The Light Dawns
A complete understanding of great events will often have to wait until well after the shouting and the tumult die away and a longer perspective permits a more objective assessment of what really happened. Even then, though, greater elucidation proceeds at a glacial pace.
Today, we may well find ourselves again at the beginning of just such a process. Just as it took a decade and a Second World War to achieve a broad consensus as to what had really caused the Great Depression in the 1930s, we can now begin to survey the events that led to the Global Financial Crisis, and the response that has been made by orthodox policy to the recession that followed, and to assess them in the light of the accumulating evidence of actual outcomes since those events.
The evidence is surely mounting that the remedies to recession proposed by orthodox policy have failed. The German insistence on austerity, smaller government and eliminating deficits has led directly to the travails of the euro zone and the real threat of renewed recession, with the result that countries like Greece and Spain are in desperate straits and the continued viability of the euro itself is at risk.
The British, despite all George Osborne’s chest-beating, have endured five years of austerity and the longest and deepest recession in modern times. Living standards have still not returned to pre-2008 levels and such prospects as there are for the future rest on an unsustainable consumer boom and asset inflation in the housing market.
The more moderate approach, the relaxed monetary policy and greater government involvement put in place by President Obama have produced, by contrast, at least a partial recovery in the American economy. The comparison compels conclusions that call into question the whole thrust of policy around the globe over the last three decades.
It is not just that neo-classical economics have failed to produce a solution to the problems created by the Global Financial Crisis. It is rather that the policies that were put in place before the GFC – and that we are now beginning to see were responsible for bringing it about in the first place – are now being pursued all over again, with every likelihood that they will produce the same outcomes.
The simple certainties that were the basis of the monetarist revolution that began in the 1980s – that national economies were just like private businesses, that there was little role for government, that the market could safely be left to produce optimal outcomes, that restraining inflation through controlling the money supply could and should be the only goal of macro-economic policy – are now being looked at in a different light.
The questioning is still piecemeal, still nibbling at the edges rather than constituting a full-scale assault, but there is no doubt that future historians will mark this decade as the point when the counter-revolution began. At the heart of that new thinking will be a re-assessment of what monetary policy is and should be about. Already, we see governments (for example, Shinzo Abe’s government in Japan), central banks (even the Bank of England, with New Zealand’s Reserve Bank deserving an honourable mention), and leading academic economists beginning to understand that a monetary policy instrument that is only ever used rather ineffectually to damp down asset inflation is absolutely missing the point.
That can be seen very clearly when we look again at the seminal paper published in the Bank of England Quarterly Review in March last year. That paper conceded (the first such concession made by any major central bank) that 97% of the money in the UK economy was created out of nothing by the banks; a similar proportion would be found in many western economies, including New Zealand.
The whole basis of monetarist policy was thereby revealed to be a charade. Governments may cut spending and impose austerity, and may raise interest rates in a vain attempt to control the money supply (while doing unnecessary damage in passing to investment in the real economy), but the banks go on printing money as though there is no tomorrow. The greater part of that new money is created – not for productive investment – but for house purchase, and all of it for private profit rather than the public good.
This huge increase in the volume of money, most of it directed into the housing market and unbacked by any corresponding increase in real production, has inevitably created a huge asset inflation, a dangerous bias in the economy in favour of speculation and against productive investment, a major driver of inequality between those who own property and those who do not, and an economic policy that is totally ineffective in the hands of governments that do not have the slightest understanding of what they are doing.
As for the banks, their profits soar, the bonuses they pay themselves multiply in size, and their ability to create wealth out of nothing means that the asset bubbles that eventually burst to bring about the Global Financial Crisis are again being inflated as we watch.
How did all this come about? The answer is simple. In the 1980s, financial services were deregulated, governments withdrew from macro-economic policy, banks moved in to displace building societies as the main suppliers of mortgage finance, restrictions on capital movements were removed. The result? The banks discovered that lending on house purchase was hugely profitable and almost risk-free, and that there was in practice no limit to how much money they could create; the only constraint was the presence or otherwise of willing borrowers. While governments strained every sinew to “control the money supply” and their own spending, the banks’ ability to create new money through the stroke of a book entry continued unabated.
A recent study by the National Bureau of Economic Research in the US of bank lending in twenty countries and over long periods shows an undeniable link between the increase in the money supply (though even these expert authors seem not to quite understand how that increase happens) on the one hand and asset inflation in the housing market and an increased risk of financial crises on the other.
The outcomes of this huge shift in economic power, away from governments and in favour of banks, are felt everywhere in our daily lives – in housing costs, in jobs, inflation, government spending, growth rates, balance of payments. Yet the change is hardly remarked, let alone understood. That is about to change – and not before time.
Bryan Gould
17 January 2015
A Government in Waiting?
Andrew Little has wasted no time in making his mark, not just on the Labour Party but on New Zealand politics. What is already clear is that here is a Labour leader who is thinking seriously about what it means to be in government.
A striking instance of this hard-headed approach to his job as Leader of the Opposition was the stance taken by Labour over the Foreign Terrorist Fighters Bill. The measure was objectionable on a number of grounds – the speed with which it passed into law, the limited opportunity for consultation about its implications, the restriction of the rights of New Zealand citizens to travel overseas, and, most importantly, the sanctioning of a government spying without a warrant on its own citizens.
Many would have expected that, for all these reasons, Labour would have opposed the Bill – as the Greens, New Zealand First and the Maori Party duly did. Labour, however, conceded that the Bill, however imperfectly, was an attempt to address a serious issue. Andrew Little’s approach was to support the Bill but to ensure that its more extreme proposals were scaled back.
The significance of this decision goes well beyond the Bill itself. By taking this stance, Andrew Little seems to have quite deliberately distinguished Labour’s position in the new parliament from that of other opposition parties. His message seems to have been that Labour is not just another opposition party; rather, he leads a party that is, in constitutional terms, the Opposition.
Indeed, the message goes further. Labour is not just the main opposition party; it is also an alternative government, a government in waiting, a party that is already thinking about what it will mean to be in government.
That is why Labour recognised the responsibilities that a government – including a future Labour government – must accept in ensuring the security of its citizens. Andrew Little’s response was not to oppose but to mitigate – to demonstrate that Labour, while accepting the need to protect the country against extremists, would be vigilant in limiting any encroachment of the rights of New Zealand citizens and would drive a hard bargain with the government to make sure that that was the case.
The episode is significant in a number of ways. One of the factors that may have adversely affected Labour’s electoral appeal in the recent election was the sense that the alternative to a National-led government was not as clearly defined as it might have been. Andrew Little may well have decided to demonstrate that the alternative to a National-led government is a Labour-led government – that is, a government clearly led by Labour.
And he may also have intuitively dealt with the issue in a way that reflected his own real and practical experience of negotiating solutions to tough problems. He will know, as lawyer and former union leader, that you rarely get everything you want from a negotiation, but what you do aim for is getting the best deal possible.
Again, the message to voters is clear. Here is a leader who takes a clear-eyed and hard-headed but responsible approach to difficult issues. The voters may well see a favourable contrast with a Prime Minister whose negotiating stance – especially when foreign leaders and businessmen are involved – is to roll over and have his tummy tickled.
Bryan Gould
11 December 2014.
Supping with the Devil
The political commentators are puzzled. Why, after all the fuss about his links with Cameron Slater, did John Key run the risk of exchanging texts with the Whale Oil blogger about the Inspector-General’s report on the day before it was published?
It is of course true that John Key would not have foreseen that his denials would be so quickly shown to be false, and that he would be forced into a series of increasingly embarrassing and unconvincing explanations as to why he had not told the truth – “I was in a hurry”, “I couldn’t hear what I was asked”, “I misunderstood the question”, “I was trying not to be too specific”.
The price he has paid is clear. We now know that we have a Prime Minister who is prepared to mislead New Zealand if he thinks he can get away with it. But that still leaves the question – why did he take the risk, and why, of all the thousand of texts he says he receives and to which he does not reply, did he choose to reply to the one from Cameron Slater?
The answer is one that should offer no comfort to any citizen of this country. The answer is that he dare not ignore a message from Cameron Slater. And why? Because he is now Cameron Slater’s creature.
The relationship between the Whale Oil blog, the Prime Minister’s office and the Prime Minister himself was initially a convenient one from John Key’s viewpoint. Here was someone prepared to serve the Prime Minister’s interests by doing the nastiest jobs, deep in the darkness and the mire, and to require in return little more than the occasional massaging of his ego.
But as the stakes got higher, and the spotlight began to play, the power in the relationship shifted. Cameron Slater became the custodian of a huge amount of information that the Prime Minister simply could not afford to become public. For Slater, this was pure gold. The bigger the role he was seen to play, the more it inflated his ego and – crucially – the more important he became to the Prime Minister.
Slater has little to fear if the whole sordid story comes out. It would simply confirm the centrality of his role and would confirm an image of ruthlessness he has sought to cultivate. But for John Key, it is imperative that the story stays under wraps.
One word from Slater, in other words – and the Prime Minister is history. Slater holds John Key’s place in that history in the palm of his hand. If Slater calls the Prime Minister, of course that frightened man will jump to it. He will even run the risk of discussing a leaked Inspector General’s report with him – and then trying to bluster his way out of admitting that he had done so.
So, what seemed to be a mystery becomes a much more worrying truth. We have a Prime Minister who is not only careless with the truth but who is obliged, for fear of being exposed, to do the bidding of the nastiest and least principled person in New Zealand politics. Is that the Prime Minister this country wants?
You need a long spoon to sup with the devil.
Bryan Gould
1 December 2014
Kim Jong Key Is Missing
The Latest News Bulletin from CNN
“Concern is mounting in New Zealand over the whereabouts of the country’s leader, Kim Jong Key. The Great Leader has not been seen on television or heard on radio for over two hours. Observers say that his disappearance for such a long period is unprecedented. Speculation is rife that Kim Jong Key may have been the victim of a coup.
Experts suggest that the limited evidence available points to the possible involvement of one of both of his senior colleagues – Joy Stee Ven and Koh Lins Jood. Both are known to have leadership aspirations, and – unusually for a regime where the news is carefully controlled – Koh Lins Jood’s serious falling-out with The Great Leader recently has been obliquely referred to in new bulletins.
Key’s office, however, says that their only concern is that Kim Jong Key apparently suffers from a rare medical condition that means that – without the stimulus of a television camera trained upon him – he is prone to falling into a coma. “It is essential that we get him to a television studio as soon as possible,” an aide said.
His office has revealed that there had been an unfortunate incident yesterday evening when a camera malfunction meant that an interview Key was giving as he lifted weights at the World’s Strongest Man competition could not be broadcast. They say it is possible that this triggered the onset of withdrawal symptoms.
Television news broadcasters have acknowledged to overseas colleagues that Key’s absence for a whole two hours has caused them substantial problems. They concede that if the Great Leader’s absence continues into a second day, they will have to re-schedule their programming to take account of much shorter news bulletins. They also hinted that if he remains missing, there is the risk of job losses among camera crews and of some channels closing down altogether.
There is good news for some, though; the Defence Minister has apparently confirmed that if Kim Jong Key’s whereabouts remain unknown, RNZAF pilots will be given extended leave.
It is understood that an emergency Cabinet meeting has been called by Key’s Deputy, Ing Lish Bil, so that Ministers can be advised on how to answer questions and make statements about their portfolios. “Ministers will need some special coaching,” he said, “since most will never have had the experience of dealing with these matters themselves.”
There has been little impact on the stock exchange so far, and inquiries overseas have only just got under way. A White House spokesperson, asked if he knew anything about the whereabouts of Kim Jong Key, said “Who?”
Now, breaking news. The Great Leader has been found. Early reports suggest that he has no recollection of where he has been but does not intend to ask and no one else will be allowed to. He insists that he is “comfortable” with the situation. He does, however, intend to set up an inquiry as to what he was doing during the two hours of his absence. In view of her expertise in answering questions about the whereabouts of ministers, the inquiry will be conducted by former justice minister, Koh Lins Jood, and is expected to report in six months’ time. Kim Jong Key himself is not expected to give evidence.
Meanwhile, the atmosphere in the remote country has returned to normal and the media are pushing the message that, with The Great Leader back at the helm, all is well.
Bryan Gould
16 October 2014
The Election That Left One Third of Us Behind
No one should begrudge John Key and the National party the right to celebrate an impressive election victory. It is little consolation to those who opposed them that the win is very much a personal triumph for the Prime Minister rather than for the party and government he leads.
As the tumult and the shouting die away, however, and there is time for more mature reflection, we can register a number of reasons as to why even the victors might feel a sense of unease about the outcome.
The triumphalism in some parts of the media would have us believe that everybody loves John Key and that the country is united behind him. Let us simply observe, as an antidote to such an illusion, that only one in three of eligible voters actually voted National; more than 60% of us did not join the bandwagon.
John Key himself, in his warning to his colleagues that they are not to show any arrogance, seems to understand this very well.
It will quickly be observed that other parties, and particularly Labour, did much worse. Agreed – they certainly have their own problems, but that is not the particular point I am making.
A democratic political process in which nearly a third do not participate is not in good health – especially in a country with a traditionally enviable record in terms of voter turnout.
We need to know who the nearly one million eligible voters who did not vote are, and why they stayed at home on polling day. It is not good enough for the rest of us to say that it was up to them and that, if they couldn’t be bothered, they have only themselves to blame.
We know, of course, who did make it to the polls. They identified themselves as soon as the election result became clear. They certainly included those who – against the wishes of the majority of Kiwis – bought shares in the partly privatised electricity companies and who immediately celebrated a surge in the value of their shareholdings.
It is a reasonable assumption that it also included others who saw their other shareholdings and other financial assets elsewhere immediately rise in value after the election. And those who have seen the value of their houses go up week by week, especially in Auckland, by more than some of our fellow-citizens can earn in six months – and those with good jobs and incomes, able to afford foreign holidays and fees at private schools for their children – they will also have had good reason to get to vote in favour of continuing and extending the good times represented by the status quo.
They all knew very clearly what they were voting for and had good reason to do so. But why did the nearly one million non-voters stay at home? Did they not have an even stronger reason to vote?
We have a pretty good idea of who the non-voters were. They were poor, often unemployed, poorly educated, with worse health than the rest of us, often brown-skinned, living in sub-standard housing and bringing up their children in poverty.
Did they not have everything to gain from change – a change that would not leave them languishing and invisible and falling further behind while the triumphant one in three amongst us celebrated their victory?
Why did they not do at least something to ward off the changes promised by a re-elected National government? Are they really content with the prospect of a next three years that will see their rights at work severely curtailed, that will mean their being “moved off benefits”, that will produce further cuts in the public services on which they especially depend?
The answer to these questions is disarmingly simple – but should nonetheless be of fundamental concern to all those who care about our country. They did not vote because they did not see the point.
They had no confidence that the political process took any account of their interests. They had ceased to believe anything that politicians said. They felt disengaged and confused, and convinced that there was nothing they could do to improve matters.
They are the people who are powerless and literally without hope, to whom things are done by faceless forces who have little idea of how life is for them. People who are without hope do not vote. Hopelessness has, in practical terms, disenfranchised them.
The National party might, if they are unwise, treat this with equanimity. But the party with real questions to answer is the Labour party.
How is it that the Labour party has failed to engage with what many would see as their natural constituency? What has led the Labour party to let down a million people who in earlier times would have looked to Labour to defend their interests?
As the entrails of the election are picked over, these are the questions that, for their own sake – but even more for the sake of the disenfranchised and the country as a whole – Labour must now answer. Our country cannot afford to leave so many of our fellow-citizens behind.
Bryan Gould
24 September 2014