The Silent Recovery Rolls On While Many People Are Still Going On About The Global Financial Crisis

John Key is presiding over The Silent Recovery. It is a shame the GCSB Bill has been so poorly defended and an arrogant comparison to Norton Anti-Virus implemented on Campbell Live in a manner that makes anyone capable of not clicking on a phishing email go “whaaaat?”.

It doesn’t matter that manufacturing confidence is at record highs, household balance sheet restructuring is shifting into purchasing big ticket items again and the capital markets doing very well in the midst of Great Depression “2.0”.

The other day Russel Norman decided to throw his hat into the monetary policy reform ring again. He has a short memory. Monetary policy makes politicians say silly things. The Reserve Bank of New Zealand is arguably the world leader in transparency and accountability. You can infer where they’re headed intellectually on a wide range of issues simply by reading their published documents!

Meanwhile, The Silent Recovery is rolling on. Firms have increased output and raised productivity since the onset of the GFC. For low to medium skill workers, there needs to be a sense of panic in upskilling and creating opportunities for yourself. The robots are coming and Zero Marginal Product workers are unlikely to move beyond part-time hours in the foreseeable future.

There are a lot of opportunities in New Zealand at this point in time. Unfortunately, many young people have fallen victim to the idea that everyone can become an astronaut. They must have missed that story about the Space Shuttle program being cancelled when they were stuffing around on Facebook instead of working an interesting side project that improved their IT skills.

 

Comparing John Key To Lee Kuan Yew Is Insulting Lee Kuan Yew

A few weeks ago, a meme started up around comparing John Key to Lee Kuan Yew. It is completely wrong and insulting to compare John Key to possibly  the most successful leader of the 20th century.

Think I’m wrong? Well, you obviously know nothing about how Singapore was created out of nothing and how the firm hand of Lee Kuan Yew was able to suppress inter-racial conflict, turn many Singaporean citizens into millionaires with high skill jobs and a country that adds an enormous amount of value to the global economy.

Singapore works. New Zealand works for some people but not for others. During his tenure, Singapore grew from a run down colonial trading post to a financial and trade powerhouse. Hell, even a sizeable proportion of the petrol NZ uses to fill its tanks was refined in Singapore!

Obviously I’m talking about economic opportunities – the only opportunities that matter in the consumer society. Probably because it is closer to key Asian markets, doing business from Singapore is a bit easier than doing business from Auckland. But one of the key ways Singapore has succeeded is that numpties have been banned from participating in politics.

These sorts of throwaway comparisons are why journalists don’t really have the right to call themselves professionals. In terms of comparing Key to LKY it is simply an indication of historical and political ignorance. Why oh why can’t we have a better media?

Whilst John Key has presided over a silent recovery, he has not done anything on the scale that LKY achieved. He may have been inspired by his time living and working in Singapore but whatever policies he has proposed have been so watered down he may as well not have bothered!

It also must be mentioned that LKY’s success in Singapore – made up of both Chinese and Malay – was an inspiration to Deng Xiaoping – who kickstarted China’s “capitalism with Chinese characteristics”. The hundreds of millions of people who were raised out of poverty in China over the past 30 years are analogous to some of the former Chinese fishermen who are now business leaders in Singapore.

As someone who reads extremely widely and often, it is really disappointing when the media in New Zealand reveal how thick they truly are. It is even sadder when a good columnist does so. It isn’t hard to avoid faceplant style comparison like this – just a general sense of the history of the region this country trades with and has strong relationships with!

This was a really silly comparison, but is to be expected when the benefits of Chinese immigration and investment are never explored in detail. The media is only too keen to champion xenophobic investment restrictions and give oxygen to people who don’t understand the free lunch New Zealand is getting from this interaction with foreigners.

Real Estate Agent John Key Tells Local Government They Suck (If Only)

Prominent real estate agent John Key said the central government has to manage its finances carefully. He didn’t point out that local government can’t manage its finances carefully. If only he’d told them local governments around the country suck.

Sensible government is being destroyed. By turning KiwiSaver into HouseSaver and undermining the independence of the Reserve Bank through soundbite sparring, John Key is putting the economic recovery at risk.

Our economy grew 2.4% last year and is on track for similar growth, he told attendees. We know DSGE models are dangerous territory. We have no idea what economic growth will be, despite Treasury projecting out public finances for decades.

He didn’t talk about how GDP rising because of the Christchurch rebuild isn’t really economic growth, but simply replacing what was already there before. The broken window fallacy is a key driver of the economic recovery plan.

He was talking to a bunch of town clerks who’ve rebranded as “Chief Executives” and bumped their compensation packages to include comparison with NZX executives.

At no point was there any discussion of how town clerks are underperforming relative to NZX executives and how their supervisors – hapless councillors all round – are just as powerless as MPs.

There was an opportunity for John Key to point out how councils are spending way too much money on pet projects and over-inflated salaries for “make work” roles. But he didn’t bring it up because he already knows that the grey ones have the power.

“Better Local Government” is an oxymoron. All the reforms are for nothing if a town clerk can make $550,000 a year while spending more on wages than it earns in rates.

The RMA will be reformed, but not in a way that will change the billing opportunities for RMA consultants and lawyers. John Key didn’t discuss how some property developers have exited the market – a negative supply side shock – because of the RMA and decimation of lenders who had some gumption to lend.

The Productivity Symposium recently included a good presentation on construction productivity. Booking inspections is one of the biggest problems. It’s a bottleneck around the country, one of the real culprits for housing affordability.

Home buyers don’t want pre-fab anything and we’re a decade behind on trades training so most of the productivity improvements have to come from local and central government.

The need for special housing areas where the government agrees with a local council to make consents easier is an indication of how far gone local government is.

Simply inform councils that consent processing times have to drop lest they get a “Local Government Manager” installed like Environment Canterbury. They’ve had a decade to sort it out since the Local Government Act reforms.

It’s not like democracy in local government matters anyway – just look at how few people vote in Local Body elections! You made the best case against democracy in local government in your speech Prime Minister.

The “39,000 new homes over the next 3 years” target for Auckland house construction is pathetic. If you read the recent NZ Initiative report on housing affordability, you’d realise that hundreds of thousands of houses will need to be built over the next decade to make up for lower construction levels and population growth.

It is disappointing that in his discussion of the Reserve Bank having to raise interest rates, he seems to think the consequences of a rising Kiwi dollar and hurt exporters are bad. Is John Key really an NZ Inc evangelist when he had a career in the foreign exchange markets? Does he think “exporting stuff” is better than exporting services?

He also ignores the idea that demand for housing can come from better job opportunities, immigration and a completely different way that couples form households in 21st century New Zealand. A rapid price rise is a signal most of the time. Bubbles are rare, but bubble stories make more sense and get more reader attention.

He does support the independence of the Reserve Bank, but his Housing Minister is undermining the loan-to-value restrictions with potential changes to Kiwisaver first home subsidy rules and he’s having an effect on markets.

He dedicates more time in his speech to discussing the cycle trail. If there was ever an example of how local government can “get stuff done” on pet projects like that, whilst ignoring rising wage bills, rates and permission fees, the cycle trail is a sad reminder of what happens when you don’t take a blade to the permanent government every so often.

Local government sucks really bad at almost everything it does with respect to making it easier to build houses. Real estate agent John Key missed the opportunity to call them out at their “we’re so wonderful, pat me on the back please” conference.

 

Why John Key Will Take Graeme Wheeler’s Independence Away

An independent central bank is better than a government micro-managed central bank.

If you disagree, have a read of the interesting things National Prime Minister Robert Muldoon did with wage and price controls.

Furthermore, the global financial crisis shows what happens when central bankers fold under pressure from politicians and big banks to “do something” in the form of quantitative easing.

Yes, many central bankers desperately wanted to bail out the global financial system, but a good number warned that no good would come of it, and they’ve been proven correct.

A jobless recovery around the world made easier because artificially low interest rates make borrowing for capital investment easier and thus replacing labour with robots is simply a profit maximising strategy for corporations.

Last year I was writing about how the Labour-Greens-NZ First troika could prove disastrous for the independence of the Reserve Bank of New Zealand.

But I clearly forgot that John Key is an interventionist just as much as Helen Clark ever was. It’s just that he intervenes in different areas of policy.

The issue of housing affordability is on track to become an election issue. If young couples can’t buy houses they are less likely to have kids, which means the demographic ponzi scheme paying for unproductive oldies to stay alive collapses forthwith.

They’re not special though, and don’t deserve special treatment like the first home subsidy – a perversion of Kiwisaver as a retirement savings scheme if there ever was one.

But on the other side of that same coin they don’t deserve another slap down in the form of higher loan-to-value restrictions.

This is because banks are unlikely to grant such loans – which run the risk of negative equity if house prices fall – to low income households.

In the aftermath of Basel III and other risk management changes in the banking sector, loan quality matters a lot more than it did before 2008.

If the Reserve Bank does want to put a speed limit on housing, they are completely ignoring the supply and demand story around housing services.

In fact, they are basically saying that static efficiency (one price for housing! no price changes! a price rise is not a signal but an indication of a bubble!) beats dynamic efficiency.

What they’re also doing is missing the wood from the trees – the reason house prices are going up so quickly is because it’s not only hard to build a house, it’s almost impossible to obtain financing for property development.

And what they’re also doing is forgetting that a lot of house deposits come from parents and grandparents.

Young people in aggregate suck at choosing profitable careers and saving – economic outpatient care is probably the key driver of the Auckland housing market.

How does this work? Well, if two sets of parents chip in tens of thousands of dollars each to the pittance scraped up by Jack & Jill then suddenly a mortgage can be approved.

John Key will foil the Reserve Bank Governor Graeme Wheeler on this issue because he knows that despite an independent central bank being an inherently good thing, his 3rd term in government is simply more important.

 

How To Treat NZ Super Applicants Like Other Beneficiaries

Old people in New Zealand are a funny bunch. On the one hand, they’re deeply critical of beneficiaries. They’re the first to support crackdowns on benefit fraud (a literal rounding error in terms of Vote MSD) and would likely agree that if a beneficiary starts earning more money they should have their benefit reduced.

They are much less willing to consider themselves beneficiaries, when they are nothing but beneficiaries. There is no material difference between a retiree couple who failed to save enough money for retirement in liquid assets, whilst living in a $700,000 villa in Auckland, and a person who continues to receive an unemployment benefit whilst they move into work.

NZ Super beneficiaries should be treated like other beneficiaries. If they were subjected to the same level of asset testing that any other class of person was, NZ Super applications would plummet because many NZ Super eligible people know deep down that they don’t really need state assistance, they’re just taking the free $15,000 a year with no questions asked.

How many older voters would have wholeheartedly supported the crackdown on other types of beneficiaries while happily spending their fortnightly super payment? They actually rationalise that because they paid taxes (which have already been spent) they are somehow entitled to NZ Super from their 65th birthday until their death.

The funny thing is that some NZ Super recipients will get more from NZ Super than they ever paid in taxes. Some NZ Super recipients never actually worked a day in their lives – but they’ll happily bank their super and vote for Winston First.

If you have a look at Work and Income’s website, you’ll be able to find the application form for NZ Superannuation. It’s 13 pages and doesn’t require much besides confirming the fact you worked in New Zealand and your bank account details.

If you move across to the unemployment benefit application form – you will find that it is 36 pages. You must declare if you’re still working, the financial situation of your partner and any assets you have. This means most Kiwis can’t actually get the unemployment benefit because someone else can support them or they can sell down assets to survive.

My solution to the NZ Super cost blowout because of changing demographics and a sense of entitlement is to simply replace the superannuation application form with the unemployment benefit application form.

This is a far simpler solution because many NZ Super applicants who don’t really need the money will be deterred by the level of disclosure they must make to Work and Income around their employment status and level of assets.

When they have to admit on paper that they are taking the mickey out of the safety net, many will not go through with the application. I would guess thousands of fewer applications a year would be processed, saving billions over dollars over the next few decades.

A lot of old people are really secretive about their financial affairs, so with one easy form change, the marginal applicant who doesn’t really need NZ Super to survive, will find that it’s not worth their time to gather details of their asset base in order to avoid getting done by Work and Income for failing to disclose details of their financial situation.

People who do need NZ Super to survive won’t be harmed by the form change – and the system will be able to continue functioning as a support net for people who actually need it instead of cynical asset rich cash poor older people getting more money than a struggling student gets from StudyLink.

Victim Or Not, Kim DotCom Will Be Extradited

If there was ever an indication that nothing much interesting happens in New Zealand on a day-to-day basis, the footage of Kim DotCom’s (Mona DotCom’s?) chartered helicopter arriving in Wellington shows that it doesn’t take much to become headline news in this country.

Waddling towards the select committee room with the Press Gallery in tow, Kim DotCom got off to a flustered start and all we learned from the debacle was a grand total of nothing – except some insinuation that John Key lied to the New Zealand public about the GCSB and that he knew about DotCom before the raid on his rented Coatesville mansion.

About that raid – watching the footage of it on 3 News – do New Zealand’s police not strike you as pathetic in their demeanour? Putting aside the fact that the Kim DotCom raid was on the orders of a Hollywood-captured Department of Justice subsidiary – the FBI of course – didn’t they look really retarded throughout the whole exercise?

Anyway, despite having some of our best lawyers in his employ, Kim DotCom will be extradited. There are no ifs, buts and maybes about it. John Key is a sycophant who wants a fake free trade deal with the United States. Anything that gets in the way will be thrown under the bus.

Despite his size, Kim DotCom will still be thrown under the bus. It might take another raid, this time with more exercise time for an LAV squadron, but he’ll be arrested in spectacular fashion and shipped off probably at NZ taxpayer expense for a hard bed on which to complain about.

Watching John Banks play on his phone at the Select Committee hearing yesterday was interesting. It must be hard to maintain such an icy exterior when you’re facing a private prosecution for taking the witness’ cash as an anonymous donation. But, then again, John Banks is on the same level as Winston Peters in terms of political connivery.

Victim or not, Kim DotCom will be extradited from New Zealand. It doesn’t matter that he was doing what pretty much all of the tech giants do anyway, it doesn’t matter that he was essentially singled out by lobbyists for rendition and it doesn’t matter that he has spent millions of dollars in New Zealand.

He is an obstacle to closer United States – New Zealand relations and he simply has to go – the end of generic Pharmac purchases and stricter copyright laws for corporations with failed business models demands it.

John Key won’t interfere. In fact, he probably told Eric Holder (US Attorney-General) that when Holder visited New Zealand earlier this year. He really wants a free trade deal even more than Helen Clark wanted one with China.

Why Fiscal Conservatives Will Always Lose

The beatup on Simon Lusk’s strategy documents, which are materially indistinguishable from Helen Kelly writing a memo about how Labour can use union manpower to get out the vote, is yet another example of the media getting itself worked up over nothing. The only true fiscal conservative to run in New Zealand in the past 20 years was Don Brash. He did not perform well.

John Key knows that fiscal conservatism does not fly. That’s why reducing the deficit has taken a backseat to things like “investing in infrastructure”, keeping interest free student loans, leaving tax cuts off the table after the 39c dragon was slain and not changing Working for Families – the biggest middle class welfare scheme in New Zealand’s history.

He is being very smart by disassociating himself from Simon Lusk. In the long war that started back with the Cavaliers and the Roundheads, the Cavaliers have been defeated at every single important juncture in history. The myth of neo-liberal hegomony is simply a device for Noam Chomsky to sell books to people annoyed they couldn’t get into a position of power within the government, media or academia.

Progressives have run New Zealand for a lot longer than anyone in the media would even realise. They even made up a phrase “public service neutrality and professionalism” that gives them cover if they inadvertently show their true colours when designing or interpreting a policy. Even commercial regulation is indistinguishable from American style progressive idealism.

Fiscal conservatism will always lose because it is completely antithetical to the interests of the median voter. John Key and Bill English haven’t rolled back the policies of Helen Clark because they simply can’t! That’s what fiscal conservatives don’t get – they are on the wrong side of history. It’s a waste of time to try and convince donors to increase National Party donations from $6M to $18M per election cycle because no party can successfully roll back progressive policies without opening itself up to thrusts to the jugular.

What is the trajectory of history? It is of ever increasing power embedded in government. If you want proof of this, for a thought experiment, get into your time machine and tell an Auckland homeowner in 1913 that he can’t build a deck without getting the approval of someone on the local board. For further hilarity, go back to the 1870’s and tell a sheep farmer he should be concerned about the sheep dung of his flock ending up in pristine high country streams.

This is why Russell Norman saying that the government isn’t progressive enough is funny. The National Government is the most progressive National government in history. They are only still there because they didn’t touch the progressive goodies that Helen Clark (a true globalist progressive if there ever was one) implemented during her premiership.

I thought that the Green Party had guys (Clive? Clive?) advising them on politics in New Zealand. They’ve been consistently hitting >12% since the last election, and pretty much all left-leaning young people prefer Greens to Labour. Their time will come as older public servants who lean Labour retire and die.

Russell Norman will have aggravated some people with his remarks this weekend. He’s not biding his time for the inevitable (thanks MMP!) Green landslide which I predict to occur from 2020 onwards. The trend is for things to go his ideologies way, ever since the Declaration of the Rights of Man and the French Revolution.

Relax, you’ll be able to replace the BMW 5-series with Priuses (Pri’ii?), you just have to wait a decade.

Why Wellington Will Never Die As A City

John Key has backtracked on his comments that Wellington is a dying city that the government has no idea how to resuscitate. He told “business leaders” in Takapuna that Wellington only had the government, Victoria University and Weta Workshops. His comments show that it is possible to be in politics for a decade and become Prime Minister without understanding how New Zealand works.

The BBC series Yes Minister with its obfuscatory Sir Humphrey is funny because it is pretty close to how things really work in government. John Key’s temporary government – composed of farmers and lawyers – does not have that much power. But the permanent government – composed of public servants, academics and the media – has an awful lot of power that goes unrecognised. In fact, this cathedral is the real government of New Zealand.

A prime example of a powerful family in this arena would be Sir Geoffrey Palmer and his son Matthew Palmer. They are essentially the Only People Whose Opinions Matter when it comes to constitutional reform and it will be fascinating to see how the outcome of the so-called “constitutional conversation” adheres to what they have written in their various books and publications.

Just because the temporary government wants to reduce the personnel count in the public sector doesn’t mean that it actually happened. Many jobs that were disestablished were recreated in the same departments or in new Crown sector agencies. The behemoth Ministry of Business, Innovation and Employment is so large that it will siphon up as many laidoff public servants it can find simply in order to fulfil its statutory obligations. That “mega ministry” alone is indicative of the National government having no desire to reduce the size of government – because it simply can’t!

Furthermore, the creation of the Auckland supercity has done nothing more than centralise power in the central planners and their champion Len Brown. The upcoming mayoral election has no credible alternative candidates who stand a chance of winning now that the unique demographic characteristics of Auckland can be leveraged into perpetual left wing local governments. The lack of outcry at how the Auckland plan proposes to seize private property and turn it all into high density housing shows that people realise there is no hope for property rights in New Zealand.

But what does this have to do with why Wellington will never die as a city? Well, if you have had a discussion with anyone my age recently you will find that central planning, environmental protection and higher tax rates on the rich are all that matters. The number of young people who will not alter their political leanings as they age will result in a massive expansion of the popular vote for the Green Party.

Labour will survive for at least the next 2-3 elections, but anecdotally, almost every young person I know is a Green voter! This means that the Labour/Greens/NZ First hydra will lead to a massive expansion in the size of government once they are elected. Bob Jones knows that Labour governments are great for commercial property in Wellington, and he’s damn right. Wellington can never die as a city commercially because every government has at least one “think big” project that the private sector can profit from.

In terms of economic thinking, each additional government project creates a swathe of complementary new job roles and contracts to be awarded to the private sector. There is a logarithmic growth rate, and public sector procurement policy is nowhere near being capable of delivering value for money in the long-run because the preferred supplier/vendor policy functions as a restriction on competition for public sector contracts! The all-of-government contracts ensure that smaller agencies will be paying more than they need to for systems more suited to larger agencies and much of the savings will be lost in the wash.

That John Key can be in his second term of government and still believe that “the government” needs to resuscitate a “flat lining” Wellington is disturbing. Wellington is doing just fine – as long as you are connected in some way, shape or form to central or local government. There will never be any significant changes to Wellington because with each change of government comes a whole new flurry of activity to fix “the mistakes” of the last government.

Like I have written about previously, Wellington is not a backwater and there is no need to be worried about its economic future. MMP and trendy collectivism will see to that. The reforms of the National government are cosmetic – the money is still flowing for most people in Wellington and shows no signs of abating anytime soon.

Barry Soper’s Poor Mexico Column

One of the cool things about the press travelling with the Prime Minister is how they reveal their lack of knowledge of things outside the Beltway.

Barry Soper’s column on the NewstalkZB website is an absolute zinger. He’s not only ignorant of the fact that Mexico is an economic powerhouse despite a violent drug war, he’s failed to identify why Carlos Slim is the richest man in the world : because he was one of the beneficiaries of Mexico’s state owned asset sales in the early 1990’s.

Carlos Slim is a billionaire primarily because he took advantage of the privatisation of Telmex and has consistently fought off attempts to regulate his monopoly. The son of Lebanese immigrants, he is clearly a smart businessman, but it is remiss of Mr Soper not to mention the role state owned asset sales played in his wealth given that SOE sales are such a hot topic in New Zealand at the moment.

He’d also realise that the reason Mexico has such a massive underclass is because they have corrupt teachers unions and an education system that is designed for the middle class and up to benefit from. He might even have a look at how Mexico’s economic inequality is basically brown/white just like John Key’s Aotearoa.

Furthermore, he makes an aside about our trade with Mexico of $300 million a year being close to the price of “one of Carlos Slim’s Lear Jets”. A simple Google search would tell you that a Lear Jet 60 would set you back about $15 million – 1/20th of our trade with Mexico. And then you’d also realise that Carlos Slim is more of a superyacht guy and prefers to borrow private jet trips from his mates.

He also missed an opportunity to highlight that one of our most hollowed out consumer brands – Fisher & Paykel Appliances – has been manufacturing in Mexico for years. That decision may even have accelerated the job losses in Fisher & Paykel plants in New Zealand before the Chinese company Haier completed its takeover recently. I’m agnostic on this, but many Kiwis would not be.

All in all, it is the little things that matter. Most beltway columnists are clearly not well read enough or not smart enough to do a little bit of research before firing off their missives. Even the most experienced political journalists can produce an opinion piece so below par you wonder how they keep their jobs when younger people could do a better job for a lower wage.

Profitable Businesses Don’t Need Tax Credits

The global film industry is an interesting insight into how different types of companies approach their tax affairs.

Money making companies like tech giants, energy producers and financial institutions approach their tax affairs with the goal of reducing their global tax bill.

This means they are looking to book revenue in low-tax jurisdictions, make use of transfer-pricing arrangements to the maximum extent they’re allowed and leave accumulated cash reserves offshore instead of repatriating it and paying additional “home country” taxes.

Money losing companies like Hollywood studios and industrial giants who have failed to innovate approach their tax affairs with the goal of increasing the level of de facto support they get from the public sector.

Profitable businesses don’t need tax credits. Giving movie studios tax credits is an implicit recognition that the failed Hollywood business model needs handouts to survive.

Most movies lose money hand over fist. The handful of blockbusters (LOTR, The Hobbit, Harry Potter, Terminator) provide the justification for the industry to keep on trucking when it’s clear that it’s a net capital drain on the economy taking advantage of naive politicians and investors alike.

Many commentators have gotten it completely wrong about giving handouts to profitable movie studios. We’re actually increasing their revenue and therefore subsidising the flops Warner Brothers have made.

It’s no wonder John Key is very friendly with Hollywood executives – he’s been brainwashed into putting money into studio executives pockets in exchange for temporary albeit well paid contracting jobs and an NY Times profile.

I hope that the Warner Brothers executives got multi-million dollar bonuses for their lobbying coup in New Zealand. They brilliantly realised they were dealing with a photo shoot hungry Prime Minister and played his government hook, line and sinker.

We have to ask ourselves, what is the difference between giving a failing manufacturer tax credits and giving the film industry the generous treatment it currently receives in New Zealand?

There is none. They are one and the same. But for political reasons, a film industry handout that leads to 3,000 creative and technical contracting jobs for a couple of years is preferable to taking aggressive tax credit steps to spur an economic recovery from the global financial crisis.

All of the arguments that the National government have used to justify The Hobbit’s special treatment can be applied to any industry.

If the National government thinks that special tax treatment in the film industry creates jobs and economic activity, why doesn’t it extend that thinking elsewhere?

It’s scary how some industries are more equal than others. Particularly when the recent RBNZ manufacturing report shows clearly how a major rebound in construction above and beyond the Christchurch rebuild would quickly recover the losses from the past few years.

But cutting the ribbon on construction projects is not as glamorous as attending red carpet events on Hollywood Boulevard Courtenay Place.