John Key's economic myths are busted
There are at least six economic myths subscribed to by John Key and most of our current crop of politicians.
This is clear from the PM's various public comments and reinforced in an interview he gave to the New Zealand Herald after returning from holiday in Hawaii yesterday.
Key said raising economic growth would be the government's main focus this year. He also mentioned lower taxes, getting better value for money from the state sector and made the obligatory comment that he wanted to see wages lifted.
His comments come ahead of a major economic speech planned for February 9th when parliament resumes and are a depressing but not surprising omen for the 2010 budget.
If we want prosperity for all New Zealanders then Key is on the wrong track. Here's the problem.
Myth 1: Economic growth brings prosperity.
Economic growth is Key's main objective and the implication is it will raise living standards and leave us all better off. Not true. As New Zealand saw under the Clark Labour government living standards did not rise even after almost a decade of strong economic growth.
Improvements for most came only after the Working for Families package was introduced as effectively a taxpayer subsidy on low wages. Michael Cullen famously quipped that for most of his tenure as Finance Minister company profits rose at twice the rate of workers' wages.
Before Working for Families the proportion of families suffering hardship or severe hardship almost doubled under Labour while the benefits of economic growth were corralled by the wealthy.
The myth is busted.
Myth 2: Productivity increases bring better wages.
This is one of Business New Zealand's favourite mantras. Chief Executive Phil O'Reilly trots it out at every opportunity and politicians follow his line. But it's not true. Unite Union's Mike Treen has pointed out that between 1978 and 2008 productivity increased by 80% while workers' wages dropped in real terms by 25%.
The myth is busted.
Myth 3: The rich carry most of the tax burden.
A recent Herald editorial quoted figures to say the top 3% of earners contribute 26% of New Zealand taxation. Thank heavens for the generosity of the wealthy is the implication. But just a minute.
That 3% of earners have personal control of huge chunks of our productive economy. I'd be happy to call them generous if they had, by their own singlehanded toil and sweat, created that wealth but of course they didn't. It was accumulated wealth from the work done by low and middle income earners.
The myth is busted.
Myth 4: Low taxes mean better prospects for everyone.
This is where John Key's commitment to lifting wages comes from. He really means increasing take-home pay by reducing personal taxes and will do so in this year's budget.
The most likely outcome will be small reductions in income tax for most people (aside from the rich who will get huge cuts) but a corresponding increase in GST will suck far more from the pockets of the low and middle income families to pay for the big tax cuts for the well-off.
Lower taxes inevitably mean more expensive social services such as health and education.
The myth is busted.
Myth 5: More foreign investment is what we need.
The dangers of foreign investment have never been clearer but the ideologues blunder on stupidly and John Key wants to make it even easier for foreign investment to come in and take over what's left of our existing infrastructure.
Our current accounts deficit (usually very high) became a surplus briefly last year as the profits repatriated overseas by foreign owned companies decreased in the recession. The irony is this only happens in a recession.
It will soon return to the free-market "normal" whereby the four million human sheep (that's you and me) are once more farmed successfully for the profits we deliver to wealthy local and overseas capitalists.
The myth is busted.
Myth 6: A bloated public sector is dragging us down.
Slashing public spending is the stuff of wet dreams for ACT and National and yet it is the public sector in every country which is dragging economies out of the financial mire created by the greed and stupidity of private sector financial cowboys.
New Zealand has an efficient, well-run public sector but John Key will do his best to cut spending, cut services and drive down quality to open opportunities for more private sector involvement.
We are beginning to see this already in health and education and the 2010 budget will accelerate the trend.
So is our public sector bloated? Journalist Gordon Campbell pointed out this week -
"If one looks at page 128 of the Treasury Half Yearly update, the table for government core spending as a proportion of GDP was 32.4 % when National left office in 1999 - and the ratio then fell when Labour took office, and stayed below previous National government levels for the next eight years, The ratio only surged in the year to June 2009 - to 35.5 per cent - at a point nearly sixteen months into a very deep recession."
(Recessions always see public spending increase as a proportion of GDP as the private sector shrinks)
The myth is busted.
And so the Prime Minister blunder on toward a budget which will see more wealth for the wealthy at the expense of the rest of us.
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So the person who sets up a business, takes all the risks, goes to the hassle of finding and keeping staff is not increasing productivity. In fact, because he has done all that hard work simply means he is riding on the back of the downtrodden worker.
It will never matter John, how much evidence you present for the greed of the corporates and the complicity of the Key government in allowing them to get away with it. There will always be the inevitable arguments that we should celebrate 'industry' and 'ambition', and it's the beneficiaries and public sector who 'contribute nothing' who are the real drain on the economy. 'Greed is good', remember. If you can't make a profit by stepping over the bodies of those less fortunate, then it's still a profit, and personal profit is good! I can hear those echoes of, 'you and your buddies in the Kremlin' about to spill onto the page!
It would be interesting to hear John's solution for prosperity for all New Zealanders. It is easy to run down the Government and talk is cheap after all. What changes do you recommend John?
Ah..the old John is back - facile, narrow minded, the great knocker of anything vaguely involving getting out there and creating wealth, bereft of actual positive suggestions except tax and redistribute.
Nothing new then.
1/ Economic growth does not create prosperity? Really - well we tried contraction over the last couple of years, and it was worse....so I'll vote for growth thanks.
2/ Productivity does not result in increased wages? Well your figures show increased productivity and increased wages John.....er......how does that bust the myth? The "myth" is not that increases in productivity give the same increases in wags.....but that's probably a bit subtle for you. Again I'll choose increased productivity over decreased productivity to increase wages.
3/ Rich dont' carry most of the tax burden? and then you go and provide figures to show that it is true and claim they don't......that's just weird!
4/ I suspect any income tax decreases are more likely to be funded by land taxes John - you should be happy with that - taxing all those filthy rich landlords to pay for the poor to carry on being poor.
5/ WE don't need more foreign investment apparently because the durned foreigners dare to make a profit and take it out of the country. Damn them all to heck and back! And it's a laugh that John lambasts "ideologues [who] blunder on stupidly"......look in a mirror some day...
6/ As far as I know everyone in the whole world, excepting die-hard communists and tyrants who treat their country as a private bank, agrees that planned economies fail....drastically and catastrophically.
Myth buster busted.
But hey......trotting out the old 1920's communist manifesto reminds us all how bad things could be under John's sort of leadership.
Thanks for that - otherwise we might have thought we'd be better off then!
Alfie #3.
You are kidding aren't you Alfie? What does a beneficiary contribute? They aren't working, so it isn't productivity. And it's not taxes either. If I was to rob you of $10 and give you back $2 I would have still robbed you, and would still be keeping $8.
Of course we must all take the word of an unqualified media seeking rent a cause activist (not a personal attack on John, I've just never heard of his qualifications, always see him making a big noise about the latest fad issue and have never heard of him actually acheiving anything) over a qualified, proven succesful financial businessman? I'm sorry JM but you really do sound like you're going for the easy against-the-government don't have to prove anything road. and seriously, pick a cause and stay with it, you might get taken seriously then.
John - do you really believe Mike Treen when he says that workers' wages have dropped in real terms by 25% in the 30 years from 1978?
How many workers do you think would swap 1978 for 2008, eh?
Do you really expect us to accept that the vast majority of people have less disposable income now than then they did then?
Do you peddle this tripe to children in the classroom, or are you magically become sensible and objective whenever you're allowed to pose as a teacher?
The fact is whether we like it or not we are part of a wider globalised world and are competing with other countries. Specifically we are competing with a certain large neighbour with a similar culture, huge mineral wealth, and freedom of labour movement with us.
If a NZ engine driver is getting a salary of NZ$ 40,000 and he sees the same job advertised in Australia for A$65,000 what is he going to do? Be honest now. And not just our blue collar battlers, but our middle class, the doctors, the accountants, the public servants are looking across the Tasman and thinking hmmh, what if?
It wasnt always like this. For most of the last 120 years, NZ and Australia had roughly the same per capita GDP (and thus wage rates). From the 1970s onwards this has diverged, and they are now 20-30% ahead. What happens if this continues to diverge in the future to say 40%, 50% or higher? Think about it. Our country will see its skilled labour sucked out like a vacuum cleaner. We'll lose our middle class. And that will be the end of NZ as a first world nation. No point being left behind as a beneficiary that day, with no more middle class taxpayers left to pay your benefits.
Thats why John Key is focussing on economic growth and productivity. We have to, we have no choice. The wage gap is not just an amusing aside to Transtasman relations, it is actually an existential threat to New Zealand as we know it (a prosperous first world welfare state)
If you are not swimming forward you sink, as any swim coach will tell you. Stagnate as you advocate John Minto, and we'll be left behind as the Haiti of the south seas.
We either close the economic gap with Australia or we'll get to the day when we need to erect a Tasman berlin wall to prevent our people leaving. You choose.
How supprising, another article by this former school teacher that is debunking myths on economics that just about every school of economic though consisting of millions of man days of research has worked on.
I'll nominate you for the nobel prize in economics, this is revolutionairy.
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So you are suggesting we should keep stagnant economy, status quo on public spending, reduce foreign investment, increase benefit spending and make up for the difference by increasing the tax from the wealthy (and eventually get rid of them) but keeping tax rate for lower and middle class the same?