By Bernard Hickey
Greens co-leader Russel Norman has announced the party has dropped its controversial proposal that the Reserve Bank of New Zealand print money to buy government bonds to pay for the reconstruction of infrastructure in Christchurch.
The National-led coalition has regularly argued in recent months that a Labour/Green coalition would run an irresponsible money printing monetary policy. Labour has pointedly not supported the proposal and it was not included in the recommendations from the Labour/Green/NZ First/Mana Manufacturing Inquiry.
Norman told a news conference in Parliament the policy change came after it received feedback from exporters in the Manufacturing Inquiry and it became clear a consensus position on it with Labour was not possible.
He said a coalition with Labour was now more possible after the Green Party had changed its position, which had been the subject of repeated and heated attack by the government.
Norman released the proposal in October last year. Here's the original release.
"That discussion document also proposed the use of quantitative easing, as has been widely used in other countries, to help lower the dollar," Norman said.
"The feedback we’ve received on that element of our proposal made clear it did not have the broad support it would need to work. New Zealanders expect their politicians to listen, the Greens do listen, and so we’re not pursuing the QE element of our monetary policy package," Norman said.
Meanwhile, the Green Party launched draft of a new Member's Bill to make the Reserve Bank board, rather than the Governor alone, responsible for Official Cash Rate decisions.
“No other country in the OECD gives full responsibility for the OCR decision to one person – the Reserve Bank Governor,” said Green Party Co-leader Dr Russel Norman. “This is antiquated. It leads to poorer decisions, decisions which don't reflect the wider economic interests at stake when the Official Cash Rate is set," he said.
The bill would also require the bank to issue minutes of its policy setting meetings within 14 days of the meetings and that the board include representatives from the export and manufacturing sectors.
(Updated with detail, quotes)
17 Comments
But it was never actually properly discussed was it?
We're in a time when a lot of economic orthodoxies are shown to be wrong, so why not actually explore the idea properly? Instead we had the Granny Herald and other mainstream organs poo-pooing it without actually exploring the issue.
In the last 30 years economic theory seems to be dominated by assumptions from (broadly speaking) neoliberalism which was supposed to be the saviour, but instead we're in the shit. I for one am all for having a good look at the alternatives because since the crash in '07 successive politicians and reserve bankers have kicked the can down the road, and things are barely any better.
It's all very well for dear old Wol and other conservatives to spout the orthodox wisdom, but if that's so sound then why are we so deep in poo? I'm sick of the millionaires getting their way. Give me policy ideas aimed at creating a fat and happy middle class.
I have no faith in the policies, values and assumptions of the last 30 years and the grey-suited automatons who implement them. Time to have a look at something new.
Very well said Vanderlei,
I remain looking forward to the discussion with Matt Nolan on the positives and negatives of printing in specific circumstances.
Having said that I can't blame Norman for giving up; having a good idea as a small party in opposition isn't all that useful. Given I've tried to champion the cause on here, and noted if the words print and money are included in a post, that it inevitably gets a very round number of likes, I could see he had a tough sell. As you note as well, Granny Herald's approach has been pathetic. It's fine to not agree with something if you can cobble together a moderately sound argument. But I don't think they even tried. A grown up discussion at least on the subject would have been positive.
Anyway, we move on. I suspect there is some hope in the Labour/ Greens/ NZ First agreement to change the Reserve Bank Act and priorities. And I sense that Graeme Wheeler is open to the idea of more varied tools than the OCR, and being cognisant of other factors than just inflation.
As a starter it will be very helpful if a future government doesn't kneecap reasonable monetary objectives with their own policies, as the Nats and Treasury do in their overseas funding of the fiscal deficit.
The UK, as shown in the Hey Dude, email, and Bernanke and Geithner being joined at the hip (although still captured by Wall Street, it seemed to me), have shown how a government and Reserve Bank can work more effectively together.
Agreed. Key was given a free pass to make facile and juvenile comments about the idea without being asked to justify them. Perhaps he would like to debate the concept with Adair Turner, former head of Britain's FSA or Michael Kumhof of the IMF. Norman didn't go out of his way to clarify the idea either.
Turner calls for Overt Money Finance and says the government or RB printing and spending constrained amounts of money directly into the economy rather than borrowing it, shouldn't be a taboo topic.
Benes and Kumhof in the IMF paper The Chicago Plan Revisited go even further and revive Irving Fisher's ideas on bank reform and the monetary system
Fisher (1936) claimed four major advantages for this plan. First, preventing banks from creating their own funds during credit booms, and then destroying these funds during subsequent contractions, would allow for a much better control of credit cycles, which were perceived to be the major source of business cycle fluctuations. Second, 100% reserve backing would completely eliminate bank runs. Third, allowing the government to issue money directly at zero interest, rather than borrowing that same money from banks at interest, would lead to a reduction in the interest burden on government finances and to a dramatic reduction of (net) government debt, given that irredeemable government-issued money represents equity in the commonwealth rather than debt. Fourth, given that money creation would no longer require the simultaneous creation of mostly private debts on bank balance sheets, the economy could see a dramatic reduction not only of government debt but also of private debt levels.
http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
http://www.youtube.com/watch?v=YnAtHbDptj8
http://www.fsa.gov.uk/static/pubs/speeches/0206-at.pdf
http://blogs.reuters.com/anatole-kaletsky/2013/02/07/a-breakthrough-speech-on-monetary-policy/
I find it interesting that we have reached a place where it is completely fine for New Zealand to outsource money printing of NZD to foreign banks ( this is what our housing debt is, printed money sequestered in mortgages). If anyone dares to suggest that the money supply is somehow the responsiblity of the Government of New Zealand then the are foolish. Next minute someone mentions the 1970s and inflation extremes, blame government for pandering to the unions at the time and completely ignore the actual cause of that inflation- imported oil prices.
I don't see how replacing borrowed credit money from banks with sovereign money issued by the RB can be more inflationary. The money supply is no greater and there is no interest to repay so it is actually less inflationary. At the moment our money supply is effectively privatised with the only indirect lever being the RB trying to control demand for credit with the OCR.
If bank credit extended for mortgages was decreased in equal amount to government/RB direct spending it might also bring the property market down and direct money into more productive areas.
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