing. He said that the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession.
   Homeowners would default on mortgages, trillions of dollars of mortgage-backed securities would unravel worldwide and the global financial system would shudder to a halt. These developments, he said, would cripple major financial institutions like Fannie Mae and Freddie Mac.
   You can’t get much more specific than that.
5. If you think it needs a Ph.D. in economics to understand financial reality – Andy Beale, the college dropout American Banker who knew when to say no and who’s now doing very nicely  thank you very much. A triumph of common sense over herd mentality and bureaucratic myopia.
   
6. Vince Cable, deputy leader of the UK Lib Dems, and Lord Oakeshott, their Treasury spokesman.
7. Decades ago, John Kenneth Galbraith, who repeatedly warned that ‘Financial Genius Comes Before The Fall’.

You didn’t have to be a financial whizkid to see this. It’s simple. Here are just two of the many factors to consider which were there for all to see:

• Firstly, what did you expect to happen when lenders around the world pushed loans totalling trillions of dollars, pounds, euros, and stones-with-holes-in-the-middle at 100% (and more!) of current asset value?
  They lent a lot of that money to millions of people who had questionable capacity to meet the payments. And they lent it for the purchase of consumer goods of rapidly deteriorating value and for real estate in a widely acknowledged housing price bubble.
  The value of houses around the world, including here in New Zealand, were known to be at a very high and almost certainly unsustainable affordability level.
• Secondly, as I’ve been asking people for years, what happens when the Chinese (among others) have all the money? We were borrowing the money we paid them for their products right back again so that we could use it to buy even more of their often unnecessary junk.
  We closed down our factories to enable them to accelerate the process. That would have been OK if we’d replaced those factories with other wealth generating assets. We didn’t.
  Now we know what happens and we’ll try to fix it by robbing the Chinese (and our own savers) of some of it by devaluing the currencies we allowed them to hoard. Not that I have any sympathy for China, they had their eyes wide open and they contributed enthusiastically to the problem by artificially keeping their currency at a cynically low value.

I cave in to an immodest urge and point out that I, your trusty blogger @ My Wits’ End, an over-the-hill engineer without the slightest economic cred, predicted the crisis — most recently here. You didn’t have to be an economist to have foreseen this. You just have to understand basic budgetting and the hot-air-balloon principle.

Remember Mr Micawber?

“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

It applies to macro-economics as well as to household budgetting.