Brash on monetary policy

December 17th, 2012 at 1:00 pm by David Farrar

writes in the Herald:

Your columnist often writes articles with which I agree, but he has a real blind spot about . Not long ago he was advocating printing money to reduce the foreign exchange value of the New Zealand dollar and avoid the need for so much government borrowing, apparently oblivious to the inflationary effects of such a policy. Yes, other central banks are printing money and buying government bonds, but they are all faced with potential deflation and have already reduced interest rates close to zero.

We are not in that situation by a very long way.

Printing money means we pay more for petrol, food, clothing etc.

Last Sunday he criticised what he described as our “obsession with strict inflation targeting” and “the theory that low inflation cures all ills”. But we’ve never had a “strict inflation targeting regime” and successive Reserve Bank governors have been willing to ignore the price effects of one-off factors like oil shocks and changes in GST, thereby allowing inflation to rise above the announced inflation target.

And the regime is set 1% higher than it used to be. It was 0% to 2%, and now is 1% to 3%. And as Don has said, it hasn’t rigorously been kept at 1% over the years.

inflation

If anything, we have had too much inflation. Those who say the answer is more inflation should be disregarded. How much more? Do we want 5%? 10%? 15%?

Low inflation does not cure all ills. But higher inflation helps nobody (except property speculators). It doesn’t even stimulate employment as we used to believe, except briefly by temporarily cutting real wages.

And while printing money or drastically easing monetary policy might get the exchange rate down, we know from bitter experience that this provides only temporary relief for exporters as higher inflation quickly offsets the benefits of a lower exchange rate.

For decades we could compete on international markets with the New Zealand dollar at US$1.12. Now we can’t because too often we listened to those who argued for just a bit more inflation.

The answer is not more inflation. The answer is greater productivity. You can’t print money to make a country richer.

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17 Responses to “Brash on monetary policy”

  1. bhudson (4,740 comments) says:

    Yes. We need more op eds rebutting the ridiculous print (or borrow) and spend policies of the Left.

    Of course Russel will have a solution for the inflationary effects. No doubt will be to increase the workers wages to offset inflation. Of course that was also tried in the Weimar Republic…

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  2. Manolo (13,828 comments) says:

    Why does the “establishment” allow Norman to get away with the crap he spouts so often?
    The communist Luddite must be hold to account, although the pinkos and bimbos in the corrupt MSM will never dare.

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  3. alwyn (427 comments) says:

    Russel is to smart to try and explain how problems would be solved bhudson.
    He will just ignore the questions and talk about something else. Meanwhile his accolytes in the Green Party will, if questioned, deny that what he proposed amounted to printing money and say that it was something quite different. As Manolo says the MSM won’t bother to contradict them.

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  4. flipper (4,077 comments) says:

    bhudson and manolo…

    Yep
    The Zimbabwe 100 trillion dollar notes will loom under wussel with one L.

    I have wriutten several times (in strongly acerbic tones :) ) to speaker Smith (himself a phud in animal husbandry) complaining over Norman’s use of “Dr.”
    At best he is nothing more than an esoteric phud. Lordy, his “dissertation” was on Jim Anderton’s “Progressive” Party.
    OK, I will agree:he can use Ph.D when speaking or writing about Jim Anderton’s party, but nothing else!

    Norman is a dangerous fool, yet otherwise “sane” folks admire his parliamentary idiocy.

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  5. Nostalgia-NZ (5,218 comments) says:

    If Banks hadn’t turned on Brash over the ‘legalise’ debate Brash would have been a good contributor to the economic debate from within Parliament.

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  6. Harriet (4,972 comments) says:

    “….Why does the “establishment” allow Norman to get away with the crap he spouts so often?…”

    “The government doesn’t want to control inflation, it wants to harvest it.” – Bill Sneddon 1974

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  7. wreck1080 (3,922 comments) says:

    Its a shame Brash never became PM.

    Too full of common sense I imagine.

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  8. Tom Jackson (2,553 comments) says:

    Who to believe? Paul Krugman, or dapper Don?

    Only one of these people has been publicly unmasked as a liar.

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  9. bhudson (4,740 comments) says:

    It was Krugman-like govt economic stimulusspending that gave us the current Greek economy. Only one of them has been publicly unmasked as economically wrong.

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  10. RRM (9,932 comments) says:

    Wreck1080
    Its a shame Brash never became PM.

    Too full of common sense I imagine.

    +1

    This lefty always listens whenever Dr Brash is speaking – especially in his professional capacity. Just FYI ;-)

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  11. Manolo (13,828 comments) says:

    Krugman a liar? No, it cannot be!
    http://www.americanthinker.com/2010/08/paul_krugman_is_a_liar_does_th.html

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  12. gravedodger (1,566 comments) says:

    Wussel Normal’s understanding of economics matches those who believe a girl can be a little bit pregnant.

    A MSM bereft of any semblance of investigative talent and comprehension needs such idiots as Normal, Hadfield and the pin striped dwarf to fulfill their quota of copy.

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  13. Anthony (796 comments) says:

    If that inflation graph doesn’t rebound soon we are headed for deflation or at least inflation under the 1 to 3 band. Why are we so different to rest of the world that we need to keep interest rates higher?

    I wish Don would look at AIL – we are giving away at least $350 million in tax revenue each year by not withholding tax from payments to non-resident investors!

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  14. rg (214 comments) says:

    The voters rejected Don Brash, more fool them. With voters electing people like Winston Peters and Russel Norman over people like Brash, is there any hope for us?

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  15. rg (214 comments) says:

    If voters turned away from Brash over the dope comment and his disagreement with Banks over it, as suggetsed by nostalgia-NZ then they are even more stupid than I thought. John Key had/has no plan, no ball, no principles, no clue.

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  16. mikenmild (11,247 comments) says:

    I note flipper’s comment above about Dr Russel Norman. It’s always a bit amusing to pontificate about ‘real’ doctorates, but did he really complain to the Speaker about it?

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  17. hj (7,031 comments) says:

    bhudson (2,980) Says:
    December 17th, 2012 at 1:11 pm

    …..
    bhudsons solution would be increase the population (more immigration)?

    Methinks the problems countries face today don’t fit existing paradigms.

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