@ my wits’ end

Try New Zealand, we’re really in it deep

I’m a fan of Thomas Friedman. He’s insightful, he’s entertaining, he has an outstanding grasp of the biggest issues facing us all right now and he explains their complexities with refreshing clarity. You don’t win three Pulitzers without having your journalistic faculties intact.

He’s particularly perceptive when it comes to climate change; the West’s dysfunctional handling of relations with Islam; and the ways in which we can fix and grow our economies without wrecking the planet. In has latest New York Times column he made this comment:

“We are the United States of Deferred Maintenance. China is the People’s Republic of Deferred Gratification. They save, invest and build. We spend, borrow and patch.”

That definitely applies to the USA, but it applies even more to New Zealand. We’re in a downward spiral which is likely to get worse as wages increase in Australia significantly more this year than they will here.

The Aussies have a skills shortage and we can’t pay our skilled people enough. Stand by for a resurrection of the exodus across the ditch.

Read his complete article here for a short course on some of the issues the Obama administration and our own timorous Kiwi politicos don’t have the backbone to address.

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.

Remember when we had allies?

I do — I joined the Royal New Zealand Navy in 1958. Support vessels and coastal patrol craft aside, the RNZN fighting fleet comprised these actual warships:

1 Dido class light cruiser plus 1 in reserve.
4 Loch class frigates plus 2 in reserve and 2 Rothesay class building.
2 minesweepers (used as corvettes) plus 2 in reserve.

Since then it’s been downhill all the way. We now have:

2 Anzac class frigates.

Much of the time, one of those frigates is in refit. One frigate versus 1 modern hunter-killer submarine—goodbye frigate.

We can spend up large on unemployment benefits (has all the work been done?), solo parent support (how can so many babies have only one parent?), and tummy tuck operations, but we’re too far in hock to meet our obligations. I wonder how our “allies” feel about that.

We can pay accident compensation to a prisoner who injures himself while escaping from prison but we can’t even meet a half of our promised foreign aid contribution of a paltry 0.7% of GDP..

Air inferiority

In the year I joined the navy our air force was flying de Havilland Vampire jet fighters and English Electric Canberra fighter bombers. I don’t know how many were operational at that time but we owned or borrowed 63 Vampires and 31 Canberras.

Now we have no fixed wing combat aircraft. Zero. Zilch. Nada.

We’re a maritime nation, seriously dependent on trade, shipping is our lifeline. We have no effective means of defending our shipping lanes, let alone keeping out tens of millions of Asian refugees who’ll be looking for a home when the major coastal cities of India, Bangladesh, and the South East Asian river deltas submerge and when the Himalayan snow loss causes the Ganges, the Mekong, the Yellow River and all the other great Asian life sustaining rivers to dry up.

How enthusiastic will the Aussies and the Yanks be when we beg for help after we’ve spent decades – generations even – abusing their good will?  They may now be milking our milkers, but we started the milking.

You can blame me

I voted for the buggers.

I voted National because they were the least pathetic of a set of sorry alternatives. I had misgivings about their policies but I pinned my hopes upon the faint possibility that they had a cunning plan.

They didn’t. No secret agenda. No sensible plan at all. I’m disgusted with the whole gang of them: government, opposition, hangers on – the pathetic lot of them are worse than useless.

John Key and Bill English have been bleating that they didn’t know how bad the economic meltdown would get. Really? Perhaps they should have read a few newspapers and paid a bit more attention in Economics 101.

They’re incompetent. Dangerously so.

Labour lost the plot years ago, spending outrageous sums on social engineering; the Greens are nothing but watermelons and should confine their policies to saving the planet; Act have the right inclinations but climate change denial wipes their credibility.

It’s hard to envisage any viable future for New Zealand. We’ve been slowly going down the gurgler for decades, the new National-led government has an opportunity to turn things around and they’re squandering it. Our political system doesn’t work. Short term interests totally override sensible governance.

There’s an answer – you won’t hear it from National, but here it is anyway:

John Key shocks the nation

This morning, at a hastily assembled press conference, the Prime Minister announced a snap election.

Mr Key said:

“There will be a general election on August the 1st, 2009. My government accepts that we’ve been constrained by economic circumstances to reneg on our foolish 2008 election promises and we are therefore seeking a new mandate.”

“The National caucus has resolved to allow New Zealanders to make a choice.  Carry on with the same old tired and ineffective policies which we politicians have been pushing since 19 fish and chips or give my government a mandate to make the revolutionary changes necessary to get us back on track to sustainable prosperity.”

“Our policies will concentrate on getting people back to meaningful and productive work and to ensuring that our appalling productivity is dramatically improved.”

“In the medium term all I can offer is hard work and sacrifice. We will introduce a flat tax for individuals and businesses of 20%. GST will rise to the same level. ”

“The NZ Super will not be paid for those who choose to remain employed beyond the new retirement age.”

“The minimum wage will be increased to $18 per hour, but the quid pro quo is that employers will have the absolute right to hire and fire whomever they choose, whenever they choose.”

“Kiwisaver contributions will rise to 10% of income for both employers’ and employees’ contributions. The scheme will be compulsory for all earners.”

“We will ensure that jobs are available for all able-bodied current beneficiaries who are not caring for young children. Jobs will be found, starting with military or civil national service, re-afforestation, pest control, assistance to the aged and infirm, countryside beautification and a general government labour pool.”

“We will ensure that recalcitrant fathers pay for the care of their children.”

“ACC will be privatised: insurers will be given the right to sue parties at fault in accidents. ACC insurers must be majority New Zealand owned companies.”

“Boy racers, drunks and other anti-social pests will be press-ganged and their cars auctioned on Trade Me.”

The Mongrel Mob, Hell’s Angels and similar organisations will be disbanded. If necessary with the aid of the armed forces. We will win this confrontation. Recidivist criminals and former gang members who refuse to be reconstructed as useful contributors to society will be rehoused in a minimalist facility on the Auckland Islands.”

“100% tax relief will be provided for legitimate research along with loan guarantees for promising high tech industries. We will pursue the re-establishment of shipbuilding and the manufacture of locomotives and rolling stock.”

“The complete rail network will be restored and road user charges for heavy vehicles will be increased dramatically to cover the true cost of the road damage they cause.”

“All recreational drugs will be de-criminalised. The state will control the sale and distribution of all illicit drugs, including tobacco, to registered addicts. A high excise tax on all recreational drugs will provide funding for education discouraging the use of such drugs.”

“The drinking age will rise to 21. Public intoxication will become a criminal offence.”

“We will be resurrecting our armed forces from their present moribund state. This will include the restoration of the air strike force and the local construction of a fleet of 75 metre patrol vessels.”

“Student loan repayments will be suspended for competent New Zealand students in the science, engineering, architecture and IT faculties and for the productive trades for as long as they remain in this country.”

“Non-residents will no longer be allowed to buy land in New Zealand.”

“The canned Mighty River hydro scheme will go ahead.”

“All beneficiaries who are physically able will be required to…”

The rest of Mr Key’s speech was drowned out by the subsequent uproar. But his final words seemed to be, “…like it or lump it.”

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.

Some connected items caught my eye.

First, Jeanette Fitzsimons got riled up on FrogBlog about the Emissions Trading Scheme (ETS). It’s no surprise that she’s not happy that the ETS is likely to be put on hold.

I like Jeanette. She’s one Green MP who isn’t a totally head in the sand Watermelon. The Green Party may be in trouble when she’s gone. Nevertheless, she’s bound by dogma in her views on the ETS.

Days prior to Jeanette’s post, Lord Stern spelled out the bad news on global warming.

“Much of Southern Europe would look like the Sahara,”

“Do the politicians understand just how difficult it could be? Just how devastating four, five, six degrees centigrade could be. I think not yet.”

“Many of the major rivers of the world, serving billions of people would dry up in the dry seasons or re-route.

“What would be the implication? Hundreds of millions of people would have to move, probably billions. What would be the implication of that? Extended conflict, social disruption, war essentially, over much of the world for many decades.” Continue reading ‘Climate reality and Green dreams’ »

Jobless crisis could hit 11.2%!

So saith the New Zealand Institute

Shock, horror!

What a load of old cobblers. The New Zealand Institute usually talks a lot of sense, especially when it’s David Skilling doing the prognosticating – governments never listen, that’s another issue – but this is a stupid statement.

Nobody has the faintest idea what unemployment figures will peak at. Could be 5 or 10%, could be 20%. The forces which will dictate that level are totally unknown. You’d have more success predicting the outcome of a camel race in Timbuktu. New Zealand’s unemployment level will be decided in small part by the government’s actions in pushing infrastructure spending and persuading consumers not to go to ground, but major factors well outside our control will be more telling, they include: Continue reading ‘Meltdown’ »