To Gerrit I say, yes it would be good to get Gareth Morgan’s analysis now. I was attempting to make the point that an expert did not question Iceland’s situation and if you set yourself up as an expert it would be good if you report on any signs of instability, not give a rosy glow report. It is easy to say what was wrong after the event. I do not see it as “two unrelated events” surely 3 months before Iceland’s bankruptcy the signs of risk were there.
To Gerrit and jh I have to say I was going on my memory of the Listener articles GM wrote and mixed up the Norway and Iceland
articles. The Norway article does extensively praise their economic management and compares it to NZ. This is worth reading. Here is an extract:
NZ Listener 16/8/08 “Imagine a country that has natural , resources – oil and hydro electricity – in such abundance that it can earn as much as it wants in world markets, and although these industries alone don’t employ everybody, there is plenty of money to go around. This country has generous welfare benefits and full (paid) maternity leave for men and women, and 12 weeks’ annual leave is common. Further, there’s a commitment to extensive free health care and education for everyone.

This country isn’t without its challenges, though. The topography is difficult, and the small population – about the same as New Zealand’s – is spread across an area of a similar size. As a result, the cost of financing a First World transport infrastructure is not insignificant, but again a hallmark of this country’s success is its extensive netvvark of tunnels and bridges that link the numerous fjords, ravines and valleys where people live.

Our country of abundance has a strong historical and sentimental attachment to traditional farming, even though the small plots, with housing for their few livestock during the long winters, are unviable internationally. This country overcomes this challenge, however, by using some of its overseas earnings to provide subsidies.

In the end, this country still has money to burn, its currency is one of the strongest in the world (as a result of earning so much more than it spends) and, despite the generous welfare system, its unemployment rate is only 2%. ”

The Iceland article does not praise its economy but only gives a brief outline with no criticism. Here is an extract:
NZ Listener 2/8/08 “The country has been making good use of these assets, with aluminium smelters the most popular way to convert vast energy resources into export earnings. Icelanders are debating whether these developments should be expanded.

Despite the abundance of hydro-electric power and the delivery of room and water heating straight from geothermal fields into many homes, Icelanders still have one of the highest carbon footprints in Europe. This is the result of private vehicle use. Although the population density is only a fifth of New Zealand’s, the standard of living is high, so they drive cars. The Government plans to end fossil-fuel use by 2050, however, so vehicles and fishing boats are already being converted to hydrogen.” So GM’S only error was one of omission. I won’t say it was “quite bluntly, silly.”

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I don’t see anything much in Gareth Morgans article

Lasting Impressions of Iceland
http://articles.garethmorgan.com/lasting-impressions-of-iceland_1176.html

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E-prophet,

To answer that truthfully, you need to know what changes were bought in AFTER Gareth Morgans visit.

He saw an economy on the up. What changed to cause it to fall. Have you asked him?

Come back when you have, be an interesting scenario.

Also ask him what he would have done differently.

Just to blindly and blithly tie two untrelated events together is quite bluntly, silly.

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I remember one of our financial Guru’s, Gareth Morgan, praised Iceland’s economy when he visited there on his world motorcycle tour. Now, in the Listener, he is advising us on how manage our money in a recession. Who can you trust?

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“Irrespective, there wasn’t any serious attempt to diversify the economy until the Rogernomics process saw the elimination of subsidies, freeing up resources for other industries (notably dairy farming and viticulture). To diversify an economy at the very least requires the elimination of distortive subsidies.”

I have actually come across some reputable sources, which say that common claim by neoliberals is not true at all. According to Bryan Easton, John Gould has reported that New Zealand had diversified its exports to the greatest extent as measured against other OECD nations, during the 1970s.
http://www.eastonbh.ac.nz/?p=520

“While some slippage was inevitable and unavoidable, nevertheless, it wasn’t helped by a massive explosion in the size of the state under Muldoon, and the attempts by the Third National Government to stop the inevitable.”

Earlier I said that Muldoon, like Roger Douglas had to deal with a crisis that emanated from beyond our shores as best he could, armed with the best advice available to him at the time. Of the two, I think Muldoon was the most honest, though his actions were inevitably informed by political expediancy or perhaps its just that Roger Douglas’ advice was provided by people entangled in conflicts of interest.

“Privatisation stopped in 1993 and only started again in 1998 though. With privatisation, shouldn’t it have shown up as an improvement in the OECD rankings almost immediately?”

To be honest with you, I have failed to find any claims that New Zealand was climbing in the OECD rankings in my search of the internet, so I really can’t adequately address your argument.

“Furthermore, it doesn’t help that for a decade, New Zealand had a higher corporate tax rate than Australia – that drove many of the businesses that New Zealand once had overseas.”

I think you’re overstating the importance of the corporate tax rate in businesses moving offshore, especially when compared to other factors for example closeness to their owners and a far greater market, not to mention the fact that the Australian government is far more willing to provide inducements to businesses to establish a presence there in contrast to ours which prefers to provide a “level playing field” unlike virtually every other country in the OECD.

“So you would prefer having a fixed New Zealand Dollar? I believe that the New Zealand Government was forced to ask ambassadors to use their credit cards to help out in propping up the New Zealand Dollar. A fixed New Zealand Dollar didn’t benefit New Zealand at all, and probably failed to help in the diversification of our economy (as it was always fixed at a higher rate than the likely market rate).”

Well not technicially no, though I believe it to be the lesser of the evils as it can be convincingly argued that China’s refusal to bow down to pressure to demands that it floated its currency insulated its economy to the convulsions that were inflicted on its neighbours in South East Asia in 1998 during the Asian Crisis, though it can be argued that Japan and America’s adoption of a hybrid regime are responsible for the current economic crisis as both held down interest rates far lower than was prudent with devastating consequences for small, open economies like ours.

“So, not only do you want to go back to the failure of a fixed exchange rate, but you also want to go back to the inflation inducing Reserve Bank policies of the past.”

Actually if you look carefully I expressed my relief that the Central Bankers have only a single tool with which to manage the country’s money supply as they don’t understand the system that they are supposed to manage. For example the misconception that the quanitity of money is the chief determinant or even source of inflation when in actual fact it is almost irrelevant. Inflation is actually merely a reflection of the inadequacy of competition and market failures as businesses are able to take advantage of their freedom from competitive pressures. A Central Bank’s attempts to contract the availability of new credit actually exacerbates the problem, because as a result of the lack of money companies go bankrupt and close, thus as a consequence it results in a contraction of production and consolidation of industry. This is bourne out by a rather contrarian analysis of the exploits of Paul Volcker during the 1980s.

“Contrary to modern accounts of that period suggesting Volcker’s policies whipped inflation, the markets had as mentioned already “voted” on them with gold having reached an all-time high in his early years at the Fed. The weak dollar that gold signaled was itself inflation, not a cause of the latter, and with Reagan’s election and its policy aftermath having boosted the dollar, inflation was effectively contained.

Sadly, Volcker did not agree. Seeking to tighten further through futile attempts at managing the various monetary aggregates, his actions sent the economy into a major recession which led to the ’82 electoral rout, and which made Reagan’s 1984 re-election prospects increasingly dicey.”
http://www.realclearmarkets.com/articles/2008/02/the_paul_volcker_myth.html

My obvious opposition to the policies of the Rogernomes certainly doesn’t necessarily indicate that I support those of Robert Muldoon. In fact I oppose those policies as strenuously, if not more so, given that I’m a free-market anarchist. What I object to most strongly is the neoliberals claim that the State has shrunk after their “reforms”, when in fact when it hasn’t actually grown, it has merely been restructured or reorganised with the involvement and collusion of large corporate enterprises. Profits have become privatised, whilst costs remain socialised.

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Anyway, what’s the eleven yr old Keif got to say then?

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Wat: Holidays sorry – can’t give you that info without say, $500K cash?

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“The slippage in the OECD rankings and the ensuring economic crisis were inevitable and unavoidable due to the dependance that our economy had on a narrow range of primary exports that we traded almost exlusively with Great Britain who entered the ECM in the 1970s. It takes a very long time to diversify an economy and was hampered dramatically by the external shocks stemming from the “Energy Crisis” in the 1970s and the transition from fixed to a floating exchange rate regime, that was taking place after Nixon abolished the convertibly of the US into gold in 1971.”

While some slippage was inevitable and unavoidable, nevertheless, it wasn’t helped by a massive explosion in the size of the state under Muldoon, and the attempts by the Third National Government to stop the inevitable.

Furthermore, governments knew from the 1960s that Britain wanted to join the ECM; instead of hindering the process, perhaps it would have been far better for them to have focussed on getting the New Zealand economy ready.

Irrespective, there wasn’t any serious attempt to diversify the economy until the Rogernomics process saw the elimination of subsidies, freeing up resources for other industries (notably dairy farming and viticulture). To diversify an economy at the very least requires the elimination of distortive subsidies.

“I beg to differ. The initial improvement in OECD indicators (which relies on the measurement of primarily financial data e.g. represented by GDP) observed during the mid 1990s stems in large part from the massive capital inflows that entered the economy in order to purchase the formerly State Owned assets when the New Right privatised them”

Privatisation stopped in 1993 and only started again in 1998 though. With privatisation, shouldn’t it have shown up as an improvement in the OECD rankings almost immediately?

What the GDP increase in the 1990s represented was that the New Zealand economy was no longer held in a strong straitjacket of regulation and business was allowed to grow and expand. That process stopped with the election of the Clark Government in 1999, and went into reverse.

“but what you’re neglecting to recognise is that from then on, our economy was susceptible to even more massive capital outflows due to the income from foreign ownership of local assets exceeding income from New Zealand owned assets from overseas.”

I’ll agree that our economy is susceptible to massive capital outflows, however, I would say that as a phenomenon, it has only occurred since around 2000. The cumulative deficits of the 1990s were not all that great compared with what we have seen in the last half decade.

Furthermore, it doesn’t help that for a decade, New Zealand had a higher corporate tax rate than Australia – that drove many of the businesses that New Zealand once had overseas.

“Actually Rogernomics can be blamed as the faction of the Labour party caved into the IMF’s insistence that the country should adopt the fully floating foreign exchange regime even though as early as 1978, Paul Volcker, head of the US Federal Reserve recognised that the floating exchange system represented a lack of, rather than a coherent economic policy, a state of affairs that was more due to the notable lack of agreement and consensus, amongst the great economic powers, on how a new, sustainable system to replace the Bretton Woods agreement would or should operate.”

So you would prefer having a fixed New Zealand Dollar? I believe that the New Zealand Government was forced to ask ambassadors to use their credit cards to help out in propping up the New Zealand Dollar. A fixed New Zealand Dollar didn’t benefit New Zealand at all, and probably failed to help in the diversification of our economy (as it was always fixed at a higher rate than the likely market rate).

Furthermore, fixed exchange rates are really no good when you don’t have a Gold Standard; I doubt you could have had a post Bretton Woods agreement.

“See above. TPTH knew the flaws in the floating exchange rate regime, with other countries adopted a hybrid regime that incorporated elements of the fixed rate one. By a small open economy adopting a pure floating rate regime they exposed our economy to wild, unpredictable fluatuations and gyrations from overseas. Not to mention the retarded bundle of legislation that is the Reserve Bank Act. Though I guess, from my perspective, at least it recognises that the central bankers don’t understand the system that they are supposed to manage and in the OCR they have single instrument with which they can muck things up. Even the Bank of England recognises, that the interest rate is a “blunt instrument” with which it must control something as dynamic and complex as a national economy.”

So, not only do you want to go back to the failure of a fixed exchange rate, but you also want to go back to the inflation inducing Reserve Bank policies of the past. While interest rates are a blunt instrument, nevertheless, they are the only instrument that central bankers have to control the beast of inflation. If people didn’t go out of their way to spend like mad, then it wouldn’t have a negative impact on our exporters.

Also, just before you wonder, I did agree with most of your points re: 1987 crash.

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john-ston

“A reversal in our economic collapse. Prior to the late 1980s, we were slipping in the OECD rankings and had done so for the best part of two decades. Rogernomics arrested that, and by the late 1990s, we had actually started climbing again;”

The slippage in the OECD rankings and the ensuring economic crisis were inevitable and unavoidable due to the dependance that our economy had on a narrow range of primary exports that we traded almost exlusively with Great Britain who entered the ECM in the 1970s. It takes a very long time to diversify an economy and was hampered dramatically by the external shocks stemming from the “Energy Crisis” in the 1970s and the transition from fixed to a floating exchange rate regime, that was taking place after Nixon abolished the convertibly of the US into gold in 1971.

“the Fifth Labour Government and its policies stopped that climb though, while squandering the dividends of the hard work and suffering that had been done in the 1980s and 1990s.”

I beg to differ. The initial improvement in OECD indicators (which relies on the measurement of primarily financial data e.g. represented by GDP) observed during the mid 1990s stems in large part from the massive capital inflows that entered the economy in order to purchase the formerly State Owned assets when the New Right privatised them, but what you’re neglecting to recognise is that from then on, our economy was susceptible to even more massive capital outflows due to the income from foreign ownership of local assets exceeding income from New Zealand owned assets from overseas.

“However, New Zealand’s GNI per capita is around 7 per cent below our GDP per capita. This difference between GDP and GNI reflects the fact that income accruing to foreign investments in New Zealand exceeds the income accruing from our own overseas investments. New Zealand’s investment balance and external position are discussed further in Chapter 3.”
Ministry of Economic Development, Economic Development Indicators 2007

“That cannot be blamed on Rogernomics; that can be blamed on a variety of other factors, not least of which was the 1987 Crash. The 87 Crash made the populace nervous about sharemarket investing, and that process was being reversed in the late 1990s by the privatisations of Auckland Airport and Contact Energy, a process that was again stopped by the Fifth Labour Government.”

The stockmarket is inherently suspect as publicly traded stock in corporations are inherently open to conflicts between shareholders and management due to the seperation of control and ownership which is corraborated by this description of a research paper published by
Julian Franks, Professor of Finance and Director of the Institute of Finance and Accounting at London Business School.
http://www.cepr.org/pubs/bulletin/meets/524.htm

I bet that if an economist here would do a similar study of the “investment” trends of the 1980s, using a similar methodology he would discover that very similar dodgy goings on were a major contributing factor to the ’87 Crash here, alongside the preposterous state of affairs where people gamble on the sharemarket with their credit cards in the hopes that they could sucker some other smuck into buying the shares before the bill came due.

Not to mention its also susceptible to investment manias like the dot com bubble.

“That cannot be blamed on Rogernomics, but instead our love of residental property as an investment vehicle – that love originated because we saw $8 shares become 8c shares in the 87 Crash.”

Actually Rogernomics can be blamed as the faction of the Labour party caved into the IMF’s insistence that the country should adopt the fully floating foreign exchange regime even though as early as 1978, Paul Volcker, head of the US Federal Reserve recognised that the floating exchange system represented a lack of, rather than a coherent economic policy, a state of affairs that was more due to the notable lack of agreement and consensus, amongst the great economic powers, on how a new, sustainable system to replace the Bretton Woods agreement would or should operate.

“That cannot be blamed on Rogernomics either, but instead flawed government policy enacted overseas. The housing bubble was due to burst anyway, and that bubble was caused by guess who -”

See above. TPTH knew the flaws in the floating exchange rate regime, with other countries adopted a hybrid regime that incorporated elements of the fixed rate one. By a small open economy adopting a pure floating rate regime they exposed our economy to wild, unpredictable fluatuations and gyrations from overseas. Not to mention the retarded bundle of legislation that is the Reserve Bank Act. Though I guess, from my perspective, at least it recognises that the central bankers don’t understand the system that they are supposed to manage and in the OCR they have single instrument with which they can muck things up. Even the Bank of England recognises, that the interest rate is a “blunt instrument” with which it must control something as dynamic and complex as a national economy.

Oh really – what would happen if we couldn’t get more public debt, a situation we faced in the 1980s? Simple, we would see the printing presses start and before long, we would end up like Zimbabwe. At least with private debt, there is a point were it all comes to a halt.

I will address the rest of your points later, but for now the above will have to suffice.

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Sleepy Treehugger- “I’ve been banging on about this issue for ages and no one seems to have listened.”
Maybe they gave up reading- it’s like you put all the sentences in a jar and shook them up. Shame, because you are making some very interesting points. Well, with some editing they would be points. Interesting blunts?
Thanks for the links, but.
Samiuela- try reading Michael Rowbotham or Dierdre Kent, who ask the same questions as you.

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“Contributing what to New Zealand?”

A reversal in our economic collapse. Prior to the late 1980s, we were slipping in the OECD rankings and had done so for the best part of two decades. Rogernomics arrested that, and by the late 1990s, we had actually started climbing again; the Fifth Labour Government and its policies stopped that climb though, while squandering the dividends of the hard work and suffering that had been done in the 1980s and 1990s.

“One of the highest levels of indebtedness in the world?”

That cannot be blamed on Rogernomics; that can be blamed on a variety of other factors, not least of which was the 1987 Crash. The 87 Crash made the populace nervous about sharemarket investing, and that process was being reversed in the late 1990s by the privatisations of Auckland Airport and Contact Energy, a process that was again stopped by the Fifth Labour Government.

“One of the most volatile currencies in the world?”

That cannot be blamed on Rogernomics, but instead our love of residental property as an investment vehicle – that love originated because we saw $8 shares become 8c shares in the 87 Crash.

“Vanishing “wealth” as the housing market and equities markets nosedive.”

That cannot be blamed on Rogernomics either, but instead flawed government policy enacted overseas. The housing bubble was due to burst anyway, and that bubble was caused by guess who -

Yes, the state. Those MULs that drove up the price of houses in the cities that had them. The cities that never had MULs never had the sharp spike in house prices, and now aren’t having the sharp slump in them either.

“An export economy that is still overlydependant on external finance and a limited range of primary products. ”

How can that be blamed on Rogernomics? That is more caused by the fact that corporate tax rates are too high, and until last year, were higher than those of Australia. No wonder businesses wouldn’t start here, they were being robbed blind by the taxman.

“All we’ve managed to do is substitute public debt for private debt which actually costs us MORE.”

Oh really – what would happen if we couldn’t get more public debt, a situation we faced in the 1980s? Simple, we would see the printing presses start and before long, we would end up like Zimbabwe. At least with private debt, there is a point were it all comes to a halt.

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Wat

If the government buys stuff, people have to work to create the stuff. If the stuff the government buys has lasting value, it isn’t money wasted. It isn’t ideal but it does work. It puts a floor under things and the people who still have work are able to buy stuff which helps other people fo find work.

The difficult thing is that the economy got so far ahead of itself that it is unlikely to catch up in less than a decade.

BJ

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We know Nandor’s religion: he believes Halie Selassie is God. He is also a Treaty Educator, meaning he sells Treaty Hair shampoo and Treaty Soil Additive (as a sideline).

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He would only need to join the party and start a compost heap.

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Frog’s claim is debatable of course, but even so, he was talking about Iceland and made absolutely no prediction for NZ, nor would he be silly enough to I think. Ken Douglass (sic) has been many things, but is not an MP, nor a Green.

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# Valis Says:

“The Greens think they will pick up gains due to the financial meltdown.”

Who said that? I don’t know any Greens that would.
………………..
I think we can conclude that from Frogs post:

“It seems to be a universal and it seems to be the bigger the mess, the further to the Left you look for help … and so to Iceland.” The Greens are the left. Is not Ken Douglass one of your MP’s?

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big bro Says:
February 5th, 2009 at 8:32 pm

> “I spent some time in the US and watched Clinton fix an economy blighted by Reagan’s war-mongering.”

> I suspect you spent the entire time stoned if you believe that rubbish.

Reagan came to power at the end of the second oil shock, so the economy was bound to improve while he was in power, whatever he did. Despite that, his term was characterised by an increase in government debt, an increase in inequality and nothing any good in terms of environmental protection either. He had the good luck to be president when a peacemaker come to power in the Soviet Union, but he didn’t exactly extract the full potential from that situation either.

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“The Greens think they will pick up gains due to the financial meltdown.”

Who said that? I don’t know any Greens that would.

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Mark,

How can the government “create jobs,” by which I mean real wealth-creating jobs rather than wasteful make-work schemes?

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Hello Turnip; Well – in the Yanks case, they are planning to create jobs. You’d be surprised how easily Govt. (with the will) can do this.
Yeah – someone’s cryin’ cos O’Bama’s gonna go Green. Fantastic and good luck I say!
About the only thing they haven’t lost is Confidence; If that goes; If that fails – it’ll be truly Historic, for all of us.
Then, they could always close a dozen or two of the overseas Cities their military has built.
Appreciate the costing of each base at some billion dollars.
My time there taught me one main thing; this is a ‘can do’ people. With the right attitude and goals, Americans can come to an enthusiastic unity that seems beyond, well, we anzacs for example.
Wat: Was a totally cost effective Capitalist all my working life.
regards.

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