2% growth

March 7th, 2008 at 2:11 pm by David Farrar

The Dom Post reports that there it is forecast that there will be 2% annual growth over the next three years. This is labelled as good news.  It isn’t.

To start closing the gap with Australia we really need to put in place policies which will get a 4% average growth rate. A 2% growth rate will see fall further in relative terms.

People don’t get very excited about 2% vs 4% so what does that mean in real dollars.

as at September 2007 was $171 billion.  At 2% growth it would be $181 billion in three years. If 2% growth continued for say nine years (three terms) then would hit $204 billion.

And what if one managed 4% growth.  Well in three years  GDP would hit $192 billion. And in nine years it would be $243 billion.

So NZ would be $10.9 billion better off in three years if it could get 4% growth instead of 2%. And over nine years it would be $39 billion wealthier if it could make 4% instead of 2%.

And what does that mean for the average family? Well while GDP growth doesn’t automatically translate into cash in the hand, the extra national wealth per household (just under 1.5 million in the last census) would be $7,300 after three years and $26,000 after nine years.

Now even if one says hey we can never make and maintain 4%, even the gap between our usual 3% and 2% is significant.  An average $3,600 per household after three years and $12,500 after nine years.

So the only person who should be saying

There was some good news – the economy is expected to keep growing by around 2 per cent a year for the next three years.

Should be the Australian Minister of Immigration as he welcomes people in.

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109 Responses to “2% growth”

  1. tim barclay (886 comments) says:

    What economic indicators are better when Labour became Government. The only one I can think of is employment partly boosted by the huge flight to Australia and the bloated Government bureaucracy. Growth is down , inflation is up, Government books in deficit, and of course interest rates have DOUBLED.

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  2. SPC (5,619 comments) says:

    I think the writer is reassured by the fact that we are only going to have a slowdown in growth, rather than a recession.

    Obviously someone realist enough to be aware that some other countries are facing the risk of a recession and to face one while there are worldwide inflationary pressures (raising the risk of 70’s style stagflation) is unpleasant.

    Sure higher growth is better, but to think that facing only a slowdown in growth in these times is not a good thing, shows either a little complacency, a lack of awareness of economic cycles, or of course your ambition for us to do better (misguided by the unfounded belief that this would occur under National).

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  3. SPC (5,619 comments) says:

    tim

    Do you really think a $3.1 billion surplus in the year to January is a deficit? How has the Cullen Fund been built up, how was Kiwi Saver afforded, how has debt been reduced.

    Do you really think more people employed in Enzed today than ever before in our history is a fall in unemployment caused by people migrating to Australia? We have had net immigration for years.

    Really?

    PS It’s Bush with the recession, it’s Bush with the budget deficit and climbing debts and collapsing dollar, all while super power status has been frittered away leaving a nation economically weakened, militarily exhausted and diplomatically suspect.

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  4. battler (116 comments) says:

    Net migration FROM NZ to AUSTRALIA between 1998 and 2006 totalled 166,256
    During this same time 152,610 abortions were performed in NZ.

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  5. SPC (5,619 comments) says:

    The issue is the amount of people employed here. And the number employed here is the highest ever.

    PS Our population growth rate is higher than nearly all of Europe. Many have declining populations – must be all the birth control those Catholic women use.

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  6. Ross Nixon (559 comments) says:

    So if we have 2% GDP growth, and if we have 4% inflation at the same time… that means we are going backwards, right? Someone who knows, please reply.

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  7. battler (116 comments) says:

    SPC they’re employed as pen pushers for the Labour party, driving up inflation & interest rates and driving down living standards for Kiwis.

    Europe’s population/demographic problems are a result of their turning away from Christianity rather than adherence to Catholic doctrine as you suggest. The socialists in Russia, the Communists in China and the Buddhists in Japan are facing the same problems.

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  8. gd (2,286 comments) says:

    To paraphrase one of the other posters Labour supporters say ‘wots economic growth”

    SPC and others ‘sigh” China and others are growing at 8% plus pa. Thats 400% of NZ growths just to explain it.

    Not only does that mean they are catching us but it means we are falling down the ladder of a developed country.

    Now I dont how how much history you have but I can remember back when Japan Korea Singapore were all countries that NZ looked down on as inferior.

    Golly gosh We are they now compared to NZ in the economic stakes.

    Or do you favour a back to the stoneage economic conditions approach like the Socialists

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  9. battler (116 comments) says:

    gd- agree with you NZ is falling down the ladder.

    In terms of China however, their growth run will come to an end when they start to feel the bite of their demographic implosion brought about by their communist dictators trying to artificially control/manage population growth. This may be decades away, but it will bite them in the end.

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  10. SPC (5,619 comments) says:

    battler

    If all the wages of those being hired since 1999 have been paid out of taxes, how come the surplus has increased? (yes I know you won’t respond idrectly to the question).

    PS Employment in the private sector is the highest ever. I doubt that is so for the public sector because of changes in the 1980’s.

    PS We have had net migration into New Zealand since 1999 and a local population increase in the employable age sector.
    And falling unemployment.

    Ross Nixon

    One of those questions that was popular back in the 1970’s

    We had inflation (ary growth) and a recession. It was called stagflation.

    From 1976 to 1981 house prices barely moved – this despite the inflation, so it was a major correction in prices in real terms. Because of how the RB now operates, this time there will be an actual fall in house prices and much less inflation. Which means some things change and some things remain the same (which is a partial answer to your question).

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  11. SPC (5,619 comments) says:

    gd

    Growth is harder to increase in a developed economy.

    Mao set China up for todays growth by the harm he did to their economy.

    Much of the growth in the world economy todays comes from those countries who have only joined the global free market in recent times (just as we got growth with the freezer ships last century).

    Sure developing economies will catch us up, that is not a problem.

    No one is better off if they not developing and catching us up. They are becoming a middle class market for goods Europe and the USA have been denying us free trade in (and their demand will end this trade barrier as they compete in higher price bids for our products as there develops a world market shortage).

    “I dont how how much history you have but I can remember back when Japan Korea Singapore were all countries that NZ looked down on as inferior.”

    I remember a party for someone returning home to Singapore in 1988 because she saw a better future there.

    Yeah I know we were part of the British empire …. and being one of the advanced group of European nations made us part of some (deluded) elite.

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  12. davidp (3,581 comments) says:

    Andrew Bolt has the latest Australian growth figures here: http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/the_price_of_saying_no/

    Only SA and ACT have growth less than 2 percent. NSW and Vic are well over double this, with Tasmania being closer to 7 percent. Of the states with significant mining, Queensland is running close to 7 percent, and WA almost 10 percent growth.

    So NZers will continue to benefit from a high growth economy. It’s just that they’ll continue to leave NZ to do so.

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  13. battler (116 comments) says:

    SPC the reserve bank has been printing more dollars to pay for it and hence the purchasing power of each dollar has fallen – hitting the poorest in the community who don’t have hard assets to hedge against inflation of the money supply.

    In terms of Permanent and Long-term Migration between NZ & AUSTRALIA it’s been a one way net flow in Australia’s favour the whole time.

    In terms of total Permanent and Long-term Migration between NZ and all countries-

    in 1999 there was a net outflow from NZ of 8,329;
    in 2000 a net outflow of 9,458;
    and in 2001 a net outflow of 11,780 .

    Since then Permanent and Long-term Migration between NZ and all countries has come into our favour – however a large bulk of those from Asia and the Pacific are just doing their time in NZ as a stepping stone to Australia.

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  14. battler (116 comments) says:

    Net migration from NZ to Australia year ended January –

    1998- 14,148
    1999- 18,951
    2000- 24,501
    2001- 28,747
    2002- 20,955
    2003- 11,747
    2004- 10,221
    2005- 15,547
    2006- 21,439
    2007- 21,552
    2008- 28,615

    The net number leaving for Australia for the year ending January 2008 is more than double the net number leaving for Australia year ended Jaunary 1998.

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  15. SPC (5,619 comments) says:

    battler

    And there is a an overall net migration into New Zealand between 1999 and 2008-because more people have migrated here from other places than leave here for Australia.

    The issue was why the level of unemployment was declining here. It is of course because more people are employed here than ever before.

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  16. battler (116 comments) says:

    SPC,

    It is widely known that many of these ‘migrants’ to NZ are merely doing their time here on route to Australia – hence the net flow between NZ and Australia is always in Australia’s favour. They conveniently stop here for a few years to prop up Labour and receive welfare before moving to Australia for the warmer weather and economic opportunities.

    The level of unemployment declining here is related to Labour’s hiring binge and the Reserve Bank printing more dollars to pay for it – hitting hard those on fixed incomes with no hard assets to hedge against inflation and the lowering of their purchasing power.

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  17. SPC (5,619 comments) says:

    battler

    “SPC the reserve bank has been printing more dollars to pay for it and hence the purchasing power of each dollar has fallen -hitting the poorest in the community who don’t have hard assets to hedge against inflation of the money supply.”

    Inflation is not just determined by monetary supply and it is not to be cited as the reason without evidence in support of this claim. And I did suspect you would indirectly reply to my question (also, it is actually those with assets who suffer when monetary supply is expanded and those with assets who gain from a firm monetary policy).

    There is the impact of rising house prices on consumer demand, the boost in incomes of dairy farmers (and higher prices here from the global market price increase), the impact of rising fuel prices, the shortage of workers pushing up the cost of some projects and of course general wage increases.

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  18. battler (116 comments) says:

    SPC,

    Those with hard asset’s withstand the inflation.

    It’s those who have only cash who suffer. And those are the people who are on fixed incomes.

    The house prices are rising because the Reserve Bank has printed more money to pay for Labour’s hiring binge. Those newly ‘cash rich’ employees of the Labour government go looking for houses with all their freshly printed money. Since they didn’t actually produce anything and there are no more houses in spite of the extra money that’s been printed by Labour, each house costs more of those freshly printed dollars.

    The people who already own hard assets or have businesses where they can raise prices are no worse off, and those on fixed incomes are locked out.

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  19. SPC (5,619 comments) says:

    battler

    Only a third of migrants move onto Australia. And this movement still occurs within an overall net migratrion here.

    The population figures in the census show more people here and labour force surveys show more people employed in the private sector than ever before.

    As to purchasing power of consumers, this depends on their income increase as compared to the cost of what they consume. You seem concerned about those without assets, I suppose you would then support a zero tax rate on the first $6000 (as they have in Australia) … these people don’t have assets …

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  20. SPC (5,619 comments) says:

    battler

    So you think the rise in house prices in Auckland is caused by the government workers being hired in Wellington? In the Waikato as well?

    And here was I thinking it was because of net migration, LACQ and the high marginal rate of tax on income, the lack of a capital gains tax on rentals, the lack of a CPI depreciation writeoff for cash deposits before taxable income on the interest was assessed, pre 1945 people living longer in their homes, the post 45 baby boomers saving for their retirement via property investment and all those TV programmes promoting property as a career.

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  21. battler (116 comments) says:

    SPC,

    You are getting nearer the real problem. The productive sector is only growing at 2% but Labour keeps printing more money at a 4%.

    Those on fixed incomes with no hard assets fall further and further behind.

    And yes I would support zero income tax on the first $6,000 if it was put up as a policy because people on low incomes are the greatest user’s of Govt. services so it’s just a deadweight cost to collect tax from them and recycle it through a pen-pushing tax & welfare system.

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  22. David Coverdale (17 comments) says:

    DPF: Neither NZ nor Aus has grown at 4% for any of the last three years on record (2004-2006). So demanding that we “grow at 4% or fall behind” doesn’t stack up. The Australian growth trend since 1999 has pretty much mirrored New Zealand’s (see the OECD data if you don’t believe me), despite the different policy tacks of the countries’ governments.

    Ross Nixon: Normally the growth figures are in “real” terms – i.e. they already account for inflation. Therefore 2% real growth at 4% inflation is still growth (it’s actually 6% nominal growth and 4% inflation)

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  23. Kimble (4,440 comments) says:

    I reckon 2% growth IS good, given the world economic uncertainty right now.

    In respect to Australia it may be bad, but it may help with domestic inflation.

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  24. battler (116 comments) says:

    New Zealand has plently of Gold, Coal, Oil, Gas, etc. The problem is the minority green activists file vexatious claims to slow development.

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  25. dad4justice (8,224 comments) says:

    battler said ; “The problem is the minority green activists ”
    I say they have destroyed viable projects like Timberlands West Coast. The stupid tree hugger’s should be hung for treason. The forests have gone backwards, because they have not been managed properly since the demented lefty idiots wiped out the industry. These stupid green freaks are accountable for this !! And, Klark called all West Coasters “feral inbreds”.

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  26. battler (116 comments) says:

    We could add billions of dollars to our economy if we would set aside the vexatious claims and ramp up Gold, Coal and Oil production

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  27. dad4justice (8,224 comments) says:

    And our Native Timber industry potential is huge, as the forests need good management not tree huggers collecting stupid snails.

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  28. Swampash (114 comments) says:

    And there is a an overall net migration into New Zealand between 1999 and 2008-because more people have migrated here from other places than leave here for Australia.

    I wonder how the people leaving compare with the people arriving — level of education, health, savings, professions, etc.

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  29. GNZ (228 comments) says:

    If we were in China or Korea or any similar economy there would be calls for beheading on that sort of information.

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  30. Simeon (142 comments) says:

    And Labour has gained a little ground in the latest poll

    http://nzdebate.blogspot.com/2008/03/labour-regains-little-ground-in-latest.html

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  31. Paul (1,315 comments) says:

    What was the growth rate over the last number of years?

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  32. Paul (1,315 comments) says:

    Dad, what exactly is the market for rimu timber? Is there a definalble market force out there or are you assuming that because we did that in the past we must again in the future.

    Have you measured the economic benefit of eco tourism with regard to our rainforests, as opposed to the mountain of wood chip that sits on Otago Wharf each day.

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  33. Paul (1,315 comments) says:

    Dad your esteemed knowledge of the rainforest draws you to the conclusion that the rainforest is in a state of disrepair.

    I thought the very definition of a rainforest is that of nature doing it’s own thing not some imposed view of what a rainforest should be.

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  34. SPC (5,619 comments) says:

    I did not know we produced gold, oil and gas resources. Surely any resources left in the ground increase in value as the supply is diminished elsewhere and thus not using them, is a form of saving.

    Any growth resulting from a quick burst of exploiting a scarce resource is illusory and counter-productive as the boost to the currency value resulting harms the longer term sustainable business/export sector.

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  35. battler (116 comments) says:

    There is only a small market that will pay to stare at trees. However everyone in the world needs houses, furniture, pulp & paper products.

    Forests can be managed in such a way that net forestation is maintained or increased even as harvesting takes place.

    Further there is nothing (except green activists and vexatious claims) to stop forests being managed for multiple purposes. Selective harvesting and tourism are not mutually exclusive- they can co-exist.

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  36. dad4justice (8,224 comments) says:

    SPC maybe the Liarbour filthy low down corrupt communists sold the mineral rights to China in the free trade deal that the slippery dogs jacked up behind closed doors ? These criminals wouldn’t care as they are pure filth !!!!!!

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  37. battler (116 comments) says:

    SPC,

    The earth is 6,000 km deep. The world record depth for oil drilling so far is less than 12km. We won’t be running out of oil in the ground before you or I pass from this life to the next.

    NZ has over 3000 years worth of known coal reserves.

    The natural resources aren’t the limitation. The political will and technological innovation are the limitations.

    I repeat: If we set aside the vexatious claims we could add billions of dollars to our economy by ramping up coal, oil, gas and gold production.

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  38. Johnboy (16,597 comments) says:

    SPC I never realised that a can of fruit could be at the cutting edge of logical analysis until your brilliance burst upon my horizon. So let me get this straight. If we leave the minerals in the ground for an infinite length of time we will become infinitely rich. What genius. I will give Helen a call right now and get her to reccomend you for the Nobel. I need to lie down now and recover. I never thought we would ever see genius greater than Einsteins again but you have proven me wrong. I bow to your genius o master.

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  39. dad4justice (8,224 comments) says:

    SPC – Timberlands was a pioneer project and many countries built a sustainable and efficient module from the inspiration of our once WORLD leading forest management system. That was until the freakshow tree hugging loopy communists fucked it all up !!!!!

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  40. Psycho Milt (2,412 comments) says:

    And, Klark called all West Coasters “feral inbreds”.

    Yes, but that was a simple statement of fact.

    So, a 2% growth rate is no good because 4% would be better? In that case, surely 10% would be yet more of an improvement? In fact, we should settle for no less than 50% growth and upwards. Those Liar-bore bastards, denying us our 50% growth! Vote National to get rich now!

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  41. dad4justice (8,224 comments) says:

    But psycho the Labour Party was founded on the West Coast , so they are all feral inbreds and that explains all New Zealand’s current problems. Got ya wimp.

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  42. dad4justice (8,224 comments) says:

    For that nitwit Paul speaking about Rain forests can you name me which current politicians have an interest in the production of 1080. Ouch fuck that hurt. haha -revenge is sweet .

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  43. Johnboy (16,597 comments) says:

    Good onya Dad. You definitely got the psycho tosser wimp. You have been much more entertaining since you stopped the ranting. I have been giving you all the thumbs up I can since your cure. Dont take any shit from the bastards though cause despite all their fine words they really are a pack of tossers. Do you like eating canned fruit?

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  44. dad4justice (8,224 comments) says:

    Johnboy I like tinned bully beef and farting on communist queers.

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  45. Johnboy (16,597 comments) says:

    As an old hunter Dad I know a 1001 recipes for canned corn beef and all of them are shite but tell me a bit more of the best way to fart on commie queers. Does it mean extra points if the fart turns liquid?

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  46. Psycho Milt (2,412 comments) says:

    Johnboy I like tinned bully beef and farting on communist queers.
    Your affinity for such sexual perversions comes as no surprise, I must admit.

    You seem to have mistaken me (yet again) for a Labour voter, D4J. I couldn’t give a rat’s ass if Labour was founded among the feral inbreds.

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  47. Johnboy (16,597 comments) says:

    Psycho Milt +0 Says:

    March 7th, 2008 at 8:05 pm
    Johnboy I like tinned bully beef and farting on communist queers.
    Your affinity for such sexual perversions comes as no surprise, I must admit.

    What is perverted about bully beef Psycho? The whole blogosphere waits with baited breath for your description of what you can do to a can of it. Do you follow up the act with tinned fruit?

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  48. Psycho Milt (2,412 comments) says:

    Bait is for fishing, Johnboy. The standard of literacy in this country really has deteriorated drastically the last decade or two.

    That aside, don’t worry, D4J knows what I mean. He has in-depth knowledge of such things from his long evenings spent watching over the Hagley Park toilets.

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  49. dad4justice (8,224 comments) says:

    Excuse me psycho milt – but I told you a year ago on sir hump’s blog that Labour were history and you challenged me and said that I would have to eat my words. To be a good liar you must have an extraordinary good memory my dear chap. I hope I didn’t hurt your tender feelings. Haha

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  50. dad4justice (8,224 comments) says:

    Edit as I have scored enough demerit runs this week and shoe tappers always take my middle stump.

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  51. Johnboy (16,597 comments) says:

    So you really prefer the texture of a can of salmon then do you Psycho. But dont let me force you into an honest answer I realise honesty is not in your vocab. Just keep picking on Dad with your warped little innuendos. Do you get pleasure from pushing a person with problems over the edge. You are scum.

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  52. Johnboy (16,597 comments) says:

    dad4justice +0 Says:

    March 7th, 2008 at 8:21 pm
    Hagley Park toilets or Californian toilets psycho dear ?? Shoe tappers everywhere !!

    Dont let the piece of crap get to you Dad. He is a nothing. A sad little man. Keep on as you are and contribute useful stuff like you have just started to do. Pricks like Psycho just disappear when you call them for what they are — nothing people.

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  53. Paul (1,315 comments) says:

    Dad you are of course insane, and it hasn’t taken you very long at all to bring your homosexual fantasies into the equation.

    “houses, furniture, pulp & paper products” Rimu is not the timber for any of these. these would also be good, but the huge amounts of timber going overseas as a raw material only to be sold back to us as a value added product is an insult to business and the public.

    Last time I looked the most lucrative market for housing materials was in a state of disarray.

    Back to that insane creature Dad, what has 1080 got to do with export markets and timber products? Unless you are trying to draw a bow where none exists. I am starting to think that you are a 12 year old with comments like “take that”

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  54. Paul (1,315 comments) says:

    And dad you have the figures to back up your assertion that the numbers into tourism are small, seems to go against all the current knowledge we have of the economy as it is.

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  55. davidp (3,581 comments) says:

    >Surely any resources left in the ground increase in value as the supply is diminished elsewhere and thus not using them, is a form of saving.

    Any resources still sitting in the ground when the better and cheaper alternative comes along are suddenly worthless. Better to mine or extract them while they’re still worth something, then invest the money in something useful.

    For example, iron age people who mined their iron and turned it in to tools and machines and whatever likely have an industrialised advanced economy now. The ones who didn’t aren’t billionaires, sitting around on a fortune in “saved” iron.

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  56. Psycho Milt (2,412 comments) says:

    I told you a year ago on sir hump’s blog that Labour were history and you challenged me and said that I would have to eat my words. To be a good liar you must have an extraordinary good memory my dear chap.

    But that wasn’t a lie. I’ve posted recently on No Minister that Labour still aren’t necessarily history, because the Nats overestimate themselves and don’t understand MMP. Was true back on Sir Humps and true now. Doesn’t mean I’m a Labour voter, just someone who pays attention.

    Johnboy: your annoyance is worth every minute I spend on here…

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  57. dad4justice (8,224 comments) says:

    Psycho Milt and Paul . Great stuff and I am happy to have stirred up the hornet’s nest.
    Gee I am glad I have a backbone.

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  58. Johnboy (16,597 comments) says:

    Hi Psycho.What a strange mixture you are, one minute harking back to your glory days searching for praise and then heading back to the present to see if we remember you. Did you suffer from insecurity as a child or did it only afflict you when the computer age arrived?

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  59. Bogusnews (474 comments) says:

    SPC

    “battler

    If all the wages of those being hired since 1999 have been paid out of taxes, how come the surplus has increased? (yes I know you won’t respond idrectly to the question).

    PS Employment in the private sector is the highest ever. I doubt that is so for the public sector because of changes in the 1980’s.”

    The surplus has increased because Labour inherited an incredibly health economy from National. At a time that comodity prices were at an all time low, in 1999 we had 3% growth, a 1.5bil surplus, productivity nearly 3x higher than now and NZ businesses had gained an additional 3bil in new business that year adn our slide down the OECD ladder had stopped. That is very healthy.

    Labour then had the fortune of a very healthy economy that then enjoyed the HIGHEST prices for our primary products for over 50 years plus the world wide economic boom.

    A monkey could have gotten teh economic growth labour has seen in these circumstances. Cullen admited prior to the last election that after all the extra taxes he had put on, the average NZ’er was now no better off. If that’s the best he can do after 6 of the best years in any ones living memory, then God help us if he is in for six hard years.

    Re the growth in the public sector, it has been astronomical since Labour came into power. An addtional 16,000 people have been added to the state payroll (this does not include the army of high priced consultants).

    It’s no wonder our productivity is so far behind Australias, and so far below when National was in power. Workers are working hard, but they have a huge gorilla on their backs we have to carry.

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  60. dad4justice (8,224 comments) says:

    That “gorilla’ is a former history teacher who has squandered billions of dollars of hard earned income from us long suffering taxpayers. This caustic smug “gorilla” has brazenly increased income taxes and raised excise duties. This deranged monkey belongs on the planet of the apes and his name is Sullen Kullen.

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  61. Johnboy (16,597 comments) says:

    Hey Dad It must work Psychos gone, Tinned fruits gone and Pauls gone. See picking on the sad little tossers where it really hurts them namely their hugely overdeveloped egos that have outgrown their brains by a factor of at least 100 to 1 does the trick. No need to get nasty. Let them do that.

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  62. Psycho Milt (2,412 comments) says:

    Psycho Milt and Paul . Great stuff and I am happy to have stirred up the hornet’s nest.
    Cheers Dad4Justice – always a pleasure to cross swords with someone who has his wits about him.

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  63. emmess (1,428 comments) says:

    Wonderful

    2% growth
    In reality less than 1% per capita

    Based on an estimate of 6% growth typical in some of the following countries
    expect to be passed by 2010 in GDP per capita by …..

    Slovenia
    Cyprus
    Falkland Islands (Islas Malvinas)
    Liechtenstein
    Korea, South
    Czech Republic
    Malta
    Bahamas, The

    I based this on a simple calculation from the world factbook
    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html
    If anyone wants to nitpick, maybe one or two of the smaller island states are not growing that fast but you could probably add in say Estonia or Slovakia, which will probably grow faster

    Cullen, you are a fucking disgrace

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  64. SPC (5,619 comments) says:

    Emmess

    Do ya reckon that electing National would make any difference and if so why?

    Yes communist countries joining the EU will quickly grow – the success of Liechtenstein like the Bahamas – small tax havens are hard to replicate in larger nations. Nations close to large markets and whose product range is not facing trade barriers will do well too.

    PS Most people lving in the Bahamas live on much lower wages than here.

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  65. emmess (1,428 comments) says:

    >>Do ya reckon that electing National would make any difference and if so why?

    I would hope so,
    The prescription is well known less tax, less government spending and less government control
    But its pointless argueing this with a left wing activist like you who refuses to face the facts

    >>Yes communist countries joining the EU will quickly grow

    BTW it’s former (and largely anti) commuinist, and they were growing just as fast before entering the EU, and there are countries all over the world growing that fast anyway, but thats typical of the excuses Clark and Cullen offer.

    >>Nations close to large markets and whose product range is not facing trade barriers will do well too.
    Okaaaaay so what about the free trade deal we are about to sign with China
    On seconds thoughts don’t bother it was just another excuse you were offering anyway

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  66. kiwitoffee (383 comments) says:

    Growth? Since when did more mean better? And as for arguing about whether 3% or 3.5% is better than 2%, well it just seems silly to me.

    Forgive me if I’m swimming against the current here but I’ve never been convinced about the need for permanent economic growth. I just don’t see where it works, especially in a country which is already relatively prosperous.

    I can understand (just) the need for perhaps some economic growth in say Haiti, Afghanistan or Zimbabwe where the economy is either stagnant or in decline and, at the same time, the population is increasing. Good government is arguably more important than growth even in these countries.

    I accept there is a case for economic growth linked to growth in population size but it is far more important to establish a more reasonable system of property ownership combined with rational expectations. And our expectation – constantly – of more is not rational. In fact, it seems to be contributing to our social and environmental problems.

    Take food for example. There’s plenty of food in the world. Indeed, too much food for some people. I think its the same for cars, clothes, houses, tellies and things we need generally.

    Growth, I suspect, isn’t the answer to our problems.

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  67. kiwitoffee (383 comments) says:

    Sorry. I posted twice. See what I mean about more not being better!

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  68. Bogusnews (474 comments) says:

    Kiwitoffee

    THe reason why we need growth is not to buy food, you are right in saying that even no growth will mean the number of people starving will not starve – initially. As inflation bites however eventually it will catch up with you. More importantly, without proper economic growth and management we won’t be able to afford expensive new technologies in health etc. Eventually growth is what makes the country survive. Most of here won’t be old enough to remember that in the 70’s we donated to Singapore. Now their growth (using a low tax, business approach, exactly the opposite of this incompetent Labour party uses) is (when I last check 1yr ago) nearly 10%. Growth has helped them hugely.

    SPC,
    Would national do any better? Can say definitely at the moment,. Key is playing a waiting game. He knows the average NZ’er has absolutely no concept of economics and like Labour, only looks at quick fixes rather than fundamentals. So we haven’t seen what he has planned.

    However, based on their track record, National did a hell of a lot better than this lot the last time around. IF they hadn’t blown the 22Bil extra a year on the state service, they could have abolished income tax altogether rather than constantly put it up. How much would that help poor people? ISn’t that what you socialists (claim) you care about? If so, how can you possibly support these idiots.

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  69. PhilBest (5,121 comments) says:

    If you look at the compound arithmetic, the difference between 2% and 4% in terms of its effect on THE NEXT GENERATION, is HUGE.

    And I doubt we will even achieve the 2% after the b. socialists economic irresponsibility of the last 8 years, squandering gains that were hard won by previous administrations.

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  70. PhilBest (5,121 comments) says:

    “kiwitoffee”, as long as there are people claiming we have “poverty”, we need “growth”. “Income redistribution” just kills the goose that lays the golden eggs.

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  71. battler (116 comments) says:

    The Prime Minister and her Government colleagues have been too busy dealing with “other” matters to worry about policies for economic growth.

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  72. PaulL (5,986 comments) says:

    kiwitoffee: seems your argument is that the amount of wealth we have right at the moment is just right. Those who are poorer than us probably can be allowed to grow so they can be as wealthy as us. We don’t need to aspire to the living standards of those more wealthy than us, that is just wasteful. Out of the entirety of human history, and all the countries in the world, the GDP per head in NZ right now is the optimum.

    I read an article about that somewhere quite recently. I can’t remember where, but I’d love to dig it out. The bottom line is that it is a foolish statement, and our descendants will not thank us for deciding that this level of wealth is just fine thank you – they’ll be looking at little old NZ with a quarter the wealth per head of other western countries (rather than our current half) and wondering why on earth anybody thought that was a good idea.

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  73. kiwitoffee (383 comments) says:

    Bogusnews, PhilBest and PaulL, thanks for your comments and for keeping away from the labels.

    Let’s look at NZ. What do we need more of? I can’t think of many goods or services we lack in NZ. I take the point about medical services being needed and expensive but an increasing share of these services is needed precisely beacuse we are consuming too much (most obviously alcohol, food and cigarettes).

    So, to me, we look like a dog trying to catch its tail when we call for growth as the answer.

    Singapore? I had the pleasure of visiting Singapore six months ago and thoroughly enjoyed it. I was, however, struck by two things in relation to this discussion: workers on the railway at six in the morning, the vast majority of whom were asleep on their way to work, and the housing, almost none of which is privately owned. Singapore is an interesting place but hardly somewhere that we should try to emulate. Its another issue perhaps but I wonder if we would be able to have this sort of discussion in Singapore too.

    I would suggest one of the best examples of how growth per se doesn’t solve all our economic and social problems (in fact, it can add to them) is contemporary India where we have the spectacle of the most vulgar, self-satisfied consumerism amid debt-driven suicides in farming and worker communities, dowry-murders and the (still) untouchables.

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  74. battler (116 comments) says:

    kiwitoffee-

    The reason growth won’t solve our social problems, is because the economy was never the cause of the social problems.

    The social problems came about because the socialists reduced the meaning of life to the mere material, and they believe that if everyone is materially satisfied then everything will be good in the world. So their whole approach is based around gaining control of the “means of production” (using whatever tactics are necessary) and re-distributing the produce of the economy.

    In reality however, the social problems trace back to spiritual and moral issues, but as soon as one raises that, one can expect to be called a “bigot”, “intolerant”, “fundamentalist”, “a rabid right winger” etc, (by whole lot of bigoted, intolerant, fundamentalist rabid left wingers).

    And so the troubles of the world continue…..

    Growth is good for the economy, and it is necessary. Nations and economies never “stand still”, they are either in growth mode or declining. If you stand still, you’ll get run over, even if you were standing on the right path. So the choice is either grow, or die.

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  75. Kimble (4,440 comments) says:

    “What do we need more of? I can’t think of many goods or services we lack in NZ.”

    You cant think of any RIGHT NOW. I think I recall the article PaulL refers to. It was by an economics professor, iirc, and one of his best points was that at the start of every semester he asks his students, do we have everything we need? They always answer, yes.

    Then he points out that he has been asking that question for 30 years, and the answer hasnt changed. But what if the students 30 years ago got their wish, and there was no more growth and innovation from 1978 onwards. Would the students of today thank them? No, of course not. Think of all the new inventions that have changed our world that we wouldnt have.

    The same can be said of economic growth. Would we be happy today with an economy the size of what it was back in 2000? How about 1995? Or 1985? Or 1975?

    “I would suggest one of the best examples of how growth per se doesn’t solve all our economic and social problems (in fact, it can add to them) is contemporary India…”

    Growth doesnt solve all problems, but it does mean you dont have to deal with some new ones.

    How many countries have high economic growth and a decreasing standard of living?

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  76. PaulL (5,986 comments) says:

    Kiwitoffee: do we need solar cells? We will probably need growth so as to afford to buy them. Do we need to spend more money on health and education? We will need more growth so as to afford that too. Another way to look at it is whether we would like to have the things that Aus-trucking-falians have. They are more wealthy than us, do they have better lives? They live longer, they have better health and a better health system, they pay more to those on benefits, and more to those who are rich.

    I think there is a big difference between the position that you personally don’t feel the need for any more than you have now (and I have plenty of friends who have decided that, and consciously stopped chasing that next promotion, that next dollar, and are instead investing in their life), but that is very different from the proposition that nobody in NZ needs more than they have now. I would suggest those at the poor end of the scale would argue differently – many of them would love to have the things you have let alone what you could have in 20 years with decent economic growth.

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  77. kiwitoffee (383 comments) says:

    Battler – I agree with your point about materialism. I would suggest that we can’t separate social problems from economic ones. They are inter-related.

    Kimble – sorry, I get the twitches when people start quoting economics professors! I take your point about growth changing things. We seem to be merely subsituting one set of problems for another.

    PaulL – yes, we do have to earn to pay for essential goods and services, and education and health services seem to be always in demand. I wonder whether one could argue a case for limiting our education and health expenditure on the basis that our expectations in these two areas unrealistic. Do we all need postgraduate degrees and can we all expect to live into, say, our 90s and beyond? These are sensitive and complex questions which have a bearing on the argument about economic growth. The same point applies to the role of the state. Do we need so much state?

    I accept the point that a stagnant economy is ultimately no good. Some growth – linked to population growth, price rises and to fund innovation – is necessary. But growth in an economy where we hear the refrain ‘the rich are getting richer and the poor poorer’ (be it in NZ or globally) is not helping.

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  78. battler (116 comments) says:

    Socialists would suggest that economic problems cause social problems.

    I would suggest the reverse- social problems cause economic problems.

    For example, a family of Father, Mother & 4 Children are living in a house together, and between them divide the various responsibilities pertaining to maintaining their household, including earning an income, cooking food, cleaning, helping children with home work and education etc etc. Father & Mother both work but arrange their schedules so that one is always available for the children.

    Father & Mother separate and are awarded custody of two children each. Now one economic “household” becomes two. And each household has half the income, and half the voluntary resources that the previous “household unit” had. Now, there are two physical houses required. Two cars required. Now, when each parent goes to work they have to pay for childcare or afterschool care, buy more prepared foods. There are two sets of furniture required for the same total number of people. Two sets of appliances. Two sets of electronics. Two lawnmowers. Etc etc etc. Plus, the children now don’t have the one on one parental attention they had before, and start lowering their school grades. So you have the cost of additional tuition.

    Then some socialist agency or university academic says that some children in society are at a “disadvantage” because of “social constructs” which “discriminate” against children who come from “non-traditional” households, and so then higher taxes are called for, to provide “funding” for extra “resources” for “at risk” children etc etc and on we go.

    And then when someone suggests lowering taxes or allowing tax income splitting for families, they are accused of having an agenda to “cut” “funding”.

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  79. Psycho Milt (2,412 comments) says:

    The social problems came about because the socialists reduced the meaning of life to the mere material…

    Those damn’ socialists!! If only we could return to the model social relationships enjoyed by people of the 17th Century!

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  80. emmess (1,428 comments) says:

    KiwiToffee,

    They problem that well meaning leftists (you possible appear to be one to me) have (and they appear to be a small minority these days as opposed to the disingenious or ignorant ones) is that they have a totally static view of the world.
    Compare New Zealand and Singapore’s/India’s relative and absolute positions 10/20/30/40/50 years ago or indeed 10/20/30/40/50 years in the future not just at a fixed 2008 level

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  81. SPC (5,619 comments) says:

    battler

    If people could afford to buy a house and support a family on one income you might be right.

    Another factor is the delay in young people marrying (see above as a reason in the delay in marrying AND having children).

    An economic factor is involved. In some others it may be a choice to keep up with two income family materially, but here it’s often necessity.

    Income splitting only helps the upper middle class and its proposition comes from this source. Tax cuts in general do not address the relative decline in wages to such necessities as food, power and housing costs. Cuts in public services, of course, impact on the families, their greatest users.

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  82. PaulL (5,986 comments) says:

    kiwitoffee: Firstly dealing with the easy bits.

    I’m only really interested in real growth per head – growth that just keeps pace with inflation and/or increasing population isn’t growth at all, it’s standing still.

    The rich are getting richer and the poor poorer hasn’t really been true for some time. The rich are getting richer in absolute terms and the poor are getting relatively poorer is sometimes true. The point is that in absolute real terms, the poor are still getting richer, it is just that the divide between them and the rich is increasing (depending on whether you measure percentage terms or absolute terms). Much of this measurement is pointless – inflation means that the absolute difference in income between rich and poor will always increase. $20K v’s $60K in 1990 dollars is about $25K v’s $84K in 2008 dollars – the gap has grown but nothing has really changed. If the poor person is now getting $27K and the rich $100K, then the gap has grown, but the poor didn’t get poorer.

    Much of the increase in gap between rich and poor is the impact of superstars. Sports people, actors, corporate CEOs, money market traders, there are pretty much unlimited rewards for these people because it is worth so much more to be “the best” rather than “one of the best”. Why does the 30th ranked golfer in the world earn so much less than the top ranked golfer? As our world becomes more digital the mass media becomes cheaper to replicate, so if everyone in the world wants to listen to the latest music it costs no more than if 5 people want to watch it – the returns are exponential to scale. Conversely, the digital world also introduces the long tail – we don’t need mass media any more. Mass media is lowest common denominator stuff – sex, violence, comedy are the things that everyone is interested in (even if they say they aren’t), so we dumb down our broadcasting so everyone will watch and maximise our limited transmission bandwidth. The internet changes all this, and means that it is no longer necessary to be “the best”, there are plenty of people who will watch “interesting.” This will drag down the incomes of many of the super rich – being very good will more and more often be enough.

    There is another furphy in the statement that the gap between rich and poor is growing. The statement is actually correctly stated as “today’s poorest 20% are poorer than the poorest 20% 15 years ago”, or whatever. The difference being that if the same people are poor, we should be concerned. But my cousin who was at university 15 years ago and therefore poor, but today is a doctor, well, he isn’t poorer. Mobility between the groups is very important – it is a natural part of life that you are poor when you are young and get wealthier as you get older. In fact, I would go so far as to say that it is important that this be so. To the extent that our poor people are in a “life stage” that correlates with being poor, then I’m not concerned. To the extent that our poor stay poor all their lives, we need to be concerned. I haven’t seen the numbers, but I believe this is much lower than people would suggest.

    Anyway, onto the meat of the argument. I fully intend to live to 90. I’m quite fine if you decide that you might not do so, but I sure as hell want to take advantage of every opportunity to stay alive so long as my brain isn’t fried. I also wouldn’t want to deny that to anybody else. I don’t see limiting improvements in life expectancy as a good argument at all, maybe my lack of belief in an afterlife impacts on that. And on education, also very unconvinced. It goes against the nature of human progress to decide that we don’t want to be more educated than the last generation. I strongly believe that we are creating new technology faster than we can work out how to use it. The best innovation is taking something that someone else already invented, and applying it to a problem in an area that didn’t know about that solution already. There is a literally limitless series of opportunities to do this, it improves everybody’s wellbeing identifying these opportunities. The greater proportion of our population is educated, the greater the ability to do this.

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  83. SPC (5,619 comments) says:

    kiwitoffee

    The more important point is that growth should be sustainable and essentially that is what productivity is all about. New technology can be the driver of productivity led growth. It is a shame that we under invest in science research and more that we provide insufficient venture capital to help start up, provide development support and retain ownership of new companies.

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  84. Kimble (4,440 comments) says:

    “I get the twitches when people start quoting economics professors!”

    That just means you dont know much about economics.

    “We seem to be merely subsituting one set of problems for another.”

    That is the sort of thing that is usually said AFTER the fact, and the assumption always seems to be that these new problems are worse than the old ones. But the reality is they are not, I cant think of much from the 1930’s that I would swap the modern equivalent for.

    “‘the rich are getting richer and the poor poorer’”

    And who do we hear this from? Is it true? Does it really matter if the rich are getting richer and the poor are only getting poorer in relation to that? That is how poverty is defined by many commenters here. If the rich get richer but the poor get richer slower then poverty is increasing.

    Relative poverty is a counterproductive concept.

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  85. PaulL (5,986 comments) says:

    PS: This is one of the most interesting Kiwiblog threads I’ve participated in for a while. No hard core left/right or good/bad arguments, no name calling, no side tracking. Very pleasant – reminds me what things can be like!! Thanks SPC, kiwitoffee, battler, Kimble, PhilBest, bogusnews.

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  86. SPC (5,619 comments) says:

    Bogusnews

    “National did a hell of a lot better than this lot the last time around. IF they hadn’t blown the 22Bil extra a year on the state service, they could have abolished income tax altogether rather than constantly put it up. How much would that help poor people? ISn’t that what you socialists (claim) you care about?”

    Socialist? I have voted Labour and Green but generally socialists are into state owned farms etc (ownership of the means of production) whereas social democrats are really only into state delivery of “public” services and perhaps ownership of natural monopolies (especially services).

    As to helping the poor, generally there best hope is in higher incomes (and receipt of free public services) rather than tax cuts (they pay little tax), it is usually those who have already realised a high income who focuses on the tax cut (or tax avoidance via trusts etc).

    There are two distinct factors to consider in the relationship between Australia and New Zealand.

    One is productivity and one is wages.

    The following column speaks to one of these.

    If we’re to take lessons from Australia, we should go the whole hog and look at how we can make New Zealand’s business-friendly environment as worker-friendly as Australia’s seems to be.

    As Laila Harre, who leads the National Distribution Union, has noted, New Zealand workers would be better off today if our unions had been more like their Australian counterparts.

    In the face of John Howard’s reforms, the Australian Council of Trade Unions embarked on an “aggressive political, industrial and community campaign” which made industrial relations a major political issue and gave unions a high and positive profile.

    By comparison, New Zealand unions dropped the ball after the introduction of the Employment Contracts Act in 1991, “the bosses’ charter” which abolished the award system in favour of direct wage and conditions bargaining between employers and individual workers.

    Faced with an assault on “its most fundamental job” of collective bargaining, the Council of Trade Unions made a “monumental blunder” in not organising industrially and politically against the new act. Instead of uniting, “opportunistic” unions competed with each other for members.

    The result has been a “toxic mixture” of low wages, long and insecure working hours, and under-investment in education and skills, which is economically and socially unsustainable.

    Since 1991, union membership has fallen from 50 per cent overall to the current 22 per cent. In just three years, from 1991 to 1994, youth wages in supermarkets fell 40 per cent and adult wages 11 per cent. While real wages here fell 6.5 per cent between 1980 to 2001, Australia’s increased by 28 per cent.

    Meanwhile, a Reserve Bank study shows corporate profits increasing by 11 per cent from 2000-2004 and the average CEO in 2006 earning 19 times the average wage, compared with about eight times in 2000.

    A 2007 paper by the Child Poverty Action Group argues that our income tax structure needs urgent reform to make it more progressive and less inequitable and confusing, and that while the greatest pressure for tax reform (in the form of tax cuts) is coming from middle- and high-income earners, it’s low-income earners who have the greatest need of additional income.

    Its authors, Auckland University economists Dr Susan St John and Dr Steve Poletti and health researcher Donna Wynd, blame our regressive tax regime for “a good part of New Zealand’s rapid growth in inequality”.
    OECD figures show New Zealand with the greatest growth in inequality in disposable incomes of 15 OECD countries between the mid-1980s and 2000, while Australia had the lowest.

    And the poverty action report concluded that we ought to be lifting the bottom tax threshold of $9500 to around $20,000 at least. We ought to be taxing housing investment which advantages individuals at the cost of the country. We shouldn’t be giving tax breaks on KiwiSaver, which benefits the better off, and is unlikely to increase the nation’s overall rate of growth or savings.

    Because, as they say, “there is really no such thing as a free tax break, one group inevitably pays to support another’s reduced tax burden”.

    http://www.nzherald.co.nz/category/story.cfm?c_id=144&objectid=10496147

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  87. battler (116 comments) says:

    SPC,

    “If people could afford to buy a house and support a family on one income you might be right. ”

    In regard to whether people could afford to buy a house or not – if a family operating as one household economic unit was renting and splits in two, they now have the cost of two house rentals instead of one. Further,the increased number of dwellings required as a result of household units splitting contributes to upward pressure on housing demand and therefore prices.

    Secondly, my example stated both parents working. A lot of two parent families are able to structure their work and home lives so that both parents work and at all times one or other is available for the children.

    “Another factor is the delay in young people marrying (see above as a reason in the delay in marrying AND having children). ”

    This is also causing economic problems, as we have a delay in productive workers coming on stream to pay the costs of NZ Super etc, and so you have a lower ratio of workers per government beneficiary.

    “An economic factor is involved. In some others it may be a choice to keep up with two income family materially, but here it’s often necessity.”

    I think the delay in people marrying & having children is more related to the socialistic separation of sexual intimacy from the openness to procreation. With abortion on demand, girls can have sex and not worry if the guy will support her because she can just abort the baby. The guys know that they won’t be made to support the girl so they just go out and have as much sex as they can without the commitment.

    “Income splitting only helps the upper middle class and its proposition comes from this source. Tax cuts in general do not address the relative decline in wages to such necessities as food, power and housing costs. Cuts in public services, of course, impact on the families, their greatest users.”

    “Cuts” to public “services” do not have their greatest impact on “families”, they have their greatest impact on broken families, and the increase in the number of broken families is what gives the socialists the excuse to call for increased taxes to “fund” “essential” public “services” in the first place.

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  88. SPC (5,619 comments) says:

    Kimble

    I am reminded of a debate between an economics Professor and a student in a 101 class. The young socialist was asking why there was no study of comparitive economic systems, or at least the study of economic alternatives to the market economy in the first year class.

    The “scientific” answer was that the market applied in all systems, but some had different deciding mechanisms (political control), the “idealistic” answer was that once one had learnt the market order arrangement one was an expert in what one would later apologise for (much like a graduate of a seminary). Of course in the end all politicians of whatever party bring their own deciding mechanisms into the equation because of the interest groups they represent – and economists are sometimes useful when cited in support of a political decision, but also sometimes inconvenient.

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  89. kiwitoffee (383 comments) says:

    Thanks for the many points in response made by people here. I’d like to try to reply to them all but I have to go and put dinner on before my daughter reduces the population by one. So, I’ll just say something about PaulL’s point about education.

    I agree that there is a (limited) place for economic growth but I doubt that growth alone is going to help us. This is where education comes in. What are we educating our young people (and old ones) for? I wonder if we are becoming a nation and a world of simply producers and consumers. Our identity is increasingly wrapped up in these simple terms and nothing else.

    I get the impression that many of us – myself included at times – are engaged in a feeding frenzy. Try going to the shops the week before Christmas or Foodtown in Mt Eden before a rugby match at Eden Park. We feel we have to earn more money each year so that we can consume more. The economic argument is always used to trump any other argument (e.g environmental or social ones).

    In our schools and universities the emphasis seems to be less on thinking and caring about ourselves and others, and more on getting a job which pays well. What, I wonder, is the point of a marketing degree? Or an advertising industry? Other than to persuade us that we need more and if we produce or consume more we’ll be in some sense better. I have my doubts.

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  90. battler (116 comments) says:

    SPC

    “Socialist? I have voted Labour and Green but generally socialists are into state owned farms etc (ownership of the means of production) whereas social democrats are really only into state delivery of “public” services and perhaps ownership of natural monopolies (especially services). ”

    Labour and the Greens are into state owned farms – Landcorp.

    Labour is also into state owned railway tracks, banks, airlines, insurance companies, television networks, radio stations, energy companies and more.

    “As to helping the poor, generally there best hope is in higher incomes (and receipt of free public services) rather than tax cuts (they pay little tax), it is usually those who have already realised a high income who focuses on the tax cut (or tax avoidance via trusts etc). ”

    The “poor” as you put it, are simply people who have expenses equal to or greater than incomes. The increase in the number of “poor” people in NZ has come about because the Government has continued to subsidize family breakdown, splitting up households which doubles household costs and halves household incomes.

    “There are two distinct factors to consider in the relationship between Australia and New Zealand.

    One is productivity and one is wages.

    The following column speaks to one of these.

    “A 2007 paper by the Child Poverty Action Group argues that our income tax structure needs urgent reform to make it more progressive and less inequitable and confusing, ”

    The Socialist propoganda action group shot themselves in the foot with their argument. “Progressive” and “Less inequitable and confusing” is an oxymoron.

    “and that while the greatest pressure for tax reform (in the form of tax cuts) is coming from middle- and high-income earners, it’s low-income earners who have the greatest need of additional income.”

    Taxing one person to pay another doesn’t provide any additional income. It’s merely a transfer of wealth from productive to non productive people.

    “Its authors, Auckland University economists Dr Susan St John and Dr Steve Poletti and health researcher Donna Wynd, blame our regressive tax regime for “a good part of New Zealand’s rapid growth in inequality”.

    The socialists are at it again. Our tax regieme is the reason that hard work and increasing of incomes is discouraged. Some people’s marginal tax rates are so high there is no point in working any harder. It’s the progressive nature of our tax system that is the very problem!

    “And the poverty action report concluded that we ought to be lifting the bottom tax threshold of $9500 to around $20,000 at least. We ought to be taxing housing investment which advantages individuals at the cost of the country.”

    That is an absolute myth. It’s investment in the housing stock that has kept it from going further back than it already has. Taxing it would be the worst mistake they could make. It would decrease investment, and the tax would just be passed on to renters in the form of higher rents and first home buyers in the form of higher prices.

    It’s the left wings “smart growth” “lock up the urban limits” policy combined with the Reserve Bank printing money to pay for Labour’s spending binge that has pushed up prices.

    ” We shouldn’t be giving tax breaks on KiwiSaver, which benefits the better off, and is unlikely to increase the nation’s overall rate of growth or savings.”

    Kiwisaver shouldn’t even exist. It’s corporate socialism for the fund managers.

    “Because, as they say, “there is really no such thing as a free tax break, one group inevitably pays to support another’s reduced tax burden”.”

    There really is no such thing as “Government income assistance” it is inevitably one person’s wages being taken from them and given to someone else.

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  91. SPC (5,619 comments) says:

    Emmess

    “The prescription is well known less tax, less government spending and less government control”

    One can only cut taxes and government spending for so long, then where does growth come? The course is not sustainable.

    “But its pointless argueing this with a left wing activist like you who refuses to face the facts”

    I can admit that one can only increase taxes and consequent government spending for so long until there are negative economic concequences (the infamous Laffer curve), but I suspect you are more blinded to economic reality that many on the left.

    >>Yes communist countries joining the EU will quickly grow

    “BTW it’s former (and largely anti) commuinist, and they were growing just as fast before entering the EU, …”

    Countries grow when the stop being communist, they also grow more when they also join a free trade zone which provides development assistance.

    >>Nations close to large markets and whose product range is not facing trade barriers will do well too.

    “Okaaaaay so what about the free trade deal we are about to sign with China”

    It looks like its going to include agriculture the way the Australian one with the USA did. But generally we should be pushing free trade with ASEAN and within APEC (there was full free trade promised by 2020 back in the 1990’s – we should remind them all), meantime Korea should be next (Chile, Singapore, Korea and us – we could suggest an Enzed, Australia, NAFTA unity within APEC, if the others delay).

    I am not unduly confident of WTO progress – but eventaully they are going to be dragged kicking and screaming to the table when there are world shortages and they give out all that higher and higher priced grain to give to their livestock. We can always remind the EU that China likes long term supply contracts for scarce resources and we may one day be committed elsewhere if the WTO lags because of them.

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  92. PaulL (5,986 comments) says:

    SPC: the cuts don’t create the growth in income on their own – that is to say, the intent isn’t purely to return to the citizen some money that the govt had otherwise taken from them. The intent is to increase the incentive to work smarter and be more productive, and to reduce the dead weight cost associated with taxation. As such, lower tax isn’t a one off improvement, it gives higher growth every year until you raise the taxes again.

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  93. SPC (5,619 comments) says:

    PaulL

    Then explain the US economy after Reagan, the Bush 1 economy.

    After Bush 2, the Bush 2 economy of today.

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  94. Bogusnews (474 comments) says:

    SPC

    The issue with socialists is they can’t understand intelligent spending on the state service. They think more is better, regardless.

    Now take health, we are spending an extra 6.5 Bil a year on health, yet, when the waiting list numbers were finally extracted from Annette king prior to the last election, we learned they had DOUBLED! Only a socialist government could nearly double health expenditure with such a poor result. We now have 12,000 managers and admins in health, one for every hospital bed. It costs up to 5 x more to stay one night in a public hospital than private etc.

    Socialist parties like Labour cannot understand that Bureaucracy when given free run, relentlessly expands.

    In my mind, the answer is obvious. Cut the massive expenditure in the state service, and then tax cuts can easily be afforded. I mean in health alone, why do we need more than – say – 1500 managers and bureaucrats?

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  95. Pascal (1,969 comments) says:

    Bogusnews: In my mind, the answer is obvious. Cut the massive expenditure in the state service, and then tax cuts can easily be afforded. I mean in health alone, why do we need more than – say – 1500 managers and bureaucrats?

    By creating State employment – even if not necessary – the unemployment figures look better.

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  96. RossK (275 comments) says:

    Kiwitoffee is bang on with the words “Feeding Frenzy”. The whole purpose of the economy is to allow people the abillity to pursue happiness – what happens when the system becomes so toxic that, a lot like a junkie, we become so focused on getting our next money fix and feeling temporarily good that we fail to realise we would be better to kick the habit (or at least practice moderation). What if the economic system is making people unhappy. A left field example is the destruction of rural communities (which largely revolved around their small local schools) – with the economically justified closure of small schools, communities disintegrated. Hall’s fell into disuse. Community events disappeared, and many people became a little more isolated from the neighbours in the district. I am sure that many examples of unmeasured undesirable consequences resulting from the application of sound economics could be found. Recently I have been in France where, even in the larger cities, the retail market is to a much greater degree serviced by small business suppliers rather than chain stores, and I must say that it is a much more appealing set up. Now of course France pays a price for that in some dire economic stats but te diferent approach throws into stark relief the unmeasured consequences of NZ’s very American style consumerism. I don’t think the growth for its own sake should be our holy grail of economic policy – growth is not necessarily devoid of negative connotations and it should not be invoked as though its desirability were a matter of absolute certainty . Consider the Warehouse as an example – the low cost purveyor of mostly crappy products. To me it seems to be a pretty tough question whether something like the Warehouse was good for NZ or bad – notwithstanding that it may have been a hugely profitable business (and how much of that came at the cost of failure of small privately owned retail stores selling crappy products)?

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  97. battler (116 comments) says:

    RossK,

    This is why we need less tax and less regulation – not more.

    Small retail owners and private school operators etc have to put up with so much regulation and red tape it makes a lot of endeavours hardly viable.

    With a larger economy there is more room for niche stores / products / services / schools / social clubs & events etc.

    Economic growth is not what has cut out small retailers and rural schools – Government regulation, red tape and taxes have.

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  98. kiwitoffee (383 comments) says:

    RossK.

    I’d agree with almost everything you say, with one important exception: the economy exists to provide us with goods and service, yes, but if we think this means happiness then we are truly daft.

    Once we have our basic needs met (courtesy of the economy), then we can start looking for happiness which comes from something other than goods and services.

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  99. tom hunter (4,863 comments) says:

    RossK commented:
    what happens when the system becomes so toxic that, a lot like a junkie, we become so focused on getting our next money fix and feeling temporarily good that we fail to realise we would be better to kick the habit (or at least practice moderation)

    You might consider an often-noted characteristic of NZ business people: once they get a starter company or concept to a decent size they sell the idea or even the whole shebang to some overseas outfit, take the money and plonk themselves down in some beach-side pool to enjoy the rest of their lives in hedonistic joy. Combine that with the fact that numerous “right-wing” commentators here (VTO, GD, me and others) have said repeatedly that we have very much scaled back our earnings, not just in reaction to feeling that we’ve long passed the “from each according to his ability” threshold, but also because we’re comfortable with what we’ve got. A decade ago I stepped off the American partnership track and returned to NZ because I just did not think it was worth it.

    But I was there long enough to have made a pile I could never have amassed in this country – and the result is that I have been able to effectively retire since returning. I often wonder how many other people have followed a similar route? It might explain some of the descrepancy between the millions spent on coastal property and the actual income generation capabilities here in NZ. The bottom line however is that people like me are not “focused on our next money fix”.

    All of that speaks to a cultural attitude that is very unlike your portrayal above. It’s really one of the key reasons for our steadily slowing economic growth rates – because what lies behind this steady decline is the leading indicator of poor (and reducing) productivity over the last several years. Anybody who has followed that would have known that it was going to hit economic growth before the decade was out.

    Productivity is a somewhat general catch-all title for what is a very complex and poorly understood aspect of economics. But it boils down to a lack of sufficient individual incentives to generate more income or build more wealth – why bother if it just means pushing further into the stratosphere of rich prick status on the income side or not getting R&D writeoffs or finding that an overnight decision by some history lecturer has just screwed a chunk of your retirement investment for political gain. The response is going to be “why bother”. Worse – people will simply turn into the most dreaded economic persona – the renter. They move, in increasing numbers, into the great government cash cow as employees or members of some firm or other that feeds off the government teat. Life’s easier – if more boring but actually better paid than many private-sector jobs nowadays.

    The problem you face, as a left-winger, is that you need your vision to be true if you’re ever going to get all the tax revenues you need for your various social engineering programmes. You actually need a chunk of society to be as money-obsessed, driven and greedy as you imagine – and in NZ business people and capitalists in general, you don’t have that. Which is why that fabulous “re-building infrastructural capacity” growth of 9.8% and 33% core is not going to last much longer.

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  100. RossK (275 comments) says:

    Tom, I like your post bt I don’t agree with all of it.

    I am not a “left winger”. I don’t know what in my post causes you to think that I am. Quite the contrary, as a relatively young professional who has had to pay far more for my education than my predecessors, and face far more expensive housing, increasing social welfare is no longer to my advantage – during the period when it would have suited me it was heavily reduced and from a personal perspective increased social spending will only hurt me for the next 30 years. But I am confident that increased social spending (and the concomitant higher taxes) is exactly what I will see for the next wee while as boomers start to suffer the increased incidence of medical ailments and worry about their super as they realise that a lot of the young people can’t afford to buy boomer houses at their current “value”.

    You write about people who have scaled back their earnings because they are happy with what they’ve got. Those people may just be good for society because it seems that our race for wealth has stretched out the field so much that the people at the back may be at the point where they decide to stop running.

    New research from the Centre for Housing Research says:
    “The report found someone born in 1956 had a 75% chance of owning their own home at the time they turned 35. In contrast a 35-year-old in 2006 had only a 58% chance of owning their own home.”

    http://www.stuff.co.nz/4431800a19716.html

    Now I have to ask you – how low does the level have to drop before a 20 year old is wasting their time scrimping and saving trying to get on that ladder.

    Also in any discussion of the effect of incentives on productivity the substitution effect has to be addressed. If you drop taxes so that people can make the same amount of money with less work then how do you know that those people wont offset the people who work harder because of the “greater reward” for their efforts.

    I don’t understand what you are saying when you write:
    “Worse – people will simply turn into the most dreaded economic persona – the renter.”

    Typically it was the rentier class that was most widely considered despicable not the serfs!

    Perhaps it is the obsession with personal wealth values that has lead to our low growth in productivity – maybe national GDP is a bit like the village commons – best developed by cooperative behaviour and not left to the aggregate effect of individual preferences.

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  101. RossK (275 comments) says:

    Oh, and the R & D write off arguments – I have never understood what classical economics rationale could be given for this. The money spent on R & D should net rewards at the end shouldn’t it? And it if wont then doesn’t that mean that business wants uneconomic (or irrational) behaviour subsidised? Or is this an admission that the market doesn’t work well enough to leave the development of new technology and innovation to its operation (as opposed to mass roll out – which the market will generally do very well).

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  102. tom hunter (4,863 comments) says:

    RossK
    Now I have to ask you – how low does the level have to drop before a 20 year old is wasting their time scrimping and saving trying to get on that ladder

    I think it has probably already been reached and my recommendation to 20-somethings is to stop wasting their time here in NZ, go overseas, and pile up the money there. That way they will be able to return to NZ, buy a house and contribute to the economy in a manner of their choosing, rather than having to live hand to mouth.

    Also in any discussion of the effect of incentives on productivity the substitution effect has to be addressed. If you drop taxes so that people can make the same amount of money with less work then how do you know that those people wont offset the people who work harder because of the “greater reward” for their efforts

    Substitution is a possibility and as I said productivity is a complex beast that probably requires a lot of different approaches taken together. Tax cuts alone won’t do it. My point is that when I look at NZ I see virtually everything pushing against productivity improvements:
    – a lack of venture capital due to a warped capital gains tax regime and potentially small market returns because of the size of the country and the challenge of reaching out overseas, even in this Webified and globalised age.

    – a sharemarket that people don’t trust, both because of the insider knowledge nature of a small country and the ever-present threat of a Peters or Cullen or Muldoon arising to appeal to populist stupidity with arbitary rule changes that fuck over any built up wealth.

    – an overall tax regime that is driven not by actual needs but by a simple belief that ever increasing government spending is good and that to pay for it there is always plenty more money available from taxpayers.

    – the corresponding attitude of taxpayers that gaming the system will be their focus, with all the dead weight of accounting and lawyer work to enable that. Take a look at Gareth Morgan’s stats on the huge increase in the number of people reporting $60,000 per year as their annual income!

    – an overall societal attitude that people who get rich are scumbags who did it at the expense of the poor, so why encourage them further.

    – combined with that (and stemming from it somehwat) – a government generating ever more regulations and red tape – all for the common good of course.

    – the societal attitude that ‘gummint should do something about it’ – whatever ‘it’ may be.

    – the other societal attitude I wrote about earlier – which may have always existed in NZ culture but is now reinforced by all of the above.

    I don’t think that a New Zealand that combines significant populations of actual retirees with ever increasing medical and care costs, people who’ve returned with their foreign piles of cash to enter psuedo-retirement and live outside the income tax world, and young people desparate to make their way in the world, is going to be a successful, happy society.

    As far as the rentier class is concerned I probably can’t help you further with understanding, but I will try to make my point more conciise. Even serfs do produce stuff – whereas the rentiers just dip into whatever government gravy train is running in society. A classic example would be Saudi Arabia or Brunei – people who could be furthering themselves in their careers or starting companies are simply content to take their share of the massive oil revenues: it’s money for no risk and no effort. I think I can safely say that economists hold rentiers in lower esteem than ‘serfs’ because they effectively contribute nothing to an economy. That is just one of the concerns I have about where NZ is heading as left-wing governments come up with ever more ideas for regulating society, requiring ever more bureaucrats and external ‘private sector’ consultants.

    With R&D, classical economics indeed does not handle it well. I suggest you read Schumpter as a start for more recent economic ideas. Perhaps your arguments are the reason that Labour dropped the whole idea after the ‘99 election and went for cash grants instead, overseen by bureaucrats and an approval process. Not a great success except for those companies with the spare administrative capacity to work the system.
    R&D is an investment that a company makes – just like new plant, machinery and hiring new people. As such it is no more irrational than those when it fails to produce the expected (or hoped for) results. The difference however is that R&D develops new ideas that can (with the aid of the market) spread rapidly across society and benefit it to a far greater degree than the just the profit of the inventor. That’s why it should be treated differently than other aspects of business expenditure, in the same way that depreciation rates for computers are greater than for buildings. The fact that the sharemarket in NZ has not traditionally rewarded R&D – and that NZ business has often simply looked at such tax treatments as an excuse to scam the system – says more about us than it does about the theory. NASDAQ certainly seems to encourage such activity, as has Silicon Valley – but it would be fair to say that few, if any, other economies have managed to replicate that success. That does not mean that we should not try it.

    Perhaps it is the obsession with personal wealth values that has lead to our low growth in productivity – maybe national GDP is a bit like the village commons – best developed by cooperative behaviour and not left to the aggregate effect of individual preferences.

    Now it’s my turn to not understand what you are saying. I think you are suggesting that perhaps our concerns with personal wealth have led us to not undertake the cooperation required to boost productivity? But markets actually do foster cooperative behaviour, and it is derived from the aggregate effect of individual preferences. This has long been inferred by economics and in very recent times the study of social biology has lent great weight to the idea that ‘selfish’ genes do actually lead to cooperative behaviours.

    Are you sure you are not a left-winger, as the themes you have put forward all seem to be very much the standard approach of such.

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  103. tom hunter (4,863 comments) says:

    I should add that, to many “social democrats”, all that individual incentive stuff is just a big wank anyhow. What really matters are the vast, impersonal forces in our economy rolling forward in the manner of a glacier. A few tweaks here and there – a little bit of WFF, a slice off the company tax rate, an adjustment in depreciation rates – all of it aimed at large collective groups by the planning geniuses of socialism, and productivity increases and hence economic growth will be delivered.

    No wonder giants like Fletcher Challenge flourished in the early glow of the first Labour government. For all the bile that socialists unload about “big business” the fact was that they could be (and were) turned into bonsai versions of the rest of New Zealand – complete with their own internal bureacracies enforcing the same gray, stratified, graduated, hide-bound, rulebook approach. It’s still going on too – most of the policy work in the areas of the RMA, employment relations, paid maternity leave and so on – are aimed at the Fletcher’s of NZ. They can hire a firm of lawyers and another of accountants and another of HR consultants to deal with the paperwork anjd the rules and the people who enforce them. The attitude is that if the little firms can’t meet these progressive requirements then they can go to the wall. Entrepreneurs – pah!

    Just look at this collection of comments (all of them from SPC in an older thread on tax):
    ”…….government policy is about aggregates – it wants the whole economy working more productively”.
    ”It is not the job of government to run lower tax rates than other countries to compensate lower paid workers here – but to assist in enabling better remuneration of workers.”
    Income tax cuts would promote import of cars, wide screen TV’ made overseas.
    It’s just not the only thing there is in designing a national economic programme
    The relevant issue is creating wealth – and tax on incomes is not really part of that debate.

    Socialists just don’t get it. These are precisely the attitudes that lead people to stop making real efforts to improve their situation. If their circumstances are ‘planned’ then they’ll go as far as the plan and no further. Even when the “aggregate” results are staring them in the face they’ll simply ask themselves what further tweak to the system is needed to channel those vast forces in the right directions. Somewhere along the line individuals will get taken care of by whatever collective they belong to.

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  104. tom hunter (4,863 comments) says:

    Oh – and just one more thought on the substitution effect of lowered taxes: it never seems to be considered in the opposite direction by those advocating tax increases. Think of it this way:

    If you increase taxes so that people can only make the same amount of money with more work then how do you know that those people won’t be offset by the people who work the same or less because of the “lower reward” for any increased effort

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  105. tom hunter (4,863 comments) says:

    RossK
    I’ve got a full day in front of me so will leave this as my last comment

    A left field example is the destruction of rural communities (which largely revolved around their small local schools) – with the economically justified closure of small schools, communities disintegrated. Hall’s fell into disuse. Community events disappeared, and many people became a little more isolated from the neighbours in the district.

    How about this as a rural ‘left field example’ – the ever increasing costs of farming, grinding away at a steady 3-4% per year while incomes swoop up and down, combined with more new regulations on all manner of things, mean that farms are steadily aggregating into larger units. Only ever larger units can cope with increasing regulatory demands and ever larger fixed costs. This reduces the number of people living in a district, negatively impacting all those community events, causing more isolation, and eventually causing the local school to close because there are not enough kids attending.

    Now I don’t expect any government to try and directly improve the export returns, but it would be nice if they actually acknowledged the role they have in driving up all those costs and sucking ever greater amounts of farmers personal and work time to attend to the paperwork. But let’s face it, large farms, like large businesses, suit the social democrat. They have the ability to meet those ever-increasing demands that smaller farmers don’t. Just as one recent example – the ever progressive National Radio followed up the Green’s demand for agriculture to be included in the latest Climate Change plan and even found one dairy farmer making the same demands. He just happens to own 4000 cows: what’s the bet that full compliance with Kyoto will result in him owning 8000 cows in fairly short order, courtesy of his ground-down neighbouring farmers.

    Big business and big government – I really wish ‘social democrats’ would stop pretending how much they hate the former.

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