by frog
After yesterday’s woeful performance by Attorney-General Chris Finlayson on behalf of the Minister of Foreign Affairs, the Green MPs thought they would ask the Government more about New Zealand’s poor inequality ranking in the UNDP’s Human Development Report 2009.
This time Metiria asked Social Development and Employment Minister Paula Bennet what her response to the ranking was. The other Green MPs contributed supplementary questions using evidence from The Spirit Level to show how various social and economic problems are worse for everyone – not just the poor – in unequal societies.
Transcript below. I think you’ll agree the reponse from the Government was still woeful. Bennett had even misread the relevant table of the UNDP report!
I’ll post video as soon as it’s available.
4. METIRIA TUREI (Co-Leader-Green) to the Minister for Social Development and Employment: What is her response to New Zealand’s inequality ranking in the United Nations Development Programme’s Human Development Report 2009?
Hon PAULA BENNETT (Minister for Social Development and Employment) : I agree with one of the report’s findings-that people will move to better-off countries. That is why we are following an economic programme that is designed to narrow the income gap with Australia.
Metiria Turei: I seek leave, at this early stage, to table the United NationsHuman Development Report 2009, which was published by the United Nations Development Programme on 16 October 2009.
Mr SPEAKER: Leave is sought to table that document. Is there any objection? There is objection.
Metiria Turei: Is the Minister aware that Social Report 2009, published by her Ministry of Social Development, uses the same measure as that of the United Nations Development Programme report to compare New Zealand’s inequality score with other countries and notes that New Zealand ranks 23rd out of 30 OECD countries for inequality?
Hon PAULA BENNETT: What I am also aware of is the report that has just come through today-
Mr SPEAKER: The Minister will resume her seat. The Minister may be aware of all sorts of things but she has actually just been asked a question that related, very directly, to the primary question. The Minister being “also aware” of something else was not what she was questioned about. Where a member asks a question absolutely directly related to the primary question, and although the Minister may be intending to get to that matter, her answer should indicate that she is answering the question and not going on to something else. The Minister started: “I am also aware of” something else. That cannot be the way to start answering that perfectly fair question.
Hon PAULA BENNETT: I was heading toward discussing the OECD rankings in the social report that the member brought up. I am also aware that the report that was in the original question has New Zealand ranked at 20 out of 182 countries. That was the answer to the member’s question. She had a question about a certain ranking within an OECD report. The original had us ranked 20th for inequality out of 182 countries.
Metiria Turei: I seek leave to table table M from the United Nations Human Development Report, which, while listing New Zealand in the table at No 20, when using the Gini index for inequality clearly shows New Zealand is ranked 6th worst for inequality.
Mr SPEAKER: Leave is sought to table that table from the named document. Is there any objection to that? There is no objection.
Document, by leave, laid on the Table of the House.
Hon Trevor Mallard: I raise a point of order, Mr Speaker. During that point of order, which was a reasonable one and went as quickly as someone could to the tabling of the document, there was an interjection from the Leader of the House, which was loud. My view, Mr Speaker, is that you had drawn the line on that behaviour earlier in the day and your ruling should be consistent.Mr SPEAKER: I was concentrating so much on what the honourable member Metiria Turei was saying that I did not even notice the interjection. But I would ask the member, Gerry Brownlee, to cease from interjection when a point of order is being heard.
Dr Kennedy Graham: Has she discussed with her Cabinet colleagues the findings of British researchers, Wilkinson and Pickett, authors of The Spirit Level: Why More Equal Societies Almost Always Do Better, that more unequal societies are bad for almost everyone within them, the well-off as well as the poor?
Hon PAULA BENNETT: No.
Sue Kedgley: Is she concerned that the same research shows teenage birth rates and infant mortality are higher in more unequal countries, with New Zealand above the average; if so, what is the Government doing to improve New Zealand’s inequality ranking from that reported by the United Nations Development Programme?
Hon PAULA BENNETT: This Government is certainly concerned about teenage birth rates, and the support that we put around teenage parents. A programme of work is going on around that at the moment. It includes focus groups for teen parents and a range of other initiatives.
Catherine Delahunty: Does she think her policy of cuts to the training incentive allowance, which prevents people on low incomes from accessing further education to increase their earning power, will increase or decrease the gap between rich and poor in Aotearoa New Zealand?
Hon PAULA BENNETT: I do not agree that those changes will prevent people from going on to further education. What they are doing is putting resources into those people who are going to Level 3 or higher, so I do not agree.
Dr Russel Norman: Does she think that her Government’s policy of tax cuts for high-income earners will increase or decrease the gap between rich and poor in Aotearoa New Zealand?
Hon PAULA BENNETT: I saw tax incentives and tax cuts for all New Zealanders, which I know are being spent wisely, and which those people desperately need.
Metiria Turei: Does the Minister think that salary increases for chief executives at the same time as there are wage freezes for ordinary workers at State-owned enterprises like Television New Zealand will increase or decrease the gap between the rich and the poor in Aotearoa New Zealand?
Hon PAULA BENNETT: I am not responsible for salary increases for chief executives.
Metiria Turei: I seek leave of the House to table a section of the Social Report 2009 pertaining to income and equality in Aotearoa New Zealand.
Mr SPEAKER: Leave is sought to table that portion of the document. Is there any objection? There is no objection.
Document, by leave, laid on the Table of the House.
Metiria Turei: I seek leave of the House to table a graph showing that teenage birth rates are higher in more unequal countries, with New Zealand above the average.Mr SPEAKER: Is the graph from that same document?
Metiria Turei: The graph was published in a book called The Spirit Level in 2009.
Mr SPEAKER: Leave is sought to table that page from the document The Spirit Level. Is there any objection to that being tabled? There is no objection.
Document, by leave, laid on the Table of the House.
Metiria Turei: I seek leave of the House to table a graph showing that infant mortality is higher in more unequal countries, with Aotearoa New Zealand above the average, published in TheSpirit Level, 2009.Mr SPEAKER: Leave is sought to table that graph from the book TheSpirit Level. Is there any objection to that being tabled? There is none.
Document, by leave, laid on the Table of the House.
Metiria Turei: I seek leave to table a graph showing that more people are in prisons in more unequal societies, with New Zealand above the average, published in TheSpirit Level, 2009.Mr SPEAKER: Leave is sought to table that graph from TheSpirit Level, 2009. Is there any objection? There is no objection.
Document, by leave, laid on the Table of the House.
Metiria Turei: I seek leave to table a graph showing that people suffer from mental illness in more unequal societies, with New Zealand above the average, published in TheSpirit Level, 2009.Mr SPEAKER: Leave is sought to table that graph from TheSpirit Level, 2009. Is there any objection? There is no objection.
Document, by leave, laid on the Table of the House.
Metiria Turei: I seek leave to table a graph showing that more adults are obese and more children are overweight in more unequal countries, published in TheSpirit Level, 2009.Mr SPEAKER: Leave is sought to table that graph from TheSpirit Level, 2009. Is there any objection? Did I hear objection? There is objection.
Metiria Turei: Finally, I seek leave to table a graph showing the educational outcomes are lower, and educational performance is lower, in more unequal countries.
Mr SPEAKER: Leave is sought to table that graph. I take it that it is from TheSpirit Level, 2009. Leave is sought to table that graph from the book TheSpirit Level, 2009. Is there any objection? There is no objection.
Document, by leave, laid on the Table of the House.
[UPDATE, 29 October 2009: video added above]
Published in Economy, Work, & Welfare | Parliament | THE GAME | THE ISSUES by frog on Wed, October 28th, 2009
on the trolls and those who are unable to keep on topic
Well I suppose we now know what National Ministers are not reading during their tea breaks.
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It would be an interesting thought process to follow if ALL the wealth in the world was evenly divided between the 6 billion inhabitants, to how long it would be before that wealth was concentrated in fewer hands again.
Similarly it would be interesting to hear how, in a democratic society, what rules the Greens would put in place to govern that society to enable the wealth to stay evenly divided within it.
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Gerrit
That point is often asked by rich folks who assert that they would be back among the wealthy. I am certain certain that they would not outperform chance by very much IF the wealth included education and the equality were held for a generation.
However, as you stated the question, it is about whether inequality would resurface and of a certainty it would. Nobody here has (I think) any notion to test that extreme.
As I pointed out in the other similar thread. The way to use this is to look at the countries which appear to be doing well as places to live, with decent economies and happy inhabitants. Generally Scandinavian countries do well, there are some others. Then look at their gini scores. The range is from about 24-32. Nor is gini a perfect indicator… there appear to be interesting exceptions… but there is a clear convergence in that zone. It isn’t the case that lowest is better. I think it entirely possible to have a gini that is too low.
There are almost no examples of this on a planet that is controlled by bankers and which uses fractional-reserve fiat currencies in every nation on the planet.
As to how to enable wealth to stay evenly divided… that’s not required. However, what we discussed earlier about child support and per child entitlements is applicable. Distributing wealth, particularly in the form of educational opportunity and support, is IMHO the most important underpinning of an egalitarian society. Everyone growing-up equally would be to give everyone an even chance at success.
There is NO requirement to give everyone equal success. That’s not the goal.
Just an equal chance.
respectfully
BJ
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I did say ALL wealth, that includes equal opportunity to education.
And yes we are controlled by bankers, the question is what would the Greens do, after the wealth distribution, to prevent bankers again becoming the decision makers.
Have no trouble with trying to reach a GINI status rating in the late 20’s.
If that is the target lets set it as a goal and start working towards it. Heck, this country badly needs a targetted objective to focus on.
Maybe frog can facilitate a posting that explains the GINI index and how it works and how the Green party would change New Zealand society to achieve that.
Nothing like a targetted goal to focus endeavour.
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this is a very powerful theme/message/issue..
the evidence is to hand..
and you should run with this up to the next election..
and keep using it as a cudgel to whack national with..
(they seem to develop a feet-shuffling/not-eye-meeting state of mind..
when pushed/questioned on this..)
and you must realise the zeitgeist is fast changing..
and those ‘old-school’ ideas of a fair wage..
and a growing aversion to being pillaged by the privateers..
are fast developing currency..
you have that wind behind you..
and the deteriorating state of pretty much everything..
..over the next years..
will only give more heft to that re-evaluation/re-construction..
..we are on the verge of deep change..
and we have to have the courage..
to be brave in our ideas/thinking..
phil(whoar.co.nz)
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Gerrit,
The bankers aren’t in control either, otherwise they wouldn’t have collapsed their banks with bad mortgage assets. It’s all running on turbulence and positive feedback.
Repeating one of my hobby horses, I’d like to damp it, just a bit, with a Tobin Tax, and there’s a three hour window when New Zealand’s is the only foreign exchange market going, so if anybody can, we can.
BJ, do you know of a drop-in replacement for fractional-reserve banking? I don’t. If so, could you put up one good link, please?
<sarcasm>
“This Government is certainly concerned about teenage birth rates, and the support that we put around teenage parents.”
The first of these is a bad thing. Is the second a bad thing too?
</sarcasm>
On a related matter I have email from Paula Bennett’s office which says:
– that the benefit abatement threshold will be raised
– that it has not been raised yet and there is no timescale
I do not find the utterances of Paula Bennett convincing.
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Out of interest folks, how long has Gini been operating..? Was it around when enzed was often considered more egalitarian than most..?
Seeking valid comparisons twixt then and now, you understand..
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Sorry JC2 – missed your question…
Fractional-Reserves – alternative.
http://www.democrats.org.nz/
Simply going to “Full-Reserve” banking
http://en.wikipedia.org/wiki/Full-reserve_banking
Of these I like the fact that the NZ Democratic party for Social Credit has a fairly complete system worked out. I would (in concert with these folks) add the notion of our currency being redeemable as electrical work (delivered locally).
I differ with them on the notion of providing “money” rather than goods and services as a “universal basic income”, but I think we can negotiate around this difference.
respectfully
BJ
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TomFarmer
http://www.treasury.govt.nz/publications/research-policy/wp/2000/00-13
http://stats.oecd.org/Index.aspx?QueryId=11112&QueryType=View
Appears to depend on the measurements (statistics base) used, but it clearly is the case that it was stable low in the early 80’s and is now pumped up to a fairly high level.
It is ALSO true that gini alone doesn’t measure health of the economy.
It measures inequality. Not how much there is to go around. Everyone getting $5 is a GINI of 0 but is hardly a desirable outcome. So it isn’t a complete single index comparison to be used to call the economy healthy/unhealthy.
It makes sense to have another measure of how much is being shared and that would NOT be the GDP. In other words, if the gini is in a relatively satisfactory range, there’s no point in looking at inequality for problems in the economy, the problems are somewhere else…
The clear place to look for trouble here is in home ownership and property investment as a part of the “economy”. We’re basically screwed there.
The letter I just got back from Bill English says nothing at all and still takes two pages to say it. His staffers seem to have taken lessons from Michael Cullen. Acknowledged my concerns he did
Oh well, if you don’t give them input you can’t complain about their output
Finally, different folks use different statistical inputs to create the GINI. So we have to be careful to compare the UN data with UN data, and the OECD stats data with OECD stats data. I like the OECD site as it isn’t locked into the historical data trap of a lot of the online discussions. We’re pretty damned bad. Compare with Sweden or Denmark or others, then with the US.
respectfully
BJ
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I note that the Gini for Oz is 4 points lower than our own. This is quite sufficient for people to be drawn to that country as opposed to this one. The fact that it has a larger income overall is gravy. We’re fncking up by the numbers and have been for a long time. National and Labour both have plenty to answer for, and the property market marches on.
BJ
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Hi BJ,
I’ve read the wikipedia page, and can’t see how it’s going to work for creditors.
Could you refer me to a specific page on the Democrats web-site, please? I haven’t found the page of ‘how’ yet.
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BJ,
Thank you.
BTW: (incidental) sometime ago I recall Bill English declaring “We aint gunna get rich selling houses to each other.”
Clearly a left-slap, but humored for a different reason.. yes? And it occasionally has me wondering what kind of “rich” Bill had in mind.. mebbe the answer would sauce the gini coefficient..
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Thing is, he’s right on that point. He knows it is a problem. Just as Cullen knew it was a problem. He provides exactly the same evasive non-answers as Cullen did.
This leads me to believe that our finance ministers are not the people who are actually in control of our finances and because of what I see in the USA I regard the problem to be “flappers” (Remember your Tom Swift?) who are minions of the banks. I doubt that the letter I wrote was answered by Bill. Reasonably sure that the 4th or so letter to Cullen got his attention. Results however, are lacking.
I don’t think they’re allowed to do what they want.
respectfully
BJ
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bjchip
It is unwise to expect much in the way of reply from a Minister of Finance, they are not going to declare intended policy moves, or any reversal of present policy.
The former Minister was quiet happy to tailor “his” (from experience drafting miniterials – replies to those writing to a Minister, I am aware it is a collaborative effort which the Minister sometimes only signs out) replies to the writer. For example I would get told that reducing tax on interest income was wrong because the rich benefited most (at the same time he was developing PIE) – he ignored the reasoning behind my advocacy, the rich with no where else to go got into property investment and left too many unable to afford home ownership (no doubt because the party was looking at possible policy to make homes more affordable, but he was of no mind to discuss this publicly).
It’s actually more instructive to write to the opposition spokesperson (some like Roger Douglas were only too happy to give prior warning of their plans – the only thing he did not do – was bring in an assets tax which he said he preferred to a CGT). And not being committed to a declared manifesto policy while in government, their party has flexibility to change policy position before the next election and thus influence the political process when this occurs.
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In the case of Bill English I posted one of his replies on some blogs, his defence of the existing Cullen Fund and why it should remain unchanged – because it was the best sort of scheme to run for the longer term across the economic cycle, having the right sort of investment approach etc to take advantage of opportunities (say the bottom of a bear market and a strong rally) …
Yet, with his budget not so long later …
One can surmise, that Treasury supported the scheme, but that international credit ratings agencies bolstered those in National looking for a reason to prepare the way for a later review of the Super policy – the hallmark of this administration is preparing the way for what they cannot gain support for now.
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JC2
Which wikipedia page? The full reserve isn’t one I study. There’s no established party or partial party that we can talk with about it either.
Borrowing money requires someone else to NOT have use of that money. Otherwise you’re not really handling money as though it represents work which is a way of thinking I encourage but can’t prove is correct.
respectfully
BJ
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It can be argued that one has to grow the money supply (and this increase is allocated by credit/debt)to grow the economy and if money supply growth grows the economy there is no inflation.
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BJ: when you say ”
Which wikipedia page? The full reserve isn’t one I study. There’s no established party or partial party that we can talk with about it either.
”
I was responding to these links, which I think came from you:
http://www.democrats.org.nz/
http://en.wikipedia.org/wiki/Full-reserve_banking
Do you have a specific page on the Democrats web-site, that you would recommend?
Between you, BJ and SPC have reminded me of an academic paper that I read once and can’t find now, which explained how the money supply worked in wampum (drilled shell) economies. It takes a certain amount of labour to drill the shell, with which you could (say) buy fish, or you could spend your labour on going fishing. As long as people make reasonable quality decisions, then wampum represents a fixed amount of labour, consistently with BJ’s intuition.
I think that the OCR lending mechanism could fit into that framework if:
– a fixed amount of debt servicing corresponded to a fixed amount of labour
– there were no capital gains to offset that work
That takes me back to my hobby-horse:
“I’ve told you three times, so it must be true” – the Baker in The Hunting of the Snark
The way to stop selling houses to each other is to each other is to control capital import, so they stop being a one-way bet.
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jc2
Yes, of course the thing about money supply growth is where the credit/debt goes – does it just bid up the value of property and sharemarket assets, or does it grow the real economy.
And we have a major problem with importing debt to buy up housing, the cost (against our disposable income) of which diminishes real growth in the rest of the economy, thus perversely it’s inflationary.
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I hadn’t looked at a specific page. They say most of the right things at the top, and they have self-consistency. You get away from the banks controlling the creation of money by lending and then you have to have a different mechanism to ensure that money can be lent out at all. I’ve provided a notional way to determine how much money should be made available…
…but I haven’t looked THAT deep into the Democrats for Social Credit.
Just note that Fractional-Reserve is and central banks is “new” in our economic system… and wasn’t wanted by people like Thomas Jefferson.
http://www.quotationspage.com/quote/37700.html
So I have great confidence that other systems are possible… and that this one is screwed up.
respectfully
BJ
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I am not convinced that a fractional-reserve banking system is totally wrong. With better regulation and better reporting, coupled with a higher fraction that must be held back and not lent out, I believe that it could work. Even if such a scenario still had problems, it would be a move in the right direction, and the fraction could be increased slowly.
Trevor.
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I have been wondering about the fraction, too Trev.
What would happen if the Reserve Bank manipulated the fraction, rather than interest rates.
What if it decreed a higher fraction for non-productive lending vs productive ?
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From the nasty point-of-view of tax mechanics, GST is a good tax because it applies uniformly to all goods, so:
– you don’t get expensive liars telling stories about the category in which a good belongs
– small shops have to do as little complicated book-keeping as possible
Inside that framework, I would be reluctant to put a productive/non-productive distinction into tax law. Imagine if you decided that companies were productive, and lending to housing wasn’t, so people with expensive accountants would wrap their borrowing to buy houses inside shell companies, and then the IRD would have either to live with it, or to start suing them. It’s worth-while suing the banks, as has happened recently, because they are a few large entities. It’s much more expensive and more politically unpopular if it’s lots of householders.
Apart from that, adjusting the fraction is an interesting idea. It might make a bank technically insolvent, while it was going up, so some careful writing of the rules is required. If I was a bank, and I was trying to neutralise it, and I was already charging application fees to provide me with capital to cover the requirement, I might well change the balance of my requirements for deposit and fee, so this would put more stress on the (possibly already inadequate) financial literacy of the borrowers.
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Trevor – Fractional Reserve is (among other things) a guaranteed eventual violation of the laws conservation of mass and energy. It is THAT broken. I recall going through this with Sapient once upon a time… It requires exponential growth forever to work. That’s not the only problem. It also hands control of everything over to a select minority and concentrates wealth artificially.
As little as I enjoy agreeing with the folks who espouse the Austrian school about anything at all, the fact that this is a broken currency model that cannot ever be made to support a SUSTAINABLE economic system (and thus a sustainable ecology) is hard to ignore.
That it has worked to force everyone on the planet to produce more and more and more was sort of ok when there wasn’t that much. Now we have overproduction, we have to consume consume consume… and we can’t do it. The planet won’t take it.
There are 5 parts to this. I’ve posted them before to some extent or other. This is the full set, and paying particular attention to the 3rd in the series.
http://www.youtube.com/watch?v=vVkFb26u9g8
http://www.youtube.com/watch?v=sanOXoWl0kc
http://www.youtube.com/watch?v=kTv1fo6sKmo
http://www.youtube.com/watch?v=3qicabStQkc
http://www.youtube.com/watch?v=7kpSbkaD4tM
I’ve been through this on the skeptics website as well. Shermer’s mob. They picked and tore at it like mad but the underlying flaw appears to be factual.
Which explains a lot of what happens in the world. I can’t accept having it in any form. Simply because the nature of the beast is that the bankers will eventually deregulate it, human nature being what it is, and even if it takes them another 100 years to win back to creating the Federal Reserve again (after we tear it down) the result is still as inevitable as human greed.
respectfully
BJ
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One thing to note of late is how the RB has tightened up on bank lending while retaining the low OCR.
Under this policy banks have to compete to get term deposits (increase their money held and reduce their loans out) and corporates will resort to bond issues (to raise money if they cannot get it from banks) – this will force banks to bid up their deposit rates or else people will go to bonds. Overall it should encourage saving outside of property (more so if tax on interest income redcues furhter) – and the policy’s real goal is to reduce the amount of money banks can lend out on property.
Overdue policy from the RB, they could not wait forever for government to act. It should probably continue even if government does bring fairness into the tax system with a CGT (my preference remains a CGT collected by an annual land tax on rental property – this being a downpayment on any CGT liable later on the property’s sale, thus it has no impact on property companies currently paying tax on their profits including CG).
I am not that tormented by fractional reserve itself – though I am aware access to money is a means to wealth (especially if there is no, or a low rate, CGT).
The economy needs extra amounts of money in it to function freely. To accomodate new developments – from population growth to immigration and financing new tech business while old ones still operated – the economic transition would be too abrupt otherwise. It’s the means to lubricate/allow change.
Actually all new lent money is, is lending to those who will pay it back. The same way government invests in new infrastructure (the loans being available beacuse of fractional reserve). To not have it have it, means that if the population grew some would not access money to buy their own house – there not being the allocation available for funding housing the increased number of people in their own homes.
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The economy needs extra amounts of money in it to function freely.
SPC – The economy has no LIMIT to the amount of money in it and the people with money function far too freely.
Basically, the “goodness” of an economy that is free of any restraint imposed by limits to the money supply is not demonstrable.
Actually all new lent money is, is lending to those who will pay it back.
Actually, it isn’t… because they can’t all pay it back.
Really really really… watch the number 3 link I posted above. Won’t take THAT long.
To not have it have it, means that if the population grew some would not access money to buy their own house
It means we would have to save the way we USED to save to buy a house. We’re a spoiled lot of consumers SPC… want cake NOW damnit… and our kids are already in hock because of it… and it all goes back to the damned fractional-reserve.
That’s why I sort of like the DSC approach having been thought out a bit.
The bankers OWN us. That has to stop. Money has to be redeemable and has to represent something other than debt. The government, not the banks, has to have CONTROL of the damned stuff.
http://www.quotationspage.com/quote/37700.html
respectfully
BJ
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We already have the good old days.
In Victorian England, a man would wait to the age of 40 when they could afford to buy a house and then they would marry – either some aging spinster of his own generation living on as housekeeper nurse to her aging parents or some young filly. Which is why London was full of professional women.
Today, thanks to our tax policy and related bank lending house prices are so high compared to incomes many have to save a large deposit just to afford the mortgage, so they cannot start a family till he is 40 if they are to own the house their children are raised up in.
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One thing that we can perhaps use of the SC line, is for the state to claim its share of the fractional reserve as free credit. Whether that be 50%, or just the rate in accord with the government share of the GDP.
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SPC,
You would still need to provision in the budgets to actually pay back the principal, even if you got the money from the banks intest free.
Currently New Zealand borrows (yes i know I said it before) $250M per week. How will borrowing even more be helpful?
BJ,
I would actually look at the money supply as totally limited. It is a resource that “could” be increased through productivity gains.
I tried to raise that point on another thread but got shot down for it.
Money supply is finite (yes I know you can print more but that is not resource replenishment) and once we recognise that unless we increase productivity the resource will be like peak oil. It will run out.
Hard to get the head around but look at money as a resource (not just as a transaction device) and the picture changes dramatically. We are currently stealing the resource from our children.
If it was any resource but money we would be up in arms.
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gerrit
The government claiming a share of the fractional reserve as free credit would not increase its debt, unless it did so to increase its budget deficit. It would only inherently reduce its debt costs a little (if its borrowing was too high to be within its fractional reserve share it might have higher borrowing costs elsewhere).
The fractional reserve system allows an expansion over and above the existing economy, but this is only a continually growing money supply if the economy continues to grow. Investment for growth should beget growth, but if there were (non monetary) limits to growth they would eventually end growth in the money supply.
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You will need to explain that to me!
So it has access to the banks fractional reserve, money the banks has gotton from depositors.
The state borrows it and it is not a debt?
Not sure what you are trying to say!
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Gerrit,
I can only think that SPC might mean that the government should either lay claim to a portion of the interest earned as a result of fractional-reserve or that the government itself should use its own bank to gain profits from fractional-reserve. I’m guessing the first, probally wrong though.
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gerrit
Obtaining interest free debt in preference to interest bearing debt does not add to debt, it only establishes a share of its existing (and projected) debt level which is free of interest cost.
We know that deficits are projected and if some of the debt taken on as a consequence is interest free, it does not increase the debt level.
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Sapient
It was not meant that seriously – but the change in tack of the RB and hopefully a CGT could later lead to other policy developments in this area – I prefer some incremental moves to ending the fractional reserve system.
Just how one would go about retaining the growing economy monetary supply system but allow some public gain (rather than just banking system profit etc) – and why not if there is public guarantee of deposits …
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SPC,
I would favor an end to the fractional reserve system, though how to do it could be a problem. The best approach I can see without doing too much damage is to to just decrease the ratio over a period of a decade or probally more, as any faster would destroy the money to fast and cause massive pain.
I have been thinking about a system that would work for the last hour or so, I think I have pretty much got the basics down. I will give it another day or two to brew before posting it here. It seems to be not dissimilar to the social creditors proposals, though obviously with a totally different understanding underpinning it. The issue of banking system profits should be delt with, I just have to do some more mental acrobatics to work out if my thoughts are correct.
I would like to see a CGT but not in the form you propose. I would like the CGT to be fully on-sale. Though it would be essentially like GST so the question of if we cancel out some of it, or all of it if a profit is not made, would be a question to consider. I would like, in conjunction with the CGT, a land-’tax’; not as a tax as would be the case with CGT but as a rent.
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Sapient if the expansion mechanism in your monetary system is disconected from the physical universe as is the case in a debt based fractional reserve system and social credit then your system will never work.
There is no difference between a debt based fractional reserve system and social credit the interest isn’t the problem. The problem is the fact that both system can and DO expand independently of the goods in the economy.
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Turnip
How about saying the interest is only ONE of the problems so we can agree on something
It IS a problem. It isn’t the only one.
That series of cartoons explaining it isn’t as long as it is because of there being just one problem.
respectfully
BJ
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Turnip,
I am attempting to ensure such. At the moment its just in the very early stages, much to consider yet. Many other things to do at the same time; something to brew over rather than meditate on anyhow.
I have, as much as you will not like it, dismissed a entirely non-fiat currency. Im working with two options at the moment, both fiat, though the first is fiat in form but for all intents and purposes acts as if a backed currency; I am favoring the second because of its potential to neutralize the interest problem, an application any non-fiat currency cannot do nearly as well.
BJ,
I find the second movie (8 parts) far better than the first. It also brings up the point of contention that we had in our previous discussion. Apparently, I was theoretically correct and you were technically correct. Apt, since it turns out I was arguing what was possible while you were arguing what was. lol.
My second approach is somewhat similar to the second approach highlighted at the end, though with a number of modifications; I found it amusing to see that mine had come to approximate theirs which approximates the DSC approach.
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SPC
But you still need to repay debt, so unless you have a provision in the taxation cashflow to repay debt (with or without interest) you are still borrowing from your childrens children.
Or are you envisaging New Zealand having an interest free credit card with the IMF, as long as we pay back something we can keep borrowing?
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gerrit
Do you oppose borrowing to finance infrastructure investment, and therefor propose that all spending come out of current income?
Debt financed growth (investment) is the way to wealth for business and debt financed government investment in infrastructure assists growth for the wider economy in which they operate.
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Okay, I’ve decided that it would be more fruitful to listen to criticism of those less naive than myself than try to develop it in my head. That and I’ve only given it ten minutes thought.
The first system would involve a reserve ratio only slightly larger than that required for a savings account to generate enough interest so as to nullify the effects of inflation. Slightly larger so that banks may still find it a profitable enterprise but so small that the creation of money from this practice is next to nothing. The currency would be fiat and not the only legal currency, though the only one payable as tax; transactions in other currencies being taxed according to the average transaction rate in that month. The currency would be tied to a small basket of the most basic food goods and, predominantly, the average price of electricity in a the year or the quarter; adjusted di-monthly through the destruction of tax take or the issuance of new currency for government spending. Since the reserve ratio is so high there should be rather minimal amplitude in the boom-bust cycle and, while the bankers can still get a substantial profit, this profit would become cut so substantially that the issue of money leaving the economy essentially becomes nil and thus the loan system becomes sustainable, or at least as sustainable as any economy which allows investment trusts may be; those becoming the main mechanism of profit for banks.
The second system is broadly similar save that there is full reserve banking and the currency is managed in a different manner. Since there is full reserve banking banks would have no profit from holding peoples funds other than the interest charged and thus a persons deposits would be eaten away, so instead the banks become pretty much entirely investment trusts, perhaps predominantly property investment trusts while the state offers a interest free and fee free mechanism of electronic money storage so as to facilitate the safe keeping of wealth and the ready transactability that electronic means offer. The currency is managed not to be inflation proofed against a basket of goods but instead to inflate at a regular rate. This inflation would take wealth from everyone as if a tax and, because there is no frational reserve, would mean that any money not actually invested in a productive fund is loosing value. This would hit the non-bankers slightly harder than the bankers but because the non-bankers are involved in the productive economy and places most likely to receive the funds from the beneficiaries and service providers likely to receive the tax take created trough inducing he inflation ultimately it is the bankers that make the loss, thus further limiting their real profits and allowing for a a loan system which is sustainable.
Its only basic, and most likely very flawed, but please do provide criticism. Preferably not along the lines of it not being fiat.
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I agree with you BJ the interest is ONE problem. However when ever you go down this path the Social Credit (SC) crowd always leap in and focus only on the interest and then tell us that if the government just prints the money it needs then everything will be fine.
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SPC
If you had been reading and comprehending my earlier posts on this subject plus the ones where we discused the minimum wage you will see I recommend borrowing ONLY for infastructure investment. The infastructure would be used by our childrens children so to borrow againt their future earnings is wise.
Never ever borrow to pay welfare or maintain a lifestyle we cannot afford.
Just like a household should never borrow to pay rent, buy groceries or pay the power bill, it should borrow to buy a house, car, etc. Those assets are tranferable and of use to future generations (car if it is a 1967 Shelby Mustang bought for $4000 new and now worth over $3M).
Typical infastructure borrowing I would like the government to do would be to finance a rail casting line at New Zealand Steel to supply rails for OnTrack and export, facilitate Firth Industries to start making concrete sleepers for the rails and underwrite AG Price in Thames to design and cast connecting clips to join rail to sleeper.
That is an example on how to build an economy through sensible borrowing.
To borrow to pay welfare is dumb.
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Sorry Sapient fiat can never work. You really need to read up on your Latin.
By definition a fiat currency is already removed from the physical universe and placed in the land of faith. Your arguments always boil down to us having faith or trust in you. You don’t sound any different than priest trying to convince me to just believe in god.
Before even talking about this Sapient you need to start at the beginning.
Money started out as commodity money, then it moved to representative money and finally arriving at fiat money.
Economists will lie to you and say that each step on that chain was “better” for society.
That is not true each step on that chain removed money from the physical universe and placed it further into a faith based world.
Examples from history of commodity money include Silver and Gold Coins. The money is entirely made up of a certain mass of a particular number of atoms. For a coin to be twice as valuable it must consist of twice as many atoms. That money is firmly established in the physical universe. It is impossible for you to “imagine” that money into existence.
Representative money appeared in the form of Silver and Gold certificates. Instead of carrying around a pouch of gold coins you could now carry a piece of paper that said Sapient has 10 ounce’s of gold stored somewhere. In this example it is entirely possible to disconnect the money from the physical universe lets say there is only 100 ounce’s of gold in the entire world. There is nothing however stopping me from having a piece of paper that states I own 200 ounce’s of gold. The only reason we would trust that paper certificate is that we have “Faith” that the issuer isn’t lying to us. Guess what history is full of examples where that faith was shown to be wrong. In fact the people issuing the gold certificates quickly understood this and they came up with a clever trick called fractional reserve banking. Let us assume there is 100 ounce’s of gold in a bank vault. The cunning banker issues two 100 ounce bank certificates against that gold. He has just increased the money supply independent of the physical universe, he broke the law but not a HUMAN law he has broken a UNIVERSAL law. Good luck arguing to the universe. The first person arrives at the bank and hands over his certificate and takes home 100 ounce’s of gold. On the next day another person arrives at the bank and hands over his certificate and walks home with 0 ounce’s gold, if it was me I’d walk home with the head of the banker. How can we fix the above scenario? Don’t worry the cunning bankers/economists always have a way to screw you.
Enter Fiat currency -> The Fiat money can look just like the representative money however it is not backed by anything. If you also add in a central bank then a bank run which the above scenario was talking about becomes impossible. Of course that isn’t a good thing. A bank run is a demonstration of the lack of faith in that bank. Fiat along with central banks allow the bankers to hide that lack of faith. The lack of faith is entirely justified remember the bank has committed fraud.
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Turnip,
I am well acquanted with the history of the monetry system.
I have deliberately chosen fiat currency as it has many advantages over non-fiat currency in that it is NOT limited by the scarcity of the metalic (or shell, etc.) standard and because of this allows for the ready manipulation of value through the induction of inflationary or deflationary pressures. This does not violate the physical laws of the universe simply because, despite some lag, the printing of more money decreases the value of each individual unit while maintaining the overall value. A standardised currency does not allow for such ready manipulation, instead the value of the the chosen standard/s will tend to increase over time because of that valued high scarcity and as a result of the exponential style growth. It will not stop exponential growth, it will just result in those with money becoming more rich because of deflationary pressures. It would be no different than giving them free, state sponsered, interest: it is incompatable with an equitable society. BJ’s energy based currency does seem to avoid this problem and does have massive appeal to me but the dynamics are far too complicated to be able to work out even the partial effects; this option would be my third favored but, it should be noted, both of my approaches would take the system far closer to BJ’s approach than at present and may even be a needed intermediatary.
The value of a standardised currency comes about because others are willing to accept the currency in trade, the government is willing to accept the currency in trade, and the standard into which the currency is redeemable is readily accepted in trade due to its ability to be used for the production of goods by a select few. At every point of trade the currency is essentially redeemed by the holder in trading it with another for they trade the value the currency holds regardless of any actual redeeming of the underlying standard; it is the value that is traded, what it is redeemed into is not relavent to the transaction unless the receiver wishes to redeem it into such.
The value of the fiat currency comes about because the state is willing to accept it in payment of taxes and because others are willing to accept it in trade, in part because of taxes. The only real difference in the value is the lack of assurance that it will keep a guaranteed value and the lack of redeeming into the standard. The lack of assurance is ensured when it is taken out of politicians hands and controlled by strict regulations. The lack of redeeming into the standard is only relivant if you intend to do so. The actual value in trade is unaffected exactly because it is accepted in trade, one use of the currency has been removed, that is all. Assuming strong regulations on the management of the fiat currency (admittedly this tends not to happen, but under my proposals would be central), the fiat currency requires only faith that others will accept it as a means of trade. Assuming that the note is redeemable to the standard (though such has been stopped at many points in history at the will of governments in a way no different to over fiat), the faith required of a standardised currency is that others will accept it in trade.
The problem with a fiat currency is the issue of trusting government, not of the non-redemtion in to the standard. In both my approaches the government is left with no control over the fiat currency and as such this issue is circumvented.
“let it be done”, eh?
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Sorry, when I said ‘government’ in relation to the standardised currency I should have said “any random, trusted, body which creates its own backed currency which is somehow auto-magically accepted by the state in payment of taxes and thus becomes a preferred trading option”
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gerrit
And I will restate my opinion about borrowing to pay for spending – it’s not about any one year, it’s about a balance across the economic cycle.
So when unemployment rises we would be in deficit and borrowing to pay for it and when unemployment falls we would be in surplus and paying back debt.
Spending allocations are not so flexible as to be adjusted to the years revenue (as p-er the economic cycle).
We possibly do have an across the cycle deficit at present – we therefore do need to keep spending increases within GDP growth so over the long term the deficit diminishes back towards balance.
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Myself, I favour the greater growth possible by fiat and the flexibility in managing the economic cycle.
As I mentioned before, the issue is getting a share of the windfall profit made by banks via fiat (not all of it as this allows banks to cover the bad debts that occur in any economic downturn).
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My first move in the banking area would be to place GST on property mortgages – one reason our GST tax take did not increase much in recent years was because everyone was paying their “spending” money to the bank to pay off the mortgage and this attracted no GST.
This higher borrowing cost would return revenue to government and allow a lower OCR – which will advantage small businesss borrowing (corporates are moving into issuing bonds).
PS the alternative is to place a flexible (variable rate) surcharge on mortgages adjustable across the economic cycle (an idea I proposed to Cullen years ago c2002 era).
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SPC,
Sounds good in theory, In practise we will not be “credit” again for roughly 10-20 years. Did you read the herald link I provided reporting treasury forecasts?
So while you are happy to “borrow” against your childrens income in that extended time frame, Im not. Because the shear volume of the borrowing plus the 5.5% interest will take over 20 years to pay back even if we “balance” the books in the future.
You are also banking (pun intended) on the economy picking up to pay the loans back.
Something the Greens are not entirely convinced is going to happen.
And something absolutely will not happen under this National or any future Labour government.
Until we ,as a nation, get spending under control, New Zealand will never have a viable economy.
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We know where balanced budget thinking led to after 1929 – an economy that reduced in size, I prefer the growth option (which is one reason I prefer fiat).
The issue with fiat is sharing in the profits and focus on ensuring that credit is utilised productively (inputs into sustainable economic energy-environment rather than asset bubbles). Fiat alows the financing of a “new” economy while the old is declining. This and use of technology development and focus on resource efficiency can and should result in continued growth.
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The 12 Feb Focus on Politics was interesting:
http://www.radionz.co.nz/national/programmes/focusonpolitics
Mr Key used the words ‘personal tax’ to refer to income tax and specifically not GST. I think those words are doing a lot of work, and deserve to be challenged. I would like to hear (him pinned down to give) an explanation of the conditions that make a ‘tax’ be other than a ‘personal tax’, in the context where I do things that cause payment of income tax, and I do things that cause payment of GST, and I’m the same person during both acts, and have no plans to stop doing either.
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