Chickens coming home to roost again

chickens
The following is an extensive extract from the Business Insider. I recommend ignoring my extract and reading the full post right here, but if you’re determined not to, go ahead and read my truncated version.

It’s a little technical and although my knowledge of economic theory is improving, I don’t understand all of it. But the implications for all of us are very serious. This is the stuff that John Key and Bill English seem able to gloss over but which continues to make a mockery of their ever-optimistic and perennially wrong economic forecasts. The 95% that I do understand isn’t really debatable. As you’ll find when you read it, there’s an inevitability to what is happening that lends it verisimilitude.

This is just part of the reasons why John Key gave up on catching up with Australia and Bill English made a virtue of our being poorer than our mates across the ever-widening ditch. The ill-informed, self-serving and uninspiring people you put in power don’t get it.

The last paragraph is spine-chilling, provocative, and hopefully will not come to pass.

Not yet.

Over to Raul Ilargi Mendoz…

…and quotes within quotes:
Continue reading “Chickens coming home to roost again”

Catching up with Australia

In your dreams John: not at this rate

Yeah, I know they’ve given up on the promise. The disgusting thing is they shouldn’t have. We can catch Australia. But the longer we leave it the more difficult it becomes – the people we need to do it will all be in Australia.

Since I last investigated our dreadful economic performance the plot’s thickened. The table below is the most current comparison of GDP per capita for the richest 51 countries in the world, click on it to see it full-size. The figures in the table are taken from the CIA’s World Factbook. You may not be enamoured of the CIA, but they do their homework.

You can find us quite easily. The reason I’ve made it so long is that we’re at the very bottom.

per capita gdg table

With a bit of Googling you’ll find figures from other organisations showing us at a higher position than 51st. It depends upon several things including how GDP is defined, how recent the figures are, and whom they include in the stats. Nevertheless, the trend is the same. Steadily downward and with no sign of relief.

Most often our position is quoted as in the 20s. That’s because they usually only include OECD countries. We’ve been overtaken by a whole gaggle of countries which aren’t even in the OECD.

Mr Bollard and Mr Key please note

    • Since the 2007 update Australia has moved up 5 places, New Zealand have moved down 5 places.
    • Before leaping to the conclusion that the Aussies are just digging dollars out of the ground bear in mind that minerals (including oil & gas) comprised only 8% of their GDP in 2007. 7% according to some.

But GDP isn’t everything

Yes, I hear your cry. There are more important things than GDP. I’d rather live in New Zealand than in wealthy Qatar or Hong Kong. I’ve been to both those places and they’re not my cup of tea. Nevertheless, although the best things in life aren’t things, there comes a point where relative wealth becomes important. When a country can no longer afford the level of health care, policing, educational resources, defence and welfare its people expect, then per capita GDP becomes a very big issue.

When the outflow of our most valuable people becomes a steady torrent our collective future well-being is at risk. We need these people creating wealth for New Zealand so that we can repay our rapidly rising debt. I need my grandchildren to live in my country.

We need these people to continue the precious New Zealand can-do, string-and-barbed-wire, punch-above-our-weight culture built up over a dozen decades and more.

We’re paying for our education system to churn out people to build Australia; the medical and dental professions are becoming dominated by people for whom English is a second language; soon we’ll fall behind Botswana and Khazakstan economically.

It matters alright.

  • To re-iterate, if you wish to find New Zealand in a hurry on this chart, we’re at the bottom of the table at #51.
  • When I was very young we were #2.

Pray tell me:

  • What resources do Liechtenstein, Luxembourg, Jersey, Singapore, Hong Kong, Switzerland and Iceland have that New Zealand can’t match or exceed?
  • Why can’t we compete, for instance, with the Danes? The Swede’s say about Denmark “Stand on a box and you can see their whole damn country.” Like many other economies on this list they have very few natural resources: just good people.
  • Greenland! Before the crash were they selling ice as well as fish? They’re down now but watch them rebound.
    If you want answers to these questions, check my links below.

We need action

A few hints:

  • More research and development.
  • Proactive mentoring in entrepreneurial skills for small and medium sized businesses.
  • Sort out our education services. Less technology, more 3 Rs. Get people with real work experience onto the education coalface.
  • Jobs, jobs, jobs.
  • What happened to the war on bureaucracy? Bring the public sector into the real world.
  • In case it’s escaped notice, the much-maligned employers are the people who create jobs and wealth.
  • Less arts and law degrees, more science and engineering.
  • Less time wasters in the student body.
  • Less welfare, more work.
  • Less borrowing for hire purchase, more for investment.
  • Less consumption, more work and education.
  • Did I mention jobs?

For more insight into where our country is going wrong read my series: New Zealand’s Economic Decline and watch Sir Paul Callaghan’s inspirational presentation Beyond the Farm and the Theme Park.

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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

Thanks, but no thanks…

Idea of the Weeknone of the above badge

In the “Why didn’t I think of that” category …

In the New Zealand Listener a while back letter writer John Mihaljevic, prompted by the dubious selection of Auckland mayoral candidates, suggested that all ballot papers for national and local body elections should include the option: “None of the Above”.

Furthermore, John stipulated,

“Any election in which this option receives the most votes should be repeated, without any of the candidates being allowed to take part, except, perhaps, to pay for it.”

Right on, John. Excellent idea. Let’s do it. Retrospectively would be good.

I’ve yearned for such an option, but hadn’t the wit to suggest what should have been such an obvious and potentially invaluable follow-up rule. I really needed this at the last national election. I voted for the National no-hopers because the alternatives were worse and because I hoped that they had a cunning plan.

They didn’t have a plan, cunning or otherwise.

Wondering about political colour

“If you’re not a liberal at twenty you have no heart, if you’re not a conservative at forty you have no brain.”

Winston Churchill

This is an outdated post and will be rejuvenated soon. Since this rant, I’ve reassessed the priorities and am now a Green member. Keep listening. 🙂

I’m not a satisfied member of any political party. I see no future for any of them in their current forms.

I’m neither red nor blue. Those tired labels are irrelevant in the 21st Century. There are aspects of right and left dogma that are desirable and aspects that are best left in history’s rubbish bin.

I’m an environmentalist, but the Green party which I joined a couple of years ago have limited attraction. Their ranks contain too many water melons. They need to wrench their organic roots away from the loonie left.

If Winston Churchill was around today I think he’d add to his famous quote:

If, after you’ve suffered through half a dozen election cycles, you’re still a liberal, a socialist, a conservative, an anarchist or an adherent to any other political label then you’ve not been paying attention.

Political parties and factional politics are dead in the water.

In the 2008 election I voted National. I didn’t want to—they had no vision and no integrity and they offered nothing constructive—but they were the “least worst” of a pitiful bunch and I perversely hoped that, just like every would-be governing party in the past, they were hiding their real agenda and that they’d come up with the goods when the smoke cleared.

I hoped in vain. There was nothing hidden under their bushel. Like Barack Obama, John Key missed a golden opportunity to turn unprecedented support into real change.

Our system seems beyond repair. No party is prepared to stand on principle, to tell it like it is, to start thinking beyond the next election, or to bring an end to the cycle of election bribes and pandering to special interest groups.

H.L. Mencken got it exactly right:

Under democracy one party always devotes its chief energies to trying to prove that the other party is unfit to rule and both commonly succeed, and are right.

If an intelligent and (presumably) economically literate man like John Key won’t go to battle to fix a broken system, who will? Maybe being a successful currency manipulator doesn’t require Economics 101.

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

Axel Gustafsson Oxenstierna af Södermöre got this right in 1648. We never learn.

The only hope on the immediate horizon would be for a grand coalition between National and Labour in order to foil New Zealand First after the next election.

Then they could get left and right dogma out of the way and reach real agreement on knotty issues like education, jobs, student loans, superannuation, crime, alcohol abuse and the granddaddy of them all, upon which everything else is predicated, productivity which provides the wherewithal to address everything else.

It won’t happen.

Unless…

It’s up to you and me. It’s up to the 99% to understand the important issues so that they can recognize bad policy when they see it – which is almost always.

Someone else who understands the problem

Rod Oram
Rod Oram. He gets it.

Rod Oram is a controversial figure to many. Mostly he irritates the revisionist old school ignoramuses who got us into the mess we’re in. Those folk in farming organisations who believe that producing more lamb and milk powder will get us back into First World status aren’t too keen on Rod either. He sums up some of what I’ve been trying to raise awareness of in this article in the Sunday Star Times:

Time for a cultural revolution

My only gripe with Rod is that he doesn’t make enough noise about the issues. He—along with folk like Colin James, Fran O’Sullivan, Gareth Morgan and Leighton Smith—could make a big difference if they screamed louder.

So where to from here?

This post restored from Google cache

The chickens are coming home to roostchickens

The IMF suggest that the world is in the worst economic downturn since the Great Depression. In the US and here in New Zealand we’re in election mode. What have our current governments and our would-be leaders had to say about:

  • how we got into this mess,
  • what they intend to do about it
  • and how we avoid the next meltdown?

Not very much.

Wait for the bang

Major US financial institutions are going to the wall with monotonous regularity; many innocent bystanders have lost their houses, their life’s savings, or both. Tens of billions, possibly hundreds of billions, of US federal funding (also known as tax-payers’ money) is going to be needed to bail major lenders out.

How’s that going to play out? Is foreign money going to continue to be invested in the US? A falling US dollar, reluctance to fix the fundamental problems and endemic bad debt may keep investors’ purses closed. One good thing. Maybe at last we’ll see a revolt against obscene executive salaries and bonuses, especially for those who preside over poorly performing businesses.

Housing is overpriced around the world. Bad debt is endemic, building and construction are in decline. The US Fed chief gets it all wrong or doesn’t know when to keep his mouth shut. “What housing crisis?” he said. And he predicted that no more financial organisations would collapse after Bear Stearns.

Things are going to get worse. You can’t have major structural woes in the US without worldwide problems.

Meanwhile, here in the sticks

We will feel their pain.

Here in New Zealand our banking sector is probably OK, but other financial institutions have been falling like ninepins and there has been lamentable corporate and regulatory oversight of the sector. We regulate productive businesses until they’re strangled, but we can’t enact simple regulation to force financial institutions to act responsibly.

We allow their unprincipled principals to scurry out the back door with tens of millions ensconced in family trusts.

As everybody knows, we have far too much debt. As individuals and as a nation. So the weakening of the labour market is, and will continue to be, a real problem for many. People who are up to their ears in debt—credit cards, hire purchase and mortgages on homes with falling market value—are going to be in deep strife when their overtime dries up or their jobs go down the gurgler.

We’ve actively encouraged people to go into hock for LCD TVs and holidays in Bali. We’ve begged them to max out their credit cards and refinance their homes to spend up large on consumer goods. How stupid is that? Great for Nokia, Chinese plastic junk-makers, BMW and Sony. It may even have produced a few low wage, low productivity jobs in retail, but it’s wrecked our economy.

It’s grim and getting grimmer

Per capita employment has been growing, but working hours have been falling. Have businesses been hoarding labour? What happens next?

It’s already started. Thousands of Kiwi jobs are being lost. 26,000 in the last year. Risk is being reassessed around the globe. Economies with heavy current account deficits are in the gun. Our current account deficit of $140 billion requires 8% of our GDP to service. That’s $14 billion in interest payments. Money that doesn’t get spent on reinvestment, wages and growth. Money that goes to overseas banks’ shareholders.

The investment chickens are eyeing up their home perches.

How much of your mortgage interest payments go to compensate the overseas banks because they’ve been lending billions to dodgy borrowers? If we’d been responsible with our fiscal policies and our personal spending habits your mortgage interest rate would be 5% or less.

Why have we crippled businesses (also known as job providers) with the highest interest rates in the developed world?

We’ve done it in an attempt to stop spending.

Has it worked?

No.

What should we do?

Stop institutions lending irresponsibly.

How?

For a start:

  1. kill no deposit hire purchase.
  2. stop hire purchase interest holidays.
  3. restrict mortgage lending to 80% of registered valuation.
  4. stop owners of second and subsequent houses from legally screwing the IRD.