Lies, damned lies, and statistics

John KeyMr Key, you’re bending the truth

Last night, in a party political broadcast during the TV news, Prime Minister John Key looked us all in the eye and said that the National-led government will double exports by 2025. Can one lie about something that hasn’t happened yet? That statement was a valiant attempt. Even more blatantly misleading than the abandoned policy of “Catching up with Australia”.

The doubling of exports by 2025 has been National policy for some time and so far it is totally off track. Mr Key’s servants in Treasury and some fairly basic arithmetic blow his grossly misleading claims out of the sky.

Yesterday, in the Sunday Star Times, economic commentator Rod Oram (hardly a bastion of left-wing idealism) had this to say about current fiscal and economic policies:

…It is missing by miles its two key goals. Its first is to double exports by 2025. That requires exports to grow by between 5.5% and 7.5% a year. But Treasury forecast they will grow by 1.6% a year 2014-2018, even though our trading partners are growing by more than 4% a year…

I suspect that Rod is being overly kind. My loyal readers (both of us) who have heeded my rantings about the economic nonsense of perpetual growth in a finite universe will recall an easy way to work out doubling times for a given growth rate:

It’s called the rule of 70

To estimate the number of years for a variable to double, take the number 70 and divide it by the growth rate of the variable. This rule is commonly used with an annual compound interest rate to quickly determine how long it would take to double your money.

In this case divide 70 by 11 (years until 2025). You get 6.36%.

It’s all total nonsense

For years, National have been making growth predictions based on Treasury forecasts. Almost invariably, those forecasts have been hopelessly optimistic and the rosy outlook has had to be diluted. In order to make National’s fantasy world a reality, we’d have to have growth of about 10% per annum from 2019 until 2025.

Global growth is probably not going to recover to any significant degree under current developed world economic and energy policies. Every time international growth picks up, fossil fuel prices rise and put the brakes on. China’s economy is precarious, and by extension, so is Australia’s. As the biggest oil-fields dry up, and the false dawn of fracked wells fizzles out, that problem is likely to continue indefinitely.

So is it hopeless?

No.

We can get back on a modest growth path by adapting to new technologies. Just as we did 100 years ago when we were the richest nation on the planet. Eventually, we’ll all have to adapt to a near zero growth economy, but that will require a new economic system in which banks can’t create money out of thin air and then enslave the rest of us with inflation-building interest on money they didn’t earn.

If you have a spare half hour read my series of articles on New Zealand’s economic decline and what we (or any other economy) need to address if we wish to maintain our relative prosperity.

The Economy

 

“Do you not know, my son, with how little wisdom the world is governed?”
Axel Oxenstierna

Count Axel OxenstiernerSwedish statesman Count Axel Gustafsson Oxenstierna af Södermöre wrote that to his son Johan in 1648. Young Johnny was feeling anxious prior to taking on an important European diplomatic job. Oxenstierner Senior pointed out that the world was—as it still is—run by people a lot less switched on than most of us assume.

It’s been all downhill in the intervening three centuries and I wish I’d cottoned onto the problem a bit earlier myself.

…each of these perspectives comes to the same conclusion, which is that our global economy is out of control and performing contrary to basic principles of market economics.
David Korten

Economics 101 from the few who understand

Around the world, those in charge are making a total cock-up of economic management. Here in New Zealand, then Reserve Bank governor Alan Bollard was paid $600,000 p.a. to declare the world’s recession over in 2008; Prime Minister John Key and Finance Minister Bill English have been regularly predicating rosy outlooks upon the overly optimistic forecasts of the same Reserve Bank. They’ve all been peddling fantasy ever since the financial crisis started in 2007. Here I’m posting snapshots from people who really understand what’s going on.

When the meltdown started in 2007 there was a cry around the world of “Why did nobody see this coming?”.

Well some switched on people did, including—forgive my immodesty—One Wild Kiwi. Not because I understood economics all that well, but because I know who does. Hardly anybody listened to the right people, in fact they were derided, abused, and often fired. They were of course correct and if you’d like to know what’s really happening here are some of those people whose views are of value:
Continue reading “The Economy”

Recovery? Don’t hold your breath

John Key, in yet another triumph of hope over experience, maintains that we’re on an economic roll. There are some minor problems with Mr Key’s super-optimism. Not unlike the now abandoned “catching up with Australia” pledge, or the “Working for Families is communism by stealth” backtrack.

Over 50 years of voting I’ve been a swinging centre-right voter and a supporter of capitalism. I’m a slow learner. I didn’t notice that the system that once worked very well is now absolutely broken.

When Henry Ford invented the production line and started churning out Model T cars in vast numbers, he concluded that if he wanted to create an economic and transport revolution he needed to ensure that his car was affordable. More specifically, he had sufficient insight to realise that success depended upon the people who built the car being able to afford to buy it.

For several decades this was understood by economists, money managers, reserve bankers, and capitalists. For the market to work successfully ordinary workers had to be sufficiently well paid that they were empowered to be consumers. It’s no use producing vast quantities of junk if nobody can afford to buy it. Trouble is, sometime in the last 20 or 30 years they’ve forgotten the basic message. The ratio between the incomes of the top earners and the average worker has increased enormously, but for 10 or 20 years the inflation adjusted wage of the average worker hasn’t increased. The top earners are nevertheless creaming the system more and more with every passing day and they’re apparently oblivious to the fact that they’re strangling the golden goose.

From SmartBlog

In 2010, the average annual wage for U.S. workers in production operations was $33,770 while the average CEO pay in S&P 500 companies was $11,358,445. CEO pay was 336 times more than the average employee.

The Wall Street crowd and their cronies around the Western World are sucking more blood out of the system than they were before it all turned pear-shaped in 2007-8. Before your money bailed them out. It’s unsustainable.

From MarketWatch

The left-wing Institute for Policy Studies found that the CEOs of the job-cut companies on average took home nearly $12 million in 2009, above the $8.5 million brought in by the average CEO of an S&P 500 company. The study found that 72% of the announced layoffs came at a time when the company was reporting positive earnings.

“This reflects a broader trend in Great Recession Corporate America: squeezing workers to boost profits and maintain high CEO pay,” said the study.

The growth occurring in the US and elsewhere is a jobless recovery. How does China remain an engine for growth when the people who buy their products have empty wallets? Sure, they can generate some internal consumption from their massive surplus, but that won’t last long when their own individuals and local authorities have been indulging in a borrowing spree which has created a massive real estate bubble. Negative equity is knocking on China’s door too.

For 2 or 3 decades the underpaid workers in the Western World have been borrowing to buy stuff that they previously could afford to buy for cash, or that didn’t exist, or that they chose not to buy. Now those people are pulling up the drawbridge. Countries like China and Germany who have relied on manufactured exports for growth are heading for a train wreck.

Millions of people around the world have lost their jobs and their homes. The rich are getting richer after the system that feeds their greed was bailed out using the taxes of those who’ve been destroyed. A revolution is overdue and I suspect that it’s coming.

From the horses’ mouths

The Wall Street Journal and Forbes Magazine are hardly bastions of Liberalism, nevertheless they can spot a trend when it hits them in the eye.

As you can see from this graph from the WSJ, the rich are doing OK. In 1965 they earned, on average, a mere 24.2 times the average employee’s income. In 2009, long after the recession hit, it was 185.3 times, and if you check this link at Forbes magazine, you’ll see that the thin red line is now on the rise again.

These people just don’t get it.

this is a dummy line break

CEO salary disproportionate growth

The death throes of democracy

Yes we can'tLess than three years ago hope spread around the world like wildfire. Barack Hussein Obama’s inspired oratory gave us a glimpse of a better way. Even here in New Zealand we had a double dose of optimism: new Prime Minister and all-round nice guy John Key promised change for the better, albeit without the soaring rhetoric.

For me—and for many who’ve heard it all before—the hope was tempered by doubt and cynicism. Nevertheless, the possibility of a sea-change was real and exciting.

Maybe this time…

The hope proved fleeting

There was a sea-change alright, yet another tsunami of missed opportunities to douse the flames of hope. In the USA, “Yes, we can” morphed into “maybe”, promises became aspirations. We’re almost back to business-as-usual. The dreams are on hold, the disappointment is acute.

What next? Sarah Palin?

Party-based democracy doesn’t work anymore. Continue reading “The death throes of democracy”

Double-dip recession squared

Professor Steve Keen from the University of Western Sydney poses a convincing argument that not only are we in for the double-dip recession that many have forecast but that it won’t stop there. Prof. Keen is one of the lonely voices in the wilderness who predicted the current financial crisis. His reasoning is solid. Maybe we should be listening.

A quadruple-dip recession is under way and it’ll generate a few quadruple bypasses. The New Zealand Treasury’s economic forecasts upon which John Key & his National Party fellow-dreamers have based their growth predictions are looking doubly suspect and just as criminally negligent as the latest lunatic policies promulgated by Labour’s Phil Goff.

Part One

Part Two

Dr Don Brash’s letter to John Key

I don’t know for sure whether or not this letter is genuine. Update: it’s the real deal 🙂

It pretty well sums up the appalling lack of integrity shown by the National Party in squandering a golden opportunity to halt our continuing slide into the Third World. If Don didn’t write it, he should have. With the exception of the bit about abolishing separate Maori representation I strongly agree with every word of it. Anyone who doesn’t is, in my opinion, wrong and does not understand enough basic arithmetic to cast an informed vote.

I’m generally in agreement with Don on race matters but I believe they’re an unnecessary distraction from the desperately urgent economic policy issues and should be left for future attention.

Here’s a transcription. You can download the original in a pdf file from my Dropbox Public folder right here.

whatever text scratches your itch

whatever text scratches your itch

Don Brash

Rt Hon John Key

Prime Minister
Parliament Buildings
Wellington

12 May 2011

Dear John

Continue reading “Dr Don Brash’s letter to John Key”

Neither heart nor head

Jayden
The little boy behind the moustache is my great-grandson Jayden. His mother, her husband, and Jayden are likely to move to Australia in the not too distant future. They will be better off economically while I, like thousands of other Kiwi granparents, will be devastated.

We’ve all heard the old aphorism:

If you’re not a liberal when you’re 20, you have no heart. If you’re not a conservative when you’re 40, you have no head.

For the 21st Century it needs extending:

“If you’re either of the above when you’re 60 you haven’t been paying attention.”

Our political and economic system is morally and intellectually bankrupt. In the United States, Mr “Yes we can” Obama has been snookered by the system and hasn’t had the political courage to fight back. Here in New Zealand, John Key’s government seems to be able to retain popular support while doing absolutely nothing to get the country out of the morass it’s been in for decades.

I confess. I voted for Mr Key’s party. Not because I agreed with his pre-election policies. I voted for him because he was the least unpalatable alternative and I had the forlorn and perverse hope that his government—just like every other would-be government in living memory—would go back on their election pledges. I thought that perhaps he had a cunning plan. There was a glimmer of hope that he would do what needed to be done. Continue reading “Neither heart nor head”