Also a great comment by Alex Tarrant on Twitter:
BREAKING: Fuji Xerox approaches Green Party in early bid for printer procurement contract…
Heh. Also Victoria tweeted:
Brb, just getting a wheelbarrow to carry my notes to buy a loaf of bread!
Russel Norman is completely misrepresenting QE by saying that the recent crisis is “evidence it isn’t inflationary”. QE was put in place to fight the fact that policy was too tight overseas, and they were trying to fight deflation – in essence the fact that inflation stayed near the “target band” in these countries is evidence that QE is indeed inflationary as you would expect … just in the way they were intending.
Exactly. QE can be considered if you face deflation, and your official cash rate is as low as it can go. We are within our target band at 1% (which is what I think we should be aiming for) and the cash rate is 2.5%.
Remember how often Greens and Labour complain about increased costs such as electricity and food? Well this is a policy to increase their costs even more for families finding it hards to make ends meet.
Now you may believe we should fund the rebuild with a one-off tax – that’s fine, in that case get the government to put a tax in place directly (or to directly cut spending from other place). However, taxation by stealth of this sort is likely to be worse in multiple ways:
- We have betrayed RBNZ independence for virtually no reason … understandably a sneak tax by the RBNZ would make people less likely to believe them in the future about holding to their inflation mandate. As a result, we run into the time-consistency issue in monetary policy again, and it will become more painful for economy when the RBNZ tries to commit to its inflation mandate again.
- We have a relatively rough redistribution of resources due to this. By putting in our sneak tax through QE, we transfer resources to those with assets, those doing the rebuild, and those who can easily adjust prices/wages – while hurting those on fixed income, and those who have saved. It is an inflation tax – pure and simple – and as a result, it will initially transfer resources from those who can’t protect themselves (generally the poor) to those who can (generally the rich). If we introduce the tax through fiscal policy instead we can sort out these distributional issues a little better.
- A country that is willing to introduce QE as a clear fiscal transfer – when there is no monetary policy reason – will destroy its credibility with international lenders. People will scoff at this, but such a policy will increase the level of “inflation insurance” lenders ask for – increasing the cost of credit in New Zealand.
That is a very good way to put it – the Greens have proposed an inflation tax – one that will hit fixed income households the hardest!
The Greens, and Ganesh Nana, are wrong in stating that the RBNZ has failed. Distinctly and totally wrong. Things like this:
”No system of monetary policy is perfect and New Zealand cannot remain the last devotee to a failed monetary theory while the rest of the world moves on,” Norman said.
Paint a complete and utter misrepresentation about the lessons from the Global Financial Crisis. Our flexible inflation targeting framework saved us from a massive crisis at home – while the rest of the world fell apart.
- We don’t need QE in NZ, as we have enough monetary stimulus (and if not we can cut interest rates further).
- What is being suggested isn’t even QE – its the monetization of government debt, effectively a inflation tax to pay for the rebuild in Canterbury.
- It is unlikely that such a tax is the “best” way of raising the revenue to rebuild Christchurch – which should be the primary question.
Say no to the Green’s inflation tax.
Oh you must watch the video also, H/T Whale.
John Clarke as hilarious as always. He is also factually correct in this case.