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A distorted economy

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Two graphs that summarise where we are economically as a nation, and without even looking at the tourism numbers, which are bad enough on their own.

First up, real estate prices for residential properties.

Those increases, in one year, are staggering. In dollar terms they exceed any “help” that any government, even one as spendthrift as Labour, can give to young, first-time home owners.

The price to income multiplier increased during the “nine long years of neglect” of National from 5.05 to 6.08. Under Labours stewardship it’s now at 8.61.

It’s been common wisdom for twenty years now that Aucklanders were cashing up and heading to the Waikato and Bay of Plenty. But since when are retired Aucklanders or Wellingtonians cashing up their houses and moving to Gisborne (almost 50% increase) or for that matter the West Coast (33.6% increase). There will be specific reasons for this inflation but they all boil down to factors driving the basic economic law of demand exceeding supply.

In Auckland those factors have been population growth increasing faster than homes can be built – which in turn is based on government immigration decisions on the demand side vs. building regulations and costs, and even more so the land-banking of city planning causing huge lifts in the cost of land, far beyond the increase in house value itself.

But can those factors be driving demand exceeding supply across the whole nation this time? Immigration has been basically zero for the last year and while land-banking and city planning are a nation-wide supply restricting problem there have not been dramatic changes in those factors in the last year, and some areas have always been more relaxed than others. So what’s driving this recent nationwide inflation?

  • Government changes on investment deductibility and the increased time over which the bright-line test can be applied (basically a Capital Gains Tax) mean that investors are deciding now it’s not a great time to sell, reducing the number of listings (supply)
  • Sensitive people are feeling the breeze of general inflation and take positions to protect their own capital base by lifting those sales from the market, further tightening supply. Better to sit on the potential capital gains, increase the mortgage and use that money to buy a new boat. Notice the increase in prices for second-hand boats, caravans and motor homes.
  • Interest rates pushed down in 2020 as the classic mode of Keynesian response to a potential recession. That increases demand, at least for a while.

The government must be hoping that this is just a one-off and that once the housing market has adjusted to a post-Covid world, things will settle down. We should all hope for that but I see merely the results of a “critical mass” of factors that have finally come together at one point in time rather than individually affecting the market at different times. Even if this spike cools down, the ongoing house price increases will still be greater than we can cope with.

Then there’s this:

That’s Fonterra’s share price in the last three months. An awful drop from $5 per share to $2.82 that exceeds the percentage drop in 2018. That last was caused by financial problems at the company. Problems that, like the housing situation, had been bubbling away for years, but which hit critical mass that year.

Fonterra has since cleaned up many of those problems and was looking pretty healthy internally, with a good payout. So what’s happened?

Professor Keith Woodford is on the case as usual with two articles in May that discussed what might be coming.

You can read the details in those two articles . The summary comes to five points, the first two being around proposals only.

  1. Reduce farmer requirements to own shares, with them needing to hold one share for every four kg of Milksolids supplied, compared to the current one share for every kg of supply. That last is a hangover from Co-op days when the shares were a nominal $1 that never changed as farmers joined and exited co-ops.
  2. Shut down or cap one arm of its two-armed share investors world, the Shareholders Fund. This Fund and the related Trading Among Farmers (TAF) scheme allowed a two-way flow of “units” and shares between the Fund and the Farmer share trades, which kept the price of shares and units within a cent or two of each other and supplied vital pricing information to both farmer investors and external investors.
  3. The Fund allows non-farmers to buy shares and get a dividend but with no shareholder voting. While there was talk about enabling the company to raise capital this way without trying to get cash from cooperative members, the real reason was to remove the redemption risk as farmers exited the company. Under the old co-op model they would not have had the cash to pay them out. The Fund and TAF would shift the risk.
  4. The flaw was that the only way TAF could remove the redemption risk should Fonterra lose a major number of suppliers was by taking on a new risk of losing control of the company to non-farmer investors.
  5. The risk now is not from exiting farmers but from a substantial and ongoing reduction in production, perhaps in the order of 10% to 20%, primarily driven by future environmental regulations around herd sizes. That’s one rock. The other is that farmers still want to control the company.

While only proposals, they did suspend trading before the announcement and they have cut the link between farmer share trading and the external fund, showing the future to investors.

Those investors, the market, have reacted badly to all of this and although it would be easy to say that this is just frippery that ignores the now “healthy” internals of Fonterra, the fact is that share prices tell us what the market thinks of any company’s future.

Clearly Fonterra’s and perhaps the rest of the dairy industry’s future in NZ is not good. What that means exactly for the wider NZ economy is another question, but clearly for some environmental and economic extremists like No Right Turn the message is the same as for the Huntly power station and the fishing industry: Let It Die.

Written by Tom Hunter

June 19, 2021 at 12:24 pm

How New Zealand should deal with China

with 4 comments

This post follows on from a comment made by my co-blogger, The Veteran, in his post on China:

Tom … cheap shot in the context of ACT’s penchant for unloading cheap shots on National. Guess that’s part of your strategy for growing the vote … might just backfire one day. But there’s nothing but nothing in all your writings to suggest a pathway forward in our dealings with China …waiting.

Fair enough, although my hands-off approach to commenting on New Zealand is one reason I’ve not done this before, and I doubt that the ACT Party will be much better than National or Labour on the China issues.

Also to be fair, it’s the Green Party that has been more prominent in speaking out on various China issues over the years, but by the same token I don’t expect anything concrete from them when they join Labour in government post 2023, given how they’ve caved to Labour on various matters in recent years.

So, to some ideas for how New Zealand can deal with China.

  1. Focus on slowly reducing our exposure to them in exports and imports. Sure, this is easier said than done but I think the focus must be on increasing our export/import trade with other nations, starting with getting that Free Trade agreement with a Britain newly liberated from the EU. Deliberately trying to shrink our trade with China is not likely to work so the emphasis has to go on building trade with other nations so that our proportion with China shrinks.
  2. Increase the frequency and volume of our diplomatic work with the nations facing China. The diplomatic side is symbolism but that’s damned important: make the Chinese observe that we’re getting on well with nations that they are attacking, like Japan, Philippines, Vietnam, and especially India. By the same token start restricting our meetings with the Chinese and make them as cold and technical as hell. No more warm fuzzies in public. There’s no need for bad-tempered, Trump-style attacks, just a cold shoulder combined with warmth towards nations they’re unhappy with.
  3. Increased defence associations with those same countries. If there’s a military exercise involving them, join it in every possible way: Army, Navy, Air Force. Again, this is not being militaristic (whoever would believe that about NZ nowadays), it’s a matter of making it crystal clear to the CCP that we’re not on their side.
  4. We often boast about our ability to work behind the scenes on big, global issues so let’s do that by trying to persuade the likes of the EU, Britain, the USA and other rich countries to start helping out those nations in Africa and elsewhere that have found themselves getting in coercive hock to the Chinese. We’ve long claimed that we can be seen as an “honest broker” with the smaller, less-developed nations of the world so we work on that side of the same solution to bring them to the table (a quiet backroom table away from the cameras) with the rich folk. It’s not as if those nations are still unaware of the infrastructure stunts China has pulled on them so they should be attentive as we try to build some speed bumps into the Belt and Road initiative.
  5. Criticise those US corporations and entities – especially the likes of Hollywood and the NBA – that are crawling on their bellies to the CCP for access to all those hundreds of millions of potential customers. New Zealanders love America-bashing so there’s little downside and in case you have not noticed, young people are not particularly impressed with Hollywood nowadays anyway.
  6. Put the squeeze on the New Zealand influencing operations of outfits like the Confucius Institutes. They’re nothing more than a CCP propaganda front in the education field.
  7. Clean up our laws on electoral donations to eliminate, or at least reduce, the possibility that CCP money is being laundered into the NZ political scene via Chinese businesses and their connections to NZ businesses. I’m sure this will give China apologist Michael Barnett (Executive Director of the Auckland Chamber of Commerce) a bad dose of the squirts but that’s just a plus in my view.

    The “Inner Mongolia Rider Horse Industry” may have sounded like a snickering insiders joke at first (wink, wink) but it’s not funny any longer.

Speaking of funny, if we did desire to be slightly more assholish to the CCP we could always trigger them by having this map displayed in a few key spots – Motorway billboards perhaps.

And with a great sense of timing here’s a Substack article that partially covers this, Why Republicans Must Rethink Antitrust:

In the early 1990s, we were reliably informed by neoliberal economists, including the Chicago School, that if China were allowed to engage in free trade and join multilateral organizations that the country would gradually democratize and embrace America as the world’s only superpower.

“We know now that this theory missed the mark by a wide margin. Instead of democratizing, China became a surveillance state (thanks in large part to the U.S. internet). Contrary to the Chicago School theory, China never engaged in free or fair trade. Three million jobs shipped from the U.S. to China over the past twenty years — and our children get defective toys and contaminated baby formula.

I once believed those things too. I no longer do. If the National Party wishes to continue living in 1980-2000 period then they face a Mitt Romney future.

Written by Tom Hunter

June 14, 2021 at 10:04 am

Stagflation and pretty graphs?

For two decades after the end of WWII, economists, bureaucrats and politicians were pretty sure that they’d nailed the problems of controlling a capitalist economy.

The ruling theory was Keynesianism, named after the famous economist John Maynard Keynes, whose key insight in the 1930’s was that in times of economic recession, and especially depression such as The Slump of the 1930’s, governments should not cut back on their spending but increase it.

Prior to that governments had always taken the same attitude towards a shrinking economy that households and businesses did: you cut spending in line with your falling revenues, tax in the case of government. Keynes argued that this was the wrong thing for governments to do; they were different because they controlled the creation of credit so debt was not the same threat to them. They could go into debt, perhaps quite a lot of debt, and keep spending money to keep the economy afloat until the private sector came out of its shell and started investing and spending again. The idea was not so much to inflate the economy as to stop a blackhole effect where the shrinkage fed on itself.

At least in the USA under FDR from 1930 on, and here in New Zealand under the First Labour government, the theory seemed to work although there were a few problems with the argument in that period:

  • The NZ economy was already recovering by the time Labour gained power in 1935 and its Finance Minister Walter Nash, although pushing big increases in spending, never let NZ go into the sort of debt Keynes proposed.
  • The US recovery stalled completely in 1937, with unemployment rising to 17% again. FDR’s own Secretary of the Treasury was appalled at the result after so much money had been blown. In the end it was the industrial powering up for WWII that got the economy growing and flattened unemployment.
  • Australia and Britain simply never took the Keynesian approach, yet there was no evidence that their depressions were any worse, nor their recoveries any slower than those of the US and NZ.
  • In 1946 Keynesian economists were terrified at the prospect of eleven million military men returning home to a nation where the government was already cutting spending in the form of ending huge military contracts for tanks, planes and guns. Their fears grew when a newly installed Republican House and Senate promptly cut spending even further in 1947. And from a GDP approach you could also see their point as it contracted by an incredible 11.6% in 1946 and another 1% in 1947. By contrast it shrank by 12.9% in 1932. But far from a second Great Depression the post-war US economy took off and kept powering away, with only occasional mild recessions for more than twenty years.
  • The so-called “neo-Keynesians” of the Kennedy Administration, figured that if Keynes theory could reduce unemployment down to 5% there was no reason why more Keynesian stimulus couldn’t soak up that last portion. An economy running at 100% all the time. BZZZZZTT: hitting-the-edge-of-the-envelope time again and Hello, late 60’s US inflation.

Still, the Keynesian theory settled in as Western governments coped with those mild recessions by following the formula of increased spending during a recession, as well as Central Banks dropping interest rates. It all seemed to work, even as Western Economies started to get changed by all this government intrusion.

What is neo-liberalism? Who are Reagan and Freidman?

To be fair to Keynes he always made it clear that when the economy started growing again governments should ease up on the increased spending and start paying down their debt in preparation for the next economic downturn. Suffice to say that those aspects have been increasingly ignored.

From the mid 1960’s on, it all began to turn pear-shaped. In the USA inflation began to take off with the impact of all the spending on the Vietnam War and LBJ’s Great Society programs (also Kennedy’s neo-Keynesians mentioned earlier). The Federal Reserve tapped the interest rate brake, government spending under Nixon slowed slightly – and caused a mild recession in 1970. Releasing the brakes on both factors, the economy started growing again, but so did unemployment and inflation, something that was not supposed to be able to happen together. It got worse when recessions hit again and inflation and unemployment kept climbing through the 1970’s, with only occasional and temporary drops.

Thus was born the word “Stagflation”, followed by people paying less attention to Keynes and more to the monetary theories of Milton Friedman, as well as the economic control critiques of Friedrich Hayek from decades earlier, together with the associated politics of Reagan and Thatcher (and here in NZ, Roger Douglas, Australia with Bob Hawke) as they tried to reduce government influence in the economy.

It must be pointed out that despite all the privatisations, de-regulations and fighting over those issues, when it comes to the Big Basics of government spending and debt, it’s as though nothing has changed.

Certainly with the rise to power in the 2000’s of the likes of Bush, Blair and others, plus the shocks of things like the NASDAQ crash of ’99/00, the 9/11 attacks and of course the Great Financial Crisis of 2008, the world of Big Government spending has returned in full force.

The Great Chinese Sinus AIDS pandemic of 2020 just added rocket fuel to it all.

Amidst all this – and I’ve covered much of it already in these posts…

This is not going to get better – Feb 2019

The Great Crash of 2034 – June 2020

$5,630,859,000,000 – August 2020

… the fact was that in each of these situations in the last twenty years inflation did not take off, and while the economy recovered far more slowly than the stimulus spenders of Obama’s time had hoped for, it did at least grow, and unemployment kept going down while inflation was nowhere to be seen. These happy times became even happier under Trump as the economy boomed through 2018/19 before hitting the Covid lockdowns.

With the slow (too slow) unlocking of the economy many people figured that things would get back to normal rapidly. Yes, the Cassandra’s were still harping on about the fantastic increases in government spending, government debt and government credit creation – but we’d heard all that before.

In the case of the GFC it appears that much of that credit creation did not get into the pockets of consumers, being swallowed up by the banks instead – who did actually manage to pay Uncle Sam back for the TARP program, with interest too. Noted Keynesian economist Paul Krugman was angry that the 2008-9 stimulus programs were so small: he argued for programs in the range of $2-3 trillion and for it to go straight into the pockets of consumers.

It took a decade but that’s exactly what the $2.2 trillion CARES Act did in early 2020, followed by smaller ($900 billion) spending programs in late 2020. Then came the $1.9 trillion American Rescue Plan under Biden.

There may be more to come, with the proposed $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan.

Krugman must be beyond joy at this moment.

Of course the thing about Cassandra was that she was telling the truth, and so in the Year of Our Lord 2021…

CNBC

Dow Jones estimates had been for 1 million new jobs and an unemployment rate of 5.8%.

New jobs were 266,000 and unemployment rate rose to 6.1%.

NASDAQ news:

The consumer sentiment index unexpectedly crashed to 82.8 in May from 88.3 in April. The decrease surprised economists, who had expected the index to rise to 90.4.

“Unexpectedly”! I always love that. Perhaps if those economists had paid a visit to a US timber yard or looked at the incredible increases in commodity prices across the board they might not have been so surprised about consumer confidence. Massive and rapid increases in prices tend to do that, of which the M2 chart above is merely one indicator. Here’s a better one.

Too much money chasing too few goods: supply vs demand. The oldest rule in the economic theory book. The only question is whether the US is going to add to the demand with those spending programs?

Of course, looking at this history of the last twenty years, it may not actually make any real difference to the path the USA is on, except possibly to act as a trigger point. As always the question is whether we’ll know that the trigger has been pulled. Mixing metaphors, we can be certain that a fuse has been lit.

Written by Tom Hunter

May 17, 2021 at 10:43 am

The Song Remains The Same

This is outstanding news:

Tens of millions of dollars have been spent on Auckland light rail since Labour came to power, despite there being no shovels in the ground to build it. 

Information released by Waka Kotahi-NZ Transport Agency (NZTA) shows $34.8 million has been spent since October 2017 on business cases, project management, legal costs, office space and equipment, and Ministry of Transport funding. 

With more projects like this we’re going to able to stand up and proudly proclaim to the world all the wonderful things we’re doing to halt Global Warming… whilst actually doing abso-fucking-lutely nothing about it.

Plus there’s the wonderful Keynesian effect of all that money passing through the hands of lawyers and consultants and into the pockets of Mercedes and Tesla dealerships and Auckland real estate companies.

Now be honest. What more could you want from a government?

The only problem is that they’re showing signs of becoming restrained:

The Government was left with a $47 million contingency in its $6.8 billion NZ Upgrade transport package after $211 million worth of rail projects were put into the package at the last minute.

This was despite repeated warnings from officials the contingency might be too small to pay for any cost blowouts.

Those warnings were prescient, as new cost estimates for the transport projects have led the Government to back away from promises to build everything they proposed a little over a year ago – something that could have been avoided had the projects been given larger contingency funding.

I’m sure they’ll learn from this and put in a bigger contingency for next year’s budget. About a billion dollars should do it.

On the other hand their extreme restraint in achieving anything may actually start being translated into spending as well, with that contingency problem perhaps not being the usual Labour screwup as an indicator of where they’re going, as Chris Trotter points out:

Let’s begin with the Labour Government’s decision to impose a three-year wage freeze on three-quarters of the Public Service. Under the old Political Rule Book, such an action would have been deemed extremely unwise. That rule book would have explained the sheer folly of effectively decreasing the purchasing power of some of the Labour Party’s most loyal supporters. This is hardly surprising: “Look after your electoral base.”; has always been the first and most important rule of electoral politics.

Chris thinks that this is all part of keeping onboard those National voters who crossed the aisle last year, but it’s more likely that Robertson has taken a look at the deficits and debt and finally got the wind up about blowing more money on stuff, especially as he considers how much of the spending to date has produced nothing of consequence or, in the case of poverty and healthcare, seen things go backwards.

To me it therefore seems quite a natural and logical progression for Labour to start down the He Puapua route of separate Maori development. As I have pointed out several times Critical Race Theory, which is currently shredding the USA, was always going to make it down here to New Zealand where it would be gleefully taken up by Maori activists and academics as an even more extremist extension of what used to be called Political Correctness (now “Woke” Politics).

But the reason why the political and activist Left have glommed on to it is that the traditional Left ideas have failed Maori, just as they’ve failed Blacks in the USA.

Public education. Public Healthcare. Social Welfare. And still Maori are suffering worse in education, health and poverty than other ethnic groups in our society.

What else has the Left got to offer Maori? Nothing, which is why this new ideology has taken hold so quickly on the NZ Left. I think it will ultimately prove to be even more useless than traditional Socialism, but for the moment it’s a salve for Maori activists and a possible electoral winner for White Leftists who otherwise have no idea what to do to improve their public institutions beyond simply dumping in more money.

There’s also increasingly a lot of moaning from the Left about why their wonderful Labour government can’t get anything done. Certainly a lot of this is due to their shambling incompetence; they are the most useless shit shower of a government that I’ve known in my lifetime.

But the simple fact is that you can’t build the same thing twice. Is Adern’s Labour government going to build another Social Security system? Another Public Healthcare system? Another building to house the bureaucracy for them? The low-hanging fruit was plucked by the First Labour government. There may be equally revolutionary things like a Universal Basic Income that they could try to implement, but I see no signs of such things from this government.

Which, as a Right-Winger, suits me just fine. I may even vote for them in 2023 on the sound basis that the more useless a government is the better it is for the individual.

But then I recall that even a government that’s too useless to build anything can still stuff things up badly by constantly saying “No” and stopping people doing things, and that’s so easy that even this government can do it. In fact it seems to be their speciality.

Labour 2023: Vote For Nothing.

If I could have just one extra promise from Labour though it would be that their post-2023 government spend less for nothing.

They’re catching up

Romania that is, to our economy.

But they’re not the only ones, as Michael Reddell demonstrates in his blog article, Productivity growth: failures and successes.

As regular readers know I have highlighted from time to time the eastern and central European OECD countries – all Communist-run until about 1989 – that were catching or moving past us. I first noticed this when I helped write the 2025 Taskforce’s report – remember, the idea that we might close the gaps to Australia by 2025, when in fact policy indifference has meant they’ve kept widening – in 2009, so that must have been data for 2007 or 2008.

Back then only Slovenia had matched us, and they were (a) small and (b) just over the border from Italy and Austria. The OECD and Conference Board numbers are slightly different, but by now probably four of the eight have matched or exceeded us (and all eight managed faster productivity growth than us over the last cycle). Turkey – also in the OECD – has also now passed us.

But in this post he decided to focus on an Eastern European nation that’s not in the OECD. Romania.

That trend looks relentless. Reddell also points out that Romania’s population has been shrinking as ours grew, courtesy of what he calls the “big New Zealand” approach. It should be noted that since GDP is calculated based on spending, largely consumer spending, which in turn means its pushed by population growth, the annual average GDP growth rate of 2.78% circa 2010-2017 was largely the product of a population growing at 1.52% per year in that period, which automatically gives you that much annual GDP growth. You’d have needed a Soviet style economy to not have at least 1.5% per annum growth.

If the last National government was bad, the Labour or Labour-led governments since 2017 have been worse. It is hard to think of a single thing they’ve done to improve the climate for market-driven business investment and productivity growth, and easy to identify a growing list of things that worsen the outlook – most individually probably quite small effects, but the cumulative direction is pretty clear.

One of the ways of seeing the utter failure – the indifference, the betrayal of New Zealanders – is to look at the growing list of countries that are either moving past us, or fast approaching us. Recall that for 50 years or more New Zealand was among the handful of very highest income countries on earth.

We still have advantages over such nations of course, largely thanks to our natural environment but also because we inherited an economy that counted as a developed one over a century ago; we had almost everything technological that nations like Britain and the USA had.

Most New Zealanders would rather live as we do than as Romanians do. They’re still recovering from decades of communist rule.

But that’s Riddell’s point: how much longer will that continue to be the case as these nations pass us in terms first of productivity and then economically, powered by that productivity advantage?

In the agricultural work I did this season almost every one of the drivers said they could earn more money doing the same work in Australia, Britain, Ireland and the USA, and many of them were heading to those places as soon as the season here was done and the Covid-border issues eased. In every case their flights and accomodation was being paid for. The foreign drivers mainly came for a working holiday, the locals were held back a little by family, but that was all.

The recent pay freeze on all government workers, which includes frontline staff like nurses and police, is not going to help, as this Kiwiblog commentator noted:

Yup, nurses are furious. They are already paid such a low salary that a nurse cannot dream of owning their own home without help from a male partner.

Two nurses on my partners ward have resigned already and shifting to Australia.

This one notes one method that will be applied:

But many are doing what my wife plans to do. Take unpaid leave while keeping her contract in NZ and go and work in Northern territories where she can earn 3 times her wage in NZ. Ok its hard work but she gets accommodation and food free plus her flights and a bonus. She will do one month every 6.

That is the future for New Zealand. It won’t be a collapse, but we will find it increasingly harder to compete with former “developing” nations for teachers, doctors, and nurses. Those well-trained doctors from Africa and the Indian continent that you so often see in NZ hospitals will not be replaced from the same sources as their nations catch up to us in wealth and can afford to pay as well, or perhaps better. Where we will get the replacements from if we’re increasingly doing little better or worse than the Developing World?

As far as Kiwis themselves are concerned, the older generations will stay here because we’ve done our stints overseas. However…

Before I had kids I used to idly talk about not encouraging any I had to stay in New Zealand, so relatively poor were the prospects becoming. It is harder to take that stance when it is real young people one enjoys being around, but…..at least from an economic perspective New Zealand looks like an ever-worse option, increasingly an inward-looking backwater.

My kids have not yet decided whether they’ll make the jump, but as they engage with the workforce they are under no illusions about the pay gaps with overseas nations as well as the housing costs (and other costs) here in our rather expensive little paradise.

Written by Tom Hunter

May 14, 2021 at 5:37 pm

Your Government Approved Hug is here

In case you were wondering whether the response of governments around the world to the pandemic of Chinese Sinus AIDS has set us on new paths of authoritarian control into the future, the following news out of Britain should tell you that the answer is “YES”.

What will enable this is not just the never-ending lust of politicians to control every aspect of your life but the cultural changes enabled by the disease response, including the way academia and the media treat this news:

Oh joy! Thank you, thank you government.

On the non-government good news front there is this longer term trend.

The prime reasons for this are:

  • The death of Mao Tse Tung in 1976.
  • The collapse of the USSR and it’s Eastern Bloc of slave states.
  • The pushback against Democratic Socialism starting in the 1980’s with Reagan and Thatcher.
  • The rise of the Southeast Asian states as part of the Pacific Rim growth.
  • The collapse of the post-colonialist regimes across Africa in the last twenty years. Despite various awful events that continent is actually growing its GDP quite well and may be on the verge of a China-type period of economic expansion. Given its population growth rate they need to.

A reader has raised an interesting question as to the worth of that $700 in 1968 vs today. The answer is that it’s worth $US 5,327.99 in 2021.

Of course that begs the question of what is meant by “inflation”, and the following chart has a very interesting take on that. Of course it’s the USA and only since 2000, but still.

There is also this as food for thought on things getting better.

Written by Tom Hunter

May 12, 2021 at 2:11 pm

Always Scotch. Always drunk. Always critical. Always brilliant.

A few days ago I put up a post about the catastrophic collapse of TV viewership ratings for Hollywood’s annual, ritual orgasm of self celebration, The Oscars: Die Hollywood, Die.

Once again here are the figures for yet another industry that’s destroyed itself by going full Woke (and New Left).

But as an update on this I thought I would throw in this wonderful piece from The Critical Drinker, drunken Scottish movie critic par excellence. Watch, laugh, and then check out his reviews of individual movies.

My only difference of opinion with him is that I’d be quite happy for Hollywood to burn to the ground. Fortunately, they’re apparently determined to make the wishes of Right-Wingers like me come true.

And I say that as someone who loves the movies.

A free bag of Chocolate Fish for anybody in the comments who can identify even 50% of the movies whose clips he shows: WARNING: they’re fast.

Book Review: The things that endure

Some years ago I was cleaning out a garage when I came across some old cooking pots my parents had used. They were rusted but I vaguely remembered their shapes and when I examined them closely I found that there were old rust holes that had been mended using some sort of screw/tap device that I suppose was sold at hardware stores at the time.

Nowadays of course we simply throw the pots out since it’s cheaper to replace than repair. I doubt such repair kits are even made any longer. But then my parents had come of age during The Slump; you patched and repaired everything, only stopping when total destruction occurred.

By contrast I worked in the IT industry for thirty years, where you became well aware of how transitory are some of the things that humans build. A computer system might last ten years before it is replaced, the hardware going faster than that.

There are exceptions that prove the rule. In the insurance industry it was quite common to find software that had existed for decades, because the policies it supported, usually life insurance, had not changed, the business still had to be run, and software doesn’t wear out. Back in the late 90’s, while doing a Y2K review in the USA, I found one small piece of Assembler code that had been written in 1967. We were all astounded. Pre Moon Landing! So-called legacy software systems are a story for another day.

So I was interested to come across a book written by a computer scientist turned homesteader, who changed professions mid-career out of a desire to spend more of his time “building things that will last.” Talk about speaking directly to my soul. The book is called Durable Trades, by one Rory Groves, and it can be regarded as a career guide, a history book, and perhaps a philosophical treatise as well:

For too long, work has driven a wedge between families, dividing husband from wife, father from son, mother from daughter, and family from home. Building something that will last requires a radically different approach than is common or encouraged today.

In Durable Trades, Groves uncovers family-centered professions that have endured the worst upheavals in history—including the Industrial Revolution—and continue to thrive today. Through careful research and thoughtful commentary, Groves offers another way forward to those looking for a more durable future.

The foreword by a Dr. Allan Carlson addresses the point a bit more directly:

“While almost every other ‘career book’ buys into the argument that workers will need to completely retrain every five to seven years just to keep a job, this author proves that there are many rich and rewarding forms of labor with astonishing records of durability.

Mr. Groves recovers a profound truth: a job is not an end in itself; it is rather one means – and only one means – toward building a rich and satisfying life, toward human flourishing.”

In defining what he considers a “durable” trade, Groves draws on lessons from the past.

Defining “durable” has not been easy. I wanted to know which types of businesses have been the least affected by external factors throughout history, place, governments, economic cycles, invention, and social upheaval. Which trades have endured for centuries and still exist today? Which trades are the most family-centric? And, of course, which trades do all this and still provide a living? Conversely, which trades are overly dependent on brittle systems and therefore not likely to withstand economic, societal and technological upheaval?

That last sounds awfully tough, given how technological change can hit society in ways we can’t imagine. I’ve also always been a little suspicious of the Back To Nature movement that sprouted with the hippies in the 1960’s, but which has occurred countless times in Western societies and which has echoes in this book. For example in the first chapter, Groves explores the changes that have occurred since the Industrial Revolution began:

“as societies face problems, they increase in complexity in order to solve them

At the founding of our country, there were at most a few dozen distinct occupations,” he says. “Within 100 years that number had risen to over 8,000. Today there are over 30,000 occupations, with dozens of new specialties being invented daily.”

In comparing jobs in 2010 to 1900 Groves notes that in the latter age, agriculture, mining, fishing, and forestry were at the bottom of a pyramid; secondary professions (manufacturing, processes, construction) were in the middle; tertiary, or service, jobs (sales, health care, banking, law) were above that; while at the top, occupying a tiny space, is what Groves calls the quaternary, or knowledge, professions (research, education, engineering).

The pyramid representing 2010 is inverted, with knowledge professions at the top, with the primary professions occupying the smallest portion of U.S. employment.

“Within a relatively short timeframe, Western nations have come to rely on a minuscule proportion of their fellow citizens to supply the vast majority of their needs,

“efficiency became our highest virtue, and with it, generational stability collapsed.” [The factory] “replaced the family as the primary means of sustenance” and opportunities for “apprenticeship, relationship, and cross-generational continuity of values and culture disappeared.”

Ok, this oft-written lament has elements of truth to it and the Industrial Revolution has been slammed from the very start as a process that crushed what it means to be a human. Blakes famous poem, And did those feet in ancient time, with its unforgettable phrase of “Dark Satanic Mills”, setting the scene for such thoughts all the way up to the 20th century and the Unibomber’s Manifesto, the actual title of which is Industrial Society and Its Future:

But the fact is that the efficiency of production enabled by both the technology and the idea of the Industrial Revolution has resulted in human beings living healthier, wealthier, and longer lives than ever before. We do rely on only a tiny proportion of people for much of our needs, but I’ve no great desire to go back to harvesting crops by hand along with hundreds of others in the fields.

The whole question turns on what one considers a rich life! I think we are living a much richer life than our ancestors but I’ll grant you that it may be “rich” only in corporeal terms; more and better food and healthcare for example. Groves’s argument that it has made us poorer in terms of human relationships, particularly the family, is probably true as our world increasingly atomises us. The decline of many face-to-face teenage group activities, taken for granted just a couple of decades ago, in the face of hooking up with a network of friends via phone app, is merely the latest example.

“If quality of life consists merely of the abundance of possessions, if our value to society is based solely on our productive capacity, if money, things, careers and people are perpetually becoming obsolete, what have we profited by gaining the whole world?”

Fair enough and the further we advance the larger that question will loom.

In any case Groves, after studying occupations spanning the past four centuries, developed a five-part scoring system to evaluate the merits of each. Each trade on his list has survived for at least 230 years, “and in most cases several thousand years.” The ranking was based on:

  • Historical stability (20%)
  • Resiliency (15%)
  • Family-centeredness (35%)
  • Income (20%)
  • Ease of entry (10%)

I won’t spoil the book by listing all the results but I have to say that while I agreed with some of his “top-10”, such as cooks and brewers, the number one trade of “Shepard”, which he further defined as rancher, livestock farmer, dairyman puts the methodology in question. Second on the list is “Farmer”, but in both cases we’re talking about trades that have drastically declined in the West as the animals they shepard are increasingly corralled into factory-type settings that can barely be called farms, and crops are grown in ever-more controlled settings such as vertical farming (H/T Ele at Homepaddock)

1 indoor acre = 4-6 outdoor acres or more depending on the crop: strawberries: 1 indoor acre = 30 outdoor acres

Dairy farming has large elements of the factory about it already; rising every single day at 3am to do exactly the same thing you’ve done a thousand times before. Still, a lot of people love it and at least there’s other farming stuff to do, but dairying has continued to push in the factory direction, certainly in the Northern Hemisphere, where cows never walk in paddocks but sit in stalls. New Zealand is a freak in the industry and given the rising capital costs and environmental restrictions you have to wonder how far away we are from following our Northern cousins. There are cut-and-carry dairy units in NZ already.

To be fair Groves does caution that his research focused on historical data rather than projecting which professions might be important in the future. Still, the longevity of professions that made the list are certain to give readers pause before writing off the trades in favor of more modern professions, especially since many of those office jobs are themselves under threat from IT developments.

We also have to consider the possibilities of a post-industrial society, where many of Groves’s trades may become hobbies, backed by a Universal Income Benefit as a result of the wealth spilling over from automated production in which most everything becomes a commodity.

Although he naturally does not explore such things since that’s not the point of the book, I think it’s worth your while to read it, whether you’re a student or a parent trying to figure out career and educational paths for your kids, or a mid-career person who is staring down the barrel of future obsolescence or stuck in a barren career path. Certainly Groves’s summing up is sobering:

“If there is anything that can withstand the nihilistic effects of modernity and the uncertain outcomes of our high towers, it will be families that are reclaiming critical functions at home—education, apprenticeship, discipleship—and working together towards a common vision to which they have been called

[the family economy] has been the context by which parents pass their faith, culture and values on to their children for most of human history.”

Written by Tom Hunter

May 5, 2021 at 12:00 pm

The spoon is long enough

In the spirit of blogs supporting one another I urge readers to read this rather long article, Economic Coercion, over at the Croaking Cassandra blog site run by economist Michael Riddell.

The article deals with the question of whether New Zealand can afford to confront China over its actions in recent years, specifically in the South China Sea and with its Uighur minority.

Most articles have focused on the geo-political and human rights aspects of these actions, of which this article over at the Kiwipolitico blogsite, by foreign policy analyst Paul Buchanan, Facing Facts, is a good example. I recommend you read it also. Buchanan argues that the 5-eyes partnership is not going away and is not going to be materially affected by any frictions that may arise between the partners in dealing with China. He also points out that China has nothing like the 5-eyes network but is instead reliant on old-fashioned human intelligence. But he also includes this piece regarding our economic relationship:

New Zealand is now essentially trade dependent on the PRC. Approximately 30 percent of NZ’s trade is with China, with the value and percentage of trade between the two countries more than tripling since the signing of the bilateral Free Trade Agreement in 2008. In some export industries like logging and crayfish fisheries, more than 75 percent of all exports go to the PRC, while in others (dairy) the figure hovers around 40 percent.

The top four types of export from NZ to the PRC are dairy, wood and meat products (primary goods), followed by travel services. To that can be added the international education industry (considered part of the export sector), where Chinese students represent 47 percent of total enrollees (and who are a suspected source of human intelligence gathering along with some PRC business visa holders).

Buchanan argues that this is why, in her recent “Taniwha and Dragon” speech, our Minister of Foreign Affairs was subtly saying that New Zealand needed to diversify away from China, without actually sticking it to them in a way that would get their backs up. I’m not sure I would read that much into such “subtlety” as it appeared to be one small sentence rather than a sustained argument and as such it amounted to the bleeding obvious.

Riddell’s expertise is economics and his article tackles this assumption, quoting National’s Gerry Brownley for a start:

“But you have got to bear in mind that there are hundreds of thousands of New Zealanders at work today largely because of our trade with China. It is not a simple matter, it is not a straightforward matter, it is one the Government should definitely have a position on.”

But as Riddell points out, statistics like “30 percent of NZ’s trade” can be deceptive:

And, yes the PRC recently moved a bit ahead of Australia as the country where the most two-way trade is done with, but – as people have noted for decades – one notable thing about New Zealand is that our trade isn’t very concentrated with any single other country/region (much less so than is the case for Australia). Total New Zealand exports to China, pre-Covid, were about 5 per cent of GDP.

Moreover, he points out that coping with economic blows from general things like recessions in the USA, or China, is what we try to do all the time, and what our systems are set up for:

A severe and sustained recession in China would represent a significant (but cyclical) blow to the world economy, and to New Zealand – and would do so whether or not New Zealand firms traded much directly with PRC counterparts. That is also true – as we saw in 2008/09 – of severe US recessions. That sort of shock – and others like them, at home or abroad – is why we have a floating exchange rate and discretionary monetary and fiscal policy.

And this is before we consider the rather strange fact that…

… contrary to the rhetoric about being a “small highly open economy”, actually the share of our economy accounted for by foreign trade (exports and imports) is (a) much less than one would normally expect for a country our size, and (b) has been shrinking. 

Like Buchanan he lists the areas of exposure as export education, tourism, and our commodity exports of dairy, forestry, meat, and seafood, and then looks at those specifically, noting in particular that the first two would be the ones most exposed to China, but which have already been dealt a huge blow by Covid-19 anyway so at present they’re not a factor when thinking about Chinese retaliation.

Riddell acknowledges the obvious, which is that specific businesses could get hurt, but there are some general economic aspects that apply.

The world price for commodity products is determined by world demand and supply conditions, a point given far too little attention in the timid New Zealand discussion of PRC issues.

To a very large extent, countries (all of them) make their own prosperity (or lack of it).

China didn’t make us rich or poor. It made China first (last century) poor, and eventually middle-income.

In other words, the argument that our FTA with China “saved” us after the 2008/9 recession, is a myth in the face of the fact that our total trade share of GDP was falling not rising over this period, that New Zealand’s productivity performance over this period was woeful, and that it took 10 years for our unemployment rate to get back to pre-recession levels.

By the same token, China is not actually in a position to “punish” us if we speak out against some of the things they’re doing. Riddell takes the specific example of Australia, much in the news recently as having been given some of that punishment. Again, there are specific businesses that have been hurt. However:

What we don’t see is any sign of severe economywide consequences: there is no mention of the issue (or risks) in the Reserve Bank of Australia’s latest (lengthy) minutes (by contrast, changes in New Zealand population growth actually get a mention). It seems to a third-order issue at a macroeconomic level – and the overall economy is what governments should be thinking about when they consider economic risks and consequences.

Of course, people will point out that China has not yet tried sanctions on Australian iron ore (but they did with coal, only to run into problems, because they still needed coal).

Australia, has 30 per cent of the world’s iron ore reserves (and a larger share of production) and China currently consumes a very large share of world iron ore production, so how badly are the Chinese willing to hurt themselves? The classic problem for people who want to use trade as a weapon is that you end up punishing yourself. Admittedly that may worry the CCP less than it would a democratically elected government, but even the CCP treads carefully when it comes to economically screwing over its people. Riddell makes that point in looking at the specifics of some of the other countries that China has targeted and notes the gap between China’s demand for dairy products and their local production.

He also makes the point that while these firms might have warranted sympathy a few years ago when these issues were not present and coercive tactics were not known, they are now trading with their eyes wide open to the risks and if they continue to do so that is no reason for a New Zealand government to cover for them.

He sums it up:

… we have macroeconomic policy for, fiscal and monetary, to help smooth the economy in the face of disruptions, whether Covid, coercion, or whatever.

Whatever the potential disruptions for individual firms – and they are real (for them) – it simply is not credible – given the (smallish) size of our total exports, the commodity nature of most, the share of trade with China – that any sort of conceivable economic coercion would represent a serious sustained threat to the New Zealand economy.

It’s worth that cost to confront the PRC about the stunts they’re pulling, and if they want to punish us then we’d be better off reducing our exposure with them anyway.

For the last twenty years I’d hoped that trading with China might soften the CCP’s approach to things: not that I expected them to become a democracy, but that they’d go easy on Hong Kong (as they did for twenty years) and Taiwan. And for a while – especially with term limits applied to their Communist party General Secretaries, which while not exactly democracy, at least had the same effect of preventing the rise of the usual Communist cult-of-personality – it seemed to be okay, as former Australian PM, Tony Abbot pointed out in recent article in The Australian. He had the same hopes most of us had.

But the rise of Xi Jinping has changed all that. The trade approach hasn’t worked. Worse than that, rather than us exporting our values to China they’re exporting theirs to us, primarily the choice to throw our morals and ethics to the floor for the sake of money. It worked with the Chinese people after Tiananmen Square and the CCP leaders are betting it will work with us too.

So far they’re right.

Written by Tom Hunter

May 2, 2021 at 6:00 am

The Power and The Glory

I don’t like linking to MSM sources, especially the $1 item known as Newsweek, but if they’re willing to publish an article by J.D.Vance then I figure it’s worth it.

Vance is the author of the massive best-selling book, Hillbilly Elegy, published in 2016 and foreshadowing the rise of populism within the Republican Party, epitomised by the political success of Trump that year in winning the GOP Presidential primary and then the 2016 election:

Vance describes his upbringing and family background while growing up in the city of Middletown, Ohio, the third largest city in the Cincinnati metropolitan area. He writes about a family history of poverty and low-paying, physical jobs that have since disappeared or worsened in their guarantees, and compares this life with his perspective after leaving it.

But in the Newsweek article Vance describes the new world he has been increasingly encountering as he begins to move through “elite” circles, courtesy of the success of his book (recently made into a film by Ron Howard). It’s a bit of shock to say the least:

One of the things I had no idea about, coming from a working-class background, is that America’s ruling class loves to celebrate how much power and money it has. I call these “masters of the universe” events, and they’re held all over the country in fancy hotels, ski lodges and beach resorts. On this particular evening, my wife and I found ourselves at a roundtable with the CEO of a large hotel chain on our left, and a large communications conglomerate on our right.

The Republicans, we’re often told, are the party of the rich and famous. Yet nearly everyone assembled at this dinner simply loathed Donald Trump. He was the focus of nearly every conversation.

Nothing unusual about that but then my background is not as harsh as Vance’s; I’ve always been aware of how many rich people are left-wing.

Well, “left-wing” about certain subjects, but not others, those closest to their moneymaking hearts:

And then the hotel CEO announced, “Trump has no idea how much his policies are hurting business. I mean, we can’t keep people for $18 an hour in our hotels. If we’re not paying $20, we’re understaffed. And it’s all because of Donald Trump’s immigration policies.”

There are those in the Free Trade/Free Market world who treat immigration as simply one facet of that, which it is. The likes of Peter Creswell are especially vociferous about having completely open borders: Open Borders Are A Trillion Dollar Idea.

But as Vance puts it from his perspective:

Let’s pause for a second to appreciate one of the wealthiest men in the world complaining about paying hard-working staff $20 an hour. The only thing he was missing was the Monopoly Man hat and cane.

And I’ll bet he voted for Joe Biden and probably every Democrat down the line, on that issue alone. Increased tax rates he can ignore.

His argument, while vile, was at least intellectually honest:

“Normally, if we can’t find workers at a given wage, we just get a bunch of immigrants to do the job. It’s easy. But there are so few people coming in across the border, so we just have to pay the people here more.” 

Something which showed up clearly in the income stats for 2018-2019, with the lowest income levels making the biggest gains in more than twenty years, not to mention the positive impact on Black and Hispanic rates of employment. Vance nails the central point:

It’s about money. Nearly every major business and financial leader in this country is a supporter of the Democratic Party. They love illegal immigration for the simple reason that their livelihoods are subsidized by illegal immigration—while illegal aliens themselves are subsidized by the taxpayer. It’s a redistribution scheme from the poor to the rich. More immigration means lower wages for their workers and easier access to servants for their decadent personal lives.

Yeah, those lawns aren’t going to mow themselves, and this redistribution scheme is protected by that magical word, “racism”.

Written by Tom Hunter

April 6, 2021 at 10:55 am