Labour, Greens and NZ First Is Scary

Matthew Hooton writes another interesting NBR column where he argues that the latest polling data make a Labour/Green/NZ First alliance the frontrunner for the next government.

He’s titled his column “Dump those rental properties now“. He argues that under the troika arrangement the Reserve Bank Act is in line for some tinkering.

He also predicts some interesting policy options for the threesome – electricity regulation, price controls, major building programs and the like.

That would lead to all manner of problems, but not what Matthew Hooton thinks they’ll be. The housing crisis has just as much to do with supply restrictions as it does looser lending standards.

The “anti-foreign bias” present in the New Zealand electorate will make populist tinkering with the Reserve Bank Act extremely palatable. No one likes making higher mortgage payments.

But if the Reserve Bank is forced to put more emphasis on kooky objectives like full employment (a fantasy) or intervening in the exchange rate (money down the drain) the implications for New Zealand’s situation are dire.

The cost of all of these populist policies is an acceleration towards sovereign default. We have no idea how we’re going to get out of our current economic malaise.

The National government hasn’t taken any aggressive moves towards retraining and upskilling. They’ve actually taken steps to make it harder to earn higher qualifications.

We don’t have optimal monetary policy or fiscal policy. But we have some of the “least terrible” monetary policy in the world.

The Greens think that quantitative easing doesn’t have side effects. They think that green jobs are good even when they cost $100,000 a job or more.

Labour wants to make superannuation more affordable, perhaps retaining their policy of raising the retirement age to 67. How will that go down with NZ First?

NZ First is victim to mercantilist thinking, worshipping exports at the expense of everything else. They’re also the party of the no-longer-productive but substantial voting bloc.

In combination, the combination of these three parties when it comes to managing an overhaul of the Reserve Bank Act is scary.

They have literally no comprehension of how trying to do what voters want will be punished mercilessly by the marketplace. They’ll send the cost of borrowing sky high, destroy supply chains increasingly optimised for a higher NZ dollar and set a self-fulfilling prophecy of higher inflation in motion.

I really hope that I have saved up enough money to leave permanently before this comes to pass. National are no better, but at least their major mistakes (Canterbury rebuild overlordship, failure to address unemployment, non revenue neutral tax cuts), they’ve not torn up the Policy Targets Agreement.

It really is the one thing that stops the government from acting crazily and forces some hard decisions on where it spends taxpayer money.

I think economists call that an “automatic stabiliser” or check and balance on the power of government.

Despite what you might think about the housing crisis or unemployment, tinkering with the Reserve Bank Act to achieve whatever policy objective you come up will lead to a lot of secondary consequences.

We can’t predict how badly this could turn out for New Zealand in a world where ratings agencies and bondholders have an enormous amount of power.