by Russel Norman
The Current Account figures came out this morning. They show a marginal decline in the position according to Dept Statistics:
For the year ended September 2008, the current account deficit was 8.6 percent of GDP. This compares with a deficit of 8.4 percent of GDP for the year ended June 2008.
This is a bad picture and, if we hadn’t all become so used to it, we would be up in arms about it. Economic policy has been based on the idea that you can borrow your way to prosperity for so long that we don’t blink an eyelid at it.
We have a large goods deficit ($2.3b on Sept year) because we import more goods than we export and a smaller services deficit ($0.47b on Sept year) but as usual most of the deficit is on the investment income side ($13.7b). The investment income deficit is because New Zealanders pay out large amounts of interest to service overseas debt (the nett overseas debt is now at $166b) and to give returns on overseas investments in New Zealand.
This is in large degree because we destroyed our productive sector (especially manufacturing), we have borrowed hugely for the housing speculative boom, and our foreign investment rules are weak.
But I think what is really interesting and disturbing is how we are funding it. Previously the private banks borrowed lots of private money from overseas and then on-lent it to cover the deficit (largely through the housing market).
But that source seems to have dried up over the June and September quarters and the state sector is having to liquidate assets to cover the deficit. According to the Dept of Stats:
In the September 2008 quarter, a $5.4 billion net inflow of capital financed New Zealand’s current account deficit. For a second consecutive quarter, the inflow was primarily due to a withdrawal of New Zealand assets from abroad. This withdrawal of $4.7 billion was added to by $0.8 billion of foreign investment into New Zealand.
The withdrawal of New Zealand investment from abroad was driven by a net $5.5 billion divestment of reserve assets by the official sector (Reserve Bank of New Zealand and the New Zealand Treasury). This is the first divestment of reserve assets since the March 2005 quarter.
The ANZ report had a little more info:
New Zealand’s Reserve assets were reduced to the tune of $5.5 billion, primarily through a $7.5 billion reduction in foreign exchange reserves. In the June quarter, the bulk of the current account deficit was funded via sales of “other investment” of around $6.3 billion.
I think ANZ are right when they say:
These means of funding the current account deficit can obviously not continue for too long, and highlights the vulnerability the New Zealand economy faces heading into 2009.
As a debtor nation that continues to add on the debt, we are vulnerable to a global credit crunch. We are only currently managing to spend more than we earn because the govt is selling overseas assets rather than the banks borrowing privately on our behalf.
The laissez faire monetarism that has dominated government policy since 1984 is looking pretty shaky. You can’t borrow your way to economic prosperity even if you jack up interest rates to attract loans from overseas to keep paying the interest on the ever growing debt – at some point the lenders will stop lending.
I guess we’ll stave it off by the government borrowing private overseas money (assuming the wholesale credit markets are sufficiently functional next year) and pumping it into the economy. But that will only delay the day of reckoning. At some point the currency will drop further and we will find our ability to buy our favourite overseas goods and services is diminished significantly. We need to pay more attention to the productive and tradeable sector of the economy (which incidentally includes the environment!) if we want to have the kind of sustainable economic development we want (which can’t include relentless growth in resource use).
Published in Economy, Work, & Welfare by Russel Norman on Mon, December 22nd, 2008
Tags: current account deficit
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on the trolls and those who are unable to keep on topic
You could make the case that new Zealand is lucky (or maybe something more positive than “luck”) to be able to actually “fund” real money in good faith: many fellow OECD countries are either fiscally bankrupt, or rampantly cranking the printing presses generating fake money and a post-recession inflation nightmare (ie morally bankrupt).
Having said that, I still haven’t forgiven Bollard for destroying the value of the NZ dollar. Taking on the US in a race to see who can lower their intrest rates the hardest and fastest was always a futile exercise.
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I’d say it’s more actual bankruptcy than moral bankruptcy
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dbuckley
“You could make the case that new Zealand is lucky (or maybe something more positive than “luck”) to be able to actually “fund” real money in good faith: many fellow OECD countries are either fiscally bankrupt, or rampantly cranking the printing presses generating fake money and a post-recession inflation nightmare (ie morally bankrupt).”
Well, for one thing our government IS fiscally bankrupt if you think about it, like every other government in the world since Nixon closed the “gold window” after having abolished the Gold Standard in 1971. That “good faith” that “investors” have in our government is rather misplaced as all money is fake as the “good faith” that is supposed to give our money is value is actually based on lies and deception. We’re told that the banking system loans the money of depositors to borrowers who have need of credit, but no one seems to question where the depositors actually got their money from do they? For simplicity’s sake, lets just say that all money is based on debt to private banks.
The money from the government’s printing presses are actually a truly insignificant portion of the money supply. Government backed notes and coins consist of only 3% of the money supply. The rest is monetized debt of borrowers entered into the deposit (liabilities) column in a bank’s digital ledger. The reason that Banks pay interest to depositers is because it gives society a personal stake in the success and continuation of their enterprise and to be brutaly honest it amounts to a form of blackmail of government as deposits also act as a means of security in case of loan default If banks engage in overly risky behaviour and their capital is at risk they can demand a bailout from government, because depositors will lose their money and no one will be able to have credit, we can’t have that can we? So no matter what, they win! Well except if you’re Lehman Brother’s that is, but then I guess they were the convenient fall guys and as far as the power’s that be believe, the industry is in need of “consolidation”.
“Of course, [banks] do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts. Loans (assets) and deposits (liabilities) both rise [by the same amount].”
– The Chicago Federal Reserve, Modern Money Mechanics (last updated 1992)”
I wouldn’t be too hard on Bollard. The collapse in our dollar was influenced by factors beyond his control. Most of the “money” “invested” in the Dollar was purely speculative and the Japanese carry-trade was bound to unwind eventually anyway. Not to mention the US Dollar attracted “investment” like bees to the honey. For what reason I just don’t know. Their economy was and still is on the brink of collapse despite all of Paulson’s and Bernanke’s “helicopter drops.”
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The reality of our society is that there is never enough choice for people. We could live on local seasonable vegetables, but we want to have everything always. We could survive on local building products, but we want the American and Australian stuff too. We could sustain a domestic car manufacturer with three models and dominant market share, but we want a choice of all the cars made in the world. We could sustain a domestic white-goods manufacturer with three choices of fridge, freezer, dishwasher, microwave oven, oven, range, range-hood, clothers washer and dryer, etc., etc., but we need to be able to choose from 30 front and 55 top loading washing machines! We could . . . . . . . . yeah, you get the idea.
Our market is TOO SMALL to have the choices everyone wants and still have domestic manufacturers. Add another 10 million people and maybe we’d have a chance, but as we are – we will continue to be the family that wants everything now, and so buys everything on hire-purchase, except that for us it’s spelt higher-purchase.
10 years to uncorrectable bankrupcy, then Australia will get us for a fire-sale price
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About three years ago I worked with a bank economist to figure out how much in foreign exchange the Councils were costing us by inflating the value of land in New Zealand. We calculated the inflated portion of house prices for New Zealand as a whole using the Demographia affordability index. (we had already shown that one could “manufacture” a section outside Christchurch for $30,000 at reasonable profit but that section then was selling for $135,000.
Anyhow it turned out the total overseas debt equate almost exactly to the inflated portion of the value of the real estate market.
I then found we needed the export receipts from the wine, fishing, horticulture, and film industry (and I think forestry) to pay that interest. So had we not inflated our real estate market those industries would have been real earners rather than paying interest on overseas borrowings.
I predicted these outcomes in my report to the Reserve bank of 1995.
So when you look for who to blame – look at the planning schools.
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Forget NZ look at the US does anyone actually think they are going to pay back their debt, I mean come on.
NZ on the other hand will be forced to pay their debt aka Argentina, the US no way. The difference Nuclear weapons!!!
You see no body forces you to pay back your debt if you have the capacity to wipe out life on earth.
Look another thing to blame on the green party if you guys hadn’t oppossed nuclear weapons we could have gone into more and more debt and never paid any of it back
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Absolutely Owen, them and the people who want to limit the amount of land available for housing.
I bought an 800 sq meter section 15 kms north of Brisbane CBD in June 2007 and built a 340 sq meter single story on it (actually I contracted with Dare Construction for design and build – don’t want you to think I’m safe with a hammer!) Total cost (including granite bench tops and tiled right through) $385,000.
Here in Churton Park, just 15 kms north of Wellington the same house on an equally sized section will cost me $850,000! Three reasons. The scarcity of land has put the section cost here at $325,000. The lack of qualified tradesmen to do the building has raised the hourly rate for self-employed plumbers, tilers and decorators to over $85 per hour; chippies, sparkies etc., etc., are coming in at $70-75 per hour. The cost of permits, consents and inspections adds $48,000.
Yep, you’ve guessed it! We’re not going to build the house here! We’ll just carry on as we are until we retire, then hop over to Brisbane and enjoy the house we’re renting out right now, taking our discretionary spend (we’ve been saving for over 45 years) with us. Next year? 2010? don’t know but not far off!
As an aside, the guy in North Brisbane Council APOLOGISED to me because the building permit took three days to process!!!!!!!
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Turnip
No problem m8, we’ve got better then Nuclear Weapons! If they try to collect the debt we can send Helun to explain reality to them, they’ll never ask again!
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Mr McShane,
Surely allowing higher density developments would effectively increase land supply (ie. I can build 2 or 3 units on my 600 sq m site, rather that just one McMansion) in the same way, but without all the environmental effects of sprawl?
At 35% site coverage and 8m height limit you can get 400 sq m of floor space on my property. That’s 3 reasonably sized units, and hey you’ve improved affordability without creating a false economy of sprawl where people spend any money they save on rent/mortgage on getting to work each day.
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That was the theory but the theory is disproven by real world experience.
Actually there are some efficiency gains in inner cities on expensive land from moving to single family homes to Town Houses (which is why I invented the word Town House as part of my work to free up housing markets and improve choice in the mid sixties) but forcing whole urban populations to live behind Urban Limits simply generates the cascade of increased costs experienced by Dave S and anyone else unfortunate enough to find themselves in a Smart Growth market.
In NZ especially going above two storeys adds dramatically to building costs because of our high earthquake and wind loads and of course the large amount of space allocated to public space such as stairs and lifts and parking etc.
Why do you think people on the urban periphery take longer to get to work each day? In the real world they have the shortest and least congested trips because they normally drive from suburb to suburb rather than to downtown.
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I’m not suggesting going above two levels, although obviously in the inner-city that makes perfect sense.
What I’m suggesting is re-looking at how density is controlled in places like Auckland City. If you take the current Residential 6a zone and apply is to a 600 m2 section (I use that size as I live on such a section at the moment), then you are encouraged to build a 400 m2 (200 m2 x 2 levels) monstrosity in order to maximise the value of your land. If you keep the maximum building coverage and building height the same, but stop controlling units-per-site you immediately allow potentially three times the number of units to be built on that same piece of land.
Clearly that would help housing affordability, and in a REAL way as you would have sufficient densities to make public transport viable, to make walking to the local shops viable, and with mixed-use developments you would also make it much easier for people to live closer to where they work and so forth.
The model you propose sees reducing land prices as the end point, rather than as the means to improving affordability as a whole. Plenty of research has shown that people living on the urban fringe spend masses more of their lives and masses more of their money on transportation than those living in inner-cities. Surely that’s unsustainable?
While I agree with you that planning regulations have driven up land prices, as Dr Kerry James Grundy states in the latest Planning Quarterly, that’s a pretty small-fry reason when compared with speculative investment. I think the main adverse effect of planning regulations on house prices is this obsession with units-per-site, which forces the under-development of inner-city sites that should most definitely intensify.
Surely you realise as well as I do that if the MUL was relaxed in Auckland we’d just end up with more McMansions for $600,000 like we’ve seen in Flat Bush and Albany?
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turnip28
… “nobody forces you to pay back your debt
if you have the capacity to wipe out Life on Earth.”
That would make an excellent a bumper sticker !
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IT’s the scarcity that drives the speculation. Grundy has it hopelessly back to front. But he is no economist.
Have you tried designing the layout of the six units on your site?
Have you included car parking and manoevering, and some room for some planting etc. And what about kerb parking and so on. High densities increase traffic congestion rather than decrease. Trips per household decrease slightly but the added households generate far more trips.
Residential density does not make public transport viable – employment density does. That is why Manhattan has a high use of public transport.
The whole purpose of a large city is to enlarge the employment catchment. There is no city in the world where people walk to work unless they work in a takeaway, a TAB, a dairy, or a brothel.
The”plenty of research” you refer to is hopelessly wrong in that people optimise location on total costs and families in particular have multiple destinations. this is why people on the peri urban areas consumption of fossil fuel is much lower than people in inner city areas. It relates to household income.
And if the MUL was relaxed and land prices fell then developers could afford to build low cost housing like they did in Auckland pre Smart Growth. It’s high land prices which make McMansions necessary.
I am afraid you have been reading Smart Growth propaganda rather than real research by urban economists.
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I see Owen, clearly the rest of the world is wrong and you are right. Of course nobody in a high-density mixed-use city such as Paris would dream of walking to work. Actually, I think even in Auckland (potentially the most pedestrian unfriendly city in the world) around 5-10% of the population walks to work.
I never suggested 6 units for my site, I would think three units would work though. A single parking space each would only be one more than what’s required at the moment. I have no real problem with limited kerb parking, as it shields pedestrians from cars and narrows the road in a way that slows down vehicles (making the place safer).
Regarding Manhatten, you do know that a million or so people LIVE in Manhatten right? And I assume you know that car-use in the suburbs of New York City (where residential densities are low) is much much higher than it is in Manhatten. I would think that proves the point that residential density does effect public transport use (although of course employment density helps). However, I think the greatest determinant of public transport use is actually the quality of the system. Perth and Brisbane have lower densities than Auckland, but higher public transport usage – simply because they have vastly superior systems.
I’m curious to see some facts to back up your assertion that those living in peri-urban (I assume that means the never-ending sprawl of Houston) areas use less fossil fuels than someone living in the inner-city. I would be quite amazed if someone on the outskirts of Houston drove their car less than someone living in an area well-served by public transport in inner Paris (for example). I mean barely anyone needs to own a car in inner Paris to start with, while those on the edge of Houston probably need to drive 5 miles to the dairy for a loaf of bread.
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jarbury it isn’t the fact that people live in manhatten which drives the public transportation use. Its the concentration of business.
New York is a perfect example of how a city should be built, with concentracted employment centers that can easily be fed by public transportation systems.
Their are people coming from CT,long Island, NJ as well as the city itself.
Parts of Manhatten at night turn into a ghost town once the comuters go home.
Do we have any examples of this with any of our city planing in NZ.
NY’s construction wasn’t man made but was more luck due to it being an island which kind of restricted growth and forced the centralisation.
Note the public transportation in NY works great when you try to go from brooklyn to Manhatten but try and comute from brooklyn to Queens can be a nightmare.
It isn’t trips to the dairy which you design public transportation for. You design public transportation for comuting. Building a good public transportation system requires concentrated business districts. If they are spread all over the city then it gets difficult.
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I utterly disagree that Manhatten’s residential density isn’t the cause of its (comparatively) high public transport usage. Most of the subway lines in NYC go up and down Manhatten Island, and then over to Brooklyn or up to the Bronx. This obviously serves those living in Manhatten better than anyone else really. Just look at car ownership rates on Manhatten: according to the 2000 U.S. Census, more than 75% of Manhattan households do not own a car.
The commuter rail system for NYC (Long Island Railroad, Metro-North, NJ Transit etc.) does assist in letting those further out in the suburbs. However, for those living within the reach of the subway system, indeed they can use public transport for far more than just commuting.
I never actually said that public transport should be designed for people to get to the dairy. I said that a city should be designed to a density that allows a dairy within walking distance of everyone. That isn’t possible in the kind of sprawl that Owen McShane dreams about. Try walking to the dairy in most parts of Dannemora. Compare that to a high-density mixed use area like central Paris (or central Wellington for that matter), you’ve probably got about 20 dairies and other stores within short walking distance.
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The public transport system in Manhatten is being used by mostly non-residents on a daily basis jarbury if you argument that its the residential density then why can’t I travel from Brooklyn to Queens, both have high densitiy so I should according to your theory be able to travel from one to the other.
The manhatten subway system was designed to get people from their home to their office.
As someone who has lived in NY City jarbury nobody walks to the dairy other than to get smokes most purchases are brought online and delivered including grocery’s brought online and then delivered by truck by a company called fresh direct. Why is that because space is so limited that their are not enough room for supermarkets. I would have hated living in NY city before the internet and online shopping it must have truly been hell on earth since space is so expensive and what they call a supermarket in NYC has 3 or 4 rows of food items with little choice and jacked up prices.
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What about the G line? http://en.wikipedia.org/wiki/G_(New_York_City_Subway_service)
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Wow we’re really getting off topic here. LOL.
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since 1984 Frog? Mudloon spent our money like water, it’s that that precipitated the sell-offs of the Douglas era.
So I take it you support Ruthless’s Fiscal Responsibility act?
I do, shame we can’t do the same with the whole economy.
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haha pointing to wikipedia to support argument, ask anyone in NY to tell you about the G line.
Hint its called the go no where line. It is always breaking down it never comes etc. Why?
Because it isn’t a comuter line. Only comuter lines get funding for upgrades and regular train service etc.
The people living in Manhatten get good train service because they happen to be living on comutter corridors. The middle strip of the island is prime commercial realestate say midtown, 5th,6th,7th Avenue. The commercial rent there is insane. Most people have a weird concept of Mahatten and think its all highrise buildings but its not Midtown is built up and so is the wall street area.
My friends who still live in Manhatten live on the lower east side which has crap subway service. The areas which have good public transport are mostly commercial in the wall street area and the mid town area. People don’t really live in those areas, except wall street is now changing from a commercial area to a residential area thanks to the democrats and unions driving business out of the city.
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I’m not quite sure what your overall point is. Owen’s argument was that commercial density not residential density makes public transport viable. My argument was that BOTH help: obviously for a good train system to work you want people/jobs to be in sufficient densities near the train stations at both ends of their journeys.
However, I also make the point that auto dependency in my opinion is more of an outcome of past transportation planning as it is from residential or commercial densities. Auckland has invested hugely in motorways rather than its train system, which is the main cause of our auto-dependency. Los Angeles is the best example of this: it actually has among the highest densities of any US city, but is hugely auto dependent because it has a million freeways but a pathetic rail system for a city of its size.
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Jarbury
The reason Manhattanites do not have cars is that the cost of a parking spot is comparable to the cost of the apartment they live in and the lifespan of a pristine new paint job is measurable in minutes. The damned things cost too much to keep in that environment.
OTOH, you are correct and that people use the Subway for just about everything in NYC. It is a marvelous tool for getting around… but it is also pretty grotty. If you want to see a really FIRST rate public transit system go to Moscow.
The urban density issues are real enough though.
Owen… when the densities are high enough you have a MARKET within walking distance, not a simple dairy…. and a pharmacy, dry-cleaners, starbucks and hardware store. The problem in NZ is that we never get anywhere near the density for any of that. Even when I lived in that environment though, I had to drive to work. The mass-transit in LA sncks.
respectfully
BJ
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It’s possible to have a foreign currency account with a local bank. I’m thinking a Euro account right now might be a good idea. Yes, that currency has just gone up a fair bit against pretty much everyone already. There is good reason to see more upside there, given he even sorrier state of the US financial position and the precarious state of the UK economy and the pound. The Yen is vulnerable to a big slowdown in experts while Europe is not so vulnerable, having a large domestic economy. The only thing in NZ’s favour is the relatively higher interest rate we offer, but – as Russell points out – that does not appear to be sustainable.
That’s the crux of it really. The present situation is no longer sustainable.
Worse, the National Party appear to have their hearts set on implementing policies that further undermine the situation for workers…and thus weaken out domestic economy even more. If that weren’t all bad enough, their suite of policies regarding reducing regulation (read: oversight) and tax cuts (when we’re facing huge deficits anyway) looks VERY^ much like the same wrong-headed nonsense George W Bush implemented in 2001: policies conceived in boom, implemented in a bust….and the consequences of all this are all around us and unfolding even now.
Yet National thinks doing the same things will be good. I can’t see it.
To that end, I’m getting my money out of NZ dollars as soon is I can manage it. Hopefully by the end of next week.
Paul Krugman spelled out in 2003 why this was all madness….and no one listened. Fool us one once, shame on them, fool us twice…..shame on us. .
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What started this subway sidetrack was Owen’s response to Jarbury advocacy of zoning to allow two or three dwellings where only one McMansion is currently permitted. Owen’s claim that three dwellings will generate almost three times as much traffic as a single home is based on studies using aggregate data.
These studies have compared the population density of cities (as defined by the Census Bureau) with the averge household vmt. The general trend is for each 100% increase in population density to produce a 20% decrease in household vmt. Failing to disaggregate the time and place of the vehicle miles travelled leads to an assumption that the vmt on local roads (or traffic density) will increase by 80% if the population increases by 100%.
If the 20% decrease in vmt is the average of a 40% decrease in weekday peak car use and no decrease in weekend and interpeak car use then the increase traffic density will lead to no measurable increase in congestion.
Likewise, if the 20% decrease in vmt is the average of a 40% decrease in urban car use and no decrease in rural (recreational or vacation) car use then the increase traffic density will again lead to no measurable increase in congestion in the census city.
There are a small number of studies that have disagregated at least part of the data. The most recent and authorative used traffic counters at TOD driveways to record actual vehicle usage in these dwellings. They were, on average, 50% lower than AASHO guidelines, and consistent with the urban/rural vmt explanation of the 20% reduction in overall vmt.
A second study, published by city planners in Portland, Or., found that the number of trips, average length, and proportion by car, transit and walking was not affected by suburb density. The pre-WWII inner-city streetcar suburbs had the same auto usage per household as the post-WWII auto-centric suburbs. However, CBD residents used cars only half as much and greenbelt lifestylers used cars almost twice as much. The very low car use by CBD dwellers may be the result of exhorbitant parking costs rather dwelling density or it may simply be that CBD’s attract a peculiar type of person, just as greenbelt lifestyle blocks seem to. The fact that this detailed study within a single census city failed to find the progressive correlation between population density and vmt that the intercity studies find may have much to do the type of people who chose to live in small, medium and large cities or even the type of travel that is faclitated or encouraged by those sizes. A New Zealand study in the 1970s found that Hamilton was small enough to allow people to pop home for lunch whereas the extensive use of motorways in Auckland and Wellington made people think more carefully about how they used their cars. The average car journey in Hamilton was only half as long, but there were almost twice as many trip per household per day, thus fuel consumption per capita was the same in Auckland and Hamilton. Christchurch was getting big enough to make popping home for lunch impractical for many or most people and it’s hub-and-spoke layout rather than the ribbon development of Auckland or Wellington meant that having the same number of trips per day didn’t result in the same fuel consumption per capita.
Where job density has been shown to be crucial for rail transit is for energy intensity rather than simply for ridership. Ridership can be high in high density cities but were jobs are concentrated at the hub of the rail system and the jobs are predominantly 9-5 then the rail becomes an arterial system with frequency of service oriented to the peak periods. Thus the trains achieve incredibly high load factors compared with buses and lightrail.
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Kevyn hits one nail on the head. Our behaviour determines our location – not the other way round. Planners like to believe that our location determines our behaviour and hence they should have the power to force us to live where our behaviour will improve.
For data on carbon footprints etc. Go to Consuming Australia a study which set out to show that inner city living produced fewer GHGs than outer suburbs but found the opposite. The reason is that all transport is only about 10% of a household’s fossil fuel consumption. Food accounts for 30%. In NZ at the national level the private car fleet consumes only 8.5% of the fossil fuel we use per annum.
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Owen… do you have a link? The logic that says it is more in the food than in the transport is sensible to me… but it seems to me that the folks in the city are eating the same amount of food as the folks in the outer burbs. Perhaps they are using more energy for cooling/heating?
respectfully
BJ
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Like the previous postings here concerning the current account deficit you again fail to demonstrate why it is automatically a problem, or is a problem in this particular instance. Dark (but very vague) hints of debts and liabilities only serve to enhance the suspicion that you really have no understanding of the issue. It seems that you’re scaring yourself by looking at just one part of the balance of payments.
- “This is in large degree because we destroyed our productive sector (especially manufacturing)”
Who’s this “we”?
It’s weird, isn’t it? It’s almost like the left’s ongoing assault on business, the ever-increasing regulations, the unchecked expansion of the non-productive state sector burden and endless government spending programs have negative real-world consequences.
And now here you are, apparently without a hint of shame, lecturing us on the need for financial prudence. It’s just sad that this epiphany did not occur before, when you were apparently too busy thinking up still more ways to spend the billions you extort from us workers.
“When she came to power in May 1979, the British economy, by every measure, was in worse shape than the U.S. economy is today. Inflation was out of control. Unemployment was high and rising rapidly. Job creation had been at a total standstill for almost a decade and a half…Yet by sticking to her policies of lightened regulation, reduced trade barriers, privatization of a raft of publicly owned companies, reduced taxation, and the adoption of laws to prevent abuses of union power, Mrs. Thatcher achieved something few if any of today’s economists have begun to consider. She achieved a genuine, productivity-led recovery that transformed Britain from perennial basket case into the Europe’s most improved and vibrant economy.”
http://online.wsj.com/article/SB122973275061123003.html?mod=djemEditorialPage
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BJ, Maybe they calculated per capita food consumption without making any allowance for the size and food consumption of children or the different numbers of children in the inner city and the suburbs?
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bjchip,
Go to:
http://americandreamcoalition.org/ConsumingAustralia.pdf
The study is as thorough they get. Some are appalling. One US study announced that inner city living had a smaller footprint than single family houses in the suburbs but all they had done was surveyed the number of appliances in the dwellings! And yet it got lots of press.
The major correlation is household income – which should not be surprising.
Just as price is a reliable guide to consumption of fossil fuel. Forty percent of the price of a loaf of bread is fossil fuel. The maps they produced are useful because they are broken down into Australia, States, Cities and Locations within cities.
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Thanks Owen… again I was “close” with the explanation. They are using more energy on a raft of things, not just heating, and they tend to be more affluent which is the best apparent predictor of how much energy they will burn through. Smaller households, less communal living/smaller family sizes. All of them factors. Which argues that density doesn’t quite do it. The large apartments which people pass on from generation to generation in NYC (weird laws about rent control and tenancies)… aren’t as common. The rule here is the microscopic apartment, isn’t it.
Then too it isn’t so convenient living somewhere, where you can wind up on the street in the middle of the night if someone else is careless with a toaster. More eggs and fewer baskets.
Food for thought.
Thanks again
BJ
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Interesting question Wat…. who DID destroy manufacturing in NZ ? I know who YOU want to point the finger at… but it is an interesting question.
Given that NZ was largely (until the mid-80′s) working with the state sector as the major employer and there was basically nothing here when I arrived in 2003 it all had to go someplace in between. There was a Mitzubishi plant here once, no? It was gone before this Labour government came in, no?
I am wishing for reference to a good historical treatment of the past 30 years in New Zealand. I’ve not been here that long so I do not know the answers to this sort of question.
The answer also may resolve into a who and a what and in fact that is what I expect to see.
What I do NOT want however, is to see the “tyranny of distance” overcome by allowing the business round table to sup royally, served by the rest of New Zealand. We know what to expect of unregulated business,,,, we see that in the ongoing global economic disaster.
respectfully
BJ
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We have been on a currency/housing speculation roller coaster.
As soon as the consequences of an economic recovery occur (inflationary pressures) the RB increases the OCR – foreign savers flood the market with cash and banks lend freely to property buyers. During this the dollar strengthens.
Of course as soon as we go into recession and start reducing the OCR, the foreign money goes and the dollar falls.
Is there any reason why this cycle will not continue?
We have a continuing BOP deficit at all points in this cycle.
In economic terms the problem is that we do not invest borrowed money in tradeable goods/exports, we use it to buy land at higher and higher values – this is as true for our farming sector as for residential property.
Most of our farming offers poor annual incomes – our farmers are actually land speculators who make their untaxed earnings from capital gain over the period of land ownership – they live off money borrowed from banks based on the rising value of the farmland (much as we had an economic boom based on the perceived wealth of those owning homes as they rose in value, we also had one in rural sector). This system results in the high dollar which undermines the export revenue returns of those actually dependent on profits from their business operation to make their living.
Basically our farming system handicaps the rest of the export economy and keeps us in dependency on them for our economic well-being. Thus we have to sacrifice the environment to our/their economic interest (to increase the economic value of their land and thus their untaxed windfall from their farmland speculation).
Treasury is sometimes right – we need a capital gains tax – I would put it on land rather than property (and I include in that farmland).
They are also right about a higher GST rate, I favour an increase in GST to 20% (which should include mortgages as this would allow a permanently lower OCR – thus lower business borrowing costs and dollar, this is similar to the RB’s idea of a surcharge on mortgages). We also need a more supportive attitude to domestic saving beyond Kiwi Saver and the Cullen Fund. This should come by deducting the CPI off interest income (say 2% off 5%) before it is assessed for tax (on the 3% return, not the 5% return).
This would move us towards less consumption and more saving and this would result in a lower OCR/dollar level – this would encourage investment (and lower borrowing costs for business) in the export sector.
As for the rest of our tax and income system – with the revenue from 20% GST
1. tax money reinvested in a company at 20%, not 30%. Our foreign investors take more out of our country in dividends than the companies they own make in profits – they have “their” companies borrow money to finance a higher dividend payouts. Tax them the full 30% and look at taxing such borrowing to finance dividends at a penalty rate of tax such as 50%, not 30%.
2. restore and increase Labour’s R & D tax incentives and depreciation writeoffs.
3. 10 cents tax up to the minimum wage.
4. zero GST on food.
5. restore benefits to the 1991 level.
6. adult (over 25 rate) dole level allowances to all tertiary students and all non working partners (not work tested for those with children under 5, part-time work tested for those with children under 12).
As for targeted spending
1. insure all state houses are insulated and set up for energy efficiency – assist all other homeowners who qualify with help to do the same.
2. Kiwi Rail – Australia and China are spending up big on rail as their prferred infrastructure investment, it’s just stupid to prefer big new road projects.
{finance National’s proposed capital spending in schools and small roading projects to maintain the existing network (including cycle and pedestrian needs) within budget}.
3. Increase state housing stock using any surplus builders and building supply capacity in the economy.
4. Restore Fast Forward and improve/expand it and the whole CRI system.
5. A 10%pa write-off of tertiary debt for teachers, doctors and nurses.
6. Increase fees or from tax increase funding to universities.
7. Increase non capital funding of schools for modernisation and running costs.
8. If there is any money left over – then look at moving the tax thresholds.
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BJ,
I am young and oviously, not having been born pre-rogernomics, i do not have dirrect experiance of the pre-rogernomics market, but my just granted what i do know is that the removal of subsidies, tariffs, and quota’s is what destroyed our manifacturing base as the production was inefficent and the labour too expensive compared with the lower price alternitives availible from else where; in dropping the protectionisim and opening ourselves to the world market we allowed the world market to pass judgement apon our industries and they were found guilty of far excessive inefficency.
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guess*
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Like the previous postings here concerning the current account deficit you again fail to demonstrate why it is automatically a problem, or is a problem in this particular instance.
wat dabney.
The issue with the current account deficit is that you can’t isolate the actions of particular firms or individuals, because since we’re utilising one currency and therefore our individual actions have collective consequences as we’re all acting interdepedantly within a single system.
The problem is that the current account deficit represents a structural imbalance in our economy and also sends a signal to potential investors in our economy that it has severe weaknesses which could indicate that we may be unable to pay for our accrued debts let alone present and future consumption. So obviously they would stay away and therefore lead to a contraction in credit liquidity and a collapse in the value of the Dollar, constraining economic activity, halting further development and making it even more expensive and difficult to pay back our debts.
Frogs warnings appear rather prescient when you read this warning from the ANZ bank in the NBR.
“Economists are warning that an adjustment in New Zealand’s current account is imminent, and if not carried out voluntarily it will be forced on the country.”
http://www.nbr.co.nz/article/nzers-warned-adjust-current-account-or-be-forced-do-so-39302
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“who DID destroy manufacturing in NZ ?” That would be the person who decided that NZ manufacturing should be for the purpose of import substitution.
That is quite different from Lee Kuan Yew’s decision that Singapore’s manufacturing should be for the purpose of earning export dollars and that import substitution was a small stepping stone towards achieving that purpose. That same decision was implemented in Japan and later in Hong Kong and Taiwan.
Since NZ implemented import substitution as an end rather than as a means to an end, it should coma as no surprise that we have fallen well down the OECD wealth tables and been overtaken by Singapore, Taiwan, Hong Kong and Japan.
If our manufacturing investment capital had been available to entrepreneurs with products that were ahead of the rest of the world we might have developed strong and thriving export sectors in the same way that the early Asian tiger economies did. But the protections erected as part of the import substitution regime made these industries a safer bet for the banks to lend to with the result that export oriented manufacturers were seen as higher risk and therefore under capitalised for ventures into anything other than the small niche markets where the inability to rapidly ramp up production capacity wasn’t a millstone around the exporter’s neck.
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If I may take the liberty of quoting from LeRoy the Redneck Rheindeer Merry Christmas y’all, and to all of y’all good New Year.
(l. Steve Pippin, perfprmed by Joe Diffie.)
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The economic disaster has hit the entire globe. And what appears to be happening now is just massive giveaways of the people’s money. In a few short years there will be no money to fund core government services. I am very scared for the world my children must not grow up in.
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Dave S says:
Our market is TOO SMALL to have the choices everyone wants and still have domestic manufacturers. Add another 10 million people and maybe we’d have a chance, but as we are – we will continue to be the family that wants everything now, and so buys everything on hire-purchase, except that for us it’s spelt higher-purchase.
………………….
But will we have the samr quality of life. I know Japanese who migrate dhere 15 years ago who now think Auckland is “just a rat race”.
Ordinary people have to stand firm agianst business interests: those woho can allways afford the right environment.
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I don’t reckon that NZ is anywhere near as bankrupt as the US of A. Here we do produce “stuff” which is stuff that everyone needs (food) and which is useful come hell or high-water. So broke is not what we will be… not exactly. What we WILL have to be is less dependent on the stuff from other places. Which we can be and other places mostly cannot be. In other words, we control our own financial house.. or can IF we have the political will to do so.
BJ
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‘we’re all doomed..!”..i reckon..
..and just a reminder that..during our annual media-closedown..
..that whoar will continue to chronicle the downfall..
..(twenty one fresh stories/links today/every day..)
http://whoar.co.nz/
and a belated ‘bah humbug!’..to you all..
phil(whoar.co.nz)
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Sleepy Treehugger said
“Like previous postings here concerning the current account deficit you again fail to demonstrate why it is automatically a problem, or is a problem in this particular instance.”
Surely you understand basic family budgeting, so I’ll try and explain it through that.
You decide to buy a house, so you pledge a significant amount of your future income to paying off a loan to buy that house.
You want to eat, be entertained, travel – all the things that most people enjoy, so you spend most of the rest of your money on that stuff. With a little good planning, you even manage to save a little of your income.
You decide you want a good new car , and you want to go to shows and eat better cuts of meat and eat out more often.ods. So you borrow more money for the car and the monthly cost of your borrowing goes up, but you’re still receiving more for your work than you are spending, even though you are not saving any more. You are still OK though.
Now you decide that you want to only eat the very best meat and organic vegetables and fruits and you want more in-home entertainment with movies and concerts on DVD. You don’t have any more money coming in, so you decide to borrow to pay for these things. Now though, because you can’t afford the payments as well as the basics you are getting into a life-style trap, where everty month you have to pay out more than you earn and so you are borrowing for the basics like bread and milk. You quickly reach the point where no one will lend you any money and you lose everything you have as it is sold to pay off your debts.
On a country wide basis, we have reached the start of the last of these positions. To be able to pay for the basics we import (and there are a lot of them, just look at the country of origin that is usually shown sonmewhere – especialy in supermarket fresh-food areas. People whyo sell us this stuff want to be paid and we can do this easiest by selling our goods to their country in exchange for local currency with which we pay our bills. BUT, if we don’t sell enough goods to generate enough income to pay the bills, we have to ‘buy’ money from someone who wants our currency to pay their invoices from us. If there aren’t enough of those either, we have to persuade someone to lend us money on which they will earn interest. The balance of payments is the difference between what we sell overseas (our national income) and what we sell overseas (Our nationaal costs) and if it is negative (known as in deficit,) we have to borrow currency to pay our bills.
These balance of payment deficits of ours are not government numbers, they are everyone numbers. If you buy a watch on-line from Switzerland, or a swiss watch from a high-stree retailer, it is a ‘national cost’ as we (New Zealand) have had to pay overseas, in foreign currency, for that watch. If you buy American grapes at the supermarket, that too is a national cost. If you sell a painting to an Australian, through the net, that is National Income, as the Australian has to pay you.
Simply put, one billion in exports ninehundred million in imports – a rich country, one billion in exports onebillion and one in imports – a bankrupt country. (apologies to Mr C Dickins).
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Here are significant findings of Sam Raker’s 2002 study that are totally
missing in today’s discussions and offerings from Smart Growth planners:
- On average, a person driving alone in 2000 had access to
roughly five times the number of jobs if he drove for 45 minutes
compared to walking-riding public transportation.
- On average, a person driving alone in 2000 had access to
roughly five times the number of places to live if he drove for
45 minutes compared to walking and/or taking public
transportation.
- In the future years of the study (2025 and 2050), these ratios
changed very slightly. Yes, with emphasis on public transit and
on crowding more people into jobs and residences near public
transit, there were slight enhancements, but the access to homes
and jobs was still overwhelmingly in the favor of those who drove
alone over those who had to depend only on public transportation.
- Moreover, the provisions for walking-biking-riding public
transportation satisfied the needs of well less than 50 percent
of new persons in these communities, and the lack of
transportation infrastructure for the majority of new residents
and employees in these communities would result in much greater
congestion in their vicinity, for any scenario.
- The majority of the 2000 task force members rejected the
scenario that placed all its emphasis on transit-oriented
development to the exclusion of balanced development and which
relied solely on walking-biking-riding public transportation. The
loss of mobility in the more crowded environment and the loss of
access to jobs and places to live were too unbalanced.
- The 2002 Planning Board, in its independent study, supported
the conclusion of the majority of the task force members.
The public today has reason to be skeptical of the vision of the
future promoted by today’s planning department and the Planning
Board. They are telling you only part of what the future will
look like, and ignoring conclusions of recent studies. Keep in
mind that this is the same planning department that has designed
for us today’s high level of congestion, about the very worst in
the entire country.
Sam Raker of Bethesda was co-chair of the Transportation Policy
Report Task Force (TPR-2) in Montgomery County (2000-02) and was
a special assistant to the Maryland transportation secretary
(2003-07).
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RE: Manufacturing under Muldoon.
Funadmentally Muldoon attempted to protect NZ industry by subsidies and tariffs while claiming this would help them develop the skills to export.
You might like to try that with the All Blacks or a rowing team.
After all, if you cannot compete against overseas companies in your own back yard how can you compete with them on their own back yard.
For many years (including the last of the Muldoon years) I was in the business of helping commercialise new technologies developed by the private sector and our Universities and Govt Labs. It was virtually impossible to commercialise them in NZ because the manufacturing sector was totally uncompetitive and indeed dysfunctional. So I ended up licensing our technology to overseas companies who could at least pay royalties back to our own innovators.
After Rogernomics swept that away it actually became easier and especially when the Reserve Bank finally got inflation under control. High inflation is the great enemy of research and development.
One of my clients became the world leader in rotary gas compression (for CNG etc) during the Muldoon years and when I tried to licence the technology to local manufacturers the companies importing compressors from Italy and Sweden etc lobbied the Government furiously to prevent this competition.
They won. We licensed it to Bendix and to the Chinese.
There is a case for nurturing new industry and I studied Singapore’s success. For example, Singapore set up tariff barriers to protect new companies but the tarrifs reduced by 1.5% every year with no appeals. After a few years they had gone and the company survived on its own merits. Instead Licensing and tariffs in NZ were simply political favours used to win elections.
we are still getting over it because old habits die hard. Sadly in the last nine years our government (like many others) confused a housing bubble with economic growth.
It will take us a long time to get over that.
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We can only sustain the status quo by having world leading interest rates financing our growing debt – but this means business cannot afford to invest/compete internationally because of the disadvantage of the consequent overvalued currency. Thus only areas where we have comparative advantage (farming etc) will survive to any scale in our economy.
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We know the problem – but neither main party wants to do what is required – we need GST at a higher rate and we need a capital gains tax as Treasury suggests, but also some other supporting moves to a sustainable economic restructuring – they must include establishing the framework for a lower OCR while ensuring saving and investment levels improve.
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Dave S,
Your household analogy doesn’t work to illustrate a supposed problem inherent in a current account deficit. The reason is that the current account deficit is necessarily offset by a surplus on the capital account (investment flows.) There is no debt. We don’t owe anything to anyone by running a current account deficit.
If NZ has a vibrant and growing economy it is highly likely that foreigners will want to send money here to buy into it (as they all do with the US.) To do that, they must make and sell stuff to earn the money they send here to invest. The happy outcome is an ongoing NZ current account deficit, offset by the corresponding capital account surplus. There is no debt.
Sure, some of us can live beyond our means and go in to debt, but that’s an entirely separate issue. And governments can run insane budget deficits (like the US) but, again, that is an entirely separate issue.
- “These balance of payment deficits of ours are not government numbers, they are everyone numbers. If you buy a watch on-line from Switzerland, or a swiss watch from a high-stree retailer, it is a ‘national cost’ as we (New Zealand) have had to pay overseas, in foreign currency, for that watch. If you buy American grapes at the supermarket, that too is a national cost. If you sell a painting to an Australian, through the net, that is National Income, as the Australian has to pay you.”
Firstly, you mean the current account deficit, not the “balance of payments deficit” which is, by definition, not a deficit or a surplus but a balance. Secondly, if you get in to debt by borrowing to buy a shedload of stuff – from NZ or from abroad – then it not “everyone numbers”, it is your problem and yours alone. It is not a “national cost.”
And thirdly, if I buy American grapes, that must be considered a benefit not a cost. It is, after all, why we trade – so we can get all those lovely imports.
- “Simply put, one billion in exports ninehundred million in imports – a rich country, one billion in exports onebillion and one in imports – a bankrupt country.”
It can now be seen that this is not the case at all. Not by a million miles.
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Wat
You postulate a wonderful way to become a banana republic. Let foreign money own everything, take the profits off to their countries as revenue, and leave us with nothing to make our way in the world with.
Sorry, there is NO example of a country maintaining a high standard of living with that model. If you look at the history of New Zealand, we have gone from one of the highest standards of living to a very mediocre one in just a few years. Imagine how much farther we will fall if we continue down this stupid track!
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The reason is that the current account deficit is necessarily offset by a surplus on the capital account (investment flows
Yeah… that has worked REAL well. Not just here but EVERYwhere it has been tried. As Dave S points out, this is bankruptcy writ large.
THERE IS NO SUCH THING AS A FREE LUNCH!!!!
BJ
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Dave S,
Your economic beliefs and assertions are extraordinary, and wholly belied by the evidence.
Foreign investment in the NZ economy means vastly more wealth is created here, better and higher-paying jobs, world-class know-how and business practises propagated.
- “let foreign money own everything, take the profits off to their countries as revenue, and leave us with nothing to make our way in the world with.”
Most of the wealth created by foreign investment is retained locally in the form of wages, taxes and local expenditure on goods and services (plus the valuable intangibles mentioned above.)
Even if you personally don’t work for such a venture, your wages are higher because of the competition and extra money in the economy. If you wish, you can take some of you new-found wealth and invest it overseas yourself. Thus poor countries become rich ones.
Our standard of living is determined by our productivity, which in turn is largely a function of the amount of capital behind each worker: We can be the well-paid operator of a digger, sitting in an air-conditioned cab, or we can be a sweating member of a road gang doing the same work with picks and shovels for a pittance. Even huge nations like China and India have derived vast economic benefits since they opened up to foreign investment. How do you think a country like NZ, with the population of one decent size city, could expect to flourish if cut off from global investment?
- “Sorry, there is NO example of a country maintaining a high standard of living with that model.”
I can’t even begin to imagine what you are thinking when you come out with this stuff. Please provide some examples of what you are talking about. What countries have been impoverished by foreign investment? How does this mechanism of ruin work, exactly?
It is a fact that foreign investment overwhelmingly takes please between rich countries; people from the US investing in Germany etc. How does that square with your belief that such investment spells ruin for the receiving nation?
- “if you look at the history of New Zealand, we have gone from one of the highest standards of living to a very mediocre one in just a few years. Imagine how much farther we will fall if we continue down this stupid track!”
You seem to be claiming that NZ’s relative fall down the rankings is due to foreigners investing here and that, if they are made to stop, NZ’s fortunes will start to rise again. Do you have any evidence to support such an outlandish idea?
Isn’t the truth somewhat simpler; that rapid industrialisation in other countries over this period has inevitably caused their average incomes to grow at a faster rate than New Zealand, which for geographical reasons remains a largely agricultural (and therefore lower wage) economy?
bjchip,
What didn’t you understand?
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Owen
I see that Muldoon argued that the protectionism was a temporary measure to allow NZ to “learn” to compete. That is perhaps, where he erred I don’t think an economy of 5 million people that is a thousand nautical miles from any other market can “compete” on equal terms with any of the larger economies. That’s just basic in terms of costs of doing business IN GENERAL. There are specifics where we may do better.
The first place is renewable energy. We have lots and can get lots more… which is to say, we can be in surplus in terms of energy (if certain parties would get off their fat patooties and get to working instead of talking).
The second is our agriculture which is blessed with a fertile land and a relatively benign climate.
Those two can give us some advantages PARTICULARLY if other country’s industries are having to pay anything close to the cost of the carbon they are using… but also as peak oil starts to limit their access to energy.
Parlaying those advantages into specific industry advantages requires some sort of protection/subsidy on an ongoing basis for those industries. It isn’t a matter of “learning” but it is the only way that we are going to retain the people who leave every day for Australia.
I have considered a little bit, the problem of NZers deciding rather than talking about stuff. People who decide were the people who originally settled here. They decided to move here. Then for a long time now, that same category of people have been deciding to leave. All the “deciders” have decided to go to Oz and the UK and anywhere else they could go.
There’s nothing to do here but herd sheep and milk cows. No decisions needed.
respectfully
BJ
BJ
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>>All the “deciders” have decided to go to Oz and the UK and anywhere else they could go.
They do decide to move back, too.
I run a successful, small export business (services, software). The bach n’ BMW set.
I don’t want to scale up, partly because I like the lifestyle and low stress here (else I’d locate somewhere else), and partly because there is little encouragement to do so. Limited access to VC, restrictive legislation, and unfriendly tax structures.
Business has been hated on by the Labs for nine years. As Owen stated, they mistook a debt fueled property boom for productivity. The people who will be hurt most by it in the next few years are Labours base, and only have themselves to blame. I have no sympathy for them.
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wat
Sorry, there is NO example of a country maintaining a high standard of living with that model.
The UK was the biggest exponent of your model, investing its wealth everywhere and sending off shore its manufacturing expertise – it now has a standard of living no one I know wants to maintain, including my daughter who lives there.
The USA did the same – look at them now, borrowing to pay their borrowings. Good model.
“You seem to be claiming that NZ’s relative fall down the rankings is due to foreigners investing here and that, if they are made to stop, NZ’s fortunes will start to rise again. Do you have any evidence to support such an outlandish idea?”
Wrong conclusion. I believe the slide was caused by us spending more on imports than we receive for exports and therefore being dependant on foreign capital which is only invested when the return is perceived to be higher than that available in the investors’ domestic markets.
As for “Please provide some examples of what you are talking about” – a request for me to prove that something hasn’t happened – why don’t you back your theory with examples of where it has happened! For instance, you can show me how the flow of $2 billion a day of loans into the USA right now is improving their standard of living and national viability.
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wat
Those who invest here – invest in world leading interest rates to enable us to borrow it and bid up the value of our land. This is not investment in our economy. Others buy up our economic assets and repatriate the profits as dividends abroad – they pay themselves more in dividends than they make in rpofits (even borrowing against the assets to pay themselves more dividends). They don’t reinvest the profits, so they deliver no investment in any economic growth.
At a certain point – when we cannot afford to pay higher prices for land/houses (to use the money attracted by high interest rates), and we have no further assets to sell (or cannot cannot borrow anymore against the assets we still own), and our government moves to an indebted position and cannot borrow anymore (even taking into account the rainy day of tax paid super liabilities of the future Cullen Fund), then they day of reckoning will have arrived – the only option then would be living within our government budget because we would only being able to borrow anymore at the sort of rates (because of the risk of currency collapse) reserved for finance companies before they go bankrupt.
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The problem Wat, is that relying on someone else’s debt to finance your development means that someone else owns your industry. That “investment” entails debt at all levels and debt is NOT money and can get destroyed much more quickly than real equity built on sweat.
The problem Wat, is that the entire OECD is built on a false promise of debt-based fractional-reserve fiat currency and this REQUIRES debt to increase, and growth of the putative economy, at 3% or better forever. Compound interest expansion. It is IMPOSSIBLE for it not to collapse, as Mises points out quite strongly. The result is what you are seeing in the global economy today and will be seeing for many years to come. The global “economy” is basically an attempt to have the illusion of a free lunch with our kids picking up the tab.
So lets ignore that for a while and discuss the idea of having a free lunch at the expense of foreign “investors” to whom we indenture ourselves for sums of money that we have to actually earn, plus interest.
The first fallacy is that there is “wealth created by foreign investment”… the investment makes it possible to build a new company but only a successful EXPORT company will actually bring in money to pay back the investors. All other economic activity is ultimately be a wash, and to the extent that the company does NOT export sufficiently to pay back the investment, the difference must be gathered from other New Zealanders or future New Zealanders. Globally, due to the currency basis outlined above, this “Capitalist Fallacy” does even more damage. The unnaturally high levels of “growth” and the resulting collapses, are no basis for social stability or peaceful coexistence.
Most countries in the OECD are going to be in the position that their only possible option is massive inflation or default on national debt or both. This isn’t something the bankers will admit as long as some fool is willing to put taxpayers of the future in hock to pay for their greed.
I don’t have a problem understanding that the basis of modern economics, the Chicago school, is dead wrong and is going to kill a lot of people.
That isn’t to say that “Capitalism” isn’t valid. Adam Smith understood the process well enough. It is the modern interpretation which is scrood up.
BJ
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Dave S,
For goodness sake. Now you are arguing the complete reverse.
Before, it was the countries receiving foreign investment which you said were being ruined. Now you’re saying it’s the countries making those investments which are being ruined.
It is really hard to discuss this when you keep dodging and changing your argument.
And you continue to confuse and conflate all manner of issues: We’re talking about trade and investment flows, and you introduce an entirely unrelated issue of borrowing and debt and somehow imagine you’ve made your point.
As an extreme example, let’s imagine a Japanese company invests $100 billion of its money to open a factory in NZ. This of course results in a huge capital account surplus and current account deficit for that year.
Since you seem to believe that this current account deficit represents debt, where does the debt lie? Who owes money to whom? How is “NZ” on the hook for even a cent of it, let alone the full $100 billion?
- “I believe the slide was caused by us spending more on imports than we receive for exports and therefore being dependant on foreign capital which is only invested when the return is perceived to be higher than that available in the investors’ domestic markets.”
In such a scenario it is the foreign investment which creates and results in a current account deficit. So you have it backwards.
And how exactly has the investment of foreign capital in the NZ economy been a bad thing? Every country in the world tries to attract foreign investment to grow their economies and create wealth and high-paying jobs. And all without incurring a single-cent of debt.
I asked you to provide some examples of your claim that “here is NO example of a country maintaining a high standard of living with that model [i.e. significant foreign investment].” Your reply was that I was asking you to “to prove that something hasn’t happened.” A reply which, frankly, I really don’t understand.
Can you, or can you not, provide a list of those countries which, you maintain, have been ruined by foreign investment?
You follow that with a request to show you “how the flow of $2 billion a day of loans into the USA right now is improving their standard of living and national viability.”
The short answer, of course, is that it isn’t. But the longer answer is that you are still confusing a current account deficit with debt. Where does that $2 billion figure come from? It’s not the result of the US current account deficit. Is it accumulating government debt? Then that’s nothing to do with the balance of payments, is it? That’s my point. You are confusing and conflating different issues.
SPC,
You seem to believe that foreign investment in NZ is nothing but a fiendish plot to steal our women and beads.
It is undoubtedly true that land in a vibrant economy is more expensive. But then so are wages and the whole standard of living. I hear land is cheap in most parts of Africa, but then so is life.
Trade and foreign investment is not some dark magic which lets people live beyond their means, but it does hugely increase those means so we have a vastly higher standard of living.
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The only people not “ruined” by the system as it exists today are the bankers.
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Basically the ruin hasn’t happened to everyone yet… it is still in the process of happening. Some companies and countries have a lot of inertia. “Too big to fail” but the end result is taxpayers underwriting the debt…. the debt cannot be “separated” into public and private anymore.
The end result huge malinvestment… What in the hell were the automakers thinking? They can and do produce (at a loss at present) thousands and hundreds of thousands more vehicles than consumers can buy or even drive.
Speculation…. there are more working roadworthy vehicles on the planet than there are drivers capable of driving them? I don’t know if this is true, but it COULD be and the major automakers ALL emphasized their productivity. With the result that the ports are turning into parking lots and dealerships are going broke… which would all be self correcting in the main except that the money to build the cars was borrowed money. The money to buy the cars was borrowed money. The money to build the houses was borrowed, the money to speculate is borrowed.
From who? From our kids, or from the Chinese. Depends on whether we default on debt or pay it back. If we default then we get punished in other monetary ways… so ultimately our kids pay the price. All this malinvestment, all this “Gross Distorted Product” growth… means almost nothing in terms of the real wealth of a country. Which HAS to account for both public and private debt. The current account is only a snapshot… but for it to be continuously in the red, in good times and bad, should tell people that something is fncked up.
BJ
The point here is that borrowing to build your business is not a good idea
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And the debt was all insured in 3rd party CDS instruments on which basis ADDITIONAL money was borrowed.
The net disaster is multiple trillions.
Great economic model… \sarcasm
BJ
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Sorry… noticed incomplete thought/sentence…. The point here is that borrowing to build your business is not a good idea if the business isn’t a good idea in the first place.
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bjchip said:
“The first fallacy is that there is “wealth created by foreign investment”… the investment makes it possible to build a new company but only a successful EXPORT company will actually bring in money to pay back the investors.”
I would make one small correction – a company that makes a substitute for IMPORTs will also save (foreign) money which can then be used to pay back the (foreign) investors. A good example of this would be anything reducing our dependence on imported oil and LPG or avoiding importing CNG, such as renewable energy development.
Trevor.
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Slight digression back to transport etc. I wonder what the advent of cheap broadband has done or might do to the commuter patterns? I work from home through the internet as do others I know. Meetings mostly take place through video-conference or on skype, so travel has dropped dramatically in the last few years.
On the foreign ownership thing – it seems to me that it does depend on what is invested in, for what purpose and how much the locals in fact are employed or involved. One rich American buying up vast tracts of land for a private hotel/golf-course etc for other rich Americans has employed some locals in very menial jobs at low wages, removed a couple of farms from production, cut off access to some of the most beautiful coastal areas. Other foreign companies who bought up farmland some years ago and planted pines on it have created a few seasonal jobs (planting, maybe some pruning, cutting); other effects include huge impact on poor unsealed roads, acid runoff into waterways, spray runoff into waterways and, in at least one case, destruction of gardens and orchards from spray drift. The spray helicoper guy got a job out of it I suppose.
Net benefit to our communities? A few low-paid and often intermittent jobs.
“Investment” by companies like Coca-cola and some big vege growers in countries like Mexico have done even worse: the low-paid workers have appalling conditions that wreck their health and remove people from their communities. Not enough space for detail, but films made clandestinely by some of those people are heart-breaking. Not all foreign investment is good.
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The effect of broadband on commuting and other travel is dramatic. I hardly ever have to drive to the bank like I used to.
But mainly, Telecommuting is the fastest growing commuter mode in the US (after commuter driving) and is now moving into the second phase were people drive a short distance to their remote office which provides a superiour Telecommuting environment – especially for those who depend on work for their social life and for whom the home environment is not conducive to full telecommuting.
Houston is developing a network of remote offices rapidly. Have a look on the web.
30% of the workers at the Sun Microsystems campus telecommute. That’s about 25,000 workers from memory. See Ted Balaker’s study or my column at the CRMS web page.
And now we have world wide trials of Avego which uses the web and broadband to turn the whole private vehicle fleet into a public transport system.
Of course our Land Transport Strategy denies the power of telecommuting because we all know that trains are the technology of the future along with transit oriented development. Some US cities with heavy investments in transit had effectively banned Avego. (Just search on Avego for the latest info.)
And remember a private car with two people in it is more efficient in EVERY way than any form of public transport. This is even more true if you remember that the true measure of efficiency is the efficiency for the user (or the freight) not the efficiency of the vehicle.
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Trevor29,
- “a company that makes a substitute for IMPORTs will also save (foreign) money which can then be used to pay back the (foreign) investors. A good example of this would be anything reducing our dependence on imported oil and LPG or avoiding importing CNG, such as renewable energy development.”
If we forego cheap imported oil and instead spend vast amounts of money constructing economic white elephants like renewables, we will have less wealth with which to pay back debt, not more.
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Wat
The “cheap” part of imported oil will last as long as the recession sits on our demand. As soon as demand rises (less whatever is in storage) the price will rise dramatically. If we have not built the alternatives before that happens we will be SOOL and the only persons to blame will be the short-sighted “cui bono” folks who have so far succeeded in impeding progress on this front. Labour and National both are pretty equal impediments.
BJ
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Owen, Is Sam Raker’s 2002 study available online so we can see how the Commissioners were led to these conclusions?
Both the 2007 report from Transportation for Tomorrow the National Surface Transportation Policy and Revenue Study Commission, and the more recent studies of per capita urban vmt reductions from Robert Puentes/Adie Tomer (The Road…Less Traveled: An Analysis of Vehicle Miles Traveled Trends in the U.S.) and the INRIX® National Traffic Scorecard Special Report (October 22, 2008) indicate that recent events have significantly discredited Raker’s assumptions.
Raker appears to have assumed that the factors driving traffic growth in the past would continue into the future. Declines in per capita vmt have been recorded in most metroplitan areas every year since 2003, including cities as diverse as New York, Los Angeles, Houston and Atlanta. These declines began when gas prices were declining. They are not confined to cities with improved public transport or smartgrowth induced housing bubbles.
In fact, since the 1960s US traffic growth has only slightly exceeded growth in the workforce, but has greatly exceeded the growth in population. Since the babyboomers are now starting to retire in large numbers and female participation in the workforce has levelled off a levelling off in vmt per capita was predictable, in broad terms, to anybody who looked at the demographic trends a decade ago. Added to these factors are the dwelling types preferred by young singles and retirees, especially widows and widowers. The young singles and DINKs have a statisticly significant preference for higher density locations compared with singles and DINKs in the 40-60 age group. Widowed retirees have a strong preference for retirement comunities, which are often located in the ex-urbs where land is cheap. Both of these are low vmt options, although for quite different reasons. Since these are the two fastest growing demographic groups there choices are becoming proportionately important to future transport planning.
Thus while Raker’s conclusions are true, they were only important in the era of strongly increasing vmt. In the modern era of declining vmt they become largely irrelevant. With US gas prices still double what they were when Raker reached his conclusions one has to question whether “access to roughly five times the number of jobs” is still a meaningful definition of mobility, or even whether driving for 45 minutes is still an activity accessible or desirable to the majority of American workers.
Was the Transportation Policy Report Task Force tasked with reporting on land-use policy as well as transportation policy?
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The current price of new geothermal power stations is around $3 per Watt. That isn’t what I would call “spend(ing) vast amounts of money constructing economic white elephants”. Given that the electricity companies are paying for new geothermal power stations it would appear that they too think these are not white elephants. Note that much of the cost of a geothermal station is spend in New Zealand. There are other renewable options as well.
The alternative is to spend less money on a fossil fuelled plant, then keep spending an unknown amount per year on fuel to run it. If that plant needs imported fuel, that makes us vulnerable to the actions of Nigerian oil ministers, Somali pirates and countries with larger cheque-books who also want that oil. That doesn’t sound like a good alternative to me.
Trevor.
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http://www.treadmills-equipment.com
I would make one small correction – a company that makes a substitute for IMPORTs will also save (foreign) money which can then be used to pay back the (foreign) investors. A good example of this would be anything reducing our dependence on imported oil and LPG or avoiding importing CNG, such as renewable energy development.
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Here’s a list *courtesy of Mike Shedlock back in 2007, of the problems we’re getting into…. (of course applying to the USA but this isn’t entirely about the NZ economy).
“Falling real estate prices
Subprime housing mess
Alt-A mortgage mess
Pay Option ARM mess
Sharply rising unemployment
Rising credit card defaults
Commercial Real Estate implosion
Global wage arbitrage
Falling US dollar
Overheating China
Slowing global economy
Tapped out consumers
Implosion of $500 trillion in derivatives
Solvency issues at banks
Forced unwind of massive Yen carry trade
Boomer retirement
Pension plan assumptions in an economy starving for yield
Rising corporate defaults”
We also have peak-oil which, as soon as we open the door to go out to work again, will slam it in our face. The more dependent we are on imported oil, the harder we get hit.
Since he wrote that the consumers in the USA have become 10 Trillion dollars less affluent and the US has sunk into a confirmed recession.
There is no bottom in sight. The debt-based fractional-reserve fiat currency monster is devouring everything. The banks are unable to make “good” loans. Nobody wants to borrow. The real unemployment rate in the USA is well over 10% and the grinch took Christmas AND the tree.
That’s the “wealth” we’ve been building. It is illusion. It is debt. It is our kid’s lunch money. It is broken.
If you want to see real value, you have to build it the hard way. You can’t make it happen by magic, you can’t do it with other-people’s-money if that money is debt based. You have to save some to have something to spend.
Otherwise the foundation is fixed to the sand, and the turn of the hourglass collapses everything.
BJ
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Wat
If NZ has a vibrant and growing economy it is highly likely that foreigners will want to send money here to buy into it (as they all do with the US.) To do that, they must make and sell stuff to earn the money they send here to invest. The happy outcome is an ongoing NZ current account deficit, offset by the corresponding capital account surplus. There is no debt.”
Your very rosy conceptu.al picture of the New Zealand economy doesn’t actually reflect that of todays or in fact how it has ever worked. We don’t have a vibrant and growing economy and will not likely have one for a long while yet.
The main flaw with your illustration is that we DON’T have a capital account surplus and arguably we haven’t since the 1960s, because after the wool prices collapsed in 1966 and then when entered into the EEC the country had to diversify the economy, because up to that point it was focused almost exclusively on the export of primary products to Great Britain and the country’s exposure to a balance of payments crisis was brought into stark relief. Guess where the money would have had to come from? Borrowing from overseas creditors of course and not only did we have to pay back the loans, but also interest as well.
As Kevyn alluded to before the business interests and governments chose to go the way of import substitution, rather than export orientated development, mainly due to the protectionist economic and political climate of the time, a debt loading that has straitjacketed our economic development ever since, because our small market makes it difficult to scale up our business enterprises enough to pay back the principal let alone the interest. This legacy probably has contributed to the lack of imagination and ambition of the country’s business leaders that has resulted in this county’s firms being amongst those with the lowest international engagment levels in the world. The NZ Institutes Flight of the Kiwi publication explains why.
“Analysis and interviews with firmshave identified four firm-level
constraints on international expansion. The first is the perceived absence of a compelling incentive to go global, because of a sense that higher returns can be earned in the domestic market and because there is often not much market encouragement to go abroad.”
Your example of people being willing to invest in the US Dollar has little relationship to their belief in the health of the US economy. In fact if they had any sense, the opposite is true. The US has a unique position of being the world’s reserve currency, not because the international finance system has any greater faith in the US Economy, but it merely reflects that there hasn’t been adequate agreement between the world’s governing body to replace the current regime established just after World War II with something different..
“Assume an enterprise within a poor country borrows $100 million short-term from a U.S. bank, paying 20 percent interest. Following the prudential guideline that countries should maintain reserves equal to the short-term dollar denominated debt, the government then -if it doesn’t want to face the threat of an imminent crisis-must add $100 million to its reserves by buying $100 million worth of T-bills, paying 5 percent interest. There is, in fact, no net flow of funds from the United States to the developing country as a result of the loan; it is simply a wash. But the U.S. bank charges much more for the $100 million it sends than the U.S. government gives for the $100 million it receives. There is a net transfer of $15 million transfer to the United States. ”
Joseph Stigliz “Making Globalisation Work”.
People are actually coming to realise that the so-called “economic growth” of the last two decades has been illusionary as they are confronted with stark reality as end of the consumerist boom destroys the notional value of their homes, their savings evaporates as the value of the stock markets collapse, and they become unemployed as cheap credit suddenly dries up and consumer confidance and peoples ability to pay flounders.
“Secondly, if you get in to debt by borrowing to buy a shedload of stuff – from NZ or from abroad – then it not “everyone numbers”, it is your problem and yours alone. It is not a “national cost.”
And thirdly, if I buy American grapes, that must be considered a benefit not a cost. It is, after all, why we trade – so we can get all those lovely imports.”
Like I said above. The problem isn’t confined to individual people or firms, because its not a case of individual transactions, but of the balance between inward and outward money flows. What we’re seeing at the moment is that money is still flowing out, but less is coming in thus exposing us to a balance of payments crisis and a run on the dollar. If there was no problem why is the Reserve Bank needing to fund our current account deficit with the liquidation of overseas assets and a currency swap facility with the Federal Reserve Bank of the United States?
“New Zealand’s Reserve assets were reduced to the tune of $5.5 billion, primarily through a $7.5 billion reduction in foreign exchange reserves. In the June quarter, the bulk of the current account deficit was funded via sales of “other investment” of around $6.3 billion.”
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http://nz.news.yahoo.com/a/-/world/5235189/skorea-announces-285-bln-dollar-energy-plan/
South Korea has announced that they will build 11 new liquified natural gas thermal power stations, 7 coal-fired stations and 1 fuel oil fired station. Guess what that is going to do to the international prices of coal, oil, gas and LPG?
Now could be a very good time to invest in wind turbines.
Trevor.
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Trevor29,
Seeing their expansion with coal fired stations, would now be a good time to open up Happy Valley to enable even greater coal exports?
Think of the increases we could add to the health and education budgets!
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Gerrit,
You are probably correct that increasing exports of coal would be good for the economy, This is exactly what Australia is trying to do (by improving the railways from coal producing regions to the ports). However, it will not be good for the world’s environment.
The question is, are the long term costs to the world associated with exporting coal greater than the short term benefits to New Zealand? One could even phrase this in a more selfish way: are the long term costs to New Zealand greater than the short term benefits? I know what I think the answers to these questions are; what do you think the answers are?
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I thought Gerrit was being ironic!
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samiuela,
The Koreans are building the coal fired stations, they will be buying coal from someone, they will be polluting (unless the have designed very efficient scrubbers and installed CO2 sequestering operations).
Should we cut our noses off to spite our faces? No, I say sell the coal.
It is an interesting moral situation, granted.
A situation the country will need to address when the recession bites hard over the next two years.
Somehow I have the feeling that the voting public will want the government (Labour or National) to maintaining current health, education and infastructure spending. In other words, overcome short term cashflow problems rather then focus on long term environmental concerns.
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The the Telegraph informs us that:
2008 was the year man-made global warming was disproved.
Go to
http://www.telegraph.co.uk/comment/columnists/christopherbooker/3982101/2008-was-the-year-man-made-global-warming-was-disproved.html
And be prepared for the 642 comments.
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Gerrit – I equate NZ selling coal with gangs selling hard drugs – their economy thrives and it keeps their members in work and largely out of trouble. It’s the effects of the product that is in question here, not the ethicless market.
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Owen – Looking at the data-less assertions and absurd nonsense that Mr Booker presents is enough to make real scientists vomit. His claims about consensus faltering are nonsense, his worry about temperature over a couple of years are the like the bleating of a goat.
If anyone looks to his writing or to the Telegraph for anything but an attempt to entertain to sell more paper, they are mistaking their source.
I did not need to follow all the 642 comments. The vocal skeptics are as shrill and as insensible to reality as ever. The first 10 or so contained no new arguments, just as Booker’s piece contained no new science or explanations.
respectfully
BJ
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>> claims about consensus faltering are nonsense, his worry about temperature over a couple of years are the like the bleating of a goat.
To quote: ‘You can’t reason someone out of a position they didn’t reason themselves into.’ ~Author Unknown
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Noticed that the skeptics are all over the Dom Post recently too. Similar arguments and wearying in their sameness. I moved to NZ because they win if nobody does anything… and if they win we all lose. I’ve known a fair few real scientists. I’ve never met one who didn’t regard this as the most serious problem the human species has ever faced… except that some of them regard over-population as a first cause…
With the economy doing what IT is doing and the bankers still in control… we are SO scrooed….
respectfully
BJ
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Selling coal could help us through the recession and allow us to come out the other side in a minimal amount of time and with a minimal amount of damage to our society. Furthermore, if the profits are invested in renewable generation then it decreases our reliance on overseas products to maintain the operation of our nation which ultimatly decreases our foreign debt and increases our push on other areas of interest. Also, as an exporter of fossil fuels it would hit that export to adopt a carbon accountability regime which means that we become all the more credable when we rally for a trading scheme as we too have something to loose.
Global warming is going to happen, while we should do all we can to minimise the effect, we need to warming-proof this nation.
Is it just me or is america following exactly the same course of action now as it did when it created the great depresion out of a mild recession?
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Sapient – selling drugs will help the gangs through the recession – should we give them the big thumbs-up?
How damaging do you think coal burning is to the atmosphere and thereby us? A little bit bad? Kinda bad? very bad? Is it ok to dig it up and sell it off to be burned? Is that kinda behaviour going to come back and bite us hard? Shame if we survived the recession, only to be swamped by a cataclysmic climate.
“if the profits are invested in renewable generation” hardy har har! Do you see this government doing that? If they can dig up coal and burn it/turn it into deisel, are they going to invest seriously in wind or wave generation? Not likely. Big Gerry loves coal, not wind or waves.
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Gerrit said;
” In other words, overcome short term cashflow problems rather then (sic) focus on long term environmental concerns.”
Short-sightedness? Willful stupidity? Sheepish myopia? Why yes, I believe it is!
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Greenfly,
I remmember reading somewhere that the black market trade of drugs and arms makes up a significant portion or even majority of world commerce and that without such commerce the system would collapse; im not sure as to the truth of this statement as i have not looked at the numbers, but its an interesting thing to think about.
You draw an interesting paralel as the sale of drugs isint in and of itself a immoral practice but rather what the profits are used for. I would condone the state or specialist stores selling them as it grants a new and massive source of income to the state through taxes or profits and at the same time takes the income away from the gangs. If the profits then went towards rehabilitation and anti-drug programes then the sale of the drugs would be, by far, a positive endevour.
I think that coal can have a massive impact on the atmosphere but consider this; we sell the coal only to nations with full carbon-accountability schemmes and due to the smaller market we do so at a significantly reduced price, this undercuts the market for coal as it motivates more generators and countries to fully account for their carbon as the perceived costs are now lower, in doing so helping the progression of carbon trading and sequestion. Also, since we have a decent quantity of the black stuff if whe put that on the market it becoems substituted for the brown stuff and less harmful chemicals are released into the atmosphere. If the money thus obtained were then invested into the development of renewable generation we could create new industry in new zealand, possibly drawing on our aluminum smelter
, to create such devices. by doing this we could not only make new zealand ess reliant on fossil fuels but we could provide cheaper renuable devices to the world and a more compeditive market and as such encourage more nations to take up renuable generation having an over-all effect of lowering carbon emmsions. This is of course theoretical as gerry is gerry, but we could still bind him using good old japanese shibari, legislation, and popular opinion.
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Greenfly,
Hah! if you were any other green party member i would find that incredibly and richly ironic.
The thing is that the population is incredibly myopic, while the politicians should look to the future they must also cater to the myopic ways of the populas; if the people are suffering they are far less likley to willingly take part in measures which conserve their future with further cost to them selves.
If your neck is gushing blood and your legs are broken, which do you take care of first? the legs because you may need them in the future or your neck cause if you dont there wont be a future?
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Sapient – our neck is gushing blood? I don’t think so. We need to sell coal to stem the flow of blood? See previous comment. We are not in terminal decline here, we have surmountable challenges ahead and don’t need to sell our oxygen just to get a few lungsfull of air in the short term. On the local scale – if we crank up the lignite mines and coal to deisel plants (as floated in Southland by the boys in Blue) we short-circuit any meaningful developments in the alternative technologies field. Once there’s a coal-to-deisel plant smoking away at Mataura, there is unlikely to be movement toward tidal generators in the Foveaux Strait! Necessity is the mother of invention.
On the global scene … China and Korea are ‘nations with full carbon-accountability schemmes (sic) Really? We are selling only to the good guys? The ones who aren’t contributing to global warming? How comforting.
Keep it in the ground. Develop something else.
The population is myopic? If people are suffering etc… people can be inspired. Perhaps this is what Obama is attempting to do. In the Great Depression, people were inspired to feed themselves from their own gardens. They made enormous contributions ansd sacrifices during the wars, going without many basic commodities willingly and counting it as character building at the same time. perhaps our poiliticians should look to inspire us, rather than pander to our myopic demands.
btw – the aluminium smelter at Tiwai is said to produce the highest grade of aluminium on the planet. Any ideas as to what uses that top notch metal might be put to (aside from pepsi and Coke cans?)
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Greenfly,
The blood was an example and ment to express a certain logic to the short-sightedness of the ever myopic population to which politicians must pander.
My arguement was not that we should sell the coal but mearly that the sale of coal need not always be an ‘evil’ practice in and of itself as it can produce a net good if performed in the correct manner.
Selling coal does by no means mean that we need to open new zealand up to more coal generation or conversion, we could run it exclusivly as an export product and use the profits from said operations to develop renewable energy and create a higher value industry in new zealand which will help us out of the recession.
By investing the profits in R&D and production of renewable energy technology we could create more jobs for engeneers within new zealand and create an export industry from the products, my reference to tiwai was because i assume aluminum would play a part in many renewable utilities, though i do not know that to be the case.
Obama doesint have the power to manifacture a great depresion, it is congress and the federal reserve that are doing so.
The coal is a source of capital, the world is f*&ked, we should expolit that capital to ensure our own survival. *maybe we should use the aluminum to build a giant fleet of zepplin and fighters so that we may steel others resources
*
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yay to the zepplins! It’ll take a few of them though, to lift as much pig iron as we will need
I agree with your argument re. net good, but the proviso that we would invest in ‘renewable energies etc’ needs to be locked in and it won’t be, going by present showings, therefore the original concept (sell the good black stuff to build a secure future for us all) won’t hold. Plus the plans are for burning the brown stuff here! Stupid Nats!
I don’t say Obama is manufacturing a Depression, but I hope he is looking to mobilise the good side of human nature to get his fellow Americans through it.
“The coal is a source of capital, the world is f*&ked, we should expolit that capital to ensure our own survival.”
Yes but … do we have the vision to build resiliant, effective long term ‘structures’ based on the cash-for-coal deal? Nope. Not by the looks of it. The end won’t justify the means because the process will taint the solution. (Apologies for the mixed metaphors)
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btw – it’s soooo hot down south that the aluminium smelter has turned off it’s pot lines and is smelting aluminium outside in the heat of the sun
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Greenfly,
So what it comes down to is that all the parties presently in government are eaither so myopic they cannot see the benefits or intentionally ignore them and the one party with the, though very small, tendancy to look foward is so myopic on ethical matters that they cant even get into government. A sad state really.
hehehe, zepplin strato-fortress
I have heard several times that zepplins were designed with the intent of being airborne aircraft carriers; though i have only managed to find one such design it is an interesting concept
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We are in a sad state Sapient – a state of torpor.
Unlike you (perhaps) I see strength in the Green party, the Green movement and green thinkers, despite the contestability of every green proposal, not so much because of the ideas but because those people I respect, because of the things they do, (not just the ideas they float or contest as happens so much here) align themselves, in some way, to a greater or lesser extent, to ‘the Green’. There’s got to be something in it.
As to your dirigible concept – that’ll go down like a led balloon
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Greenfly,
Not if we fill them with hydrogen; then they will go down like a zepplin! i.e. in a ball of flames.
The Green party does have its strengths (i.e. diversity and dedication), but they are overshadowed by the results of said strength because of the contradictory policy, ethical myopicism, and ethical imperialism that it produces.
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up in a ball of flames, down in history as a bold initiative
Can you give me a simple example of contradictory Green policy? (I’m not saying there isn’t any, I’d just like to see if you are accurate in your assessment
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this is what the Daily reckoning says about Australian house Prices:
“The solution to the Australian housing affordability crisis (in addition to downsizing your expectations) is two fold: save more money and make more money over time is the first solution. The second is for well-intentioned morons to quit throwing more money into the mix to drive house prices up. They are already too expensive. An increase in the supply of money and credit is what’s made housing so unaffordable, not any real shortage of places to hang your hat at night.”
http://www.dailyreckoning.com.au/australian-housing/2007/03/21/
ps the developper lobby never give up… what!?
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The real estate industry is calling for land release as a solution to the housing affordability crisis. This report demonstrates that the private supply of land held by speculators is the primary issue that needs to be addressed.
http://www.earthsharing.org.au/2007/11/15/iw2/
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Property giants pop cork over city stretch
* Royce Millar
* December 3, 2008
BIG-NAME property speculators were celebrating yesterday, with the proposed stretching of Melbourne’s city limits set to deliver windfalls of many millions to some of Australia’s largest developers.
Among those popping champagne corks were the country’s largest property developer Delfin Lend Lease, along with Mirvac, MAB Corporation, the Dennis family and Villawood.
Property valuer Peter Hay estimated that land owned by these companies in the west and north of Melbourne would explode in value by at least five-fold in its passage from farming to suburban housing.
That is if, as seems likely, the Brumby Government formally backs the expansion.
“They (the big developers) would be very overjoyed I would have thought,” said senior valuer Hay.
“There would be some pretty happy chaps around, I would reckon.”
Among the large swathes of land now likely to be drawn into suburban Melbourne are sites earmarked by developers for large new suburbs near Kalkallo, north of Craigieburn, and at Rockbank between Caroline Springs and Melton in the west.
Last year, The Age revealed extensive lobbying was under way by Delfin Lend Lease for a project known as Lockerbie — a new “green” suburb the size of Shepparton.
http://www.theage.com.au/national/property-giants-pop-cork-over-city-stretch-20081202-6psg.html
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Greenfly,
.
Well i was going to say up but i figured since the frame of which the zepplin consists goes down it would be more accurate to say down
Asking for an example is like asking someone “what do you know?”, lol, time is limited so i will just rant, excuse the structure.
A simple example? um, womens policy it the first that comes to mind. On the one hand the party promotes equal pay for women and men in the same employment and on the other the party supports extending maternity leave, more parential privledges, and ensures that employment cannot be terminated due to maternity leave.
That on the second hand serves to increase the risk associated with hiring a female, particuarly one in her most fertile years or with off-spring, over that of a male.
The wage of a individual is deterined by the scarcity, value of input, and associated risk, by increasing (drasticly) the risk one decreases the over-all value of the worker.
An employer will employ the individual from which they stand most to benefit and as such an employer presented with two individuals, one male and one female, with identical experiance and expertise will choose the individual with less risk and as such the male is the logical choice for any medium to high wage job.
the risk with males, even with families, is significatly smaller and the more parential privledges granted by the state, the more risks are associated with hiring females; the result being lower wages for females, a result that dirrectly opposes that on the first hand and activly works against a large portion of the female work force.
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Me again:
Below is a comparison of housing and population growth for Australia and the USA using their respective census data:
USA
USA 2001 2006 %change
population 285,226,284 299,398,484 4.97%
dwellings 117,858,349 126,316,181 7.18%
The rate of increase in the number of dwellings in the USA exceeded the rate of growth in the number of people in the USA by 44%
Australia
Aus 2001 2006 %change
population 18,769,249 19,855,288 5.78%
total dwellings 7,790,079 8,426,559 8.17%
Occupied Dwelings 7,072,207 7,596,183 7.41%
Unoccupied Dwellings 717,872 830,376 15.67%
The rate of increase in the number of dwellings in Australia exceeded the rate of growth in the number of people in Australia by 41%. The rate of increase in the number of empty houses was 2.7 times the rate of population growth.
http://bubblepedia.net.au/tiki-index.php?page=HousingShortage
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That was a quote (of course)
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“Speculators are hunting Auckland’s urban fringes for landbanking deals. Like bounty-hunters riding the boundaries, groups of millionaires and wealthy migrants are looking to lock away land on the city’s rural outskirts for big gains.
Wealthy migrants from China, Taiwan and Korea were particularly active, hunting for those opportunities, he said.”
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10447467&ref=rss
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answer; land tax
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Regarding increased coal exports – I say keep the coal mining at about the same level as it is now, but increase the coal exports by reducing our internal use of coal. Use wind, wave and geothermal etc and keep Huntley as a dry-year reserve generator.
Trevor.
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Sapient – hmmmm…(do you collect inconsistencies like some people collect humorous quotes?)
Don’t tell me they are all straight as die and consistant to a fault!
Are you pointing out contradictory policies or unintended consequences?
Where there are variable factors (males don’t get pregnant) there are bound to be variable outcomes – expecting 100% consistancy is a big call.
I hope you are keeping a similar dossier on the other parties and their foibles
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sleepytreehugger,
- “The main flaw with your illustration is that we DON’T have a capital account surplus and arguably we haven’t since the 1960s”
As a matter of accounting, a country with a current account deficit is running an equivalent capital account surplus, and vice versa.
I’m not saying everything is rosy, I’m just saying Russel’s posting demonstrates that he doesn’t know anything about the subject and assumes that a current account deficit is axiomatically an accumulating debt which will have to be repaid. That is simply not the case. The example of foreigners from all round the world investing in the US economy is a very clear example of benefical capital surpluses (creating continuing current account deficits) with no associated debt. I’m not even suggesting that’s the case for NZ; I’m just saying Russel hasn’t identified a problem, because he doesn’t understand the issue.
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The example of foreigners from all round the world investing in the US economy is a very clear example of benefical capital surpluses (creating continuing current account deficits) with no associated debt.
You are talking about share purchases in US companies? They own part of the company. Depending on the rules being followed they may control that company. This is not TOO dissimilar to foreigners buying up land here in NZ. The share price goes up, the house price goes up… speculation and inflation ensue.
The productive capacity of the company does not change unless the company builds new productive facilities, and it may do so…. in Mexico or Thailand. The profits are likewise sequestered from any American’s (excepting the members of the board) benefit.
The actual benefit to the USA is less than you might imagine. The actual benefit to NZ when the purchases are of property, are vastly less.
Let us assume however, that your rosy picture of foreigners investing in NZ companies which then build NZ facilities to produce something, is actually real. It can happen, odds are sort of like winning lotto, but it CAN happen.
When that happens the foreign ownership of the company usually takes its successful product and production off to somewhere that is closer to home, cheaper for production and cheaper for shipping. The only example I can think of where NZ retained anything of value is Weta.
When the company remains NZ owned the odds of that move off to somewhere else are smaller but still quite large… because are market is so small and expenses relatively high, but at least some of the profits come back our way. To NZ shareholders. Of course there are not many NZ shareholders… we give tax preferences to buying houses instead.
However, that investment side of the picture which you are so fond of, is a negligible part of the current-accounts problem here. HERE we export the interest payments on oversized mortgages on loose piles of driftwood that are optimistically called houses. Here the “capital investment” goes straight to inflating the already stupid prices. Here, and it is for every Kiwi a matter of long and bitter experience for all of living memory, the current account deficit is ALWAYS and INVARIABLY – bad news.
Which may explain Russel’s attitude. Your automatic conclusion that he doesn’t understand is a bit hasty. Russel itemizes the problem investment areas. Did you read anything past the “current account deficit = bad” part that got your dander up? Monetarism is, at least as taught by the Chicago school, a thoroughly discredited and completely failed economic system.
BJ
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Which begs the question
What happens when the foreigner’s want their money back? As is happening now. They sell the shares of course. The value goes down the company value against which it almost certainly does borrow money, tanks. The company winds up in receivership or (in the US) Chapter 11 bankruptcy. The Bank it borrows from is in trouble too. BK doesn’t stand for Burger King in the US anymore. It is the borrowed money component that causes the trouble, not the share investment. That investment only drives the speculative values.
The problem is that in todays economy the money to invest was ALSO borrowed.
See any of my rants about debt-based, fractional-reserve fiat currencies.
To prop up this failed system governments are now taking on the debts and turning them into future obligations against their tax base. They will face the piper when those obligations must be defaulted or paid. The system however, will STILL not work. It is built on a violation of the laws of thermodynamics. Which I maintain govern economics as certainly as they do engineering.
There Ain’t No Such Thing As A Free Lunch
BJ
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http://blip.tv/file/1528079
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Kunstler’s take on 2009 – It isn’t prettty.
http://tinyurl.com/a5nzbt
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Owen McShane,
Rather than rely on Mr Brooker (who is a columnist for the Sunday Telegraph) for your information on climate change, you would bet better to listen to the experts in the field.
New Zealand has its fair share of experts:
The National Institute of Water and Atmospheric Research (NIWA): see for example http://www.niwa.cri.nz/edu/students/change
The Meteorological Service of New Zealand: see for example http://www.metservice.co.nz/default/index.php?alias=newsreleases&pr=775
The Royal Society of New Zealand: see for example http://www.royalsociety.org.nz/Site/news/media_releases/2008/clim0708.aspx
Slightly further away:
The Australian Bureau of Meteorology: see for example http://www.bom.gov.au/climate/change/
The Australian Meteorological and Oceanographic Society: see for example http://www.amos.org.au/publications/cid/3/t/publications
The CSIRO: see for example http://www.csiro.au/science/ClimateChange.html
To list the foreign organisations who do research on the climate would take many many pages. Now remind me, who is Christopher Brooker, and why should I believe what he says instead of experts in the field?
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By the way Mr McShane,
I was not simply cherry picking particular organisations in New Zealand and Australia which happen to support the view that the climate is changing because of human activity. These organisations are the main ones which provide either forecasts or research on atmospheric science and meteorology. In other words these organisations represent many of the experts in the relevant areas of science. If I have left out some other relevant groups, would you kindly let us know who they are?
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Kunstler is living in fantasy land if he thinks investing in public transport will save America.
Firstly, where are they going to find the capital?
Secondly, how can something that is only 20% more sustainable than cars be regarded as the cure for oil dependence?
Perhaps Kunstler is too gleefully wedded to his revelator’s vision of consumerism’s Four Horsemen of the Apocalypse to bother with awkward details such as those presented in the dissertation Life-cycle Environmental Inventory of Passenger Transportation in the United States – Mikhail V. Chester – Institute of Transportation Studies, Berkeley
http://repositories.cdlib.org/its/ds/UCB-ITS-DS-2008-1/
In summary, the study found the following life cycle energy consumption per occupant mile travelled:
Travel + vehicle manufacture & repairs + fuel production + parking/roadway construction & maintenance + other incidentals = Total
Peak bus . . . . . . . 0.85 + 0.11 + 0.11 + 0.23 + 0.01 = 1.31
Peak+OffPeak Bus 3.21 + 0.4 + 0.48 + 0.19 + 0.04 = 4.32
Sedan . . . . . . . . . 3.0 + 0.55 + 0.43 + 1.29 + 0.08 = 5.35
SUV . . . . . . . . . . .4.5 + 0.69 + 0.64 + 1.17 + 0.08 = 7.08
Pickup . . . . . . . . . 5.7 + 0.63 + 0.81 + 1.4 + 0.09 = 8.53
Off-Peak bus . . . . .6.62 + 1.0 + 0.84 + 0.4 + 0.08 = 8.94
The dissertation doesn’t calculate peak and off-peak for sedan’s, SUV’s and pickups. However as the PMT is calculated from Figure 8.1. Average Vehicle Occupancy by Vehicle Type, 1995 NPTS and 2001 NHTS in the TRANSPORTATION ENERGY DATA BOOK: EDITION 27–2008 we can use Figure 8.2. Average Vehicle Occupancy by Trip Purpose 1977 NPTS and 2001 NHTS and Table 8.8 Trip Statistics by Trip Purpose, 2001 NHTS to estimate the peak and off-peak occupancy rates and thus the peak and off-peak mj/pmt.
For a sedan these are approx 3.9 off-peak, 5.35 peak+off-peak, 7.3 peak. However the source for the pmt appears to be all roads which is not really appropriate for a comparison with urban buses as it includes a large proportion of high occupancy vacation and recreational travel. Use the ratio of passengers to drivers injured on urban and rural roads as a proxy for urban/rural occupancy rates it would be advisable to add between 10%-15% to the off-peak and half that amount to the peak+off-peak, thus arriving at:
Sedan off-peak 4.3, peak+off-peak 5.9, peak 7.3 mj/pmt
Bus off-peak 8.94, peak+off-peak 4.32, peak 1.31 mj/pmt.
In short, because of the erratic nature of travel for recreational purposes only cars or walkable/cycleable communities can supply that travel sustainably, the sedan using half the energy of the bus. For all travel the difference between the sedan and the bus can be easily eliminated by car-pooling, or a 25% improvement in efficiency. Only in peak commuting does the bus cream the car, being 5 times more sustainable!. Horses for courses, so to speak. Rather than throwing money at PT and expecting it to save America it is better to do nothing and watch America reduce it’s car dependency by 60% without anyone even batting an eyelid. In the last twenty years California has had four major freeway closures, of which only one was planned. In each instance only 40% of the freeway traffic could be traced to other modes or routes. 60% just evaporated. Build it and they will come, demolish it and they will go away. Make it more difficult to travel to a gymn on the other side of town and people will discover there’s a nice gymn on their own side of town (or hairdresser, pet groomer, deli, etc, etc, etc).
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Kevyn
I think you misread the intent. Kunstler is not any more interested in where the money comes from than the Fed is, they still have the power to borrow it into existence. The treasury still owns the printing presses. The objective is to double down on the excesses that caused the mess in the first place and it scares the heck out of me that this is the objective, but they have the power to “create” the money, at least for a little time longer.
As for the 20% more sustainable number, I don’t think it is THAT relevant. The object IMHO is not to replace cars with buses or be a fossil powered buses but to provide sufficient alternatives to keep the society from collapsing completely. That might be possible. Barely. The alternatives are more expensive still.
However, I didn’t cite Kunstler with regard to his advice on public transport.
I cited him with respect to the rather nasty financial future he is predicting. I think there will be a little economic boost from Obama taking office, a head-fake, and then reality will double-down on the optimists who expect this to be short and sharp.
This time next year the question of whether to change to something other than a debt-based fractional-reserve fiat currency will be a lot more real to a lot more people. There won’t really be much left to lose at that point.
NZ may continue to skate past the worst of the global problem, people will still want our products… but the price they will pay will not make us wealthy.
BJ
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bjchip,
- “This is not TOO dissimilar to foreigners buying up land here in NZ. The share price goes up, the house price goes up… speculation and inflation ensue.”
Unlike land, which “they’ve stopped making”, economies grow thanks to inward investment and more wealth is created. Moreover, in a free market, profits are quickly competed downwards (to the benefit of consumers), which constrains share prices, so your inflation analogy fails.
- “The productive capacity of the company does not change unless the company builds new productive facilities, and it may do so…. in Mexico or Thailand.”
Here’s a more plausible scenario: Money invested in NZ grows the NZ economy and increases productivity and therefore wages. Inevitably the less efficient companies can’t afford to pay those higher wages and must either close or send production off shore. This is a good process. If low-skill, labour-intensive work were not being sent overseas to Cambodia, then you should really worry.
- “When that happens the foreign ownership of the company usually takes its successful product and production off to somewhere that is closer to home, cheaper for production and cheaper for shipping.”
This is nonsense, plain and simple. It’s a fantasy. I’ve already mentioned that overseas investment takes place overwhelmingly between rich countries. Such investors are buying in to that economy and have a vested interest in its future. People from around the world want to invest in the US because of its dyamic economy that creates so much wealth. Your idea that such investors are actually plundering the US and leaving it destitute is absurd (the US manufactoring sector, for example, has been a huge success story.)
Companies can (and obviously do) invest directly in the Third World; it’s simply absurd to imagine them taking the roundabout route you suggest of first buying factories in the West then closing them and shipping them overseas.
- “When the company remains NZ owned the odds of that move off to somewhere else are smaller but still quite large… because are market is so small and expenses relatively high, but at least some of the profits come back our way.”
“Come back our way”? I don’t recall seeing those cheques coming my way from companies which happen to be NZ owned.
On the other hand, since inward investment results in greater productivity and therefore higher paying jobs, there is no doubt that all our salaries are much higher than would otherwie be the case.
- “HERE we export the interest payments on oversized mortgages on loose piles of driftwood that are optimistically called houses. Here the “capital investment” goes straight to inflating the already stupid prices.”
Leaving aside bubbles – which can occur with or without access to global credit – house prices are largely a function of wage levels, which are undoubtedly higher because of foreign investment. If you want to argue that Kiwis should remain dirt poor so that house prices are consequently lower, then go right ahead…
- “Which may explain Russel’s attitude. Your automatic conclusion that he doesn’t understand is a bit hasty. ”
I’m saying he completely failed to demonstrate a problem.
- “What happens when the foreigner’s want their money back? As is happening now.”
They may well lose money on their investments. But the assets they created – the factories, the infrastructure and the expertise – remain.
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BJ, fear enough. If Kunstler’s predictions are as exagerated as his portrayal of recent events then we can be confident that civilization isn’t about to implode. Deflate, most certainly, but not a self destructive implosion. You, in your last three paragraphs, said all Kunstler needed to say, succinctly and concisely.
Kunstler’s contempt for “happy motoring” places the 20% figure at the very core of everything that is wrong with his arguments about sustainability.
Kunstler’s smirking superiority to Lovins irks me.
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Kunstler is a fine example of the modern disease of yearning for catastrophe.
KUnstler Katastrophism is my coined word.
Whatever bad news there is, Kunstler is always thrilled to bits by it.
Someone was foolish enough to invite him here to speak to some sustainability conference.
As his apolocyptic revelations made the news the sponsors seemed to lose interest in the conference and in Kustler in particular.
I suspect he is so sad he did not live during the Terror.
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Kevyn
Just consider the overcapacity of the automakers alone. There are 100 thousand unsold vehicles on the docks and more on the lots. The buyers are staying away in droves. The consumer has little ability or willingness to go further into debt.
However… every car company is pushing to continue to sell cars and trucks in the already super-saturated market. Holden is getting handouts from the Australian government. Saab and Volvo are getting help from the Swedes. GM Canada is getting help from the Canucks. We know about GM/Ford/Chrysler in the USA. Toyota is losing money for the first time in history…. and they are running short of places to park all the unsold cars.
The clear market result is that the prices of the cars has to come down. Maybe buy new for half-price? The car is sold at a loss NOW in most of these places (as far as the company is concerned). The companies are getting taxpayer subsidies to build the cars. Maybe we all get a free car?
With this business model, just exactly how is anything but failure an option? It is WORSE than communism because the pursuit of failing strategies is built in.
http://www.energybulletin.net/node/47157
I don’t agree with everything Kunstler says, but the prospect for 2009 is pretty dismal.
I don’t expect there to be a great recovery here in NZ, but I expect it to be better than what is going to be happening in the USA.
respectfully
BJ
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samiula.
Booker is a journalist and does not claim to be otherwise.
He is simply reporting on what more and more experts (and in particular those experts who are not on the public payroll) are discovering as we learn more and more about the climate from more accurate and meaningful observations which are telling a very different story from those generated by the IPCC computer models.
I lost faith in NIWA when I heard them make a presentation which included the infamous Mann hockey stick – I attended as a reasonable believer.
But then I asked what happened to the Warm Medieval Period and the Little Ice Age that followed and they told me and the rest of the audience “they never happened”. I became a skeptic immediately because clearly they put more faith in their computer models than in observation. A fatal error.
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samiula
Al Gore is a propagandist. But I presume you accept his word without challenge.
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Here’s a more plausible scenario: Money invested in NZ grows the NZ economy
More optimistic perhaps… the money “investment” in NZ remains focused on property. I see no evidence that it develops our economy Wat. OUR productive sector is not invested in at all, not by foreigners and not for the most part, by New Zealanders. A lot of that has to do with the favored status of property in the tax structure, but I can’t agree with your assessment of plausibility.
the US manufacturing sector, for example, has been a huge success story
This is an incredibly strange thing to say about manufacturing in the USA. How do you justify it? Seriously? It is simply false. The manufacturing sector has been shrinking every year since I can remember and the only things produced for which there is not an oversaturated market at present are warplanes, warships and rockets.
If you’ve invested in a NZ company. you profit when it does. You do invest in NZ companies. don’t you? Moreover, when that company makes something in NZ of course, the economic activity here is indirectly a positive thing for all of us. The problem is that NZ people and foreigners alike, invest in NZ real-estate. The inflation THERE gives the lie to your assertion that “house prices are largely a function of wage levels”. That is of course, what they SHOULD be but have not been for the better part of this decade. The idea that prices should have reached half a million and up while wages have NOT gone up is nonsense and you know it.
What you’ve demonstrated is how thoroughly reality can be ignored in order to push a point of view. Nothing you’ve said is “theoretically” wrong… but it is observably wrong. The exceptions and conditions you put on the theory exclude things that are actually observed in the various markets. We DO have a bubble. We ARE NOT getting investment in productive enterprises. We ARE getting housing prices disassociated from wages.
The problem is obvious to everyone and Russel stated it pretty clearly. You want there to NOT be a problem? Tell your boys in the buzzy-bee-hive to get busy fixing the problems of foreign acquisitions of property, favoritism to housing investors and debt-based-fractional-reserve-fiat currency here. Have them look at a Tobin tax. Don’t whinge here about how we “don’t understand”. The fact is that we DO understand. We’re unpopular because we tend towards Austrian solutions which are (among other things) more sustainable than the mainstream monetarist economics of the past several decades.
++++++++++++++++
Having said all that, I do want to take the opportunity to WISH you a better year than this past one has been. I have a dismal view of the future, but I do not let that limit my wishes for or attempts to create, a better one.
Even for people I do not agree with.
Be Fortunate
BJ
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Owen…
Getting into what NIWA said at some conference I didn’t attend would be a mistake
I have no intention of defending whatever they came up with.
I am mindful however, that they may have been following this dictum by “Saki” (H.H.Munro)… “A little inaccuracy sometimes saves tons of explanation.” – personally I find this useless , even when dealing with management. Generally I give the correct (long and detailed) explanation until they grow weary and request the shorter version.
That way nobody every makes the mistake of thinking that I did not KNOW the true explanation.
Either that or they really did make a mistake. I wasn’t there. There is a (much fuzzier and poorly defined) “hockey stick” defined by many other studies… but because of the fuzz it is entirely possible that the MWP had temperatures similar to what we see today. The question of how fast that MWP came on remains unanswered, and what caused it remains unexplained. The models don’t deny the possibility… even if someone from NIWA made that error.
Try being skeptical of BOTH sides Owen… because there’s nobody at all who knows what the whole truth really is. It is a question of who is making the best guess possible with the data available. Remember, you have to have a working alternative theory to replace AGW , or proof that it is a broken theory, to demolish it. All we see to date is some questionable data and some folks who overstate their certainty about some details. The theory remains accepted by almost every climate scientist in the field.
Maybe the answer lies outside of climate science (geology, vulcanism… ocean current periodicity) and the CO2 is all a coincidence. I don’t see that as being a reason to abandon AGW.
respectfully
BJ
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If science were always fact the world is flat, leeches are the cure for most evils and thunder is an expression of the gods’ anger!
Science is a set of hypothesis until there is a ‘proof’ that anyone with appropriate equipment can demonstrate with 100% consistency. This is why the Surgeon General says smoking MAY cause cancer – there is no reliable and replicable proof of this as a fact. Ergo, humans MAY be causing global warming by our actions, we MAY not be; there is no proof and so there is no scientific fact yet established!
All good for a debate though eh!
So, as we wait for a new year to bring us new scientific theories and facts, as well as political mistakes and miracles, may I thank you all for your company over the last year, express my anticipation of another year of good cheer and good debate, and wish you all that which you most desire for you and yours in the coming year.
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dave,
the belief that people in the middle ages thought the world to be flat is nothing more than a myth. Even the church recognised that the earth was spherical, as evidenced by the papal jewels and the british crown jewels which both feature ordiments which symbolise the spherical earth. It has been known since the time of the greeks, and the advent of the most basic of science, that the earth is round; i seem to remmber a story about some greek mathmatician (maybe pythagoras?) measuring the depth of shadows in wells in various parts of the world in an atempt to detirmine the curviture and circumfrance of the earth.
Im not arguing that science is always fact, im just stating that common myth of the flat earth among the educated to be false.
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Booker is simply repeating tired old crank spin that has been shown to be false over (and over) again. Your “more and more experts” is wishful thinking on a grand scale: beyond Roy Spencer, there are virtually no “sceptic” scientists actively publishing anything that supports the arguments that Booker is trying to make.
But I will agree that the models are wrong. They are useful, but wrong. They do not capture the current patterns of warming – in particular the rapid loss of Arctic sea ice and deglaciation around the planet – so they are actually far too “conservative”, as a new piece of GNS research suggests.
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Either disprove the hypothesis or find a better one. Science is advanced by both. Science is improved by refining the input data.
Mucking about with problems in the details as the pseudo-science of the blogosphere encourages does NOT disprove the hypothesis and does NOT provide a better one.
Which means that Booker is writing to entertain and build readership by stirring up controversy. This is a favorite tactic in the less reputable news media and the Telegraph is no foreigner to that territory.
BJ
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Sapient
No problem with the crown jewels, ets., however science didn’t start with Christ, as shown by the many temples and other edifices built using the science of the day.
But wth, Happy New Zear
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Whoops
that’s Year f course – sorry.
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BJ
The problem is that there are no experts in the field! If there were they would be able to tell us what was GOING to happen (specifics not generalities). No one can!
The Coast-to-Coast white Christmas in Canada was NOT predicted. The unusual cold temperatures in central britain were not predicted. The 1950s like heat-wave I’m experiencing down in New Zealand was not predicted.
The closest we have to ‘experts’ are people who have dedicated their working lives to creating and sharing better understanding of Nature and its cycles. When their research is completed, and weather can be accurately modelled and predicted, we will have that utopia of Science Fiction ‘weather control’. Until then we must muddle through with different scientists espousing different theorums and trying to prove or disprove them.
Happy daze
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Dave,
Pythagoras died about 500 BC.
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Owen,
You claim Brooker is “simply reporting on what more and more experts (and in particular those experts who are not on the public payroll)”. Fair enough; I think you are right about him reporting on people who are not employed on the public payroll (as climate scientists). However, there is a major problem you will face if you don’t rely on experts who are on the public payroll: most atmospheric scientists, meteorologists etc are employed by governments.
Governments in the past have decided for various (very good) reasons that employing these experts is worthwhile. Given that the field of science in question is large and complicated, most experts end up working for the government (or SOE as is the case for MetService). Most people simply can’t be an expert in atmospheric science _and_ pay for food, rent etc if they are not employed in the field. Using your reasoning, as soon as one is employed by the government one can’t be trusted to give an unbiased opinion on the subject. This immediately rules out listening to the views of most of the experts in the field. You see the problem …
By the way, why is it in any government’s interest to overstate the case for anthropogenic climate change? I thought most politicians would rather it was not happening (or bury their heads in the sand and at least try and believe it is not happening)?
With regards your post about Al Gore: I do not accept his word without challenge. In fact, I have only watched his movie a couple of times, and could identify most of its strengths and faults on the first viewing, because I happen to have learned about climate science from other (more reliable) sources.
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Dave
There are experts. I don’t see how the failure to predict regional weather is indicative of their absence. The need for more detailed data (particularly as regards the ocean), more powerful computers and data that allows prediction of things that are still too obscure like solar activity… assuming that this CAN be predicted. With what we have, we get the best predictions we can get. It isn’t as good as we might like but it is enough to reason about risk.
People who don’t know anything who reckon they know better than the experts because the experts don’t know everything are a dime a dozen on the net. They are making a mistake that is as common as ego and as old as time. Their opinion is NOT as good as the science. Their analysis of risk is not good enough to allow us to proceed with “business as usual” and as we’ve discovered, the economic models of the “business as usual” crowd ARE fatally flawed.
I know a fair number of Greens who expected this denouement in economics, but this has to do with sustainability. A concept lacking in the modern monetarist economics but more accepted by the Austrian school of von Mises.
respectfully
BJ
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BJ
I kind of take your point, from your perspecttive, but would ask what YOUR definition of ‘expert’ is?
It may make the your argument more acceptable.
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Ever notice how excruciatingly rotten our species is about predicting the future?
And how desperate we are about trying – look at all them poor gamblers…
“Peace in our time” says Chamberlain in ’39 – true too – except of course for WW2.
Apropos of nothing else I found this wonderful quote this morning – surprised by it’s antiquity..
“After having thus successively taken each member of the community in its
powerful grasp and fashioned him at will, the supreme power then extends its
arm over the whole community. It covers the surface of society with a
network of small, complicated rules, minute and uniform, through which the
most original minds and the most energetic characters cannot penetrate, to
rise above the crowd.
The will of man is not shattered, but softened, bent, and guided; men seldom
forced by it to act, but they are constantly restrained from acting. Such a
power does not destroy, but it prevents existence; it does not tyrannize,
but it compresses, enervates, extinguishes, and stupefies a people, till
each nation is reduced to nothing better than a flock of timid and
industrious animals, of which the government is the shepherd.” — Alexis de Tocqueville[Alexis
Charles Henri Maurice Clerel, le
Comte de Tocqueville] (1805-1859) French historian
hmmm – trust he means women too – but in 1805 not necessarily – “a network of small complicated rules…” sound familiar? regards Mark
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It wasn’t Pythagoras:
http://www.juliantrubin.com/bigten/eratosthenes.html
Trevor.
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Trevor,
, the 500 BC point still stands though as pythagoras was a strong advocate of a spherical earth, even if he didint bother to do the measurements 
.
Thanks, i suspected it wasint pythagoras
Cheers
Sapient
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bjchip,
Having large amounts of foreign capital available in NZ significantly increases productivity. It means, for example, that trenches are dug not with large gangs of men equipped with shovels, but by just one man from the air-conditioned cab of a JCB. Productivity, and therefore wages, are multiplied.
House prices cannot remain above wage levels indefinately, as we are witnessing. Essentially, wages, interest rates and building regulations determine house prices, not the availability of global capital.
- “The [US] manufacturing sector has been shrinking every year since I can remember”
Not so. Its output has been increasing continuously since the war.
- “If you’ve invested in a NZ company. you profit when it does. … Moreover, when that company makes something in NZ of course, the economic activity here is indirectly a positive thing for all of us”
Well, that depends. If it is producing the best goods at the cheapest price, then Kiwis will benefit when they trade with it, NZ-owned or not. On the other hand, if an NZ-owned company were only in business because of import tariffs or other protections, then that is actually economically harmful: Depending on the form of protection, either the NZ owners of the company or the government is benefitting at the expense of the consumers. Vehicle assembly disappeared from NZ when tariffs were removed. That’s a good thing. They weren’t real jobs. They destroyed wealth.
- “The problem is obvious to everyone and Russel stated it pretty clearly. ”
Then I’m stupid and I need someone to explain it to me. Are you able to explain exactly what Russel said for me, without embellishment? How do his selected quotations support his position? Personally I think he’s demonstrated that he doesn’t understand the issues at all, and in fact appears really confused (in particular, about what constitutes debt, and the fundamental difference between government debt and private debt.)
- “Don’t whinge here about how we “don’t understand”. The fact is that we DO understand.”
Then how is it that even basic terms like balance of trade, and the relationship between the capital and current accounts, appear to be widely misunderstood?
- “We’re unpopular because we tend towards Austrian solutions”
I rather doubt most people have even heard of Austrian economics, much less be able to describe it. Moreover, since the left has traditionally favoured high government spending, they are the last people to uphold sound money.
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Mark said:
“Ever notice how excruciatingly rotten our species is about predicting the future?
And how desperate we are about trying – look at all them poor gamblers…”
Our species is about the only species that we know that even attempts to predict the future, so on what basis are we “excruciatingly rotten” at it?
When our experts make predictions, we are generally pretty good at it – except when it comes to predicting what other individual humans will do. Gamblers usually illustrate the triumph of optimism over common sense, or the inability of most people to grasp certain truths. This applies to some CEOs as well as those people investing in Lotto.
Our weather experts may not have predicted some freak weather, but usually they didn’t say “this won’t happen”. Freak weather is just not easily predicted, and they readily admit this.
Trevor.
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Mark
Which of his books was that in? I have a couple but I hadn’t run across that particular quote. The situation he describes DOES sound familiar and I do understand the frustration that NZ’ers suffer when trying to get something (ANYTHING) done here.
Wat – More detail to follow, but I would point out that contrary to popular belief, the Green party as a whole is NOT leftist in the traditional sense of supporting “Big Government”.
Moreover, while the Austrian school eschews big government the more important feature of it is that it requires sound money, which is not a feature that is dependent on the size of the government sector. The two are not mutually exclusive. Sound money reduces uneconomic (unsustainable) investments.
respectfully
BJ
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samueila
There are a huge number of scientists, meteoroligists, economists, and statisticians who are not directly on the public payroll. In the US there are many private universities and other privately funded institutions who employ scientists with skills and knowledge which are relevant to this debate.
It is noticeable that in NZ the skeptics are in our universities rather than in government departments. And there are many skeptics in our CRIs who prudently remain silent.
Then there are the retired public servants who once they are free of the risks of skepticism publicly declare their position.
Surely you are not serious when you say that politicians would not want to promote alarmist AGW positions? There is an old saying that politicians love to create fears and then persuade the public they alone have the solution. Mencken said those who claim to want to save humanity normally are planning to enslave us. (or words to that effect). Anyhow, the politics stream at the International Climate Science conference in New York last year concluded that it was virtually impossible for a politician to be elected if they did not subscribe to the the alarmist AGW position. Gore and the media (who love to promote fear) as well as a host of NGOs who also sell fear in return for subscriptions had persuaded the majority that AGW was a more pressing problem than virtually any other.
Things are changing. The Belfast Minister for the Environment now declared himself a skeptic. And his Belfast Telegraph story has attracted almost unanimous support in the comments. Rodney HIde realised that he could gain votes by taking a skeptical position. And given the reality of the financial crisis many politicians are reviewing their priorities if only because the financial crisis real and here and now while the AGW threat is based on computer models which do not seem to be doing very well at all..
bjchip, I am surprised in your faith in long term weather prediction. It is fundamentally impossible for the same reason as faster than light travel is impossible. The weather is a chaotic non-linear system and hence the tiniest errors in inputs lead to dramatic changes in the long term scenarios.
And given that we have no means of even measuring global surface temperature with any reasonable accuracy all the inputs have considerable terms. I presume you have read Lorenz’s original paper and the many books by people like Gleik and Gribben. (Deep Simplicity is the most rewarding.)
This is why the experts in climate have such problems. for example this statement accompanied the recent release on the Pacific Decadal Oscillation. Focus on the last sentence in quotes:
“Natural, large-scale climate patterns like the PDO and El Niño-La Niña are superimposed on global warming caused by increasing concentrations of greenhouse gases and landscape changes like deforestation. According to Josh Willis, JPL oceanographer and climate scientist, “These natural climate phenomena can sometimes hide global warming caused by human activities. Or they can have the opposite effect of accentuating it.””
When translated from officialese into English I take that to mean:
We have a clue what’s going on but we have to pretend we do.”
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Owen
I think you misread me. I was pointing out that VASTLY more computing power and information was required to be able to get to accurate prediction of climate from year to year, much less weather. Someone was complaining that we could not predict the early snowfall in Canada this past December… my response is that the data and solutions that might give us such answers are beyond our reach. We will control weather far sooner than we will be able to predict in even that much detail. However, I reject the idea that getting down THAT far is “impossible”. Chaos denies us day to day predictions for each crossroads on the interstate… but it does not IMHO forbid us a general prediction of a colder than usual December for the northern half of a Continent. Which is what is being requested. My point was that even that level of prediction still requires a great deal MORE knowledge about the system at the point at which we start our models, than we have, and a great deal more computing power than we have. Pretty much what you are saying here we have no means of even measuring global surface temperature with any reasonable accuracy.
My point was that an expert in any field is any one of us who has enough knowledge to push the boundaries (wave) of human knowledge of that field outward. Those people are the “experts”. Human knowledge is much like the outward spreading waves after a stone is dropped in a pool. The wavefront expands and expands and knowledge at one part becomes disassociated from that at other parts. Encompassing all of it becomes impossible… and most of us reside someplace inside the circle rather than on any part of the wavefront. I’ve seen the edge in a couple of places. I am fortunate in many many ways.
You misread Willis as well. What he is telling you is that the natural variations make it difficult to look at the climate effect of human activities in isolation. You have to take out the short term noise.
http://blogs.jpl.nasa.gov/?p=8
He arrived after I left, so I don’t know him personally.
respectfully
BJ
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Trev: Ok so you can give me next weeks Lotto numbers?:lol:
The weatherman here gets it wrong more often than I do – but then I spent a lot of time asea on small boats where an inability to read the weather is a life/death nuisance -hardly the sort of penalty the portly weatherman faces.
But people can’t agree about global warming (anymore).
All kinds of species survive by their predictive abilities Trevor – give it some thought…oh – ‘the future’ is not one thing, but a millenia of constantly shifting forces. Constantly interchanging too – however; If you want to Pay me for Predictions….why I’ll find just all you need….
“These are the men who, without virtue, labour, or hazard, are growing rich,
as their country is impoverished; they rejoice, when obstinacy or ambition
adds another year to slaughter and devastation; and laugh, from their desks,
at bravery and science, while they are adding figure to figure, and cipher
to cipher, hoping for a new contract from a new armament, and computing the
profits of a siege or tempest.” Samuel Johnson
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Chippie: Think it’s one of his later works – I pinched it of a website (a penchant of mine).
As one who came home after 20 years and went down to see the ‘great mmp experiment’ in action at Parliament – I sincerely doubt whether accomplishing anything is even on the menu here – unless it’s getting to Bellamy’s asap.
But then, our economy is only the size of a small private prison in Butte Montana – regards Mark
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Mark
People may not agree about warming. Your average denial comes from someone who doesn’t like big government and they are louder than most but not often right about the science. OTOH, Climate Scientists (with the notable exception of Roy Spencer) agree almost unanimously about warming, and even Spencer’s actual research doesn’t make the arguments he sometimes makes informally. In other words, none of the science really supports the speculations that “it ain’t happening”, “it ain’t us”, or “it ain’t that bad”.
Nor is there any reason why a libertarian should adopt any of the extreme positions I have seen them take about global warming. That’s unworthy of a true libertarian and they can (and some do) accept that AGW is real enough, and then argue that the means of addressing it should not rely on/encourage bigger government. THAT is a fair and honest position. To diss the scientists because of some supposed plot to make government bigger that the scientists are a part of… is foolish.
respectfully
BJ
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Bj: Oh not dissing scientists at all – am not a denyer about GW – just when I mentioned it as a given I got all these fraught remarks from disbelievers.
Luckily I had an Oxford Don describe the science to me in the eighties, and I’ve yet to change my mind – spending 20 years in Australia and watching the avg (high) temps shoot up from 30 to 50 degrees is kinda convincing anyway – it’s why I keep advising the denyers to take a summer break there – once it’s too hot to draw in air – arguments sort of die off….sort of.
I have a lot of experience in seeing Professionals paid to come up with a result the buyer wants…thats really all I was trying to point out….some people still want to make a pile outa India and China and pay “scientists” to call GW BS – morally reprehensible – but that’s just my opinion.
I’m not convinced we yet know all there is to know -note eg how the northern winters are getting worse and worse?
Spencer has all the signs of a paid flunky about him – I’m retired from that crapola, but know the beast well.
regards Mark
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Wat
I think that fundamentally the problem of our disagreement over US manufacturing comes down to whether you trust the official statistics or not. I don’t. I learned to mistrust them a long time ago, when I watched things happening in my neighborhood that were contrary to what the official figures stated and I looked deeper. The system there (in the USA) is corrupt enough to lie to itself. I see no quick fix for that kind of problem.
http://www.businessweek.com/magazine/content/07_25/b4039001.htm
I am going to post this in pieces because I know that the automatic filters often trigger when multiple links are included.
The thing is that the manufacturing done IN the USA is basically in a 4 areas. Farm equipment (which we still have). Networking equipment and software. Cisco is still working. Aerospace (which is anchored by the military) and Medical/Pharmaceutical stuff. That’s about it. The Automotive industry is on life-support. The steel industry is gone. Everything else is made overseas. The result is a country in which damned few people have jobs that involve producing something that gets sold overseas. The import-export imbalance has a real consequence there.
They invented the “consumer led” economy myth to pretend that it wasn’t a problem.
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However, the consumer led economy is failing in a spectacular way right now. The problem is that no matter how much the Fed pumps, it cannot fix the fact that there is no place to park another car or float another boat. No way to stuff another big-screen TV into the house and… no money to buy either one. No money to build another house.
http://market-ticker.org/archives/698-Quantitative-Easing-FAIL.html
It doesn’t work. The debt based economy doesn’t work. Which doesn’t directly explain why foreign investing isn’t always a good thing, but which does explain why , in some situations, it doesn’t do any good. Actually investing in producing anything much at all isn’t going to be much use for some little while, as Denninger explains above.
http://www.americaneconomicalert.org/view_art.asp?Prod_ID=2075
However, the USA has been exporting its jobs roughly since I started working in computers and SW.
It has been lying about the economy since LBJ slipped Social Security off the books. Not that I entirely believe this guy…
http://www.shadowstats.com/alternate_data
…but his numbers make more sense to someone looking around on the streets. The economy of the USA is a lot sicker than the official statistics (bad as they are now) begin to describe.
OK.. enough of this. Now I have to re-read your post and see how to answer it in detail.
respectfully
BJ
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Firstly
Having large amounts of foreign capital available in NZ significantly increases productivity
This would be true IF the money were utilized to improve productivity…. it is principally employed in the acquisition of property. This does nothing for productivity, but it inflates the price of property nicely. The problem is that what you say would be true IF it were strictly according to normal economic theory. It does not hold nearly as true here.
trenches are dug not with large gangs of men equipped with shovels, but by just one man from the air-conditioned cab of a JCB. Productivity, and therefore wages, are multiplied.
It may also mean that a large gang of men is now unemployed, unemployable and riding motorcycles through the ugly part of town. Increased productivity comes at a price. It raises the education ante. Everyone has to be smarter and work smarter in order to stay employed and there are more and more people who fail to clear the hurtles.
Not saying it is bad… just pointing out that it is not an unalloyed goodness. Not when there are more than enough people.
Vehicle assembly disappeared from NZ when tariffs were removed. That’s a good thing. They weren’t real jobs. They destroyed wealth.
An interesting explanation that would go down really well among the unemployed workers here. The consumers here each paid more for a vehicle than they do now for the second hand Jap cars we all drive. The question of whether it was worth doing it that way is NOT automatically answered in the negative. It is “less efficient”… the market is clear enough about the efficiency… but is it more or less effective at maintaining a society in which each person has a place? I don’t have an automatic positive answer for this, but I do observe the social dislocation in Porirua.
Once again… productivity is not an unalloyed good.
I am not looking at Russel’s sources, don’t have them. I do expect that he has read them through however… I am not sure I should try to explain his words to you… they are HIS and it would be better for him to argue his own position if he weren’t taking some time off.
He is… I’m here.. so here goes.
What Russel said here
The investment income deficit is because New Zealanders pay out large amounts of interest to service overseas debt (the nett overseas debt is now at $166b) and to give returns on overseas investments in New Zealand.
…indicates that we are paying out money ( 13.7 billion deficit in investment income ) to service 166 billion in debt. This is debt that is already embodied in things (largely property) here in NZ. It hasn’t been paid down in good times. It can’t be paid down in bad times. My problem here is that I don’t know exactly what definition of “investment income” is in deficit. That’s from the quotation he provided… so it is an official definition by treasury… but I don’t know what they are using.
Previously the private banks borrowed lots of private money from overseas and then on-lent it to cover the deficit (largely through the housing market).
In the September 2008 quarter, a $5.4 billion net inflow of capital financed New Zealand’s current account deficit. For a second consecutive quarter, the inflow was primarily due to a withdrawal of New Zealand assets from abroad. This withdrawal of $4.7 billion was added to by $0.8 billion of foreign investment into New Zealand.
This does not sound like a good thing to me. The $0.8 billion of actual foreign investment (which is by God, almost certainly STILL mostly in the property sector) is a pittance. The rest is no longer coming through the private sector banks.
No… the point he makes is that you cannot have a “current account deficit” in perpetuity. IF you borrow you have to come back and make something and sell it at a profit. You have to earn it and repay it. We do not do that. We have not done that. The USA does not do that and has not done it for quite a long time. There Ain’t No Such Thing As A Free Lunch.
I do not see what the confusion is at all here. Public or private is irrelevant… it is NZ borrowing and it is foreigners who have to be paid back. By our kids. Through taxes or through their inability to afford a house and other painful social problems.
Too late. I have to knock off.
ciao
BJ
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bjchip,
You are quite simply wrong when you assert that foreign capital “does nothing for productivity, but it inflates the price of property nicely.”
http://www.treasury.govt.nz/publications/research-policy/wp/2008/08-03/
I quote: “The evidence presented in this paper is that the contribution of foreign capital has indeed been more than sufficient to meet the cost of borrowing.”
In other words, the investments made here using foreign capital have created wealth in excess of the amount needed to pay down the loans: “we estimate that growth in the value of New Zealand’s assets has greatly exceeded the rise in external liabilities to the extent that national wealth per head has risen by $14,000 in 2007 prices between 1996 and 2006.”
- “It may also mean that a large gang of men is now unemployed, unemployable and riding motorcycles through the ugly part of town [because just one man with a JCB is required to do the work]. ”
There’s a famous Friedman anecdote: While traveling by car during one of his many overseas travels, Professor Milton Friedman spotted scores of road builders moving earth with shovels instead of modern machinery. When he asked why powerful equipment wasn’t used instead of so many labourers, his host told him it was to keep employment high in the construction industry. If they used tractors or modern road building equipment, fewer people would have jobs was his host’s logic.
“Then instead of shovels, why don’t you give them spoons and create even more jobs?” Friedman inquired.
- “Increased productivity comes at a price. It raises the education ante. Everyone has to be smarter and work smarter in order to stay employed and there are more and more people who fail to clear the hurtles.”
This is very wrong, and is a very important point.
Essentially, capital plus low-skilled worker equals high productivity and therefore high wages.
Just think how productive even something as basic as milking cows has become, and not because of any increased education of the farmhand. As the broader economy becomes more productive and bids up wages, so it becomes economically viable to deploy capital in still more new areas. It is a virtuous circle. I recommend the following Econtalk podcast, which kind of overlaps which this subject: http://www.econtalk.org/archives/2008/04/roberts_on_the.html
Also, many low-skilled jobs are non-tradable services which can’t be sent off-shore. The haircut is the usual example of this. Barbers in high-wage economies earn vastly more than barbers in low-wage economies, yet they are no more productive. Waiters and waitresses also.
WRT the lost car assembly jobs, they only existed in the first place because of tariffs. Poor families had no choice but to pay a much higher price for their car. What else could they have done with that money? Bought a computer for their child, perhaps? Had a holiday?
The benefits and disruption of trade are essentially no different to the benefits and disruption brought about by technological progress. Look back through old census forms and see the strange job descriptions most people had. Those harsh and meagre jobs don’t exist any more. Is that a problem? Of course not. It represents incredible progress, thanks to capitalism.
Russel describes NZ as “a debtor nation that continues to add on the debt.” Let me quote again from the Treasury report: “the accumulation in national assets exceeded that of external liabilities in absolute terms, such that there was a significant increase in national wealth from 1996 to 2006″
http://www.treasury.govt.nz/publications/research-policy/wp/2008/08-03/04.htm#_TocT6
There’s a strange analogy between the ill-informed economic doom-mongering here and the equally ill-informed environmental doom-mongering.
Can you explain exactly what Russel is talking about here:-
“You can’t borrow your way to economic prosperity even if you jack up interest rates to attract loans from overseas to keep paying the interest on the ever growing debt – at some point the lenders will stop lending. I guess we’ll stave it off by the government borrowing private overseas money (assuming the wholesale credit markets are sufficiently functional next year) and pumping it into the economy.”
The reserve bank controls interest rates, in order to control inflation. They are not raised to “attract loans.” In any case, higher interest rates attract deposits, not loans. Since you say that the “problem is obvious to everyone and Russel stated it pretty clearly,” please explain exactly what he’s talking about here. It sounds like complete gibberish to me.
- “I do not see what the confusion is at all here. Public or private is irrelevant… it is NZ borrowing and it is foreigners who have to be paid back. By our kids. Through taxes or through their inability to afford a house and other painful social problems.”
There is all the difference in the world between public and private debt. If your neighbour borrows heavily and unwisely, you and your children are not liable for a single cent of it. But if the government borrows and makes lots of expensive political promises (healthcare, public sector pensions etc), then you are most certainly on the hook for it. That’s the reason I’m a capitalist: I reject coercion.
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Owen,
Despite what you claim, most atmospheric scientists (meteorologists, climate scientists etc) _are_ employed by either government research laboratories, government funded meteorological services, and to a lesser extent universities. Those atmospheric scientists working in universities often receive funding from government agencies.
If you don’t believe me, try applying for a job as an atmospheric scientist in the private sector.
Unlike you, I don’t think that government funded researchers are necessarily biased (some may be, but most I know aren’t).
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No Wat… if you read that paper, the maroons who wrote it did not bother to separate out property from the capital effects that they were attempting to measure.
I’m not saying that economists are all stupid, but I am saying that people who use economic whitewash to sell you a bill of goods like this are the very same sort of people who got the entire planet into this mess in the first place.
Me, I would put the people responsible for that paper on unemployment, immediately. They complain that results are ambiguous and they don’t match theory. That’s because we have a distorted system of investment due to a tax code that distorts the rewards of investment. Anyone with 3 working brain cells can see that the theory works much better in theory than it does in practice here.
Spoons… yes… and Friedman and the Chicago school are responsible for much of the financial carnage in the streets of the world. ALL things can be taken too far.
Essentially, capital plus low-skilled worker equals high productivity and therefore high wages. – for fewer people… you keep leaving that part out of your equation. The assumption of unlimited demand for the production is false. Nor is there an endless supply of cows to be milked.
The “very wrong” thinking here is the economist’s habit of working out answers in isolation, in theory, with assumptions that stretch to infinity and beyond. We work in a REAL world with real limitations and faulty knowledge about the results of our choices… at least until after the fact and sometimes we don’t even know then… after all Madoff isn’t really sure how many billions of dollars he lost.
In theory, we should be getting higher wages and better tools to work with based on the capital being invested here. That is quite CLEARLY not happening. What has happened is the money has been pumped into bubbles of property investment and inflated the cr@p out of our housing. Which is not only not worth the price after the inflation, based on the observed lack of quality, it wasn’t worth the price even before it was inflated.
When I am forced to spend excessive money on a car I am more likely to have only one, or none, and use mass transit. I am still not convinced either way on this issue. It is a very close reckoning on balance.
Total national assets are calculated as the sum of Residential Building, non residential building, other construction, transport equipment plant machinery and equipment, consumer durable and NZ investment abroad
Which is to say, it is the Gross Distorted Product of the housing bubble.
I don’t reckon the great minds who produced this twisted report have any real fault but an excess of economic theory in their education. I don’t have that handicap. As an Engineer, I have to look at the real world FIRST, and it has become my habit to do so. Any error in evaluating what is happening there is fatal to an engineering project.
My take on what Russel is saying about “borrowing your way to prosperity” is simply that if we jacked up the rates we’d be paying higher interest on deposits (which would be temporary and which are often created through the carry-trade which means they are deposits of borrowed money) AND as a secondary effect, on debt instruments of all sorts. With Fractional-Reserve banking the distortion of the banking system is pretty thorough when that happens but I think you’re right… he is not particularly clear about how this causes trouble. The phrase “to attract loans” was attached to an IF clause. He wasn’t saying that that is what we do now, he was saying that it still wouldn’t work.
Your analogy is suspect. The nature of this borrowing means that the interest payments are sent overseas RATHER than remaining in NZ. This is a net outflow that is not counterbalanced by any actual improvement in anything but increased property prices and the apparent “wealth” measured by the idiots who wrote the stupid paper you cite.
It doesn’t matter whether it is government OR private, if the borrowing is from an overseas source, the interest payments are subtracted from the nation’s net wealth. Which is what Russel was pointing out and is obvious to pretty much everyone in NZ.
Whether government should have a whole bunch of expensive programs is another question that is unrelated to this.
respectfully
BJ
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I am an advocate of blind funding for government research.
One of the greatest inventions of medical science was the double blind test of drugs and other treatments.
Similarly, I would like the funding for research be “blind” where the funder does not know who is getting it and the recipient does not know who is supplying it.
So for example it would be good if a researcher in soil science did not know whether the programme on NO2 emissions was coming from NIWA or MAF.
And a researcher into the cost and benefit of wind farms did not know whether the funding was coming from DOC or from Trustpower.
And a researcher into sea levels did not know whether the funding was coming from MfE or from the MED.
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Owen, how would such a funding system for research work?
There is a fundamental difficulty with your idea; good research is published in internationally read journals. As soon as the first publications appear, it will be immediately obvious to the funders who conducted the research, and then word of mouth will ensure the researchers know who funded them. Not many scientists would be prepared to publish anonymously, and not many journals would accept anonymous publications. Furthermore, it is common practice for funding sources to be identified in publications (to reduce the chance of the sort of biases you are concerned about, amongst other reasons), although I suppose you could acknowledge an anonymous funder.
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By that stage it does not matter.
The damage is done as the research is being done, not after it is published.
These biases takes many forms – that is why the double blind test of medicine is so significant.
For example, at the same seminar were NIWA claimed the Medieval Warm Period and the Little Ice Age never happened (because the hockey stick said so) I was talking to another attendee who it turned out had graduated in architecture soon after me from the same school. We talked about our careers etc and it turned out he worked in the Building Research Association or whatever it is now called and had just completed some work on designing houses to cope with high temperatures due to global warming. I asked him about his findings and he summarised them. I said “But that is just standard good design for buildings in New Zealand. My own houses in Northland all have those features – what has that got to do with global warming?” He openly said “If we had not incorporated global warming in the programme we would never have got the grant – and the work was worth doing.”
This was not corrupt behaviour or devious. His duty was to attract funding to his organisation and to do the research.
I got the feeling he was quite skeptical – but hell, it brought in the money.
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Owen; Don’t have a problem there – in fact a lot of people need designs for cool housing Right Now.
Someone gave me a new 4bd AV Jennings home to care for in Oz – man in summer all I could do was to hose the area down to cool it off – 48 degrees ain’t a day at the beach I promise…
My concern was more with the kind of Credentialled Professional who gets paid say 500million By Big Tobbacco (Tax Deductable for all Parties); to say that “Smoking is the cheapest stress treatment on the Market etc etc etc.” & ‘It’s good fer ya’ etc – believe me – it happens a lot more than I think people realize.
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Owen
I tend to believe your assertion about what happens and happened here in NZ. Not sure that secondary effects that force people to relate “how to design a house correctly” to AGW is actually relevant to a problem with AGW itself, but certainly it is annoying that Labour didn’t take the trouble to simply do the research into how to build a house correctly..
I find it odd that the folks at NIWA were so gormless and wish I had been there, but the MWP doesn’t prove anything at all about what is happening now or disprove anything. I am quite certain that it happened, though I am just as uncertain about how warm it actually was as any scientist. The uncertainty back that far is a serious issue… the rate of change of the climate to get to the MWP and its cause are additional questions, not answered nor IMHO answerable in the necessary detail.
It is SERIOUSLY annoying that nobody in NZ appears to have taken the issue of building houses properly to heart.
respectfully
BJ
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I agree with your concerns about self serving research by tobacco companies or anyone else for that matter.
But it seems to me that if we began to accumulate large bodies of Double Blind research in these areas any that were not so managed would lose their credibility.
This has certainly happened in medicine.
If a study is not double blind then major insitutions and governments give it little if any credibility.
This is why the homeopaths do not subject their own cures to double blind tests and this is why homeopathic remedies do not attract government funding.
When double blind tests show these “alternative” (ie untested) remedies do not work the advocates explain this by saying that the skeptical “vibrations” upse the aura or something. Of course homeopathy has one benefit – it does no harm because the dilutions are such that no molecules of the original toxin survive the process.
You might like to read my paper on the famous 7,000 contaminated sites in Auckland – which generated a big scare a few years ago and cost many people large sums of money in lost sales.
I now hear from my sources that reputable research has now reduced the number to half a dozen. You will understand my cynicism about much “research”.
Go to:
http://www.rmastudies.org.nz/index.php/issues/49-pollution-soil-water-air/72-contaminated-soils-comparative-risks-there-are-no-health-risks-at-the-bottom-of-your-garden
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Soil toxicity is still ‘caveat emptor’ here…little short of outright negligence as the Govt (who generally know) are happy enough to play russian roulette with buyers. Hey if you don’t die of cancer then you can’t sue us…and if you do, well ya still can’t.
Imagine the horror of those homeowners in New plymouth who saw their properties disappear into the abyss, only to discover they had bought land that had once been used to manufacture 245T and Agent Orange…whoops
regards
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The ARC claims of toxic soils were based on a survey of old photographs which revealed which properties had been used for horticulture such as orchards and grape growing.
If they had been they were assumed to be “contaminated” after a survey of a selection of sites showed “elevated” levels of “contaminants” such as copper and other metals.
The problem was that the “thresholds” used were based on “clean up” levels from Canada rather than those related to human health.
Our diets are generally short of copper so elevated copper is hardly likely to harm you even if you did eat a bowl of soil every morning. You would still only get the same amount of copper as you get from your Supermarket “Healthery” pill, or from the copper bracelet on your wrist.
Truly toxic soils is residential or rural areas are very rare. The New Plymouth soils in residential areas had “elevated” levels of dioxins but these elevated levels were still well within the WHO guidelines. It is easy to achieve elevated levels of dioxin in NZ because we have the lowest levels of ambient dioxins in the world – outside of the Antarctic.
The highest levels are are in Scandinavia, Japan and some US states. This of course has nothiing to do with specific sites of old factories and timber treatment plants were levels can be sufficiently high to pose a health hazard (as with lead from old paint). But our back gardens are safe.
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bjchip,
- “the maroons who wrote it did not bother to separate out property from the capital effects that they were attempting to measure. ”
I don’t know why you are fixated with the curious notion that all the availability of foreign capital does is inflate property prices. As I pointed out before, over anything but the short term, property prices are a function of wage levels. Try going to your bank and saying you want to borrow ten times your salary for a mortgage. Sure, it’s no problem for them to get hold of the money from abroad, but you are only allowed to borrow the traditional multiple of around three times your salary.
House prices took off in 2002, yet capital inflows began back in the 80s. So where is the link between them? On the other hand, Japan famously had a property bubble in the 80s, whilst consistently runs a capital account surplus, so clearly bubbles can occur with or without these inflows. What is the exact mechanism you envisage for your theory?
And what would happen if NZ were cut off from this evil foreign capital and had to rely on the meagre savings of the tiny number of workers in the productive sector here? If you wanted to borrow money to open a factory to start creating more wealth here it could only be at the expense of some other venture which is denied funding. There’s nothing admirable or prudent about that. A good business is a good business and it doesn’t matter where the money came from to start it. Your problem is you think there is a “them” and an “us.” There isn’t.
You then post what is frankly nonsense about higher productivity meaning better jobs but for fewer workers. This is known as the ‘lump of labour fallacy’ – the idea that there is only so much work available so we have to share it around. It is plain wrong. For example, a century ago half the adults in the US worked in the agricultural sector. Today it is maybe 2% and the US has got more food than it knows what to do with. But notice that 48% of the workers are not now unemployed, they have been freed up to work in other sectors to create still more wealth. There is no end to human needs and wants and maintaining full employment is not a problem, except when wage levels are artifically held higher that market rates, through minimum wage legislation for example.
- “The nature of this borrowing means that the interest payments are sent overseas RATHER than remaining in NZ. This is a net outflow that is not counterbalanced by any actual improvement in anything but increased property prices”
You throw around entirely unsubstantiated claims and ignore the evidence which contradicts it.
If you choose to believe that foreign capital is not improving NZ productivity and growing the NZ economy then you go right ahead. It just seems odd that most countries in the world are falling over themselves to attract foreign investment, yet here you are – the straight-talking engineer – a cross between John McCain and Dilbert – saying it’s all a load of baloney. Perhaps if you stopped using the terms “inflation” and “bubble” interchangeably – when they are not the same thing at all – then you would have some credibility?
All businesses borrow money to invest and have to make interest payments on the debt. But if the investment leads higher profits – in excess of the interest payments – then it is a prudent investment. If NZ companies are doing that then it is clearly wrong to make alarmist noises about the borrowing whilst at the same time completely ignoring the new assets. And what’s this fear about interest payments being sent overseas? of course they are, but you are completely ignoring the fact that it brings the foreign capital here to be put to work, rather than elsewhere. Businesses rent capital when it is prudent to do so in the same way they rent office space or machinery. It’s not like interest payments are some sort of tribute which has to be collected and sent away to a Pharoah.
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wat dabney
Property values would be a function of wage levels if
1 migrants did not buy up housing
2 expats did not buy housing
3 those inheriting money from parents did not use it for a deposit to buy a house
4 there was no accommodation supplement to support the rent received by landlords
5 there was no tax break for private rental owners
6 there was a capital gains tax on rental property deterring investor/speculators bidding up values
7 the regulatory costs of building new homes were not rising
8 the building costs of new homes was not rising faster than inflation
9 housing stock levels reflected population increases
10 more of the available land and housing was not being held by aging singles or retiree couples (which will get worse as the boomers retire)
And apart from this, certain of our markets such as Queenstown and increasingly other areas reflect a truly international price, not our own local income level.
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Oh and the point being made is that foreign capital inflows have not resulted in growth in our economy (a notable lack of investment in modern technology to make improve productivity) but to own it – buy it up/takeover the ownership of things that already exist.
This has left those who formerly owned these assets to speculate in land and property (bid up the prices) for the tax free capital gains – assisted (2002-2007) by the ability to borrow money from banks that foreigners had been saving (including thsoe capital inflows merely here on a short term basis – invested in our higher interest rates alone).
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Yes -as I said further up (I think it was this thread), the Northland experience (with the notable exception of the board mill in Kaitaia) is pine forest owned by multinationals and rich dudes making playgrounds for themselves and menial jobs for the dispossessed. This also has the effect of putting some of the most desirable coastal land out of reach of those who have always gone there – forget foreshore and seabed bill; foreign property owners are the ones who close it up.
And it’s not just the capital cost of land that has gone way beyond the said menial workers, but rates as well. Now, the mayor is talking about all of us having to fork out $20 million (to start with) so that there can be a huge reticulated sewage scheme for thousands of houses that don’t yet exist – for developers of course. That is what foreign investment up here looks like. None of us could possibly compete, even if that is what we aspired to.
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Great article. Thanks for sharing this :
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Historic even; I for one miss BJ’s Science and Engineering Perspectives – APB – Put a Google Funnel to th Commodore would you Frog?
Make sure he remembers us – hellava lunch break but.
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