Fallow on inflation

February 3rd, 2014 at 3:00 pm by David Farrar

, NZ Herald Economics Editor, writes:

So we have David Cunliffe in his state of the nation speech on Monday deploring that people are struggling with a rising cost of living while their wages stay still and then talking about “reforming” the Reserve Bank Act to assist exporters.

By reform, they mean to have more – which of course makes the cost of living increase!

It is one of the ironies of our political discourse that the parties of the left are the most casual about inflation when it is the poor and economically powerless who suffer most when inflation gets out of hand and as it is brought under control again. Perhaps they are too young to remember. 

If more inflation is the answer, the question is wrong.

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20 Responses to “Fallow on inflation”

  1. Joanne (177 comments) says:

    Cunliffe needs to get his grubby little arrogant mits OFF the Reserve Bank Act. He and anyone else in the Labour/Greens horror show should be banned from even looking at any legislation that refer to the economy UNTIL they understand tax is paid on taxable profit not revenue.

    If not, Zimbabwe’s economy will be considered a rockstar compared to ours.

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  2. Alan (1,082 comments) says:

    Personally I’m all for some more inflation.

    As someone with a mortgage I welcome inflation, anyone who has taken on debt to purchase an asset should welcome a burst of inflation, it’ll destroy the value of my debt.

    Somewhere between 6% – 10% range would be great.

    It’s a two edged sword, for every winner there is a loser.

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  3. tas (596 comments) says:

    I really do feel like the left don’t remember the 70s and 80s — or at least they haven’t learnt about that period like I have (I was born in 1989).

    I’ve had discussions with young lefties who believe NZ was a utopia in 1984 — full employment, stable developed economy, safety net, low inequality, etc. — and, for absolutely no good reason, Roger Douglas and company came along and ruined it all. Given such a profound lack of understanding, it’s easy to see why they advocate a return to the policies of the time.

    Those who do not learn from history are doomed to repeat it.

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  4. Rightandleft (655 comments) says:

    This more than anything else is what frightens me about the Left coming to power. The level of nostalgia for the 70s is incredible given what a closed, socialist society NZ was at the time. I teach about the reforms of the 1930s under First Labour and those under Fourth Labour in the 80s. Both times they were forced to make changes by the complete failure of the previous economic system. The current system has not failed us. It has delivered increasing prosperity and choice in the market. There’s no reason to call for another radical shift to the left right now. Inequality is stable or decreasing, employment is increasing and inflation is low.

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  5. burt (8,027 comments) says:

    It is one of the ironies of our political discourse that the parties of the left are the most casual about inflation when it is the poor and economically powerless who suffer most when inflation gets out of hand and as it is brought under control again.

    The policies of the left don’t need to work – they just need to sound good enough for the left to get voted in. Look at 1999-2008 – property developers made squillions while the property market went bananas. The punish the rich policies just hurt the middle earners and inflation hurt the low earners… But the muppets had the arrogance to say they were fiscally responsible…..

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  6. Komata (1,142 comments) says:

    But R&L, you’re not supposed to remember such ‘inconvenient truths’; it doesn’t fit the narrative…. You’ll be a candidate for the ‘re-eduction camps’ come the revolution, especially as you are TEACHER’ and are evidently very-much out of step with the rest of the comrades.

    How dare you think ‘free’ thoughts!!

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  7. Matt (224 comments) says:

    There’s no irony in the left wanting lots of poor people – that’s how they get elected.

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  8. unaha-closp (1,140 comments) says:

    As someone with a mortgage I welcome inflation, anyone who has taken on debt to purchase an asset should welcome a burst of inflation, it’ll destroy the value of my debt.

    Somewhere between 6% – 10% range would be great.

    Only if you have a longterm fixed mortgage, otherwise the bank who loaned you the money will be increasing the interest rate until that is 9% – 14%. And even if you are longterm fixed the banks will be charging everyone else the higher rate and reduce demand for housing.

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  9. gravedodger (1,528 comments) says:

    Anyone, and without exception, anyone who thinks NZ was a Utopia in 1984 when the drunken infallible idiot Muldoon finally got his beans, should immediately depart for North Korea or Zimbabwe if they like a little warmer clime.

    Banana republic would look really stable had Douglas not saved our economy.
    Jesus wept we had a run on our currency that made Indian betting scams look like a plunket raffle between election and return of the writs. RB Governor Rod Deane and Treasury secretary Bernie Galvin closed trading in the fixed dollar on the Sunday night following the Saturday election and Muldoon loyalists including Bolger, Birch and Templeton were preparing to involve GG Sir David Beatie to have Muldoon removed from his by then office as interim PM.

    Utopia my arse it was the most serious constitutional crisis in my lifetime by a country mile, one point five Kms for the more youthful.

    Sadly such relevant history is what our much lauded education system fails to deliver, when a large dollop of ” those who forget history are doomed to repeat it” has significantly more value.

    Possibly a most dramatic example was the megalomaniac Hitlers rejection of military history and advice of his generals that had seen an almost invincible Army die invading Russia. Napoleons Grande Armee in 1814 at Moscow, For her Hitler the Austrian Corporal it was Stalingrad for the Wehrmacht in 1943.

    Strangely in NZ 1984 it was the socialists nemesis Muldoon as the bogy only to have those with a penchant for rewriting history transfer their demon label to one of their own, Sir Roger Douglas a founder of the ACT party later in the 1980s with the troughmaster general James Patrick Anderton throwing his toys from the labour cot.

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  10. igm (1,413 comments) says:

    It would not matter what fiscal line “Tojo” took, the losers supporting him will want more, and not be prepared to personally do anything to better themselves. This country would be worse than Rhodesia in a matter of months if these fiscally dyslexic bludgers ever got let loose. Show one of them who can prove personal financial success from their pathetic lives of envy.

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  11. burt (8,027 comments) says:

    unaha-closp

    Remember Cullen told us government spending can’t create inflation …. all arguments are invalid once you take the red pill.

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  12. burt (8,027 comments) says:

    gravedodger

    Anyone, and without exception, anyone who thinks NZ was a Utopia in 1984 when the drunken infallible idiot Muldoon finally got his beans

    That’s a great irony all in itself. The Labour supporters hate Muldoon yet seem to want to repeat his recipe for disaster. Nationalise everything, control prices and regulate business …. They will repeat his mistakes and what is worse is they will be too stupid to see it and way to self serving to admit it even if they did.

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  13. Joanne (177 comments) says:

    Mortgage interest rates were as high as 20% during the 80s. I grew up seeing adults/families suffering under the weight of 20% mortgages – a reason why I studied economics and accounting in the late 80′s. Nevermind giving $60 a week baby bonus, I wonder as Labour has no idea about how the economy works, will they top up mortgage payments? I know it is an odd suggestion but they don’t know the mechanisms only sticking plaster solutions.

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  14. igm (1,413 comments) says:

    Joanne: Mortgage rates were up as high as 24% under Lange/Palmer, but then, those with mortgages were classified by these losers as privileged. We once had tax cuts for private medical insurance, life insurance, school fees, superannuation, etc. Anyone with these were classified as privileged also, now look at the state of super, hospital lists, and education . . . yet “Tojo” would open the doors to losers from all over the world.

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  15. EAD (829 comments) says:

    Quite possibly the biggest myth taken as truth is that is that those in control of government (and education) have ensured that people are led to believe we “need 2 % inflation” – this, of course, is merely to sustain their debt as money Ponzi scheme that we tax-payers shoulder. With a decent monetary system there would be no inflation, no boom-and-bust – and people could rest in peace and not worry about retirement “investments” – merely putting 10% of the trustworthy money “under the mattress” during one’s working life would be sufficient.

    Alongside the 2% inflation lie above is the “we must be worried about entering “dangerous deflation”. Traditional economists fear deflation more than anything because they are locked into the mentality that mild inflation is a sign of economic growth and that deflation will cause demand to fall, pushing economies into a downward spiral. How, then, do they explain the booming tech sector, which experiences massive deflation as a matter of course? If money represents a stable unit of value, then it should deflate by the rate of productivity.

    All the the smoke and mirrors around the inflation vs. deflation debate is to hide the fact that inflation represents government stealing money.

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  16. wiseowl (827 comments) says:

    Here we go again.
    It was Douglas that ruined this countries economy and it was Douglas that caused the currency flight by stating that if Labour were elected he would devalue the NZ dollar.
    The deregulation that followed and the so-called trickle down theory was the biggest con ever.Everything was going to happen in ‘the medium term’ but that went on forever.

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  17. Viking2 (11,276 comments) says:

    wiseowl .that’s not even funny!

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  18. Viking2 (11,276 comments) says:

    The only reason NZ has no or low inflation is because for at least 10 years we have lived cheaply on China’s back and we have gained a strong dollar because we are not quite as broke as the r st of the world.
    China’s cheap product is changing just like Japans did.

    Its only a matter of time before our good luck changes and our dollar buys less and less and then the cost of all the things we import will again rise. That is where our inflation will come from.
    Unfortunately, like anything that has a lid kept on it it will blow the lid and inflation will once more send interest rates way up high followed by house prices et al.

    Its preordained. There is no other country in the world that can replace China as the producer of things cheap.

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  19. Joanne (177 comments) says:

    wiseowl

    Had the Fouth Labour Government not been elected and Muldoon allowed to continue we would be a banana republic.

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  20. Camryn (551 comments) says:

    Wiseowl would rather die of cancer because chemo doesn’t feel nice or work as fast as he’d like. And since chemo feels bad, the doctor must be a terrible meanie!

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