There’s got to be a better way!

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Written by:

The spectacle of a Labour Government standing back and allowing the bankers to once again take control of economic policy in Aotearoa is particularly chilling because we have been there, done that before, haven’t we?

The fourth Labour Government, of which many of us had extremely high expectations at the time, did not take long to dismantle many of the structures of government that constituted our social democratic state.

It has been downhill all the way ever since, hasn’t it?  For our society as a whole, I mean. The cost of the richest doing well has been a significant burden of poverty and misery.

Then it was about inflation, too, with inflation rates well into double figures. There was no talk at that time of forcing us into a recession, though. I don’t think even Roger Douglas would have openly espoused a policy to make the poor poorer, even though that is what those policies did, and have continued to do for forty years.

I find it almost unbearable to contemplate that that the Reserve Bank has promised to rain down a recession upon this economically divided nation, where so many, perhaps a third or more, of families are struggling to survive in increasingly adverse economic circumstances.

The wealthiest (and remember that 90% of us are worse off than 30 years ago, according to Max Rashbrooke) will do OK from the recession and may even find places to increase their wealth.

Because recession brings opportunity, if you are in a position to take advantage of it.  All those homes falling into negative equity while interest rates continue to climb means properties that can be picked up for a song in mortgagee sales. Businesses too.  Rents will continue to climb even beyond the additional costs of interest, and the rental market is likely to expand.

Whether or not the wealthy become enriched or not, we know that the effects of recession on low-income families is almost completely negative.  Increased housing costs, stagnant government support payments, rising unemployment (130,000 people to lose their jobs?  really?), falling incomes.   Government income will fall as less tax is collected and the demand for social security increases.

The other thing that makes it like the 1980s is the sense of inevitability.  We used to call it TINA – There Is No Alterative.  And of course there are alternatives.  Inflation at 7% is far from the end of the world.  Our wages may catch up to those of Australia a bit – strong monetarism has seen us fall far behind over the decades.  It interested me that, despite high inflation, wages were actually slightly ahead of rising costs over the past year.  This is good news.

We have always known that Labour has had trouble shaking off its neo-liberal leanings. The Reserve Bank announcement that it was going to put us in recession has been met with a deafening silence from the government.  Where is the kindness now?

The government should be saying “it is time to re-examine our monetary policy settings” instead of setting out to reduce costs.  It should be saying “we will not tolerate policies that further impoverish the most vulnerable in our society”.  It should be saying “let us manage our way out of the current rising costs with a variety of approaches, not the blunt instrument, unworkable in the present, of a 1-3% inflation target wielded independently of government policy”.

I am hearing none of that. TINA rulz OK?  Let Jacinda and the team shout it from the rooftops:

  • This Labour government is consciously following a policy to put 130,000 people out of work.

  • This Labour Government is consciously pursuing a policy to make the poorest 30% of New Zealanders poorer.

  • This Labour Government supports a policy that will reduce house prices and increase housing costs, leading to negative equity for many and housing default for some.

  • This Labour Government is consciously supporting a policy that will see its costs rise and income fall significantly, meaning that it can offer little help to those its policies will plunge into misery.

Well, actually there are many economic alternatives.  But Labour is so tethered to TINA it apparently cannot even contemplate them.

There is not even any promise of gain after the pain this time, which was always the promise of the fourth Labour Government.  Because we know, from prior experience, that the pain is saddled forever among the poor and the gain accrues to the rich (again, only really the top 10%).

Come on Labour Government.  Break free.  Make an alternative economic policy path.  Think neo-Keynes, not the bloody hidden hand of the free market (or rather the plutocracy of the banks). My goodness, I even voted for you this time.  You have not been as effective as I had hoped, but handled Covid competently and there have been some gains.  But things have taken such a dark turn now.

Labour MPs, rise up and defy your Cabinet.  There’s got to be a better way!* People, rise up, say no!

OMG Winston is going to get 20%.  I am in despair.

*The title of Roger Douglas’s book that got us into the neo-liberal mess in the first place.

5 Responses

  1. The poor will not suffer more than the wealthy from raising the OCR. Higher interest rates affect the middle class. They have the big mortgages. They are the businesses wanting to borrow. Basic living expenses will not be affected much. Government has continued to encourage wage employment so here also Adrians Orr’s policy is not making the poor worse off than other sectors. Money in circulation has to be reduced to curb demand. Raising the OCR is by far the quickest and satisfactory way of doing this.
    Julius Mulligan

    Plain language and evidence is much more effective.

    1. Yes I understand that except that ‘the poor’ aren’t starting in the same place as everybody else. They are already on the breadline, already in debt, already with not enough income, and they may also hold the jobs most vulnerable to disappearing. And haven’t you noticed (I think you may be an economist) that the poorest always come out worse off. Even without buying Christmas presents, which many cannot afford at all anyway. So when the Reserve Bank Governor says we are going into a recession, they are the first to be recessed, as it were.

      1. Yes the poor are already in debt and can’t look forward to xmas. That is not Orr’s fault with the recent policy on OCR. The alternative to a recession is a demand driven inflation. This is destabilising and economically and socially and affects the poor. Economically because the people that behave conservatively going to work for wages and planning to save a little find the value of their savings eroded. Socially because the community groups that help the poor struggle as they rely on limited funds that have been donated. The value of these funds is eroded. Inflation encourages people to be rash and not budget. I do think a planned recession is better than inflation.

        1. This is quite an interesting conundrum. In a situation of inflation, the poor (sorry to use this misleading term) find their often low or fixed incomes falling behind costs. But then work is easy to get (we are at nearly full employment at present) and there is upward pressure on wages. Government coffers are relatively full due to said high employment, good tax takes and spending. Additional support for the worst off is therefore easy.
          In the upcoming recession, many jobs are lost, there will be dow3nward pressure on wages, spending power might be maintained but is unlikely to be much increased, costs may fall (except housing costs and the overall cost of borrowing).
          So there are downsides both ways. I agree with that. IT feels to me (and there is probably research evidence from both social policy and economic on this) that recession has many more negative pressures than inflation for the bottom 30%. I am happy to hear further evidence on this.

          1. You are right that a recession will lead to unemployment. However the government has been employing wage labour. The biggest growth industry at present is traffic management. The OCR rise is taking money from the middle class and diverting it to labour. Unfortunately the government has also still been spending too much on consultants. This particular inflationary pressure is irresponsible. Orr is suggesting a short term recession. If so hardship on labour may not occur as labour is protected by contractual employment and the government jobs will probably be safe. Wage rates don’t fall as quickly as final goods and services prices. The time lag may be enough to outlast a short recession.

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About Insight Aotearoa

Most of the blogs published here will either respond to initiatives elsewhere or will be ‘newsmaking’. Some will also be reflective in more general terms. The blogs will be topical and interesting. I like to inject some humour into my blogs.

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