Home > Dollars & Sense, The Body Politic > From 2011 back to 1991?

From 2011 back to 1991?

Even without a Tardis, John Key’s National government is set to return New Zealand to 1991, as it plans to cut spending and make more state sector workers redundant,

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Full Story

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Yet, the NZIER is warning of dire consequences  should National proceed with more cuts to state sector spending,

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Source

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Many will recall that it was precisely brecause of severe cuts to state spending in 1991 that made New Zealand’s recession so much worse at the time. Ruth Richardson even boasted that her budget was the “Mother of All Budgets”.

Economic data is presented here, in graph form, and shows the immediate conseqences that impacted on New Zealand soon after Richardson’s Budgetary cuts were implemented. Unemployment skyrocketed to approximately 11% – the highest since Depression days in the 1930s.

It is generally considered that Richardson’s harsh cuts unnecessarily deepened New Zealand’s recessionary effects. It caused considerable misery throughout the country as businesses collapsed; GDP fell; the prison population increased; and credit ratings agencies downgraded the country.

As John Key’s government lays plans for implementing more state sector cuts, it is clearly apparent that New Zealand’s economy is still struggling,

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And just to really drive home the fact that matters are becoming dire,  ratings agency Standard & Poor’s today downgraded the credit ratings of our major banks;  ANZ New Zealand, ASB, BNZ, and Westpac New Zealand,along with their Australian parents.

Things are not looking terribly flash,

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Whilst it is abundantly obvious that we cannot influence events on the other side of the globe, and that the slow disintergration of the Eurozone; the economic downturn in China; and America’s mind-numbingly huge deficit – that our government can still play a role in what happens locally.

First and foremost, now is not the time to be cutting back on state sector spending and government workers. Adding to unemployment will not help matters and will simply,

  • reduce overall consumption spending by unemployed civil servants
  • make it harder for 154,000 currently unemployed to find jobs
  • reduce overall economic activity

John Key needs to read up on our recent history and learn from the mistakes of his predecessors, Jim Bolger and Ruth Richardson.

He needs to understand that government cutbacks during a recession will not help – and will actually make matters much worse.

Instead, the incoming government should be considering the following;

  • Shelve all plans for further cutbacks
  • Abandon further cutbacks of state sector employees
  • Implement a crash training programme for those currently unemployed, removing barriers such as fees
  • Raise the minimum wage to $15 an hour
  • Compensate the increase in  minimum wage with a correlating tax write-off/reduction, for companies affected for one year
  • Increase the top tax rate for income earners over $100,000
  • Review Working for Famlies for those earning over $100,000

Some high income earners, businesspeople, and free marketeers may squeal at the above suggestions – but we either pay to keep our economy afloat and maintain high employment – or we’ll pay for  welfare, increased crime, social dislocation and other problems, as well more skilled Kiwis fleeing to Australia.

Why not pay to achieve positive outcomes instead of the proverbial ambulance at the bottom of the cliff?

Because either way, we will pay.

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Additional

Wellington hit with leap in mortgagee sales

Wellington furniture company in liquidation

Fourth National Government of New Zealand

The 1991 Budget and Tertiary Education: Promises, Promises…

Reserve Bank – Employment-Unemployment

Dept of Corrections: Prison sentenced snapshot trend since 1980

Annual figures for Bankruptcies and Liquidations since 1988

Chris Ford: National/ACT Coalition aiming to complete New Right revolution

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  1. Tom Sawyer
    2 December 2011 at 11:17 pm

    Depressing is all I’ll say.

  2. Gosman
    5 December 2011 at 4:16 am

    So how does removing large amounts of money from one sector in society and giving it to another actually benefit the economy again? Given the fact that NZ’s structural economic problem is due to a lack of savings how will increasing consumption and decreasing savings benefit us in the long run?

  3. 5 December 2011 at 7:33 am

    Gosman :

    So how does removing large amounts of money from one sector in society and giving it to another actually benefit the economy again? Given the fact that NZ’s structural economic problem is due to a lack of savings how will increasing consumption and decreasing savings benefit us in the long run?

    It will benefit low/middle earners precisely because (a) they will be able to purchase the products and services that a consumer society needs to be able to function. They will also have the income necessary to save.

    At present, middle/low income earners are in debt because their incomes do not meet their outgoings. Many cannot even meet basic outgings such as mortgages.

    Having the top 150 NBR Rich Listers increase their wealth by 20% does not achieve any of this.

    Wealth and production have increased markedly since the 1970s, but this has not benefitted society across all sectors. You would know this if you had looked into this a bit more closely, instead of relying merely on libertarian/neo-libeal claptrap.

    I refer you to this simple data, in graph form, which I’ve pointed out to you before on numerous occassions; https://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday

    It shows clearly how wages have not kept pace with productivity, and subsequently household debt increased.

    • Gosman
      5 December 2011 at 8:52 am

      For a start that graphic is based on US data so I fail to see the relavance to NZ expeciually considering NZ adopted far more radical right wing policies than anything the US ever did.

      Secondly you fail to deal with the fact that transfering wealth from high savers to high consumers means your overall saving rate goes down. This increases the cost of capital and is likely to mean our BOP position is even worse.

      This is why I don’t think ANY western democratic government is currently pursuing what you suggest we should adopt. Can you explain that? They can’t all be run by people who just can’t see the ‘truth’ as you see it.

  4. 5 December 2011 at 10:59 am

    “For a start that graphic is based on US data so I fail to see the relavance to NZ expeciually considering NZ adopted far more radical right wing policies than anything the US ever did.”

    Wrong. Precisely the same neo-liberal right wing policies apply to both countries – and the results are practically identical: a movement of wealth upward to the top earners, whilst low/middle income earners get less of the share.

    “Secondly you fail to deal with the fact that transfering wealth from high savers to high consumers means your overall saving rate goes down. This increases the cost of capital and is likely to mean our BOP position is even worse.”

    Again, wrong.

    Increased income doesn’t necessary all have to be spent in consumption. Some can be used to retire debt. Some can be used in compulsory super savings.

    “This is why I don’t think ANY western democratic government is currently pursuing what you suggest we should adopt. Can you explain that? They can’t all be run by people who just can’t see the ‘truth’ as you see it.”

    Wrong for a third time. (Strike three?)

    You forgot to add that practically every economy is now indebted to unprecedented levels; the gap between poor and wealthy has increased; incomes have dropped; and unemployment/under-employment is growing.

    You may have missed it, Gosman, but the world is teetering on the brink. These are all because of policies directly attributable to neo-liberalism.

    Hopefully, governments are beginning to wake up to the causes of this mess.

    • Gosman
      5 December 2011 at 11:40 am

      You really don’t understand economics at all. That is truly the scary thing about some members of the left. They don’t understand the fundamental concepts such as Consumption and Savings rates and Sovereign versus Private debt.

      If your solution to the problem was workable along the same lines you mention it would have very little impact on the economy at all. Yes you might pay down debt in the short term but then it is likely you will increase consumption once that debt has been paid off. People on the lower rungs of society tend to like to buy some nicer items for themselves once they feel they have some spare cash rather than save.

      You might get some benefit with compulsory savings in the longer term but are you seriously telling me that the Government will give people money via redistribution and then tell these same people they will be forced to save it? I don’t think that will go down very well politically. Also you will have bascially taken money that was being used as savings and spent a lot of overhead to move them to another part of the economy to be used for savings. I’d suggest not a very efficient use of resources.

      You keep mentioning that neo-liberalism has caused the problem in the world we face. Yet I fail to see any evidence presented that the problems of Greece, Italy, Spain, etc are caused by de-regulation and free market policies when the issue is with too much Government borrowing. Neo-liberalism talks about minimalising the size of the state. None of these nations have followed policies that have remotely reduced the impact of the size of the state on the economy. In fact the oppositie has taken place in many of these countries.

  5. 5 December 2011 at 2:19 pm

    “You really don’t understand economics at all. That is truly the scary thing about some members of the left. “

    And the irony of that remarkably inane statement?

    It’s not the Left that controlled the boardrooms of Wall St, New York. It’s not the Left that ran Lehmann Bros, Goldmann Sachs, General Motors, AIG, etc, into bankruptcy. It’s not the Left that was governing the USA.

    Was George W Bush a “Leftist” when he bailed out Wall St in 2008?

    Funny how you right wingers keep banging on about taking responsibility – and yet when the global banking crisis hit, you guys run for cover and blame the Left.

    Unbelievable.

    I wonder if this is what the Soviets went through when Gorbachev announced to the Politburo; “Comrades, we’ve given marxist-leninism a fair suck-of-the-sav, but it’s ain’t working, bros. We need to try something else…”

    As for what has happened in the Eurozone – it’s all inter-linked, Gosman. Whether tax evasion from the Greeks or the Germans knowingly funding Greece, or the $14 trillion debt in the USA – it’s all part and parcel of the fiscal madness that you and your fellow neo-libs promote.

    Time to wake up, Gosman – your beloved rampant “free market” and corporate greed is at fault here.

    Not “leftists”.

    Not a full moon.

    Not pixies at the bottom of the garden. (The pixies are toiling away in sweat shops, making pixie dust for rich Elves.)

    As for wages and spending; taking your comments in reverse, we might as well pay workers fifty cents an hour. Or day.

    That’s how ridiculous your premise is, when taken to it’s nonsensical conclusion.

    • Gosman
      5 December 2011 at 3:45 pm

      Germany, which you also seem to blame for the problems, also never followed standard neo-liberal economic policies. In fact it is quite the little Social Democracy that I thought you would be over the moon about. The trouble with Germany is it is too damn good at producing capital surpluses which they need to put somewhere. Given the Eurozone can hardly be called a neo-liberal enterprise, (ever tried to see what you require to open a business in France?), you can’t blame the fact that they sent there excessive Euro’s to countries that wanted to borrow them for unproductive State spending on neo-liberalism.

      • Priss
        9 December 2011 at 2:49 pm

        Maybe that’s why Germany is richer than us? They never followed the neo liberal economic policies that got us and the Americans into so much trouble.

  6. Gosman
    5 December 2011 at 3:27 pm

    “I wonder if this is what the Soviets went through when Gorbachev announced to the Politburo; “Comrades, we’ve given marxist-leninism a fair suck-of-the-sav, but it’s ain’t working, bros. We need to try something else…””

    Gorbachev never stated that. He was a Communist till the dying days of the Soviet Union and beyond. All he thought was that you could reform the system. The system was fundamentally flawed as it ignored basic human instincts and emotions. Capitalism doesn’t ignore these in fact it thrives on them.

    “As for what has happened in the Eurozone – it’s all inter-linked, Gosman. Whether tax evasion from the Greeks or the Germans knowingly funding Greece, or the $14 trillion debt in the USA – it’s all part and parcel of the fiscal madness that you and your fellow neo-libs promote.”

    Neo-liberalism calls for a contraction of the size of the state and prudent budgetary policies (i.e. you balance your Budget). George Bush presided of an increase in both the deficit and size of Government. In this sense he was more like Muldoon than Milton Friedman.

    Greece’s problems were both Tax evasion and excessive spending and excessively generous Labour and retirement policies. Neo-liberalism calls for an efficient tax collection system and claims high taxes causes tax evasion. This seems to have been proven true in the case of Greece.

    Neo-liberalism doesn’t call for bail outs of Banks either, It is quite happy, indeed it is to be encouraged, that the market will sort out the failures. The trouble is Governments haven’t been able to do so as they lack the political will to stand up to the Bankers (which you seem to mistake for neo-liberals for some reason).

  7. Gosman
    5 December 2011 at 3:31 pm

    By the way Goldman Sachs never filed for bankruptcy. It is in fact the most successful investment bank on Wall Street. You should also be aware that the TARP funds have largely been repaid. So in essence the Federal Government didn’t spend the Trillion’s you think they did proppoing up the banks but simply lent them the funds. Now it is debateable if they should even have done this and I would lean towards saying that they shouldn’t. It does once again show to highlight how your understanding of the situation is a little lacking.

  8. 5 December 2011 at 7:16 pm

    Gosman :

    By the way Goldman Sachs never filed for bankruptcy. It is in fact the most successful investment bank on Wall Street. You should also be aware that the TARP funds have largely been repaid. So in essence the Federal Government didn’t spend the Trillion’s you think they did proppoing up the banks but simply lent them the funds. Now it is debateable if they should even have done this and I would lean towards saying that they shouldn’t. It does once again show to highlight how your understanding of the situation is a little lacking.

    You’re right. It never filed for bankruptcy. It simply got a US$10 billion bail-out from the U.S. Treasury in October 2008, as part of the Troubled Asset Relief Program (TARP), plus another US$782 billion in borrowings from US Treasury.

    Whether or not the TARP fundfs were repaid or not is immaterial. The fact is that corporations such as Goldman Sachs had ready access to such a massive bailout.

    In effect, the US Government had temporarily “nationalised” Goldman Sachs.

    Goldman Sachs was also implicated in Greece’s economic troubles. http://www.spiegel.de/international/europe/0,1518,676634,00.html

    The corrupt hand of corporate greed extended well beyond US borders.

    Meanwhile, in Britain,

    ““UK Prime Minister Gordon Brown announces a government plan where the Treasury will invest £37 billion ($64 billion, €47 billion) of new capital into several major UK banks to avert a collapse of the financial sector. The banks include Royal Bank of Scotland Group plc, Lloyds TSB and HBOS Plc.””

    http://en.wikipedia.org/wiki/Lloyds_Banking_Group#Government_stake

    Thanks for asking.

  9. 5 December 2011 at 7:27 pm

    “I wonder if this is what the Soviets went through when Gorbachev announced to the Politburo; “Comrades, we’ve given marxist-leninism a fair suck-of-the-sav, but it’s ain’t working, bros. We need to try something else…””

    Gorbachev never stated that. “

    *facepalm*

    Gosman, you need to look this up.

    “Neo-liberalism doesn’t call for bail outs of Banks either, It is quite happy, indeed it is to be encouraged, that the market will sort out the failures. The trouble is Governments haven’t been able to do so as they lack the political will to stand up to the Bankers (which you seem to mistake for neo-liberals for some reason).”

    I’m quite aware that neo-liberalsm “encourages that the market will sort out the failures”.

    Unfortunately, Gosman, it’s ordinary folk who have to pay with losing their jobs (http://www.express.co.uk/posts/view/263963/Lloyds-bank-axing-1-300-more-jobs/), whilst the corporate elite continue to make obscene bonuses.

    You have made it quite clear, in the past, that you don’t care for ordinary people when they have to suffer for Wall St’s excesses. You’ve made it abundantly clear that you value ideology above human wellbeing.

    Well, guess what – that is precisely why Soviet marxist-leninism collapsed in the end; they too valued ideology above the needs of their citizens.

    And that is why neo-liberalism will go the way of Soviet communism; it doesn’t meet the needs of ordinary men and women and their families. When doctrine is placed on a pedestal above human needs, then eventually people will rebel and tear down that obscenity.

    The reason I’ve allowed your free-market, neo-liberal, ideological extremism here is that you’ve demonstrated far better than I ever could, the inhumane nature of your ideology.

    The simple fact is, you don’t care about other people, Gosman. Your ideology doesn’t allow it.

    For that reason, it is a failed system and it will fail, as did marxist-leninism.

  10. Tom Sawyer
    5 December 2011 at 11:57 pm

    Gosman :

    You really don’t understand economics at all. That is truly the scary thing about some members of the left. They don’t understand the fundamental concepts such as Consumption and Savings rates and Sovereign versus Private debt.

    If your solution to the problem was workable along the same lines you mention it would have very little impact on the economy at all. Yes you might pay down debt in the short term but then it is likely you will increase consumption once that debt has been paid off. People on the lower rungs of society tend to like to buy some nicer items for themselves once they feel they have some spare cash rather than save.

    You might get some benefit with compulsory savings in the longer term but are you seriously telling me that the Government will give people money via redistribution and then tell these same people they will be forced to save it? I don’t think that will go down very well politically. Also you will have bascially taken money that was being used as savings and spent a lot of overhead to move them to another part of the economy to be used for savings. I’d suggest not a very efficient use of resources.

    You keep mentioning that neo-liberalism has caused the problem in the world we face. Yet I fail to see any evidence presented that the problems of Greece, Italy, Spain, etc are caused by de-regulation and free market policies when the issue is with too much Government borrowing. Neo-liberalism talks about minimalising the size of the state. None of these nations have followed policies that have remotely reduced the impact of the size of the state on the economy. In fact the oppositie has taken place in many of these countries.

    Bit arrogant there, mate. He’s researched his stauff and given us the backgrounder. Saying that someone doesn’t understand it when you can’t disprove it seems a bit on the nose.

  11. 6 December 2011 at 8:22 am

    By the way, Gosman, let’s compare the Scandinavian economies on a very basic level, to that of neo-liberal New Zealand;

    GDP (PPP per person)

    Norway: $52,012
    Finland: $34,585
    Sweden: $36,502
    Denmark: $56,147

    New Zealand: $26,966

    Unemployment

    Norway: 3.4%
    Finland: 7.8%
    Sweden: 7.7%
    Denmark: 7.4%

    New Zealand: 6.6%

    Source: Wikipedia

    Gosman, not only is our GDP per person lower than Scandinavian societies, but our unemployment shows little appreciable difference.

    Our neo-liberal policies have no delivered the promised results – except for the top 150 NBR rich listers.

    • Gosman
      7 December 2011 at 11:01 am

      I have already highlighted to you and backed it up with articles that show that Swedish unemployment rates are much higher than the official rate. Also you continue to fail to address the issue of why a country with a far more social democratic nature has a higher structural unemployment rate than NZ.

      • Priss
        9 December 2011 at 2:48 pm

        Yeah but you ignored the bit about Swedish incomes being higher than ours and they still have better state social services. Imagine if our kids got a good wholesome meal at their schools!

  12. Paul
    6 December 2011 at 10:53 am

    I think your views are naive and simplistic Gosman. I refer your ongoing education to this:-

    “Pontusson, a distinguished political economist now at Princeton University, has done a very fine job of comparing the performances of the liberal market economies (in Ireland, the United Kingdom, and the United States) and the social market economies (in Austria, Germany, Switzerland, the Benelux countries, and the Nordic countries). With a wealth of statistics, he reaches conclusions that undermine many of the oversimplifications that have long encumbered debate. Pontusson shows that the social market model can mitigate the tradeoff between equality and efficiency. Several social market economies have had lower unemployment rates than the average for the liberal market economies, although job creation has been higher in the latter. The postwar welfare state has also, through cash payments and the provision of services, reduced relative and absolute poverty, and there is no evidence that it has undercut economic growth or lowered living standards. Pontusson recommends that European socialists and progressives consider liberalizing measures on employment protection, as long as such measures are accompanied by higher public income support for the unemployed and steps to improve their employability. Market liberals, he concludes, should not be allowed to “define the terms of the economic and social policy debate.”” http://www.foreignaffairs.com/articles/61824/stanley-hoffmann/inequality-and-prosperity-social-europe-vs-liberal-america

    If market liberals have it right then why is New Zealand lagging so far behind? Why did Ireland nearly collapse? Why is Italy nearly bankrupt when it was governed by a businessman billionaire? Why is the US on the brink of bankruptcy with a $14 trillion debt?

    I’m a swinging voter Gosman and the more I see in the world the more I think that market liberals don’t have the answers and are part of the problem.

    • 6 December 2011 at 12:11 pm

      Interesting, Paul…

    • Gosman
      7 December 2011 at 10:59 am

      “Why is Italy nearly bankrupt when it was governed by a businessman billionaire?”

      Ummmm… so you think he was an avid neo-liberalist do you? You actually think Italy followed neo-liberal economic policies? What basis do you make this claim?

      Here is a good article from The Economist about Sweden again, (although I suspect Frank won’t bother reading it as it doesn’t fit into his pre-conceived ideas about Social Democracies). http://www.economist.com/node/21541032?fsrc=scn/fb/wl/ar/outandhappy

      The article shows how Sweden under a center right government, (one which Frank deems to be neo-liberal for some reason), has successfully avoided the pitfalls of the European nations by being fiscally prudent. This is in contrast to say France which has spent up large and is now under financial pressure like the rest of the Eurozone economies. Yet the solution to NZ problems according to lefties is exactly the sort of things that are causing problems in Europe right now. More Government spending and Government debt.

  13. 7 December 2011 at 8:14 pm

    Gosman :

    I have already highlighted to you and backed it up with articles that show that Swedish unemployment rates are much higher than the official rate. Also you continue to fail to address the issue of why a country with a far more social democratic nature has a higher structural unemployment rate than NZ.

    Aas per usual, you haven’t taken note of anything I’ve said. Sweden has a centre-right government. They have implemented neo-liberal policies. Is it any wonder their unemployment rate has increased?

    That is but one reason.

    By the way, the stats I gave above were for 2010. Sweden’s current unemployment is 6.9% – almost the same as ours.

    “The unemployment rate in Sweden was last reported at 6.9 percent in October of 2011. From 1980 until 2010, Sweden’s Unemployment Rate averaged 5.53 percent reaching an historical high of 10.50 percent in June of 1997 and a record low of 1.30 percent in July of 1989. ” – http://www.tradingeconomics.com/sweden/unemployment-rate

    For New Zealand,

    “The unemployment rate in New Zealand was last reported at 6.6 percent in the third quarter of 2011. From 1985 until 2010, New Zealand’s Unemployment Rate averaged 6.25 percent reaching an historical high of 11.20 percent in September of 1991 and a record low of 3.50 percent in December of 2007. ” – http://www.tradingeconomics.com/new-zealand/unemployment-rate

    I note that you’ve ignored the fact that despite taxes being higher in Sweden, their average income, PPP GDP, per person is US$10,000 higher than ours.

    Yet, according to Friedmanite neo-liberal theory – New Zealand should have a higher average income because we’ve had neo-liberal economics here since the 1980s.

    So, something is seriously skewed in your land of the free market, eh?

  1. 7 February 2014 at 8:01 am

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