Scoop Election 08: edited by Gordon Campbell

On the Government’s bogus victory over price increases

October 19th, 2010

Out in the real world, it is hard to see why anyone would want to take credit for the current state of the economy. Economic growth is barely registering a pulse, and unemployment is forecast to stay above 5% for the foreseeable. Government policy is failing young people in particular – with 45% of those out of work being aged between 15 and 24 and unemployment among the young is around 18% overall. Faced with his dismal situation, most politicians would be hiding their head in their hands. Not Finance Minister Bill English, though. There was English yesterday, pointing to an inflation rate of 1.1% – the lowest annual rate since 2004 – as a sign of the good times under a National government.

In fact, English looked more like Wile E Coyote pedaling out into mid-air, and saying ‘So far, so good’ just before he plummets to the canyon floor. Not only did that 1.4 % omit the full impact of the GST rise – while reflecting how retailers deferred price rises until they could be passed under cover of the GST hike – the average CPI figure was an illusion that obscured far more than it revealed. Yes, the prices of non-essentials (eg major electronic appliances) have been slashed to lure in consumers, but meanwhile, the price of essentials rose at a rate well above the average. Here for instance, is the actual release http://www.stats.govt.nz/browse_for_stats/economic_indicators/CPI_inflation/ConsumersPriceIndex_MRSep10qtr.aspxfrom the Statistics Department on the CPI, and it showed vegetable prices – for instance – rising by nearly 20%, and power prices rising at more than double the inflation rate.

The food group rose 2.4 percent in the September 2010 quarter, with higher prices for vegetables (up 19.7 percent) and milk, cheese, and eggs (up 5.2 percent).

The housing and household utilities group rose 1.4 percent, with local authority rates rising 4.4 percent and electricity prices rising 2.8 percent.

In other words, the good news that English is spinning is bogus. By the middle of next year inflation is forecast to blow out to 5% or more. There is nothing in the policy settings likely to arrest the downward spiral. Since the government’s favored policy instrument of tax cuts delivers more money to those already better off, there will be a rise in income inequality, with all the added social costs in health and law and order that follow in its wake.

Unfortunately, English and most of his advisers live in the virtual world, and not in the one that most New Zealanders inhabit. That’s how come Treasury – in its recent paper submitted to the Welfare Reform Working Group – could call for a policy change aimed at tipping more sickness and invalids beneficiaries out into the jobs market, and onto the dole. It is as if Treasury has not noticed the recession, or that the jobs market is stagnant. Or that people are on sickness and invalids benefits for a reason. Or that the problem is a lack of job creation, and not the lack of motivation to work.

The real problem therefore is not to “incentivise” beneficiaries to work but to incentivise the state and the private sector to invest in jobs that pay more than the minimum wage. Devising that kind of policy though, is hard – far too hard evidently for the usual crop of Treasury advisers. Moreover, whenever Treasury do see other countries succeeding at state interventions that create genuine jobs and growth, they tend to object on moral grounds to such heresies. As a result, the only policy carrot perennially on offer is a tax cut for business – commonly frittered away as profit, and/or paid out to shareholders – which chronically, leaves the real economy spinning its wheels until business can get its next tax handout. So it has always been, since the tax cuts of 1988. They didn’t work and others since haven’t, either. Trouble is, Treasury has always wanted to be Gordon Gecko, but it has really been Jay Gatsby all along – and we know how The Great Gatsby ended up:

I thought of Gatsby’s wonder when he first picked out the green light at the end of Daisy’s dock. He had come a long way to this blue lawn, and his dream must have felt so close that he could hardly fail to grasp it. He did not know it was already behind him, somewhere back in the vast obscurity behind the city, where the dark fields of the republic rolled on under the night.

Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that’s no matter — tomorrow we will run faster, stretch out our arms farther. .And one fine morning….So we beat on, boats against the current, borne back ceaselessly into the past.

It will do no better on welfare reform. All the Treasury paper will do is stigmatise (as bludgers) a lot of people who are genuinely sick and/or disabled – while reducing the income of many by taking them off their current benefit and putting them on the dole. Since being out of work is stressful and makes people sick, their health will deteriorate, and many will then go back onto the sickness benefit. Come next year, you can bet Social Welfare Minister Paula Bennett will be out there trying to peddle this dismal and vindictive charade, as a government success story.

ENDS

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    1. 6 Responses to “On the Government’s bogus victory over price increases”

    2. By lyndon on Oct 19, 2010 | Reply

      See also Keith Ng on Public Address
      http://publicaddress.net/default,6912.sm

    3. By Gordon Campbell on Oct 20, 2010 | Reply

      Correction : in haste yesterday, I transposed the 1.1% September quarter inflation with the annualised rate. The annual rate is of course, 1.5% .

    4. By Geoff Dunbar on Oct 20, 2010 | Reply

      Excellent analysis, as always, Gordon! Problem is, when will today’s (1986+) Trasury boffins be encouraged (forced) into retirement? And who will do the encouraging?

    5. By Sean on Oct 20, 2010 | Reply

      Quite right Gordon, there is such a lack of actual good news that this government can offer, it has to pretend bad news is good.

      It is a worry for the government that it has to do this, but it is more a worry for us. How are they going to explain this piece of news I wonder? Poverty is character building?

    6. By Joe Blow on Oct 20, 2010 | Reply

      Yeah, it’s funny how 1.5% inflation is being tootled as the “good times” when it’s probably more a reflection of the economy doing badly. Inflation in food prices due to bad weather and an increase in local government charges is hardly the kind of economic growth we should be excited about. And a large part of the low inflation is probably also due to cheap imports due to the high NZ dollar. I guess that the only good side to the low inflation is that it also probably reflects the housing market staying nice and chill.

      Still I don’t think we should be beating up on tax breaks to business as business ultimately provide people with jobs and unlike with property investors it’s harder for businesses to get access to credit at the moment. I guess I prefer your main argument that the government could be doing more than pushing sickness beneficiaries into a job market that doesn’t exist (i.e. beneficiary bashing).

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