It’s not every day that monetary policy dominates the news.  It is normally seen as a technical issue, very much within the realm of the Governor of the Reserve Bank, and – apart from the odd unexpected move in interest rates and therefore impacting on mortgage rates – of not much significance to anyone else.

But, in the past week, no fewer than three people have made the headlines by virtue of their views on monetary policy.  First, Steven Joyce, the Minister of Finance, has recommended the formal establishment of a committee to help the Governor decide on where to take interest rates, thereby following the example of other central banks around the world.

Secondly, Grant Robertson, Labour’s shadow Finance Minister, has made a similar recommendation concerning a Monetary Policy Committee to help the Governor, but has also followed another overseas example by supporting an extension of the Governor’s remit, so that he would, in addition to restraining inflation, be required to take account of the desirability of full employment.­­­

So far so good. The proposed changes are small steps in a sensible direction but are not going to set the world alight.  Rather less expected, however, was the issue highlighted by Sonny Bill Williams’ decision to tape over the Bank of New Zealand logo on his Blues jersey.

We are led to believe that this decision was taken as an expression of the Islamist opposition to anything to do with usury – that is, the lending of money and the charging of interest on the loan.  Sonny Bill, as a Muslim, did not wish to be seen as supporting a bank whose business it is to do precisely that.

Surprisingly, you may think, it is Sonny Bill who has made by far the most far-reaching statement.  The two politicians proposed quite minor technical changes which might achieve some small improvements.  Sonny Bill, however, has succeeded, if we are thoughtful enough to recognise it, in throwing a spotlight on the entire role of the banks in our economy and our society.

Most people believe – and it is a belief assiduously promoted by the banks themselves – that the banks act as intermediaries between those wishing to save and those wishing to borrow, usually on mortgage.  On this view, the banks are benefactors, bringing together those with money to spare and to deposit with them, and those who wish to borrow, often for house purchase.  The banks make their money, so it is said, by charging a higher rate of interest to the borrowers than they pay to the depositors – the equivalent of a small fee for the administrative costs of bringing the parties together.

But this benign view of their operations is simply inaccurate and misleading.  The banks do not lend you on mortgage money deposited with them by someone else.  They lend you money that they themselves create out of nothing, through the stroke of a pen or – today – a computer entry.

Don’t take my word for it.  The Bank of England, no less, has confirmed that in the UK (and the same is true for New Zealand) 90% of new money is created in this way.

The banks make their money, in other words, by charging interest on money that they themselves create.  Not surprisingly, they are keen to lend as much as possible – and that of course is the explanation of the billions of dollars of profit made by our banks and then exported, in most cases, back to Australia into the coffers of their Australian owners.

But the consequences of this bizarre scenario go much further.  It is the willingness, not to say keenness, of the banks to lend on mortgage that provides the virtually limitless purchasing power that is constantly bidding up the prices of homes in Auckland and, now, elsewhere.   It is the banks that are fuelling the housing unaffordability crisis – a crisis that is leaving families homeless and widening the gap between rich and poor.

So far, the government has washed its hands of this aspect of the crisis.  They are content to leave the crucial decisions on monetary policy to the Reserve Bank.  That way, they can disclaim responsibility and leave the Governor – himself a banker – to carry the can.

Leaving monetary policy (which is usually just a matter of setting interest rates) to the Reserve Bank is usually applauded as ensuring that it does not become a political football. But monetary policy should have a much greater role than simply restraining inflation and has a huge influence on so many aspects of our national life.

Why should the government be able to hide behind the Governor of the Reserve Bank and duck responsibility for a policy of the greatest importance to so ma y Kiwis?  Why should ministers not be held to account in parliament and to the country for failing to deliver outcomes they were elected to deliver?

Steven Joyce and Grant Robertson seem content to tinker.  It may be that it is Sonny Bill Williams who raises – in economic rather than purely religious terms – the really important questions.

Bryan Gould

12 April 2017

Voters have been conditioned over recent years to applaud governments when they cut public expenditure – and they do so, not just as taxpayers, but because they have been persuaded that the government’s own finances should be treated as assuming a special importance.

Individuals, families and businesses, and – even more importantly – the country as a whole, might struggle to balance the books, but none of that matters, so it seems, for as long as the government’s finances are in good order.

In reality, the government’s finances are of course just one element in determining whether the country as a whole pays its way, and – sadly – New Zealand continues to run a substantial overall deficit.  Our perennial insistence on living beyond our means and having to borrow (and pay high interest rates) as a consequence, however, receives far less attention than the headline treatment accorded to the government’s accounts.

This order of priorities means that one cannot help but wonder whether the constant cutting of government expenditure is not – for a government opposed to the overall concept of public services – part of a political, rather than economic, agenda.

Whatever the truth of that, what is incontrovertible is that public spending cuts are not painless, and sometimes hurt in unexpected and even unrecognised ways.  One such instance is the impact they have on tertiary education institutions.

We now know that many of those working in tertiary institutions report that they are under increasing pressure to pass students who do not actually meet the course requirements – and that pressure, so damaging to the reputation of New Zealand institutions and to the value of the qualifications they grant – arises for financial reasons, since universities and polytechnics get paid only for those students who pass.

And there are other, and even more subtle, consequences.  One such instance involves the institution I had the privilege of leading for ten years – Waikato University.  The University has developed an enviable reputation for excellence in the field of music – its composition, performance, and teaching – all enhanced by the qualities of the concert chamber in the University’s Academy of Performing Arts which  is regarded as one of the best venues in the country for the performance of music.  The result?  Possibly the best music school in the country.

The teaching of music by gifted teachers to a comparatively small group of talented students is, however, relatively expensive – more expensive, say, than providing tuition to the larger numbers in the heavily subscribed courses such as computer or business studies.  Faced with the constant pressures of inadequate funding and the constant risk that it will fall further in real terms, a hard-pressed Vice-Chancellor is obliged to seek savings – and, sadly, an early candidate for cutting is the high-performing Music Department.

The dismembering of the Music Department is of course an unwelcome blow to students and teachers alike, but it is also an injury to the fabric of the University itself.  A university is, of course, essentially about education – teachers passing on to students knowledge and understanding to the mutual benefit of both.

But it is more than that.  It is a community – and one which is enriched internally by the combined skills and enthusiasms of all its members.  The University community itself benefits hugely from the civilising effect that music brings to the campus, but so too does the wider community of which the university is a part.

It is so often music that strengthens the valuable links between the institution and the community it serves.  It is music that brings people on to campus and that gives them some understanding of what a university is really about – not just a machine for churning out job tickets but a source of shared enjoyment and the exploration of the further reaches of human learning and experience.

What a tragedy that financial stringency, imposed in the interests of enhancing the government’s self-image,  should mean the weakening of one of the University’s finest assets – and one that, once lost, will take years – if ever – to rebuild.  And what further tragedy that one of the country’s best venues for the performance of music, built with the help of community generosity, might stand increasingly empty, and that the music should fall silent.

Bryan Gould

4 April 2017

Public services are never far from the headlines.  Whether it is inadequate police numbers in Northland, or a shortage of social workers in Child, Youth and Family, or a possible failure of border bio-security that allowed PSA to decimate our kiwifruit industry, we are constantly reminded of the fact that effective public services are essential to our well-being, both as individuals and as a society.

It is therefore worth pausing for a moment to consider the whys and wherefores that should define our attitudes to public services.  We need public services to do a number of things – to ensure that everyone, whatever their purchasing power, can meet basic needs, such as effective health care, a good level of education, decent housing, enough to live on, and that those, especially children, who cannot fend for themselves are properly looked after – and that’s to say nothing of the support needed in times of natural disaster and other emergencies.

And we also need the assurance that law and order will be maintained, that we have an independent legal system that will protect our rights as citizens, that we have armed forces that will defend us when necessary, that we have skilled diplomats to represent our interests overseas.

And what about all those essential elements of a modern society – the roads and railways, the communication systems, electricity generation and distribution – all areas where the public purse and public supervision are needed to ensure that acceptable standards of provision are met?

It is easy to recognise the value delivered by public services and how bereft we would be without them.  So, why is there such reluctance in some quarters to see that they are maintained at an effective level?

Consider the efforts that are constantly made to replace or cut back on a wide range of public services.  One constantly touted option is privatisation, but that always carries with it a number of risks and downsides – that the drive for private profit will outweigh the delivery of a proper level of performance (think Serco and prison management), that there will be no accountability for failure (think Novopay and the disastrous handling of teacher’s pay), that jobs will be lost and pay rates slashed (think the problems faced by care workers in earning a decent living).

Or, if not privatisation, what about those public servants forced to become self-employed one-person businesses?  Or, as in the case recently reported of District Health Boards, contracting out major functions to private consultants?  That can mean millions of dollars spent seeking advice that either confirms what the management want to hear or repeats back to those engaging them what they have themselves told the consultants in the first place.

But perhaps the most pervasive, constant and easily available attack on the public services is simply to starve them of resources.  That becomes even more likely with a government that is ideologically opposed to the general concept of public service and believes in the superiority of the private market.  It becomes even more likely still when that government seeks to gain political brownie points by “cutting the deficit” and promising tax cuts.

When all these factors coincide, we can’t be surprised if public services suffer, through staff shortages, lower levels of service, poorer training of staff, less investment in modern equipment.  Those who suffer as a consequence are not only the staff who work for the service but those who depend on it for some of the basics – and, in one way or another, that means most of us.

Public money must of course be spent prudently and efficiently.  But that should not mean a general unwillingness to devote the necessary resources to public services, with the result, for example, that screening for bowel cancer is delayed one day, and police training is cut the next. There is a price to be paid, in other words, for the money saved as a result of cutting the public services.

The government may seek an electoral gain in the short term, but we are weaker and less well served as a society if our government does not have the courage to tell us the truth – that good public services matter and have to be paid for, and that means by us.

Bryan Gould

2 April 2017

Humankind comes with many different characteristics, and it is sometimes informative to consider how those can be categorised.  Some people, for example, will be extroverts, others introverts, some romantics and others realists, some optimists, others pessimists.

I have devised a test that I think can be used to make another – and, I think, important –distinction.  Imagine you and your friends or family are on a car journey, and have just eaten a take-away meal as you travel.  What do you do with the wrappings?  Do you take them home with you or do you throw them out of the window?

If the latter, I maintain that you fall into the category of the socially unaware and irresponsible – that is, those who think only of their own immediate interests and care little, or not at all, for the interests of others or for the standards of the society in which they live.

Mrs Thatcher, of course, famously (or notoriously) maintained that “there is no such thing as society”, thereby aligning herself, no doubt unwittingly, with the litterers.  The Thatcherite doctrine was, presumably, that we are all individuals, pursuing our own interests, and that concerning ourselves with “society” is a waste of time.

But most of us know better, and understand that if we recognise the rights and interests of others as well as our own, we will find that the society in which, like it or not, we all live will be more integrated, stronger and happier and that, as a result, our individual lives will also be better and happier, not least because it will be more likely that we will find support from our fellow-citizens when we need it and will need to deal less often with the destructive actions of the anti-social.

Thankfully, in New Zealand, judging by the fairly litter-free state of our roadsides compared with those in other countries, we are a fairly responsible lot – and that is what our own history and culture would lead us to expect.  But a visit to any site where travellers habitually stop and spend any time will reveal that we also have our share of the socially irresponsible.

These thoughts have been prompted by the recent reports of literally anti-social behaviour by young people in Kaikohe, acting in gangs to rob stores and break into petrol stations.   It is quite understandable that local citizens are outraged and alarmed at such a blatant disregard for the expected norms and standards, and many have described the perpetrators as acting outside of society, or perhaps as living in a social milieu which simply does not recognise those normal standards.

Perhaps it is time to reflect that our membership as individuals of something called society is based on an unstated bargain – that we owe a duty to society and its members because society looks out for us.

That bargain breaks down if society makes it clear that it accepts no responsibility to some of its members.  If society takes the view, expressed through the institutions it chooses to represent it, that some of its members are “on their own”, and do not merit society’s care and support, then we cannot be surprised if those people decide to act without regard to society’s interests and standards.

So, if young people find that society takes no action to ensure that they are well-educated, healthy, and well-housed, and that they have good prospects of a productive life in a properly paid job, anti-social behaviour may seem like a rational and morally justified response.

And if the rejoinder is made that these desirable outcomes are earned only by the individual effort of those concerned, then this disclaimer simply confirms the perception that society gives no value to these young people and is not willing to make the effort to help them – and it overlooks the extent to which society decides how the cards are dealt and how far individual achievement – even for the privileged – depends on societal support.

The problem is compounded when a generation that itself feels undervalued then reaches child-bearing age and brings up a new generation whose parental guidance is to the effect that their children owe nothing to anyone and can therefore operate outside normal society.

We reap, in other words, what we sow.  Yes, society does matter.  It matters whether rubbish is thrown out on to the road.  It matters whether society recognises its responsibilities to all its citizens.  It matters whether or not all our fellow-citizens have a stake in what we build together.  It matters, whether they know it or not, to the young people of Kaikohe.

Bryan Gould

23 March 2017