Top 10 charts for 2010 with BNZ: Why this recovery may be just the wrong sort of recovery -- light on investment

Bollard had interest rates too high which made it too much of a hurdle to generate a return on new investment.

He could have used numerous other tools at his disposal to control bank lending on houses but chose to ramp up the OCR instead. The contortions getting through the RMA is too hard unless you have very deep pockets, witness NO new aquaculture farms for 8 years and no new gold mines despite us having great advantages and huge price growth.

I'd say none of the above, the world's center is moving towards the East, and the East has little interest in the West, the future is in the cinergy between India and China and they will interact more with Africa and South America... the West will canibalize the West. through ever higher commodity prices and higher cost of credit. The world has been heading in that direction for quite some time now. Australia will slowly fade from Chinese demand as they find better oportunities and deals in Africa and South America for both mining and food.

The more you think about the trend the more obvious the answer becomes. Business owners and managers who were prudent during the bubble of madness are not going to become splurgers today. The prudent have had their management decisions confirmed as correct. They will not risk borrowing just to satisfy a govt or the RB. They know the banks are busting to save the bubble valued property.

This is the cost of a govt decision to prevent the property bubbles from deflating...a decision to prolonge the recession....to allow debasement of the $ to wash away the debts...so why the surprise at the trend showing up on the graph.

look at the Crafar farm farce going on...the banks loaned out way too much and are trying to get a stupid buyer to pay them all they loaned out...meanwhile the dairy business managers who are without debt will wait for the fall in property prices...they are not going to 'invest' in this non market.

Tweak and Fiddle are trapped within their 6 part strategy and the spin they ran with. So expect no change from them. We either witness a continuation of this recession level activity leading to the ratings agencies stepping in and swinging the blade to force the changes....or we see an abrupt intervention of the market forces with rates heading higher and the blade cutting away the losses.

One way or the other and no other way.....welcome to the consequences of trying to prevent a normal market correction.

Straight to the point !

I think minister Hide, Brownlee and Joyce have a lot to answer.  You guys are importing infrastructure needs such as Telecommunication, Energy and Transport in the Billions with devastating consequences for our economy and society in the near future - to be honest because of underperforming - you three would not be in my cabinet any longer !

Isn’t time for New Zealand to look into possible new strong sectors of industries ? As a consequence of Climate Change http://www.economist.com/node/17572735 agriculture and tourism as the two most important pillars of our economy, will see inconsistence results in the years to come – in my opinion with rather shocking outcomes. The bloated Real Estate industry is hopeless, because it doesn’t make our nation wealthier – even worse it pushes Kiwis out of the market. The world situation is forcing us for diversity, flexibility and security in our economy.

Isn’t time to consider adding real, sustainable and long term value to our economy ? Isn’t time to add  - our skilful, talented and educated NZpeople to our economy http://www.countercurrents.org/hartmann120210.htm in stead of exporting them or keep them in low wage jobs ?

Small countries have to think small, but with great ideas - a "100%NZpure Economy" - making real money in the Billions !

Pretending economic life can return to be as it was in the bubble is plain dumb..but there are those who battle on for this pipe dream to eventuate. The govt has taken us to a tipping point where the ratings agencies now have control. This is the cost of endless borrowing...cash used to prop up a debt based economy.

Keep an eye out for loud mouthed know alls who will claim to be experienced business owners in the past and that their understanding of economics and finance MUST be taken as the best on offer. They are just noise.

We either follow the govt along the recession pathway for a very long time until the debasement of the $ has eaten away the debts and stolen enough from the savers.....or we get a visit from the bond market and a lesson in market economics.

The Press had a series on Property developpers. Bob Robertson (Pegasus Town) is complaining the the local authorities are making them add all sorts of whistles and bells that people can't afford.  Most which collapsed had an enormous appetite for risk. One of the survivors  Cooper(?) has a posh beachfront development. The point is that the industry  needs subsidy or rich foriegners. So where too for the less well off. Do we have to degenerate further into ugly infill or box apartments? The surveys in Fortune etc showing the best cities to live in are largely for people who can take the cream off the top.

I am not wanting us to go back to where we were Wolly. I have never said that. But where we are going is scarier than where we have been and if we do not do something about it we will have unemployment like we have never seen before. Obviously you can survive on the unemployment benefit and I presume you do not steal off others to survive but if we go to levels of unemployment that we have not seen before then the social consequences and the cost will be huge. You obviously want that as you want to punish those bad people who borrowed too much. They are already being punished. They are inflicted their own problems on themselves. I am just trying to stimulate some discussion on how we avoid the inevitable if we dont do something to get the economy going again. Borrowing will not be necessary to do that. Just start moving around some of those huge amounts of deposits going into the banks. The bank staff tell me it is pouring in.

Ex agent I think you are perhaps thinking a bit short term. When you say you know of businesses that have predicted the downturn but are still struggling, well they didn't predict it far enough ahead. If they had thought more like PDK then that might have been sufficient. We will see massive unemployment in this country, there is even a precedent for 30%+.

Phil Best posted some info here a short while back about how demographics also effect economics. It was the work of Colin Clark.

We are facing a new paradigm, and to be honest even though I predicted the recession I have had some shortcomings in my assessment of the magnitude and effects we are facing. My last read "The New Empire of Debt" was quite fascinating. Conclusion of it all was that fiat currencies are stuffed and to buy gold.

I am not sure I would go that far, particularly about the total demise of the west at the hands of the east. I think we may see the exercise of coercive force by the worlds current empire, in an effort to keep it.

Am just back in broadband land and am delighted to find that you have not all gone away on holiday!

Basically labour is cheap here. Why invest in new equipment when its cheaper to just employ some more labour. No one has invested in any major infrastructure in years - take roads for example.

Here is another good quote from my next read, before I head off to the beach.

"There is a remarkably simple rule about how political systems reacted to the depression, reflecting what happens when an international finance system freezes up. Countries that owed money were now cut off from more lending, saw no virtue in continuing to depend on an international system that had let them down, and moved towards economic isolationism and political authoritarianism. Countries to whom money was owed sustained smaller economic damage and remained wedded to democracy and the international economy."

"We will not change direction because we know we are right and you are wrong and if things go wrong it will be your fault for not having enough belief in our being right"...Govt coalition mantra.

Bernard, you have it slightly worped. Investment in plant machinery eliminates many employment opportunities in most cases. It can help make businesses become more  'productive' however.

Also wage increases are 'extremely inflationary' and just mean NZ becomes less competitive and a more expensive place to live. Better productivity means creating a ' better product for less'. so paying higher wages for most NZ businesses is not an option in this environment

What we need is LESS government spending (benefits particularly)  , smaller government, and less personal taxes and business taxes WHILE at the same time making luxury consumption and property taxes as high as possible.

Example: Make starting a business incredibly easy while at the same time make owning 2-5+ houses extremely differcult and unattractive with very little financial incentive.  Starting businesses is the REAL investment  this country needs

@ Hugh. I wonder if it is meaningful to compare New Zealand to Texas? Texas is the 2nd largest State economy of the United States and it is about the 15th largest economy of the whole world in its own right. It has a large population and vast land area. It has petrochemical, biomedical and large manufacturing industries that supply the US military (and the Pentagon read the Federal Govt. has deep pockets) - all of which New Zealand does not have and most likely never will have. I also understand that there are no State taxes in Texas.

Wouldn't it be better to compare us to one of America's Midwestern largely agricultural States that also doesn’t have these sorts of tertiary industries and low taxes and which also have smaller populations and land areas? Missouri or possibly Colorado come to mind. 

While Hugh has concentrated on the housing affordability issue, my research has me aghast with horror at the total effects we are submitting our economy to, regarding economic efficiency. "Land use" is one of the primary issues for economic efficiency, "cities" happen to be where most of the economic growth in the world has been for decades, and "new business start ups" are the main source of econ growth.

Land that is artificially inflated in price through regulation, distorts land markets, reduces "location efficiency" of households and employers, increases travel and transport distances and costs, reduces "churn" in land use, leaves land in below-optimum productive uses, and "prices out" new business entrants to the market.

I have posted appropriate quotes from studies by Alain Bertaud of the World Bank, and by Paul Cheshire of the LSE. These guys deserve a Nobel Prize for their work - but no-one who makes or influences policy is taking any notice. We are killing our economy - any nation or State or region that practices urban growth controls is killing their economy  over the long term - AND none of the claimed "benefits" of all this is true in real life. Just as the former USSR's planners did not understand economics, neither do our urban planners, and the damage that is being done differs only in degree.

Joseph Schumpeter referred to "Capitalism in fetters", to describe a partly-regulated, partly-planned, highly-taxed economy. Urban growth control planning is another layer of heavy fetters.

Now I have discovered that the economist William Fischel, in his book "Do Growth Controls Matter"? in 1990, predicted or suggested the effects that Cheshire and Bertaud are now analysing after the event.

The following was published in 1990; unfortunately not online, you'll have to get the book:

"......The few analyses of land use regulations that

attempt to measure both benefits and costs of land use regulation indicate that

growth controls are likely to be inefficient. The major costs are probably wasteful

decentralization of firms and too much commuting by households. Higher housing

costs are actually a measure of the benefits of growth controls, but such benefits to

existing owners are costs to outsiders....."

"..........While this essay does not attempt

to distinguish growth control motivations, I have two observations about the

suburban traffic issue. One is that at least some of the traffic problems have

resulted from the antigrowth movement of the 1970s. Highway construction

slowed during that time, and environmental activists urged that fixed-rail transit

systems (e.g., subways) be built instead.

The problem is that fixed-rail systems are even less efficient for carrying

suburban commuters than highways. Economic studies of the Bay Area Rapid

Transit system of San Francisco, whose setting is ideally suited for a commuter rail

system, found that BART had little effect on highway congestion. The reason is

that the dispersal of homes and jobs in modern metropolitan areas is already too

great for any new rail system to be less costly than a highway system that

accommodates both cars and buses........"

"........I have pointed out that high prices could result

from amenity creation as well as monopolistic exclusion. On balance, however, I

am inclined to believe that most growth controls impose a net cost on society........

".........Growth controls and other aggressive extensions of land use regulations

probably impose costs on society that are larger than the benefits they provide. The

higher housing prices associated with communities that impose growth controls are

more likely the result of wasteful supply constraints than benign amenity

production.........

"......Recent growth management programs occur in two instances. One is in small

cities and suburbs that are relatively affluent.........

".........Growth controls are seemingly beyond judicial reproach on exclusionary grounds because they

democratically exclude everyone. Indeed, many growth management programs go

out of their way to mention that what little growth does occur should contain a low

and moderate income housing component. Such benevolence may not offset the

overall effects of restrictions on the housing market..........

"..........The cost of voting for extreme controls is not brought home to the voters or

suburban councils because those adversely affected are either a small fraction of the

electorate or not resident in the community at all.

Aside from their adverse effects on the cost of housing, inefficiently

restrictive growth controls probably cause metropolitan areas to be too spread

out.56 This is not to deny that growth controls may make development in

individual municipalities more compact. My claim is that such local ordinances

cause developers to go to other communities. The most likely alternative sites are

in exurban and rural communities, where the political climate, at least initially, is

more favorable to development. As the more rural communities become partly

developed, the newcomers wrest the political machinery from the pro-growth

farmers and business interests. Then these communities, too, adopt growth

controls, sending development still farther from employment and commercial centers. Eventually, employment and commercial activities also disperse from traditional population centers as they find that employees and customers are harder to find...........

".........The more subtle loss from inefficiently dispersed homes and businesses is the

loss of agglomeration economies for firms. The basis for urban economies is the

advantages of operating a business in the proximity of many other businesses.

Location in a city allows firms to have access to a more skilled and flexible labor

force. It also permits the face-to-face exchange of ideas, which promotes

innovation. Forces that tend to disperse firms erode such advantages and reduce

potential output from the industry........."

Let’s manage the exchange rate in favour of the exporters instead of the importers as it is now.  Once it is in favour of the exporters new export businesses will be set up.  That will enable the overseas debt to be reduced through exporting and reducing the amount of imports.  As it is now the exporters don’t know which way is up.  Business will start to see opportunities to make make things for New Zealanders instead of importing.  Government must start to govern for the people.

OK, today I am off to the beach where I plan to stay till March 1st, but I am packing my notebooks because I will remain in touch with the world. It was a tough but good year and if you all survived the mkts then we will be here next year. Good luck to all and have a great 2011.

OMG!  listen to all you economists and accountants bleating on about fiscal inbalances and so forth! 

Yes, you have part of the story ... but you are missing a big chunk.

Productivity is not a simple equation.   ie capital spending (does not equal) productivity.   

It helps if employees have the right tools to do their jobs, but you have all heard the old adage 'a poor workman blames his tools'

Other things which enhance productivity are:

training (to use the old tools to work better, smarter, faster, and with more quality)

incentive (to do the above)

a sense of ownership of what the company is producing and of your role within it

being able to work at the things that you are best at (eg, if you are a good salesperson, then someone else should do the administration ... if you are a good manager then THROW OUT the i-pad and let your secretary use it ... etc)

being happy at work ... in times like these the accountants and economists who largely make up the ranks of the CEO's like to crack the whip .. now is the time to get employees involved in the Company and it's success and reward them for it.  Rewards do not have to be cash either BTW.

And there is more, but you get the gist.

The bottom line is that although we are in recession, and although (I agree) the debts are high and balance needs to be restored and productivity will help us to get out of this.  Productivity is not simply achieved by spending money, it is a mind or paradigm shift ... it is in the realms of human psychology. 

I do not see you guys talking about the psychology of what has happened and what can be done about it, your heads are all up in your numbers :)

Talking about economists, for those interested, google around the potential development of a code of ethics for the American economist association which will be discussed at their up coming meeting. The relationships between individuals public debate positions and who they advise  privately (which are often not disclosed) makes for interesting reading.

Disclaimer: Yes a trained economist however not directly in the game currently