By Bernard Hickey
This week I stumbled across a frightening piece of footage that took me back to an era I hadn't thought about for a long time.
It was a clip from Television New Zealand's archives of Roger Douglas in full flight in the mid 1980s.
I had forgotten how his moustache bristled when he was at the peak of his powers, lecturing an interviewer about the need to free up the economy and run a tough budget.
I shuddered a little, knowing his successor in 1990 was Ruth Richardson, who was even more zealous about open economies and tough budgets.
I'm old enough to remember attending Richardson's press conferences in 1992 and 1993. It was a very different time.
This week thirty years ago New Zealand was in crisis. It was nearly bankrupt, socially divided and ready for change. Rob Muldoon had strangled the economy in red tape and was pig-headedly refusing to listen to a generation wanting to open New Zealand up to the world.
Within a month a drunken Muldoon had called the July 14 snap election to avoid losing a vote on anti-nuclear legislation. He lost in a landslide.
The fourth Labour Government of David Lange and Roger Douglas then unleashed a bloodless revolution that swept away decades of regulations and shook our post-war welfare state to its foundations.
1984 was clearly a turning point in our economic history, for better and for worse.
It's been long enough now that we can start to judge how those changes have affected a generation or two. Few would argue change was needed or that all the change was bad.
Many people are much better off, but a couple of data sets released this week show the benefits have accrued to some generations more than others.
The winners and losers can be clearly broken down by age and the year 1984 is coincidentally a key moment.
Those born in the years since March 1984 have been the losers, relative to those born in the 1950s, 1960s and 1970s.
They are the Baby Bust generation.
They were born into an economic crisis and the deepest recession seen since the Depression. As they were growing up, many of their parents were unemployed. Some of those young families struggled to cope.
Many broke up and even now the second and third waves of poverty that sprung from those young families of the late 1980s and early 1990s are washing through the social welfare system.
Statistics New Zealand released home ownership figures this week showing how the Baby Bust generation have fared relative to their elders.
The home ownership rate for those aged 15-40 fell to 22.1% by 2013 from 35.3% in 2001. The overall rate of home ownership for individuals fell to 49.8% from 54.9% in 2001.
The home ownership rate for those aged 70-74 was 77.5%, barely down from 80.6% in 2001.
Home ownership is a crucial leading indicator of the health and wealth of families.
Those kids growing up in their parents' own homes tend to be healthier, less disrupted in their schooling, more connected to their surrounding communities and more likely to participate in elections. Those children are more likely to go on into further education, secure well paid jobs and have more stable families themselves. It is a virtuous circle.
Poverty indicators also show the young have been hit hardest since 1984.
As many as 25% or 270,000 of our children live in poverty, according to last year's report by the Expert Advisor's Group to the Children's Commissioner. They are the children of those born in the immediate aftermath of the 1984 revolution.
The poverty figures for our elderly are, happily, much healthier. Those in their 30s, 40s and 50s when the revolution happened are in a much more comfortable situation now.
The last Ministry of Social Development Living Standards Report done in 2008 found around 4% of those aged over 65 were living in hardship, while around 19% of children were in hardship.
There are a couple of good reasons for this, one of which was a political decision. The higher home ownership rates among the elderly, most of whom got on the property ladder before 1984, has helped them stay out of poverty. Those who are mortgage free can afford to live on NZ Superannuation because they don't have to pay rent and because the publicly-funded pension has kept up with both living costs and the average wage.
The policy decision to set the pension rate for a couple at 66% of the average weekly wage has meant pensioners' wages have risen much faster than benefits for those under the age of 65.
This week Social Development announced without any fanfare or coverage that student allowances, unemployment, sickness and domestic purposes benefits would rise 1.38% from April 1 in line with the Consumer Price Index. Pensions, however, would rise 2.66% in line with average weekly earnings, she announced.
This was the usual annual announcement, but reinforced that the gap in incomes between the young and old that is pre-set to keep widening year after year.
The other major reason for the widening gap between the pre-1984 generations and the Baby Bust Generation is the property market. I stumbled over the Roger Douglas clip because it was dredged up to remind us of a time of painfully high interest rates, which hit a peak of 20.5% in June 1987.
But back then house prices were worth around three times household disposable income, and even though interest costs were briefly at very high levels relative to incomes, they quickly subsided as interest rates and inflation fell.
The cost of buying a house started rising relative to incomes in the late 1980s and then really took off as the economy started growing more quickly in the early 2000s and the trend of buying rental properties began in earnest. This drove the ratio of house price to income up over 5 by 2008 and it has stayed elevated ever since.
The generations in their 30s, 40s and 50s in the mid 1980s hoovered up rental properties at a great rate through the 2000s and into this decade, realising the tax-free capital gains and the increasingly cheap and easily available debt in a low inflation era were money for jam.
Meanwhile, those born in the late 1980s and 1990s went through school and arrived to find they had to pay hefty fees for tertiary education, unlike their parents. If they were unlucky enough to be graduating into the teeth of the long recession of 2008 to 2011 they were hit doubly hard, suffering higher unemployment rates and much lower wages than their elders.
Wage figures out last year showed wages for those aged 15-35 rose around 5% in total over the four years of the long recession, while wages of those aged 40-65 rose between 18% and 29% over those same four years.
So 30 years on from Rogernomics and Ruthanasia the Baby Bust generation face high student debts, low home ownership rates, very high poverty rates and slower wage growth than those who can remember the Douglas moustache and the Muldoon cackle.
Now they face being locked even further out of the housing market by the Reserve Bank's high LVR speed limit, which has made the banks even keener to lend to rental property investors with big stocks of equity built up over the last 30 years.
Back in June 1984 New Zealand's houses were worth NZ$58 billion. Now they're worth NZ$708 billion and the vast majority of that is owned by those aged over 30.
How will the Baby Busters look back in 30 years time as they approach retirement, assuming the retirement age has not been delayed by then.
How will they judge the performance of the older generations who took the reins off Rob Muldoon and steered the country in another direction back in 1984?
83 Comments
Advice to BabyBusters & all young people.
Buy a house early in life.
Then ride the huge wave of foreign money & overseas owners & immigrants seeking a safe havn in this troubled world.
How to buy a house? Sell your car, get a bike. Move back home & save. Get 4 credit cards & juggle balance transfer for a deposit. Get married - 2 incomes better than 1. Buy in solid working class area but not a gang area.
NZ Govt has no intention of blocking foreign investment in our land & property.
Ignore the stupidity of 'better renting' articles.
Alternatively; rent, it's cheaper than buying except in some rural centres. Save your capital and wait for one of two possible scenarios:
1. A recession hits which forces the over-leveraged property speculators to sell as they can no longer keep up with the mortgage payments.
2. Wait for the baby-boomers to hit retirement age. Spiraling health-care costs will force these capital-rich, cash-poor to sell up all at once.
If lots of immigrants turn up looking for a safe haven in a troubled world, then it's a fair bet that we won't be exporting and our economy will be pretty sick. How are you going to pay the mortagage if you don't have a job?
Taking advantage of Time Value of Money regarding mortgages is great.
But MortgageBelt - have you tested your theory?
I did.
What you you do when your job moves from Woodville (where your house is) to Dunedin? How trustworthy are those Property Agents? Do you buy in the new place (have two mortgages!) or rent AND buy. Or do you pay the lovely real estate people all your saved equity to release your deposit from the property?
Get a bike? Ok...so we're only going to buy in Central or hot suburbs with good public transport - or hope our non-central employer doesn't change places in the 15yrs to pay down the mortgage. But those places are the most expensive houses, and you're trying to buy with a startout wage (entry level)??
All this to buy your divorced wife a house????? "interesting" plan bro...
This is a good time to review the last 30 years. But to do so requires us to to look back a whole lot further than 30 years. Within the context of the "founding myths" of the country - and I refer here only to the colonial myths - it is obvious the Douglas, Prebble, de Clene reforms were only half a job, if that.
My great-grandfather, in a memoir he wrote in 1939, was completely clear that the attraction for his father bringing his family to NZ during the Vogel go-go years of immigration was social mobility. If we have created a country where advancement is stifled then we are working against everything we thought we were about. And that means we still have a lot of work to do.
Re: "If we have created a country where advancement is stifled then we are working against everything we thought we were about. And that means we still have a lot of work to do."
Exactly and I think a politician or political party who can tap into this will be very popular. This is where I disagree with DH below. I believe our collective sense of identity is stonger than our individual basic self interest.
Besides a lot of baby boomer generation have publicly acknowledged that house prices falling back to historic ratios would have little impact on them but would greatly support the younger members of their family. I don'y really buy the argument that their is a conscious effort by one generation to exploit another.
I think apathy and vested interests are more to blame.
Political opportunity yes but no idea who will take it up.
As long as the left parties present as knowing best and/or promoting egalitarianism they will not capture enough votes to be in government for any purpose other than to give the rightist parties an orange at half-time and a chance to change ends.
The parties of the right have discovered a formula that allows them to make their supporters worse off and still retain power. Social mobility is relative so all these parties have to do is make a tiny part of the population into an underclass to make the middle feel better about their lot. It is no accident that we get a continuous diet of beneficiary-bashing and regular visits to Laura Norder leading up to an election. Its cynical but it has worked ever since Reagan and Thatcher so there is no motivation for the rightist parties to make an effort on behalf of those who want ot improve their lot (and the country's with it).
I can't see much changing in the near term given voter demographics and both Labour and National recognising where the voters lie (let alone parties like NZ First).
But the longer structural policies go on to benefit one section of society, the more extreme they need to get to extract the same benefit. Has anyone worked out the divergence of median and average wages, and worked out where the pension vs most other people is likely to go? It does also mean that when change eventually comes it needs to be more dramatic as the causes for it are more extreme.
I think the mistake of the 80s reforms was to only concentrate on economic liberalism not political liberalism. Kiwis have very few political freedoms. We have no constitutional right to build our own home like Germans have. We have no constitution at all. So we lack freedom from rent extracting property owners. We lack strong and independent local government supporting a wide net of competing economies. We lack check and balances on our Central government. No Upper house etc.
There has been a massive migration of kiwis from this land of the unfree to places where they explicitly having fewer rights, they are guest workers with less rights than the locals. Kiwis as a people have swapped political freedom for economic freedom and others have noticed leading us to be exploited.
The economic reforms have quickly degenerated to a system of economic rent extraction. Monopolies, cartels and duopolies are stronger now than before. Much of the haves wealth is now reliant on exploitation of the have nots.
We are heading into a relationship with China with the full encouragement of our government. But this just exacerbates our lack of political freedom because China is famous for its economic liberalsim combined with its suppression of political freedom.
Although if Hugh and Bernard is right it seems China is due some economic turmoils so this relationship could soon be experiencing some rocky rather than rock star times..... Where that leaves us regarding giving opportunities and freedoms to young kiwis I'm not sure.
That is exactly why those reforms were essential. The 'jobs' were pointless - making cars in New Zealand. These industries and many others were only possible because of a high tariff wall around the country, something that made life unreasonably expensive for ourselves and had zero effect on the rest of the world. What resulted was endemic crony capitalism for the favoured few (companies and unions) who could gain an import license. Officials at the Department who doled out those licenses were everybody's favourite bureaucrat, and we weren't top of Transparency International's tables then.
We should never forget the perils of a 'closed society'.
David except for Ivan no one wants to go back to import licenses and a closed economy. But it is not hard to see that we haven't removed crony capitalism from NZ it has just mutated to an even more virolent form. That is why we are not providing the opportunities for young kiwis....
David - that's horseshit. Sorry, but it is.
You either protect yourselves as a country and as a society and as a community and as a family - or you decide to compete. That always comes with the codicil: with the lowest common denominator.
So your 'essential reforms' are exactly what has driven the 'younger poverty' in this and other parallel countries. The inevitable trend is to compete with slave-labour, the other inevitable trend is the wealth being held in fewer and fewer hands.
Do the 'mea culpa' bit and move on David. What we have now is crony monopolism; far far worse than what we had, far far less egalitarian, and far far more likely to cause societal angst.
That's 100 % correct , David , we only have to look across the Tasman to see the pointlessness of subsidysing car manufacturing/assembly .... no matter how much in subsidies the tax-payers of Australia were forced to hand out to the car companies over the decades , those companies kept demanding more , " or else " ....
... that threat of " or else " .... or else we pack up , sack everyone , and go play our silly little game elsewhere ...
Don't let the door whack you on the arse as you leave , fellas .... on second thoughts , I hope it belts some sense , some manners , and some gratitude into you ...
... and that goes for the plonkers who own the Tiwai Point aluminium smelter in Bluff too ....
No one deserves subsidies !
I'm with pdk - your comment, David, shows your age as well as your inability to think with any semblence of objectivity, creativity and compassion. Just tell me what exactly was so "unreasonably expensive" that you couldn't afford it during that period AND then think on whether or not it was something you could do without anyway.
Whereas now, the things the caregivers of those 250,000 NZ kids living in poverty each day find it difficult to afford, are the basic necessities .. heat in the winter, food in the cupboard, visits to the doctor...
I'd prefer to pay through the roof for a car stereo and a new tv anyday than watch the devestation that neoliberalism morphed into globalisation is/has had on humankind the world over. The gulf in disparity is appalling... NZ, like the US and Britain lead the Western world in this regard simply because they had the worst of the megalomanics running their countries during that period of transition. Why do you think Australian wages are sooo much higher than NZs? Simple, successive Australian governments during that era moved slowly and thoughtfully. For Douglas, Richardson, Thatcher and Reagan people/citizens and their (as you say) "pointless jobs" were expendable. Well, by my book, there is nothing more pointless than being an adult and having no work, but being able to buy a new broom made in China for half the price you might have paid in 1984 inflation adjusted terms.
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I entirely agree. I was born pre War and my generation were lucky enough to have governments of both parties who wanted the best for its people starting with its children. So unlike now when both parties talk about progress only in terms of businesses. In my day we knew that if people had enough money to make their lives better they would and they did. Everybody could get a job because that was how the economic system of those days was designed. It was the Labour Government who, in 1984, destroyed the lives of our children's generation. I can never forgive them for that. I think it was Joseph Schumpeter who said that there were three words that explained economics. Politics. Politics. Politics
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Kate I agree that we should be aiming for full employment but not by subsidizing well paid jobs, labour should be subsidized to compete against machines so those without jobs can have a job.
The way our social welfare system works, if you are poor the state will pay for your children, if you are middle class and cant afford children, you cant afford to have children. If you only allowed those who could afford to have children to have children, child poverty would be all but gone.
Doctors visits are subsidized, try going to the dentist.
Most people would be unhappy if the government paid the power companies to discount power to consumers, but thats the way it was.
The reforms were not the problem, just policy ever since.
Do you want "full employment" ? really?????????
Or Are you talking about a decent level of living (income).
Two completely different things.
I have a bunch of fields that can be turned by free volunteers is you're really wanting full employment. I'll even throw in the spade.
_WHY_ are doctor visits subsidised? Why do they not have to meet market forces like other businesses?
Power production facilities have been around a long time and been paid off, the depreciation charge has already offset more than enough revenue for their replacement. Technology has improved by magnitudes. Why are the power prices rising? They shouldn't need discounting to not be the level of overcharging they are now.
I do think the situation did need to change from the early 80s- for example Olive oil was only available on perscription and there were massive rorts around the strangle of importers licences, but world history has shown when people say "there is no alternative" in general a) there are actually alternatives, and b) some group will benefit disproportionately and some group will suffer disproportionately, and the less the alternatives considered the more the disparity will be.
Your book is incorrect.
It is far more more pointless to be an adult and work crazy hours doing busywork just to put a little food on the table and pay someone elses mortgage, in order to get old or get sick from the effort and stress from constant danger of losing ones livelyhood, all in order to be asset stripped by parasitic old age and health system.
The system we use of indentured slavery has become overpopulated and out-globalised, but it's masters still hold on to their towers, and the serfs their ignorance.
It was certainly an elegant theory- that each country should be doing the things it was naturally suited to do, then everything is made in the most efficient way possible. The thing it clearly missed though, is that can what a country is good at scale up to give the members of society who were employed in all those sunset industries a new job with purposes and hope for the future. I'm going to suggest in NZ the answer has been it hasn't because of limits in the number of people that can actually be diary farmers etc, and this is really what underlies discussions like the Big Kanhuna- if we aren't accepting a level of inefficiency how do we give the same hope and community building that those less efficient jobs created.
In my view the reforms of the 80s and 90s had five key elements that I recall, and that can be judged somewhat independently. Following are the reforms as I recall them, along with my judgements on each:
1) to open the economy to global competition, by reducing tariffs and most importantly, getting rid of the cronyistic licence system that operated until then. An essential reform, that forced efficiencies on many industries, and those that had no chance with very poor economies of scale, and no real added value, like car assembly, we are better off without. Most of us now can buy a range of quality goods at very good prices, that could only be dreamed of then.
2) Commercialising Government entities into SOEs such that they had to achieve efficiencies, and consider customers as customers. Mostly effective, and pretty well managed by Richard Prebble.
3) Industrial reform to take away the worst excesses of union power that Muldoon had indulged and frankly encouraged. Mostly these reforms were also effective, although arguably may now have swung too far the other way.
4) Currency floating, with the Reserve bank Act, and single minded inflation targetting. Just gets a pass mark, with the Current Account being a disaster in terms of NZ wealth destruction now for 30-40 years, and structurally so, such that if trading improves, the currency will knee cap it. The rest of the world has moved on post the GFC, and we are very slow to play catch up. Note I would not remotely go back to pre reforms in this respect, but the Reserve Bank Act needs some other key targets.
5) Selling the SOEs. Generally a tragic and unmitigated disaster, with many tens of billions of dollars of NZers wealth destroyed as a result. Unintended consequences relating to the current account deficit only have made the sales worse; and yet we still continue. Some non strategic assets might reasonably have been sold; and strategic ones perhaps sold into a NZ Super type fund, but nearly all our sales have failed any test of possible benefits over time.
David I am going to join a few others here and say I am thoroughly disappointed in you if that is what you really believe, I thought you were smarter than that. What we are talking about is a redistribution of wealth and what you are saying is what we have now is better than what we had then. Perhaps for you it is, but for society as a whole it isn't, and I remind you that you ARE a member of this society. Do you really want to be the richest man in the poorest street?
This thread certainly is creating some strange bedfellows. I find myself in the opposite corner to Kate for a change.
I would urge everyone to remember the distinction between policy and implementation. When I said above that Douglas et al had done half a job I meant exactly that. Subsidising loss-making ventures really is just the equivalent of getting people to dig holes in the ground then fill them in again. But no-one ever answered the question what do we do when we are not building cars. Even at the time it was apparent that that government was over-using the magic asterisk as in:"Our plan is deregulate, magic asterisk, prosperity for all". You may remember when asked what all the Clyde Dam construction workers would do after the Ministry of Works and Development was vapourised the answer was they would retrain to become wine waiters in the burgeoning tourism industry. I.e. the government was in la-la land about the future they were creating.
There were fabulous pieces written after Thatcher's death explaining that the Britain she created was almost the opposite of what she thought she was creating. Now we are slowly waking up to the fact that, as Brendon, has already pointed out deregulating may have cured one disease but it served only to introduce another just as bad. Of course we could try tackling our inefficient, rentier-owned markets which would be better than simply turning back the clock.
Just to point out a flaw in your analogy, a car is a product whereas a dug and refilled hole is not. The loss making venture kept employment, and thus the velocity of money and wealth in the domestic economy. Not that I agree with cars particularly, but the principle at stake.
"Efficient producer" is a bit of a joke under globalisation. The real "efficiency" gains in manufacturing now lie almost exclusively in lower wages for those building these commodity items. Why else did F&P send their manufacturing to Mexico but to capitalise on the lower wages? This is the inherent problem with capitalism - its a race to the bottom on labour costs. Similarly, most of the "efficiency gains" claimed by governments and businesses these days arise from restructures resulting in redundancies (lower labour costs). Look at the trend toward labourless grocery checkout.
I once did some consulting work for a NZ importer of kitchen utensils from China. His "efficient offshore producers" consisted of a village of female labourers squatting for hours outside in assembly-like rows on bare ground whilst they "manufactured" (pieced together) the component parts of slotted spoons, potato peelers, egg beaters, whisks, you-name-it kitchen utensils - finishing with sticking them onto the cardboard backing complete with NZ retailer 'house' branding. The got paid roughly the equivalent of a days minimum wage in NZ for over a months work.
And the owners of these "manufacturing" operations sold at cost to the NZ supplier, because the government subsidy paid to Chinese manufacturers for increases in the volumes they produced and exported was high enough to be the only profit they needed to run the "business" in the village.
I'm not saying all the elements of capitalism need be thrown out with the bathwater. But, we do need to accept/understand the Marxian analysis of capitalism and think hard on how it inherently seeks lower wages and fewer workers as a means to remain "competitive".
Part of the goal was to produce more leisure time (thus increasing employment numbers as per the 30's). However inflation played a part, as did compulsory standards of living increases (with a huge number of compliance costs.) Staff often don't produce to standard, and profits are much higher on doctored produce (and buying cheap saves money, true then as it is now) so competition was towards the worst product and cheapest rate. Put in the compliance rules to force safe products, costs rocket.
Many people wanted to use their leisure to buy more things, which meant getting jobs or businesses. Inflation treadmill. leaving behind anyone not wanting to be part of the rat race.
With your chinese women, how far did that days "minimum wage" go? For someone in a cultyre of low costs and no compliance rules, that could go a long way. far futher than the "give the job to a robot" version which only helps a banker get a bigger pool. Which is the problem with better paying jobs and trickle down, they just get more expensive versions of the same or invest in business which create more expensive versions of the same. This doesn't help anyone in the bottom half of the pyramid
At the same time the Labour troika were giving away the NZ economy to Fay Richwhite I read my first thinkpiece pointing out that we already produced enough output in the developed economies to satisfy our real needs and that the issue was one of distribution not production.
It is likely we will look back on the last 30 years as an 'unfortunate experiment' to solve that problem.
The real leadership that we need is from those who, in a world of automation, stabilisation of global population, and resource constraints, can show a way for us to lead satisfying and full lives without resorting to exploitation and economic serfdom.
We see in a similar result in magickal workings.
Attempt to create change in the universe by pushing (eg payign more, putting in jobs) is like pushing a rubber bladder. It gets more and more resource consuming to control, and when the pressure goes, the rebound creates the exact opposite to what was wanted.
Similar happens in science/engineering. If you want to dam a river for power, you have to acknowledge it's alive and full of changing energy. It can be diverted and/or you can build foundations to absorb the pressures - but try and block or force and it'll just build up until it goes right over you.
The only way to do this successful is create incremental *potential* for the desired situations to occur. Like the diverted river, many small changes are more effective than sweeping change.
However the real danger is you *have* to *know* exactly what you want in the end.
Full employment sounds fine to some people - but that could be scrambling in wilderness for food or shelter taking all day. Only when you know your true desired outcome can you pick the steps which support its existance.
More jobs have been created. Here is the data from StatsNZ.
In March 1986 (earliest available on Infoshare)
- Working age population = 2,529,100
- people employed = 1,626,000
- unemployment rate = 4.4%
- participation rate = 67.3%
- employment rate = 64.3%
In December 2013 (latest available)
- Working age population = 3,546,200, up 40.2%
- people employed = 2,311,200, up 42.1%
- unemployment rate = 5.9%
- participation rate = 69.3%
- employment rate = 65.2%
A larger proportion of adults are working today than in the mid-1980s. We now have a participation rate that other major economies can only dream of. At least 30,000 more people are working today than there were in the mid-1980 (adjusting for the adult population growth). And that is despite a higher unemployment rate. As the unemployment rate drops, these gains will rise further.
How about you finish this off and compare how average wages compared with house and general living costs, then and now. How about you break it down so that say, people on those lists who are working less than 30 hours per week, which would have been considered full time back then, but is not now, are excluded so that you are comparing apples with apples.
And in 1986 the percentage of people with a full time job was about 41% of the total population, and in 2014 it is about 40%, so the increase in participation and employment by about the same amount in the same period seems really to just be a shift to a casualised part time workforce.
What a perverse use of statistics. A larger proportion of adults are working today because they have to as a direct result of the reforms. Think women who would otherwise be supporting their children and older people who would have been retired.
A higher participation rate is a disaster for social cohesion
Real, a lot of older people are choosing to work longer. Women in their 50's and 60's I know who work part or fulltime, enjoy the social interaction of working, and dread the thought of being at home all day, or being forced to take up 'old people's past times' like bowls etc. I know of young women who are choosing to put their young infants in to childcare because they don't find being a fulltime mum fulfilling enough. One such mum had her 2nd baby 2 months ago and has returned to part-time teaching solely because, she said, 'I get bored being at home with the kids. I don't need to work for financial reasons'. They live rurally.
David, could it be argued that Rogernomics and Ruthenasia has done nothing to improve the state of affairs you outlined in reference to the perils of a ‘closed society’? What’s more the consensus seems to be that crony capitalism is even more rampant and virulent than before your aforementioned enlightenment.
Speaking to my father today, he thinks NZ farming is in a bad place, primarily due to debt. It is generally attributed to capital gain, and this could be argued to be a function of, or at least related to crony capitalist neo-liberal reform, as it occurred in tandem. Of course it might play into hands of corporate ownership, but how is that more efficient than the traditional single farm ownership model, with their various middlemen and fat cat cling ons. Is it the supposed transparency, the corporate governance (SCF anyone), or is it they get subsidies and free rides like no other, eg Landcorp.
Beware the perils of a ‘closed society’ indeed.
Us baby boomers with all our housing and other assets have been truly blessed with the advantage of timing, free education, cheap assets to buy and ambition to get ahead. Here I am at 58 retired and plenty of capital and income. In doing that we have pushed up asset values to the detriment of our kids. We should not spend it all as the next generations will need help to get ahead .
Very true Gordon and thats my approach. Although very little of it was actually made from housing, what I do have will mostly go to assist my children while I'm still alive because they have a tough road to hoe without question. I'm not so convinced though that assets prices will remain forever elevated as I'm strong believer in the statement that "what is unsustainable will stop"....and this housing market for one is there now or close to it. I don't know the trigger or timing, but when it does the baby boomers will be amongst those sufferring some losses.
GrantA - often I disagree with you, but not on that.
Hughey gets it right too, but for the wrong reason. There WILL be a 'correction' to house pricing, globally. The bigger question is whether the fiscal system can survive it.
I say not. The endemic problem in 2005-7-8, was never identified, and therefore never fixed. It will therefore re-emerge.
Then it gets interesting, minus the interest. :)
Gosh pdk I can't imagine what I've said that can be disagreed with, I'm normally just talking facts :-)
I hope you're wrong on the last point, but thats what my gold's designed to cushion, hopefully.
That said, I agree with David as you'd expect, although nothings black and white as we all try to paint it.
So gordon, do you class yourself as an 'average' baby boomer, or an above average baby boomer in terms of wealth. Do you believe that the 'average' baby boomer retires at the age of 58? You mentioned the other day about a couple who lost a lot of dollars in the collapse of finance companies and are now working as gardeners. Are they baby boomers?
CO the people I referred to are baby boomers who put all their super payout into finance companies. All the directors of those failed companies should be shot.
I would call my self above average in terms of wealth. Probably very high net worth in fact. Only because I started saving for retirement once I started working 30 years ago as a professional after 9 years of tertiary study involving two degrees and a post graduate course. My wife has never worked full time and only went part time when the kids were old enough. One advantage us baby boomers had was free education at university and another was I personally only needed a $100,000 loan at the highest for a home and that was the last one which I still live in and it is worth say $1.3 million.
From the first day I started work I started buying shares and today I have holdings in private and public companies. The private ones are generally involved in property and retail and have substantial debt in them but they are not excessively geared. My advice to everyone is start saving for retirement the day you start working. Have a balance in your investments. Anyone who puts their savings into just property is a fool as they have missed out on substantial gains which do not involve renting to people who do not respect your homes and there are no costs.My retirement is based on dividends generally from companies. Retiring at 58 and getting away from the stress of emails and pressure from clients has been good for me and my doctor has remarked how good my blood pressure is compared with when I was in practice.My overall advice is start early to save for retirement, set goals and be diversified in your investments. Do not kick yourself if you make mistakes as everyone does make financial mistakes. I have tended to trade when I should have been just putting shares in the draw. Finally have some fun to. Buy a nice car if you want to and travel if you want to. As you might not even live long enough to retire. You never know what the future will bring. Personally I wasted too much on cars which offset the cost of good regular holidays I never took . Luckily I have retired with good health.
gordon, Good on you for building a successful career aand setting yourself up for an earlier retirement. I agree that it is important to start financial planning young. Good health is the greatest wealth of all.
The issue I have is with generalisations of baby boomers (and I'm one of them). Just because you went to university, it is wrong to imply that baby boomers were assisted in their success due to free education. In my group of family and friends none of us went to university, yet most of us were retired or semi retired by the age of 53. There are many, many people who lost their life savings/retirement savings in finance company collapses. They may live at a nice mortgage free address and have a nice car that was bought prior to the collapse, but today, that doesn't mean that they have financial wealth that would label them 'wealthy' baby boomers. So please, be careful of generalisations of baby boomers. ;-)
CO I originally planned to retire at 55 but it was too early for me. 58 seemed just right and after a month off doing virtually nothing I eased myself into my role as directing one company in particular. One thing I did not miss is the huge amount of emails received day at the office.
Baby boomers in my opinion have done very well out of life and some have been particulary greedy. I can say this because I am a boomer and I have personally witnessed them take advantage of the times they lived in. As a professional not involved in property directly but associated with it I saw many of them go for it. They think they are clever but really they were lucky. In 2001 things were pretty quiet in the world and property in New Zealand was just mulling along. Then came September 11. Interest rates were dropped to save the markets and property was cheap. Who was ready to go? The boomers. Sitting on debt free or near debt free homes, enjoying good incomes and therefore had the abillity to borrow and those cheap assets just wanting to be bought . The rest is history. In my opinion we will never see the property growth of 2001 to 2007 again in our lifetimes. Auckland has done well of late but when you take the losses of 2008/2009 and inflation into account it is not fantastic. Shares beat it. And did the boomers go for it. Take the example of the elderly widow from Tauranga moaning about interest rates going up in say 2009 or so and affecting the $10 million borrowings on her fifty odd rentals in Hamilton if I recall correctly. Does she need 50 rentals? No wonder X and Y are generally bitter when they see what they need to borrow today to just buy their first home.
My impression is most of the comentators here are not of the post 84 generation. I am just old enough to remember Muldoon and remember how good a place NZ was back then (no thanks to Muldoon). I remember not locking our door. I remember being able to run free in the neighbourhood from a very young age. I remember when murders were the high(or do I mean low) point of the news for the month because they occured so rarely.
I wonder what the post 84 generation think of this discussion? Are they apathetic because they know no different? Have they given up that society can be better? Do they take matters in their own hands and migate to better places like their ancestors did? What is the thinking of this generation? Where do they communicate? Is it at interest.co.nz?
A comment from somewhere recently Brendon in regard to the low uptake of driver licensing among youth, my son included. That is that the young of today can't afford to run a car. Says it all really.
As for what is their thinking, they are probably not mature enough to get it yet. But watch the hell out when they do because all the old fogies here will be powerless to stop it.
scarfie, The young people I know who want to own a car do, (not sure of their debt levels in doing so) but I also know some thirty somethings who find a bicycle and public transport serves them just fine and they have no desire to own a vehicle. For some people a car is a want, not a need. Does your son want, a car, or need, a car?
You would have to ask him that question CO, plus the multitude of other young people that also haven't bothered to get a license. My other one is perhaps a minority and owns a car, but then doing a double major in engineering and science puts that one in a different league.
I remember those times well enough Brendon. Previous to that we sold everything we had to the UK at excellent prices and we had a very good standard of living as prescribed by the times. When that fell over with the EU, Muldoon refused to accept that NZ's situation had changed and he borrowed NZ to the brink of the IMF having to step in...then reality came home to rost. No more free rides, earn your own keep,
and it is easy to scare old people about young people. But no, demographics don't really explain the rapid up in 86- have a look at the graph on page 3 of this
http://www.rethinking.org.nz/assets/Newsletter_PDF/Issue_101/Reducing_I…
other than the 86 to 91 blip NZ has followed the pattern of a lot of countries in seeing a drop in violent crime matching the phasing out of lead in petrol. You can easily find it looking for the Environmental Lead Hypothesis, and while I don't think it is the whole answer it does seem to be a better match than just age demographics.
You are quite right DH re violent crime. I was just describing how my childhood was like (most of childhood was over by 86).
In many ways NZ is getting better and better as GBH often says.
But in the areas that we are not improving the solution is not to turn the clock back. I agree with Kumbel and Grant A in this.
I think it wouldn't take too many political adjustments for life in NZ to be good.
No it wasn't. It was a monocultural Morris Marina world. Don't forget that the Nats won the 81 election on the back of the worst redneck politics i have ever seen.
Whilst this is an 'economic type' site I am somewhat surprised when the reference to 'then and now' comparisons only refer to the economic issues. It is more complex than that. A great change can be seen in the family unit/society values and those changes also have to be also taken in to account. 'back then' young unmarried mothers could only get benefits in exceptional circumstances, 'back then' kids were happy to accept assistance, when offered, for parents to help with a deposit for their home, herd etc. I am frequently telling young people today who tell me 'they want to go it alone with no help from parents' to stick their pride/ego in their pocket and take everything that is offered. 'back then' communities/neighbours cared about one another. 'back then' families valued food on the table over a Sky subscription etc.
This article ignores some fundamental issues .
The so called easy life of the baby-boomers was not as easy as widely believed
Successive Governemt migration policy and Monetary policy is 90% of the cause of where we are today
Then consider these :-
1) The popolulation ( number and profile) of the New Zealand of 1980 looks noting like the NZ of 2014.
2) We have had inflation of up to 15% in this period , of course house prices would increase by at leat this and the compounding effect would exacerbate this
3) We followed a monetraist economic policy model , which encourages rent seeking investment in the non -tradebale sector ( houses ) rather than in tradebales and manufacturing ( which was doomed )
4) Sustained decade long high interest rates and a high currency made us uncompetitive , so everyone knew our industry would be gutted .
5) Why invest in the likes of Feltex or Fischer and Paykel fridges when its much safer to invest in rental income generating property?
BH - thank you for clearing this up for me. Here's me thinking that studying hard to get a degree, working hard at my career, not buyng the flashest car or flashest toys, taking only modest OE's, paying down my student loan and settling for a one bedroom unit as our first home were the reasons I was able to get ahead. In fact it's not all my hard work and sensible spending decisions. It's just because I'm born a few years before 1984!
I reckon if I started out as a 20-something today exactly the same strategy I have taken would work. The only real imperdiment to getting started is the LVR restriction.
Certainly there is vast room for improvement in the current system but please let's not create a "poor me" generation.
Boy, did DC get a pasting about his views on Rogernomics and its aftermath.
Rightly so!
Our moderators must remain strictly neutral on the political side and stay strictly within the economic subject that this site occupies. Preference for economic ideologies are outside their margin, in my humble opinion. We had the heavy hand attempt to come down on the Immigration side issue, so keep within the b oundaries, buddy.
There's yet another sidelight to the whole 'broad sweep of history' approach that BH takes in his article: the danger that an awful lot of societal changes have occurred, most of them having nothing to do with the Gubmint of the Day. Looking over that time period, it's far too easy to conflate all those currents, pick a few gross indicators such as hosuing ownership, and draw simplistic yet plausible conclusions.
The world is more complex than that.
Consider this recent George Will article, f'rinstance.
So there are at least six other major influences that can be pointed to:
- the increasing irrelevance of religion (at base, a social 'glue' - religare=to bind)
- the sexual revolution: female control over their own fertility - as Chou-en-Lai said when asked about the effects of the French Revolution - it's too soon to tell.
- the rate of technical change: '50's and 60's were coal ranges, jobs-for-life, a deep and wide social safety net (itself a reaction to a generation which had survived a Depression and a War, with neither). Boy, did that alter...
- the rise in the perceived value of education (itself an outcome of the technical advancements).
- a golden period of climate - especially coming out of the cooling years just after WWII and the hottest-ever 1930's(... US dust-bowls)
- the spread of democracy and trade: what Pinker (quoting Adams) refers to as 'gentle commerce' - almost approaching the pre-1914 era in trade, but with much improved societal settings.
So, conflating all this lot (none of which has much or anything Governmental in it), with the '70's politicians who added another layer of change in on top, and in a country almost the size of Melbourne, is a job which needs a Tolstoy-size book, not a slender article.
A 'Game of Thrones' book set, perhaps?
About 3 years ago i saw a VHS tape in the Christchurch library it was called "Someone Else's Country". It was a documentary all about Rogernomics and i think it was made by TV3.
Pitty they dont put it on again.
In that documentary Olly Newland was stating how the banks were begging him to borrow millions. He couldnt belive what they were saying. Of course the banks became flush with billions because they had been de-regulated and their reserves were slashed. It was this massive expansion of money that pushed up interest rates and inflation to over 20%. I was paying 24% on my mortgage.
It's here, in seven clips, if anyone wants to watch it: http://www.nzonscreen.com/title/someone-elses-country-1996.
I saw on the overseans news the other day that Portugal is saving its economy by selling citizenship and passports to the Chinees.
If you buy a half million dollar property you automatically get citezenship and a passport. It is bringing many millions of dollars into the economy.
Sounds like the NZ economy. Is this the big boom were getting?
Pre 1980 when we spent our money most of it went back into production and creating jobs. When we had growth we also had an increase in jobs.
Now when we spend our money most of it goes to - paying huge salaries - excessive company prifits - a huge increase in advetizing - taxes (GST) and user pays - corporate welfare and so on. Very little goes back into the economy to create jobs and what jobs are created are low paid shop jobs selling whats been made overseas.
To people complaining about child poverty, remember the 1950's and 1960's what old age poverty consisted of.....
Start out poverty is difficult, especially in an age of unrealistic expectations.
Nothing can be done until people are willing to choose more wisely. Until they act like humans and not pleasure focused animals.
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