By Bernard Hickey
Drug addicts and alcoholics can appear normal, even when they're drugged and boozed up to the eyeballs.
They can stumble along and even go to work as long as they are 'medicated'. Sometimes it's hard to tell if they're drunk or not.
It's only when the drugs and the booze are withdrawn do we see their real state.
They break out into a sweat and start looking anxiously for new sources of their chosen drug.
We saw this week what happens when financial markets and investors addicted to freshly printed money find out someone might actually withdraw the drug in the nearish future -- they go into withdrawal.
Stock markets all around the globe slumped this week when US Federal Reserve Chairman Ben Bernanke threatened to turn off the money printing drip by the middle of next year.
Long term interest rates rose sharply.
Most importantly for New Zealand, even China's new leadership got in on the act, forcing up interest rates to their highest point in a decade.
The New Zealand dollar fell three US cents to its lowest point in a year.
Banks started putting up fixed mortgage rates.
Essentially, financial markets broke out in a cold, cold sweat.
Now we'll see just how sustainable the economic recoveries in America, China and New Zealand are. Can they survive with higher interest rates? Are we about to see yet another false start before a lapse back into a medicated remission?
It will all depend on just how addicted a broad swathe of the developed economies are to low interest rates.
That actually means consumers and households, who are responsible for more than 60% of the spending in these economies. That in turn depends on how indebted they are and what is happening to their real incomes. That is the truest measure of their economic health.
On that front New Zealand shares a big problem with the likes of the United States and Europe. Our household sectors are still heavily indebted and incomes for the broad swathes of consumers in the middle and lower income groups are actually barely above where they were five or six years ago.
GDP figures out this week show New Zealand's real per capita GDP is actually still 1.3% below where it was in 2007.
Most of the gains in any economic recovery that has happened have gone to the top few percent of the population. Property owners in Auckland and owners of stocks have been the major beneficiaries.
A US study of the recovery there from 2009 to 2011 found the top 1% of the population saw their incomes rise 11.2% in real terms, while the real incomes of the bottom 99% fell 0.4%, which meant the top 1% captured 121% of the recovery's gains.
That's because the tactics used by central banks and governments to stabilise the financial system and boost the economy only worked to increase prices of assets such as property, stocks and bonds.
They didn't increase the real wages of the 99%.
The 99% remain heavily indebted, often unemployed and struggling to pay their bills.
Until those debts are restructured or some major structural changes happen to the way income is earned and distributed, the developed economies will struggle to stand on their own feet for any length of time.
A true rehabilitation of the economy requires tax reform to more heavily tax the incomes and assets of the wealthiest 10% and then redistribute that as income to the bottom 90%.
Until then, all we'll see is addicts sweating and thrashing around before the next dose of cheap money is administered.
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This article was first published in the Herald on Sunday. It is used here with permission.
93 Comments
Good call.
There are low-income people in NZ trying to build alternative accommodation: yurts, straw bale, rammed earth, etc. Yes, consents can sometimes be achieved they are not that easy and cheap to come by and the people I know who have gone down the consenting path say they'd never go that way again. We should be helping (and monitoring) these people who are experimenting with low cost alternative accommodation rather than putting up artificial roadblocks.
There are low-income people, many of them beneficiaries, who would like to pool income to start a business, form some sort of co-operative or, in some way or another, provide real benefit to the community. Rather than being encouraged, they are actively discouraged.
Look at 'clients' approching a winz office: the closer they get the more they hang their head. Most people going in there know to avoid eye direct contact with their 'case managers.' Beat a person down rather than building them up and see what happens. Read 'Black Like Me' by John Howard Griffen to get an idea of the effects of institutionalized subjugation.
There are people that feel that the state-provided education system is fundamentally flawed, or weighted against their children in some way. Exemptions are easy enough to get if you can tick all the boxes and show that you're going to run a 'school at home' but not so easy to get if one feels that the system is the problem. There will always be counter-examples but the only people I know who have gone down this path are proving the system wrong. Their children have/are grown/growing into wonderfully self-reliant intelligent questioning members of society.
- 'One law for the lion and ox is oppression.' The privilged and powerful set the rules, define success. Why are they so surprised that some people don't measure success in the same constrained, unobattainable (for all), unsustainable way. Voices calling for a lighter footprint, more value but less consumerism, lower energy use, a real community as opposed to the vibrant networks of the well-to-do, should be listened to. Especially when these voices come from people who are willing to walk-the-talk and, by so doing, provide alternative examples of success and well-being.
- It is not about an unquestioning support of p-addicts or bad parents. It is about helping those who help themselves.
- This is not about creating a socialist paradise. It is, amongst other things, about valuing diverstity.
Lets call this what it really is: an attempt to make everyone conform to societies current norms. This is destined to fail.
'Insanity: doing the same thing over and over again and expecting different results.' We're never going to create a fully homegeneous New Zealand. Instead of a punitive approach we should be HELPING THOSE WHO HELP (or are willing to help) THEMSELVES.
We perhaps need to stand back one more pace. Small-picture statements which in themselves may make sense, can be seen as inappropriate when pixelled into the big picture.
Remember that 'income' is two things - a flow, not a lump sum, and that it only represents what it can be exchanged for. You can prize the proxy from those who posess, but if the supermarket shelves are emptying?
Big picture, what is happening in Brazil, Turkey, the ME, Spain, Greece, and in an increasing number of places is indicative of a total shortage, irrespective of equality of distribution. You have to remember that the total 'buy' expectation locked into the system now (expected future debt-repayment included) is more than can be underwritten. Are you arguing for an equalising of the debt too?
Tax is a blunt tool which can equalise to a large extent; by the time it's applied to second properties, resource draw-down, and applied to 'income' on a sliding-scale, it would indeed make fundamental changes - less incentive to 'get rich' and to draw-down resources would have beneficial spin-offs.
What does the twitchy sphincter muscle of "the markets" really tell you? To me it says they never had any real intention to grow, probably because they can't, but are simply speculating. Bernanke is threatenting to take away the free lunch and he might as well, but I don't think he will.
Ultimately the US has played the game pretty well, all it really needs to do is hold on until someone else falls over first. The don't have to recover, simply be the last man standing. There are no shortage of candidates for what has become a game of musical chairs.
You got it in one Scarfo...last man standing, ground zero , call it what you will as I've said repeatedly, despite some of the bollocks written here by economists who should have more clues than they appear to....or maybe wishful thinking over rides their common sense.
The first torpedo in the hull of QE infinity has been fired....and just look how the sanctimonious little Market makers toss the toys out of the cot seizing every opportunity to curse the very thought of removing QE.
Maybe they could have done something productive with it (Q.E) instead of teat feeding speculative vultures that dominate the Market..
I think we need to relook at the US period of trust busting the robber barons in the early 1900s.
I think this is particularly important in New Zealand where most of the expenditure of a typical person goes to monopolies, oligopolies and rigged markets. Think supermarkets, electricity supply, building construction, new residential land, insurance, finance etc.
New Zealand needs to strengthen its institutions so that they can regulate competition back into these markets and rebalance the situation in favour of the 99% and away from the 1%.
New Zealand is a country where we believe everybody deserves a fair go. The question for this generation is do we have the balls to follow through with what we believe?
"so that they can regulate competition back into these markets"
Have a wee think about that, B.
Assuming perfect competition, all you can do is induce the ultimate in efficiencies. Some of that pressure will exert itself in the direction of eliminating wage/salary/labour costs. Your approach is therefore an oxymoron. This is where HughP falls down, not assessing the incomes which are half of his equation.
Given that you've already accepted the need for 'market intervention', you then want to continue a system which had only one claim to fame; the need not to be intervened with. Markets are a failure because they are reactive - short-term mass movement of a lot of individually-ignorant lemmings - and therefore have no place in good governance within defined opportunity parameters. Bernard's approach is better in the short term.
I do not assume perfect competition. That is neoliberal claptrap that I was taught in the late 80s. In reality all but the most basic bartering markets have rules and regulations. These rules come from us -society and should reflect our values. If the rules are unfair then we have the ability to change them. And that would be true in a growth economy or a powering down economy.
Of course the current crop of one percenters would like us to think there is no alternative (TINA) and they use their influence over MSM to prevent any genuine discussion of change.
I think that kiwis have completely foregone the can do attitude we used to have and the kiwi dream now seems to be working for a large monopoly and having the safety of a regular pay cheque. The result of this is that there is no one trying to compete anymore. No one has tried starting a third supermarket chain despite us knowing there is some big money to be made. We have big monopolies that can only be controlled through regulation.
luckiy Chinese migrants (in particular) are finding some of these holes in the market and starting to fill the void - the number of Chinese supermarkets in Auckland is growing all the time. A lot of the cheaper building companies are chinese ( quality is debatable but will probably improve). Not sure if they can tackle banking, but I can imagine mobile phones could happen.
Pity us kiwis myself included are spoked into workin for the man
Have a look on trademe for chinese mobile phones, they abound....and if my one was a fair example are utter crap that last 10months max. Translate that into banking, well yes easily, you just have to look at china's [shadow] banking to see how that goes. The chinese excel at at least one thing making utter crap look good to get the max dollar out of the deal. Now if you tie them down and get them to make waht you want, then yes, you'll get a good product and at a relatively low cost....but that low cost is due to low cost (but rising) labour and increasing damage to the environment. (If you look at the damage they do, some estimates put that as high as 50% of their GDP growth....take that out and its far less "magical")
Also of course supermakets and importers are not productive....if this is all they are doing, stop them coming.
In terms of competition, nope and we wont have any, we are too small. Most goods we want are handled by monopolies (the manufacturer or their single import rep) never will be. eg Makita, Dewalt, etc all have single importers into NZz and actively try to stop parallel importing. The result is a $700US tool that should sell for <$1kNZD here has a price tag of $1600+...a nice cool 100% clear price markup...and of course we earn less.
Of course if you have the attitude that to you price is the only thing that counts and your post suggests this, well you only have yourself to blame for what transpires....
regards
I was thinking more in terms of local retail than anything else. The Chinese will see the gaps in the market and back themselves to undercut the large overseas owned companies who are trying to suck as much money out of nz as possible. They start small businesses and build them up, the way that nzers used to. They are prepared to take risks and reap the reward that comes with it. Almost all retail in Auckland at least is either owned by large offshore companies or local Chinese with the balls to compete.
I can go to my local Chinese supermarket and buy the same or better broccoli for half the price as the supermarket. I can go to the local Chinese pc store and buy the same laptop as dick smith for a cheaper price. I can buy a cheap and nasty phone or drill on trade me - might not be that good but it forces the other resalers to cut their big fat margins. The Chinese that are selling this stuff are nz residents, the profits are probably largely staying in nz.
While I notice you focus on cheap, here is a thread that deals with service as a component of the rating, ie: returns policy. The top dog is run by caucasians. An outfit such as PB Tech used to be good, as did Playtech (Asian run), but they have slowely slipped down the ratings. But yes the profits are probably staying here.
It is my opinion that the 90% as you call them BH do not use the same structures or trading techniques as the 10%. maybe the 90% need to educate themselves on how to achieve what the 10% do and that way no redistribution would need to occur.
The system as it is may not be fair but it is fair in that everyone can structure themselves or trade like the 10%.
More and more I am becoming in favour of the APT Tax system. (Automatic Payment Transaction). I would like to see some serious investigation into a new 21st century tax system as the current one is outdated and has proven itself to be inefficient, cumbersome and distortionary amongst other things.
It is a shame that many of the intelligent thinkers like Gummy Bear, Mist42 and others are no longer contributing posts to this site. They understood cause and affect well.
If we could all figure out tax like the top 10%, well then we'd all be paying about the same rate anyway, minues the top 10% actually paying tax now, ie we'd broaden the tax base. In the real world of course its not tax but position (vested interest etc) that determines the tax paid...
So really there have been enough workable alternatives put out there that would broaden the tax base eg land tax enough such that that 90% would pay less as the top 10% actually now start to pay.
Mist actually yes, a bright guy, GBH well lets say the political blinkers got in the way.
PS tax increases will be coming, either that or we'll see some serious anarchy/revolution...
regards
Mist42 - the reason I came to the site often and always checked those posts. Utmost respect for a rational perspective. Sore-Loser - a bit OTT WITH THE CAPS LOCK and obscure at the best of times. David somethings really misssing without Mist. Ive been wondering whats happening and no idea why this should be. Sad.
Fair call and I did like him around, but it is assigning messiah status to him that is a bit over the top. FYI he is (probably still reading) was a great example of manic depressive. On the top side capable of great work, but on the downside things get a bit dark and hazy. It was pretty tiresome trying to converse when he was in the down phase.
Scarfie - it is comments like that one of yours that do not offer anything to a discussion or debate. If Mist42, GBH and all the others who have been absent for sometime from this site have been booted off then I would like to know why.
I will assume until I have been told otherwise that they have been booted off and will no longer bother with posting on what is in general an anti-business, anti-freedom, social control BS site.
If we don't do it then what can we expect to have in the future? More and more poverty, more undernourished children, more drug addiction, more criminals? Surely life isn't just about having money to buy and buy and buy or just accumulate? But we do need more than just a tax change as KH says, although I do not think tax is irrelevant. Tax has become a game. In my view that opportunity should be removed and all income tax abolished and replaced with a tax on all turnover collected by the banks on behalf of Government.
Patricia - personally I would like to see accountability across the board when addressing the children who are falling through the cracks in NZ society.
Firstly parental accountability must be addressed.
The State has to now interfere at unprecedented levels. The more the State interference the bigger the problems we have. I would be more in favour of wiping the slate clean and implementing a completely new system.
Being a parent is a responsibility and too many people are abnegating their responsibility to the children they decided to have.
I often remind myself of how in agriculture we apply mothering techniques to ewes and cows to ensure they raise their young.
But noteconomist when we say it is "parental responsibility" we are actually saying that it is the fault of the children for choosing such bad parents. I believe that it is our collective responsibility to all children that they grow up strong and healthy and to ensure they have the environment to do so. That is the only way to have a prosperous future for this country.
Patricia - what happens when the collective get it wrong? What happens when the wrong environment is created? Would you then say it is the fault of the child being born in that particular era because that was were society was at that given point.
A collective responsibility needs clear concise parameters otherwise people will interpret things on their personal limited understanding. If those parameters have limitations somewhere then what will the effects be on the future generation?
More and more poverty, yes. Which is primarily about not having more and more children the parents cannot feed, or employ when they have grown up, ie there are simply too many people. "taxing i a different way simply doesnt solve the issues. We are on a finite planet, the more people the more its resources are divided by and the less there is to go around....its that simple.
regards
Bernard fails to stipulate how much should be stolen from the successful and handed out to the failures. He leaves out any comment on the unintended consequences of driving capital from the country, which is exactly what stupidly high taxes would do.
Anyone who wants to experience a 'Bernard economy' need only go to France.
The support structure...the safety net...call it what you will....should never be so, that it leads more and more to give up trying....and to believe it can prevent every orrible mess is just plain daft.
Wow, really coming out of the closet wolly....
To start with,
a) ppl born into a rich family are not successful, just lucky.
b) After WW2 the tax rate was far more progressive....the economy boomed.
c) Defining sucessful as rich is one one to look at it, not mine, So if your view is using leverage to speculate ie gamble and act like a shark....ie amoral....and prey on those with (far) less ability to defend their way of life, congrats I suppose.
d) Capital wont flee, or if it does its highly likely that its the parastic kind leaving, and frankly good riddance, the vested interests who screw others down leaving is a good thing. Because what that leaves is a hole for others to fill by their endevours, real business men can then compete. Looks like a win win to me, so tax anyone on say >$150k 40% and >250k 50% and over >500k 70%.
e) BH is not saying take this policy to extremes. He's saying and rightly so what the top 1% own assets and capital equal to the bottom 50% something is badly wrong, NZ didnt use to be like that. Oh and throw in 40 years of your love fetish, Rogernomics was meant to lift all boats and make us all better off, it hasnt and by a long way, its an adject failure.
regards
To add context to what I say,
http://krugman.blogs.nytimes.com/2013/06/22/greg-mankiw-and-the-gatsby-…
says it far better than I can.
steven: its a pity you weren't around prior to 1984, before Roger Douglas got into power, when he inherited an economy that was in such a parlous state that "rogernomics" was just about the only way out. Things were bad, with an economy and a populace "on its knees" they accepted his remedies without too much complaint. Didn't have much choice. Drastic action was necessary.
There were two dimensions to "rogernomics" - the problems and the solutions. Douglas was a make-it-happen guy, and had he remained in power, and had the 1987 market crash not intervened, I'm sure he would he would have adjusted his policies as needed.
It would be an historical eye-opener if the news-media could dig out of the archives the public addresses he gave the country explaining the problems and why he was introducing the solutions he did.
You would be a bit more forgiving. You should locate a couple of old-timers and pick their brains, and get them to describe life in new zealand under Muldoon and the mess he bequeathed.
Iconoclast 1984 was the first election I really followed closely as I was a teenager at the time. I have found that James Belich history books in particular 'Paradise Reforged' describes and explains the events the best. I would recommend any of his books to all kiwis.
Here you go steven - good overview - you should read it - even touches on Roger Douglas's pet hate - the huge number of professional people employed in the Tax Avoidance industry James Belich overview of Rogernomics
Bernard would return us to the days when $1 income avoided paid a dividend of 66%
Actually, Muldoon was an old order, not understanding what was washing over him. Same as the top-hatted lot who thought they'd re-surface post WW1. They were blindsided because their empire (which they fought the Germans for who was going to be top dog over) came out second-best to an oil-rich new empire.
He was blindsided just trying to keep a way of life he'd enjoyed, together. Like them, he couldn't, and he tried increasingly erratic moves to keep the cat in the bag. Don't focus on the minutiae (boat tax, wage freeze) he was just trying to hold onto a vanished dream. Study Bretton Woods, M King Hubbert and Nixon leting-go the gold standard, Kissinger linking oil to the USD, and what happened with the first and second embargoes (the second worked - why?) to see where Muldoon was.
And no, it wasn't that bad. Douglas insiders made heaps by offshoring when he devalued - the rest were that much poorer in comparison - but then they weren't really. If you're in partial debt and have savings, it's your net worth is what you're worth. Too many forget to include the debt. The commoners were relatively rorted, though.
1984 was actially a betrayal of a lot of folk who weren't told what they were voting for, or it wouldn't have gotten in. Last time I checked, that's dishonesty. (I've always had a copy of Douglas' 'There's got to be a better way' - it's nowhere near what he did.
Yes, there were winners and losers. I spent 3 years travelling around new zealand installing and explaining GST accounting systems for small to medium sized businesses - and everyone - was happy about the GST - because it forced them to introduce quarterly accounting and so knew where they were a lot sooner - most were small business people who would gather up their bank statements and cheque books in a sugar sack around June and go see their accountant only to find they had gone into a trading loss situation the previous September. Yep, they were a lot happier.
Iconoclast - GST accounting does not tell a business where they are/were. That was a myth told by the IRD staff at the time and how GST was sold to the wider populace. Unfortunately this is still a myth today in some circles.
IRD staff and the Government failed to communicate to everyone that those in business were going to be free tax collectors for the Government. The Government and the IRD use GST registered persons like slaves.
Rogernomics usedbusiness, farming and manufacturers to pay down the debts that social policy had accrued.
The snap election of June 1984 is an event entrenched in my memory and the pain and suffering caused to so many by Rogernomics policy and the following 1987 crash in NZ is an event that anyone, particularly those who were in agriculture and manufacturing will never ever forget the hideous interest rates of that time.
Well NoE, first off, you should read the words I used more carefully
"it forced them to introduce quarterly accounting and so knew where they were a lot sooner"
Do you see where I use the word GST in that?
Second, it might have sounded a bit grandiose, but for many it was simply keeping and maintaining and balancing a cash book, so enabling them to see what their total sales and total costs were. My job was mainly taking the mystery out of it. They could work out the GST on their sales then the GST on their costs and pay or claim the spread. Pretty simple really. Ten minutes. The beneficial byproduct was they saw their costs moving against sales anything up to 12 months before they had been previously.
I know. I was there, at the coal-face. Did you want argue about it?
Iconoclast - I read your words closely and came up with my same conclusion.
"and everyone - was happy about the GST - because it forced them to introduce quarterly accounting and so knew where they were a lot sooner"
Total costs do not all attract a GST component. The IRD is simply picking up a defined spread differenential like a speculative trader.
GST records do not provide business's with improved efficiencies. It has significantly increased costs to business. Wages, interest etc have to be built in to pricing as they don't attract GST yet significantly alter the final price of goods and services.
What a load of bollocks - everyone was happy about the GST - really - or do you mean that Government, bureaucrats and the IRD were happy?
It appears you were at the opposite coal-face to the one business found themselves in.
Yes the initial impact of Rogernomics was very destructive to the agriculture community. Experienced it. Right in the middle of it. If you have followed my posts in previous years on that matter you will have already observed my views on the subject. And those views dwell at length on farm subsidies and standard values and the whole 9 yards of subsidies. Queen Street farmers were paying outrageous prices for farms for the profits which equated to the sum-total value of all the subsidies being received. Are you suggesting that that regime could have and should have continued on forever? Someone had to burst the boil sometime.
It was Government and Bureaucratic policy which supplied the subsidies. The Department of Agriculture wanted farmers to increase their output of meat and wool. The incompetents in power had little understanding of the stockpiles they created and the market distortions they created. Queen Street farmers were not the cause they were the effect of the implemented policies of the day.
It is people like myself who were entering the business of farming in the 1980's who paid the ultimate price for the past errors of those who thought it was OK to distort prices. We were the next generation who were heftily penalised for the mistakes of the State.
Many didn't make it and went bankrupt when interest rates escalated into the 20% arena. Some didn't make it and committed suicide.
Government and Bureaucrats have never learnt to keep out of the way and so the harsh lessons of the time have been wasted. That is not OK.
Bernard aren't you against working for families; surely that is a pretty reasonable attempt to redistribute wealth.
The problem with rich taxes is that the real rich just tend to avoid them while hard working employees get taken to the cleaners. It would be nice if they could tax capital but it is often very easy to move capital wealth.
Picking up on both Brendon and NotEconMan:
Common taters do have this tendency to treat everything as polar opposites, black/white etc. I'm a conservative in such matters - markets work - why supplant them?
But we don't and never have had a 'free market' - it's always been a Mixed/Hybrid beast, and the early religious restraints and latterly Gubmint codes and regulation, are needed to keep everyone honest. Ish.
Markets work just fine and have done since the dawn of trading around 4000 years ago: they are nothing but a switchboard between people with something to sell (like the copper miners at Great Orme in North Wales) and other people with something to sell (the traders from the Mediterranean who travelled all the way up there with foodstuffs in amphorae), the former lacking what the latter have in surplus and vicky verser.
A massive plus in markets (gentle commerce, in Adam Smith's phrase, recycled by Pinker in ''Better Angels') is that they innately if slowly build mutual trust and kick off a Civilising Process. We're at the far end of that now (see below, it is possible to discern a De-civilisng process at work in our fair land...) so all this progress is somewhat taken for granted. But the main alternative, which tends to be control by a (male, quelle surprise) elite, by fear, violence, repression and tyranny, has been the default setting for most of modern humanity's (last 50K years) history. And it is frighteningly easy to push that 'Factory Reset' button: PNG being a current example.
Culture has almost everything to do with everything, as any competent manager will attest. A common case-study in MBA-land is the new manager, determined to change culture in a business, firing, fairly much randomly, 10-20% of staff to kick-start the change effort. It puts down this marker: 'Things are gonna Change around here'. But what we have in funky l'il Godzone is a set of two cultures vying for the minds of the young.
There is or was a much older, formerly better-civilised European-derived culture which in its heyday valued adherence to widely held norms, reinforced by a religion that had itself shed most of the excesses yet retained the ability to bind (religare). It valued deferral of reward, hard work, a spiritual journey based on an individual's response to wise books, and a self-introspection that gradually but firmly expanded the circle of empathy, squeezed out excesses like torture-executions, rewarded simple states of being like marriage and the delight in children, and mandated fair dealing and trust in commerce.
But this culture cannot now be said to exhibit much if any of these qualities: viewed from that high point, it can be said to be degenerate, hollowed out, unattractive, and failing.
The other culture is of course indigenous - a communal, pre-literate, tribal culture which has been propelled over 10-15 generations into close and unrelenting contact with the above. Its historic version values Tribe over Other, strength and dominance over compassion, and in general exhibits all the hallmarks of the Factory Default setting which we all came from. For a primer: Nicholas Wade's 'Before the Dawn'.
The mixing has been as one would expect, very patchy. We are left with a decayed and decadent Euro fragment, an abiding and unrelenting distrust of religion or indeed any other dominant binding philosophy, a present-centred mind-set which steeply discounts the future, a Partner culture with distinct tribal reversion tendencies especially at political level, attitudes generally which tend to favour dominance and lack of empathy over the alternatives of gentle commerce and trust, and a financial utter dependence on intensive food production for a newly dominant China, itself flexing international muscle, and approaching carrying capacity in order to do this on our land.
So, 'culture matters', and 'incentives matter'.
Tax only affects the latter, and I somehow do not think that fiddling with IRD codes and deciding whether and how to tax who for what, is gonna tackle the wider issue of Culture - what we do around here.
Now, if only it were as simple as firing 10-20% of the population , to convince the rest that "Things Have Changed'.
Bob Dylan sang:
'People are crazy and times are strange,
I'm locked in tight, I'm outta range,
I used to care, but
Things have Changed'
I don't think it's that simple. Especially not on such a small set of islands....
Thoughtful response Waymad. I absolutely agree it comes back culture and values. But I think you push the troubles in our bicultural partnership further than the evidence can bear. Because this agument about a degenerating culture causing a collaspe in previous stable and fair practices, in this case fair and equitable business dealings is wider than just New Zealand.
So I do not think Maori cultural cooties have infected the honourable European cultural practices and we are on our way to some 1820's uncontrollable tribal warfare situation. I could accept that biculturalism has undermined our concept of who we are as kiwis. And so previously strong values such as all kiwis deserve a fair go are weakened. This has allowed processes like globalisation and neoliberalism to develop in New Zealand in a very unfair way.
I think you are fooling yourself if you think society has ever been better than now. Are you saying the old days where dad would come home after a hard day at work, beat the crap out of the kids and mum, go to church on Sunday and pretend they were the perfect family were better times?
I remember at least three households in the street I grew up in the Hutt Valley in the good ole days of the 1950's that that is exactly what was happening most Saturday nights and Sunday mornings. And nobody said anything - just watched behind the lace curtains! Where the old man (not mine) would come rolling up the street paralytically drunk after 6 o'clock closing; father of six who used to booze every penny he earned. I hasten to add - pakeha family as most were. Six kids, two adults in one three bedroomed state house. Oh and I grew up in one of those too where the windows in the winter would ice up ON THE INSIDE! And it was a brand new one at that. Nothing much has changed in 60 odd years has it.
waymad, Good piece, although I share Brendon's view that it is not limited to NZ. I started work in the early 80s for a major international corporate. It seemed at the time, and especially now with hindsight, that this company (along with most other companies) reasonably delivered for all its stakeholders- customers, society, shareholders, director/managers, staff -and made long term investment decisions.
Somewhere in the 90s that company was captured by the short term financial engineering pressures that infected sharemarkets worldwide. The result seems to be that the winners became an inner circle of self appointing and supporting director/managers, and financial engineering companies. Broader shareholders haven't done that well; customers have benefitted from China, and arguably technology and the internet driven change; but not from the financial engineering, or from ridiculous packages for director managers.
The middle class has certainly dropped a few rungs down from the top of the pyramid; working harder as households to just about have the same stuff.
Waymad you have got me thinking about how violence is often lurking just beneath tranquil waters. As many of you will know I have spent some time in Finland and am married to a Finn. I have discussed on this website their great transport system, they are a very succesful industrial country with great companies like Nokia. But underneath this succesful civilised appearance is a dark side.
Finland's murder rate is one of the highest in Europe's, double New Zealand's. In the time I was in Finland there was a shootout at our local shopping mall, killing an innocent supermarket worker. There was another shootout at a school, killing a number of students. Just before I arrived there was a bombing. Personally I witnessed a middle aged man return to a pub after earlier being refused service due to drunkenness and threaten to burn the place down. My brother in law while cycling complain about a car's driving and that person circled back and ran him off into a ditch. One of my Finnish friend's told me his grandfather used to sharpen his knive before going to dances in the weekend. Some parts of Finland until relatively recently had a knife fighting culture. There are reports that Finns have a high rate of a gene associated with violence when under the influence of alcohol. My wife reports that Finnish bars do not have the friendly atmosphere that British and kiwi bars do.
I have speculated, and this would be consistent with what Waymad is saying, that due to Finland being so far north agriculture and the settled behaviour of villages, towns etc. coming relatively recently to Finland. Something like 300 years ago, before that there was slash and burn and before that just hunting and fishing. And that it takes many generations for this settle culture to really bed down.
And of course civilisations rise and fall.
The winters are brutal. I know. And it is definitely the lack of sun. The cold is much easier to cope with. But Sweden and Norways homicide and suicide rate (you can check on wiki) is similiar to NZ whereas Finland's is much higher so something weird is going on there.
Almost should not try to comment in this high level discussion. But it seems to me.......
1. We need a market and competition - with referee. You know. Ref on the level playing ffield helps for there to be a good contest.
But what we have got is monopolies who control their enviroment and dictate the rules. We have electricity at about 250 % the price it should be. A system supported by a government protecting the big companies.
Tax changes as advocated by BH are a weak response. if the 'poor' were not paying rort pricing for just about everything poverty would reduce markedly.
2. Culture. We need to return to New Zelanders owning and controlling their own stuff. All of us. We have become suckers for a narrative about globalisation.
KH - no, you're a bit off beam there.
The Ref has always been someone who climbed up the legal ladder, and who probably has some kind of investment. That's not neutral.
All markets end with monopolies - the power of being able to out-squeeze the smaller always applies, in an existing market. Only true newness (digital vs kodak) wins from a standing start, although mis-mamagement of an advantageous position is always possible.
Electricity is actually too cheap, and by a fair margin. This is where your minutiae approach falls down. No anticipation, no relativity. Don't throw around words like 'too' without reference; it's like Gwynne Dyer starting with "I like who we are". Mother Nature cares diddly-squat whether the recent middle class likes itself, or wants 'cheaper' power.
And 'corporates'? Most of the power system, even with the Bradford ideological madness, is owned by us. Far from being a 'rort', even the poorest here are piggy-backing on those further down the stack. You perhaps need a wee dose of truth in that regard? See if you can get hold of China Blue, but I suspect you know enough already - some form of denial perchance?
2. Agree completely. That means educating the populace, because otherwise you can enact, only to have repealed. Needs 51% who understand. Means circumventing/sidelining/smacking over the head the current media, a track which some of us are already heading down. Globalism will fail of it's own accord from here on (think: war of the worlds) due to ever-increasing protectionism. You don't get Brazil etc, without the pollies running scared, and protectionism is what running-scared pollies do.
1) We cant really get competition because of how everything from comodities and up is setup and a manipulated. Hence increasing taxes corrects some of that maket distortion. The rort pricing is of course for many things, the top 1% expect returns of 20%+ per annum, just who do you think is handing that much $ over? why the bottom 70% for sure...
2) Yes, but with peak energy, and its decline globalisation is toast...so is foreign ownership. At some stage we'll vote in a Govn who will nationalise it back and since globalisation will be gone bye bye there will be no real consquence, especially as we produce food which will be in great demand. ie Saudi will send us oil for Lamb in return...we dont need the US in the way.
I doubt electricity is 250% over, got some data? but yes Im sure we are paying 30~50% too much, like I said the returns are demanded. The problem is of course we are entering an era of scarcity, and high prices determine behaviour more than anything else so reducing its cost could well be counter-productive.
regards
Bernard,
There is the size of the pie, the distribution of the pie, and who owns the pie factory to consider.
I sense your priority is to address the distribution of the current pie, although maybe also to tax the owner of the factory. I have some sympathy for these views, although I would be inclined to rather start with not mortgaging or selling the pie factory.
The National government, by ignoring, or even encouraging, a ballooning current account deficit, is ensuring NZers ownership of our rent seeking or productive assets is rapidly heading offshore. The share of the pie we then have to pay in rent/ interest/profit share significantly reduces the amount left for everyone else here. And this effect is very long term, unless we start to do something about it. A change in monetary priorities, and especially on inflowing capital flows; the exchange rate, and trading industries would be a better place to start than income taxes in particular, given we already have reasonable redistribution in place. Capital taxes of some sort may though be a part of a solution, but again, wouldn't be where I would start..
Another problem is that the pie factory has closed down and the pies are now produced in china. We still sell technology, marketing, etc to the pie factory, but the employees in those sectors are skilled and demanding higher wages. The people that used to work at the old factory are no longer in demand in nz and are unemployed or working for minimum wage. The gulf between the skilled and unskilled is getting too big and civil war is eminent.
If you look work is actually returning to the USA as manufacturers find the increasing cost of chinese labour and the cost of transportation make it economic to do so. In terms of the pie factory Well if no one is employed no one can buy the pies, except via WINZ handouts, that doesnt make much sense to me. Civil wars take many forms I'd suggest the Pollies will coe round to understanding when the 50+% want their money back off the 1% it will happen, either with or without the pollies.
Looking at american sites s on the Internet "made in the USA" is a big marketting thing, I think we should be doing thing here "made in NZ" should be where we are at.
If you look at Warehouse and k-mart these days it tends to say made in bangladesh rather than china, so yes there is always cheaper labour. Mind you I dont shop in either often so maybe the change happened and Ive never noticed. The thing thats changed over taiwan is now energy is expensive, what the US is seeing is shipping across the Pacific is no longer cheap and the chinese labour not as cheap as it was, plus cheap gas/energy from fracking that may of course not last that long.
Will similar happen here? dunno. We do seem to be picking up some call centre work which was heralded 7~8 years ago but never happened. So the Ozzie employers seem to be having enough of paying super so are trying to avoid it by moving some jobs here. Mostly though we dont have the scale to make cheap or cheap enough though we can ad do make very good goods IMHO. I saw some merino wool jumpers a couple of weeks ago, made in china, no where as nice as the made in NZ ones, but 1/3rd the price, but I wouldnt buy the chinese ones.
I have a policy, where possible I buy NZ first and foremost, followed by OZ then anywhere else. I wont however buy chinese food or american food, ever. I dont generally buy US made goods either if I can. Mostly their mass production quality is worse than the chinese IMHO, but custom stuff is good and sometimes there just isnt an alternative.
regards
dammit ive lost what ive written twice now...
I give up, yes there are some good companies here....
Navman started here,
F&P?
Dont dismiss food, isnt Fontera a world player?
Barnard and trueflite
Custom yaughts and boats, I have a mate that runs an international business...
Wine Industry?
Interest.co.nz has been showcasing some fine companies for months now...its been great reading.
regards
Ownership is what we need, At all levels. Direct and not via financial services. Small business and sometimes large business, but families, not remote owners.
The shift from owners to renters, from business being run by the owners to becoming run by financial services remote owners is a problem.
I don't believe communal ownership is useful, other than for shared infrastructure. Even in this area there is a problem in the government owners of such things as electricity now longer regard themselves as servants of the true owners - us - but now regard us as revenue producing units.
I strongly doubt that grinding the lower 90% into poverty or as near as you can reasonably move the population to, is in the best financial interests of the top 10%. (not to mention their moral, security and a whole lot of other interests.) It seems to me that an ecconomy is more vibrant and strong when every body is doing well, earning more than enough and spending. Grind everybody down and they stop spending, manufacturers do poorly, jobs evaporate and we are on a downward spiral. Sadly this is the direction where we seem to be moving and I think that it is every bodies interest to redistribute the weath that is accumulating at an alarming rate in the top 1-10%.
There is a wider perspective to this also. We also need to rebalance the wealth of countries.
Um, a wee note for those who somehow had taken my elegy as harking back to an NZ Golden Age.
More like a composite of the best bits of the Anglosphere, not fully realised anywhere, but a lot of the requisite componentry was in a lot of cultures, possibly still is.
But, like ancient bush tramway lokeys, ye'd haveta assemble that idealised state by dragging a magnet through the parts bin, now.
Some a them bits, though, are still of interest - an incomplete list:
- an organised, willed and non-violent succession for leaders of nations and businesses (something tribes and the Mafia never can quite achieve...)
- a way to make vox pop heard - heard, not necessarily acted upon - Canetti, the lack of love in a crowd etc.
- loose, voluntary associations which act as portable, temporary tribes - clubs, sport, group self-improvement etc. Roger Scruton, in 'England, an Elegy' regarded this as one of the key achievements of the Angles. Cricket - need I say more...
- popular support for a monarchy which is by intention and design completely politically powerless. This was the achievement of the Glorious Revolution in 1688: and is the thing the Republicans amongst us always overlook: far better to have folk concentrate upon a distant set of Royals and their imminent babby, than give immediate and local weight to the latest demagogue, who can in our funky little land, acquire real power and really use it.....the Presidential temptation.
I had specifically intended the piece to be a bit elegaic, being currently donkey-deep in Peter Ackroyd's Tudor history (Henry VIII through Eliz I) - and concurrently reading Mantel for another voice of that time. It's hard to escape the feeling that we're setting up for a re-run - history is a rhyme,etc.
Hey ho.
Unfortunately, I'm rather late commenting on this so let me be blunt. This is more sensationalist bullshit by Bernard Hickey. If he had done any research at all, he would know that to be in the top 10% of income earners in NZ, you have to earn a massive $70k p.a. Try telling a parent supporting a family on that income that they are "rich" and need to be taxed more. What utter tripe. The problem is that we have too many low-skilled, low-wage workers and beneficiaries. You don't fix low standards by turning the thumb screws on the higher achievers. [----deleted---. Comment on the issue, don't resort to personal abuse. Ed]
Actually its more aimed at the top 1% who own the same amount of assets and capital as the bottom 50%. Note, top of this high income does not equal high achievers, sure in some cases, but the evidence now points to parasitic behaviour from the top few % and they seem to pay very little tax at the same time.
regards
Yes but as usual Bernard's comments are completely out of context to create hype rather than a balanced and informed discussion. The top1% pay most of their tax through trust or company structures and do not pay income tax like the bottom 50%. Also, if you look at the number of jobs the top 1% have created and what they have achieved, you'll see why they have more assets and income than the bottom half. What have the bottom half created? How many jobs do they offer? Much of that bottom 50% actually cost our country more than they will ever contribute. Let's give them some more handouts from Uncle Bernard!
Waymad had the same idea recently. Called them Olympia, Carpathia, Mauretania, Aquitania...Britannic....
Drelly, clearly you are coming from this either mis-informed, politically biased, or both. Actually the top 1% dont seem to produce much and dont provide much in the way of jobs. The ppl who employ are the small business people, they wont be in the top 1% by and large.
So lets see the evidence on your claims about the jobs the top 1% have created please.
The bottom half actually spend their money to live in shops, who employ ppl, they get things wholesale off ppl who make things, all this employs ppl.
Beyond that we are a society all 100% of us...hence that 50% make up an important part of this society...and we run an economic system to benefit as many as possible (if not all) and not the top few %.
Now however we are getting into politics and not economics or finance, but the evidence seems quite good that when the middle and bottom do well, so does an economy. As well as that, after 40 years of the top 1% doing better and better at the expence of most others, clearly we can see the result is a mess....
Oh and here is an interesting piece of data on how being born to the right parents is a huge advantage, and if not, a huge dis-advantage....
http://milescorak.com/2013/06/18/income-inequality-equality-of-opportun…
From,
http://krugman.blogs.nytimes.com/2013/06/23/we-were-middle-class-once-a…
regards
Hey Steven,
Do you have some details on who the top 1% are, where their wealth came from and what they do? I'd be interested to see it because I don't know specifics and until we know, we're both generalising.
The small business people should be in the top 10% however...
The bottom half also include a huge mass of beneficiaries who don't spend their money. They spend my money and other tax payers money.
Of course being born to the right parents is a huge advantage. It always has been and it always will be. Not just because of wealth but because of inherited atttudes.
after 73 comments, perhaps we should ask the simple question:
Bernard makes an assumption - a totally unsupported one. He assumes that if you just managed to pry all that moolah from those who have it, then those you gave it to could be wealthier and we'd all live happily ever after.
The disconnect between 'wealth' and 'what it can buy' is the fatal flaw in Bernards treatise. Cash-in all the held-proxy-expectation du jour, and there arent enough resources to deliver.
Which is where folk like KH ultimately fail too, in trying to limit to conversation to just that which comes within some comfort-zone. You simply can't discuss money, without ascertaining what there is to buy. When all is said and done - it's a form of hiding/denial.
Nah, I've just got this theory about relativity.
It states that if you address as big a picture as possible, then you are the least at risk from limits or zoning that you can be. It further suggsts that the more you do limit, fragment or restrict your zone, an inverse-rise-of-risk-of-wrongness-via-omission rule applies.
IT (infinity of thinking) = WD (Wasted Debating time)2 .
Can you. perhaps, answer my question - and it's a fair one related to this topic, surely;
If we flattened out all 'wealth' to 'even per head' - which is where the Hickey approach presumably is headed - what would we be 'worth' (a) NZ locally (b) globally?
:)
Three things:
1. Tax. In a global employment market you have to be competitive to attract and retain talent. E.g. I met a vascualar surgeon from America on the weekend, before deciding to come here she had job offers from Ireland, Australia, Hong Kong, etc, etc. She is in the top 1% and we desperately need people of her skills here, she wouldn't have come if we were going to tax her 75%. The 1% are also often the job creators, they're not all parasites.
2. Your better off introducing compulsory bonus payments for employees based on performance of the individual and the company. So if a companies profit increases the workers are entitled to a % of the increase based on thier performance but the bonus is only paid if the companies profits increase and the individuals performance is acceptable. Or introduce laws that state a certain % of a companies shares must be distributed amongst the employees so they are incentivised to work harder and are rewarded for performance.
3. Don't you lot have anything better to do with your Sunday ;o)
So, don't tax more, pay more. Incentivise the 90%, spread the wealth, cut benefits, pay more to those who are working.
Happy123, evidence please?
1) Because the above person you quote is one of the few who yes get paid well for something useful. However what jobs does she directly create? She doesnt run a business employing ppl as such, she's either self-employed, or works for a hospital. If she's the former she will be in a private hospital and most of her clients wont be able to afford her prices, so rewally she's of no benefit to 50+% of NZers.
2) I can agree with...a good employer should think along these lines IMHO...a xmas bonus even a prety small one for effort makes good sense IMHO..
3) Nope, sick as a pig with flu....I'll torture you all day...
;]
4) Yes raise the minimum wage...
5) Benefits are already low...and probably too low for long term health/well being.
regards
Hi Steven. On point one, used that particular example to illustrate how a tax increase makes it hard for any country to attract and retain talent, especially when some (on this site) are calling for 75% tax on some. Just because someone doesn't employ people doesn't mean we don't want them here.
Evidence for point 2, the financial services industry pay a lot of incentive bonus'. Sometimes half a employees take home is performance bonus. The FS industry have done rather well over the last couple of hundred years, maybe because their employees are properly incentivised and rewarded.
4. don't raise the minimum wage as that's reward for nothing, start someone on minimum wage and reward them if the business does well. No one should get something for nothing.
I think even employers and the 1% will support a policy of, the business does better, everyone does better, it's win-win. I'm an employer and I'd go for it, I get more and the middle class gets fattened back up.
5. not really part of this debate.
Hope your feeling better.
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