Friday, 10 March 2017

The Superannuation Crisis Nobody's Talking About.

Outdated Assumptions: None of the Right’s nostrums adequately address the devastating impact which the rising trend of young people renting, rather than owning, their dwelling-places is bound to have on the affordability of NZ Superannuation. The key assumption of the present system is that a very large proportion of New Zealanders aged 65-and-over will continue to enjoy freehold possession of their own home. NZ Super simply isn’t configured to provide an income large enough to cover not only the over-65’s basic living expenses, but their accommodation costs as well.
THE ACCEPTED WISDOM concerning NZ Superannuation is that it will become unsustainable if nothing is done to make it more affordable. I agree. But what the acceptably wise believe needs to be done, and what actually needs to be done, are two very different things.
There is no institution more acceptably wise than the New Zealand Treasury – and its prescription for NZ Super is harsh. Not only does it favour the age of eligibility being pushed out beyond 65, but it also wants that to happen a lot sooner than 2040.
And that’s by no means all. To rein-in the long-term cost of the scheme, Treasury also favours changing the way the quantum of NZ Super payments is calculated.
As is so often the case with Treasury, however, there is more to these gnomic prognostications than meets the eye.
In political-economic terms, Treasury is as dry as the Atacama Desert. As both the fountainhead and champion of neoliberalism in New Zealand, it operates according to a remorseless set of right-wing ideological assumptions. None of these are compatible with the principle of universal entitlement which lies at the heart of the NZ Superannuation scheme, as presently configured.
Indeed, Treasury’s recommendations have very little to do with NZ Superannuation, per se. Rather, they are based on what it considers to be an “acceptable” level of long-term government debt. This it has set at 20 percent of GDP.
Possible policy pathways to this ideologically arrived-at figure include: quietly enhancing the revenue-gathering effects of fiscal drag; increasing the rate of GST; and significantly reducing government spending on health.
It’s easy to see why the Prime Minister chose the option of “reforming” superannuation!
Equally easy to see is Bill English’s determination to lead an “Austerity Government”. Reducing long-tern Crown indebtedness to 20 percent of GDP is simply not achievable without savage cuts in public spending.
The biggest public spenders, by far: NZ Superannuation, Social Welfare, Health and Education; will be the first to feel English’s austerity lash. If the National-led Government is returned for a fourth term, then New Zealanders should brace themselves for the same sort of harrowing headlines currently besetting the UK and Europe.
None of the Right’s nostrums, however, adequately address the devastating impact which the rising trend of young people renting, rather than owning, their dwelling-places is bound to have on the affordability of NZ Superannuation.
The key assumption of the present scheme’s defenders is that a very large proportion of New Zealanders aged 65-and-over will continue to enjoy freehold possession of their own home. NZ Super simply isn’t configured to provide an income large enough to cover not only the over-65’s basic living expenses, but their accommodation costs as well.
Those Generation Xers who airily opine that “superannuation probably won’t be there for me”, really need to think this through. Are they truly that confident of their ability to save a capital sum large enough to carry them through their old age unaided by the state? And if not, how do they see themselves surviving on a pension currently set at a figure well below their weekly accommodation costs?
A Treasury less obsessed with leading us further into the arid wilderness of free market economics would already be grappling with this looming social disaster. A government genuinely concerned with the future welfare of its younger citizens would be demanding answers – right here, right now.
Politicians of the Left, in particular, should be looking at the interlinkages between housing unaffordability and the increasingly insupportable burden NZ Super is predicted to become in 30-40 years’ time.
This is not a Baby Boomer crisis: it is a crisis which, if a radical revision of New Zealand’s entire system of economic management is not undertaken more-or-less immediately, is going to engulf the Boomers’ children and grandchildren.
The re-design of our welfare state must begin now. Not on the basis of meeting the arbitrarily determined targets of ideologically-driven fanatics, but on the basis of meeting the measurable and predictable needs of the entire population. Everything must be thrown into the mix: taxation policy; housing policy; health policy, education policy and, most importantly, how to guarantee a living income to young and old alike.
The alternative to systemic change is systemic collapse. With old age becoming, once again, a looming spectre of misery, loneliness and despair.
This essay was originally published in The Waikato Times, The Taranaki Daily News, The Timaru Herald, The Otago Daily Times and The Greymouth Star of Friday, 10 March 2017.


Guerilla Surgeon said...

Austerity doesn't work. Some of us always knew it doesn't work, and some such as the World Bank, have finally come to the conclusion that it doesn't work. As far as I know it only has a chance of working if you are the only country doing it. (Presumably among your trading partners or something.) And yet conservative governments still insist on imposing it. So the obvious conclusion is simply that they do it for ideological reasons rather than practical ones. Personally I think it's time treasury was cleared out. It's been a long time now since anyone who wasn't the driest of dries could actually get a job there. At the very least they should clear out the top level and appoint people who are willing to offer jobs to people with a variety of opinions. Then at least there would be some – presumably evidence-based – debate.

Victor said...


I agree that our current Superannuation arrangements are inadequate to meeting the housing and other needs of non-home-owning retirees.

I also agree that Super at its current level is affordable if we're prepared to give up our (from the austeriac point of view) exemplary low debt to GDP ratio.

As I understand it, this currently stands at 24.6%, as compared to the USA's 104.1%, the UK's 89.2% and Japan's massive 229.20%. Even the tight-wad Germans run a ratio of 71.2%.

I'd genuinely like to hear from austeriacs as to why they think the skies would fall in if we lost our low debt ratio status, let alone failed to get that ratio down to the magic figure of 20%. Is there something I'm missing here?

By the way, I'm not impressed by those who claim that Super at its current level has suddenly and unexpectedly become affordable because of more people staying on in work after their 65th birthdays and because of a growing tax base, due to immigration.

Firstly, I'm not convinced that everyone working beyond the age of 65 is doing so completely voluntarily. Moreover, keeping the elderly in work may well reduce job opportunities for others and may, therefore, in the long term, prove neutral in revenue terms.

Meanwhile, obviously, immigration flows wax and wane in accordance with global economic pressures and there's no guarantee that, even if we wanted to, we could continue to guarantee current immigration levels or (in some circumstances) prevent a renewed wave of expatriation, such as we experienced before the GFC.

Rather, I believe Super in its current form to be affordable because we have a low level of indebtedness, could raise that level without placing such prosperity as we enjoy in jeopardy and have an effective savings mechanism available in the Cullen Fund.

But, I agree with you, we have to go beyond current arrangements in contemplating a future in which both property ownership and steady jobs will become rarities.

The obvious answer seems to be UBI, in some form or other. I'm interested to learn that Justin Trudeau's government is looking at it (following the experiment in Manitoba in the 1970s) and that it's also being championed by Benoît Hamon, the Socialist candidate in the French presidential election. Is it too hyperbolic to describe UBI as an idea whose time has come?

Personally, I'd favour a restriction on UBI, so that it didn't become accessible till your thirtieth birthday. That way, as many people as possible would be motivated to experience the discipline of (sometimes uncongenial)work. Not to have to do so, might encourage a lifelong aversion to effort, not to mention alienation, marginalisation and the excessive use of recreational drugs. This restriction would stretch the pot's contents further and allow for higher payments.

Over time, you might then be able to reduce Superannuation payments to the same level as UBI, as all citizens would have had the opportunity to benefit from constant payments over several decades. But equity might require a hiatus of twenty or thirty years, during which Superannuitants are "grandparented" at existing rates.

Either way, UBI and Super could quickly merge into a unified, quasi-universal series of payments, requiring very little administration and avoiding the economically and morally perverse aspects of means-tested benefits, whilst providing a permanent stimulus for the domestic economy.

What's not to like?

I await the tirades......

Jens Meder said...

Good on you Chris for identifying the superannuation sustainability problem as the welfare state sustainability problem for our descendants, because the through the austerity of having built up the "Cullen" NZ Super Fund - our retirement welfare is apparently still sustainable until it has been consume ?

So - what about amending the NZSF into a permanent institution, and building up an adequate contributions rate and resultant wealth ownership level not only keeping our NZ Super sustainable from age 65, but also functioning as an economic growth engine financing most of NZ investments needed, and lending some to poorer countries not to beef up their welfare system, but to invest in their own wealth creation - as long as they make the effort (austerity) of punctual debt repayments ?

May I challenge Guerilla Surgeon to provide just one example of anything achieved without the austerity of capital saving and profitable investment?

(Unprofitable investments are equal to impoverishing consumption beyond your income, unsustainable beyond all reserves having been consumed - and only austerity can create new investment capital to "try again")

Before dismissing that as "neoliberalistic propaganda" please take note, that the universal (NZ Super Fund building) savings rate is OPPOSED by "neoliberalism" - but not because of its implied "austerity", but because in their "wisdom" they insist that "everyone knows best what to do with their money, and through the free market that will achieve the best results in the most efficient ways for all" ...!?

Kat said...

That part of the electorate that determines the govt every three years is a snake oil merchants fair prey. Why do you think Key did so well. The problem English has is he doesn't readily fit that description. He does more readily fit the description of tinkerer though. English with his superannuation gaffe was just trying to be seen to be doing something. It didn't work.

Perhaps I can ask all those 'free market' apostles out there to name one other first world country that has such a dysfunctional rail system such as we do in NZ. The channeling of revenue outside of govt control is neoliberal bread and butter whether its the rail system or old age pensions. Outside of govt and into the hands of the few who only act for the few.

Or is it that NZ today just presents as an experiment going wrong. I suspect that is most likely the case and Chris is correct in my view that the challenge to putting it right is to throw everything into the mix. September would be a good time to start the spring cleaning.

greywarbler said...

Your point about work being done necessarily especially by the young is good, and we all have need of work. It is part of a healthy lifestyle to be doing something apart from pottering around in our own lives. It is how we create community. Think of Breughels paintings with all the people doing things, it is not always happy but they had to live as a community, and so do we.

We need to be inputting something into our society to truly be part of it. And that is everyone who isn't completely gaga. There is something that each person is fitted for and it should be a matter of pride to be doing something for the community, at any age. All these elderly bumming around pleasing themselves whether they choose to do some minor bit of social contribution is not sustainable and not reciprocal for society. Neither young should be drawing money and doing nothing, or the elderly. We depend on each other to help keep society going, and forget that, then we are in difficulties. As we plainly are because of the above forgetting.

And it is unbalanced as some grandparents are doing full time work with their grandchildren and not much help. While many young people even parents are living in pigsties practically. In the bible the Prodigal Son had parents who could make provision for him when he had learned wisdom and balance. But we older people in this country by appearances, care nothing for the young sons and daughters who can't
get a decent job, have a relationship and a child and a home to nurture themselves and their families in.

It's a disgusting business and I don't understand or forgive those who are totally sanguine about it. There is no proper planning and organisation in the country and this sterile idea from English and all the smart people you hear on the media, is just coming from some learnings that get repeated as the 'received wisdom'. I have no respect for people who trot out last century's misbegotten ideas, and cannot do anything about the present destruction of a controlled political system that is owned by the people.

Jens Meder said...

Victor, if other countries have higher debt ratios than NZ, then it is not them as an example to follow, but NZ as an example to be taken note of by them.

Don't you realize that public debt is nothing but an austerity commitment of debt repaymenst - beneficial if for profitable investment, of course - but impoverishing if for financing welfare and superannuation consumption and ending up sooner or later in Greek or pre-rogernomic style insolvency problems (or the demise of reduced austerity Socialism).
Have you missed these historical happenings ?

Yes, it is not those working beyond 65 that keep our current super affordable - but they certainly help by generating more taxation revenue.
Our current super is kept affordable for the Baby Boomer Bulge through the austerity of building up the NZ Super Fund - which at an adequate savings austerity rate can be kept going also for the increasing proportion of our longer living descendants after the "BBB".
Foreign debt repayments cannot be saved into the NZSF.

And is not contemplating a future of poverty without home ownership potential and full employment capacity defeatist and somewhat self-contradictory in the hope of overcoming it by a UBI?

Superannuitants deserve a rest if they want it - but is not extending this privilege after a life of work to younger people moral and economical nonsense ?

PJM said...

I was disappointed that there has been no mention, not in Chris’s fascinating article, nor so far in the comments, of something of such fundamental importance to the topic of the sustainability of NZ Superannuation – namely, the very nature of the present monetary and banking system.

In the present parasitical, debt-money-based monetary and banking system, banks are our money creators. Every time a bank grants a loan it creates the loan principal out of nothing as a debt, simply by entering the amount of the loan principal into the borrower's bank account. The loan principal does not come out of anybody else's account, nor is it borrowed by the bank. rather, it is created out of nothing. The overall effect of this parasitical system is to transfer wealth surreptitiously from those who create it, to those who merely create our money out of nothing - at the touch of a button or two. Every time a bank grants a loan it increases the money supply (the total quantity of money in circulation). Every time a loan principal, or part thereof, is repaid, it disappears back into the nothing from whence it came, and the money supply shrinks by that amount.  When loans are being granted faster than they are being repaid, the money supply increases. When loans are being granted more slowly than they are being repaid, the money supply decreases. This explains why we can collectively expand the economy only by collectively going further into debt to the banks. All of the time, collectively we are paying interest to banks on every dollar of the money supply. And we wonder why collectively we are being crushed by debt!

In a Sovereign Money system, new legislation would force banks to cease being our money creators and make them become true financial intermediaries, taking in money from savers, aggregating it, and lending it to borrowers. 

In a Sovereign Money system, instead of profiting from interest on money that they had created ex-nihilo in the act of making loans, banks would have to make an honest living from the margins between the interest rates that they pay savers and the interest rates that they charge borrowers, competing on a level playing field with all other financial intermediaries, such as peer-to-peer lenders, crowd funding, etc. 

In a Sovereign Money system, all new money would be created ex-nihilo by the government-owned independent central bank at a rate to just match economic growth without causing inflation and gifted, free of debt and free of interest, to the government for spending into permanent circulation according to its democratic mandate. In New Zealand, the amount of new money so created each year would be about $NZ13billion. 

The total government tax take could be reduced by the same amount, but better still, some of the new money gifted to the government by the RBNZ could be used to fund a Universal Basic Income as a replacement for all other forms of social welfare.

Incidentally, every student who takes a macroeconomics course practically anywhere in the world is taught that banks are financial intermediaries, not money creators!

The neo-classical takeover of the economics profession has other major flaws, notable among them being the Cambridge Capital Controversy. A very good essay on this was published by the Institute for New Economic Thinking, at this URL:

Here's the URL for the paper "Money creation in the modern economy", published in the Bank of England's Quarterly Bulletin, Q1 2014, at the following URL:

PJM said...

Further to my previous comment, those interested may learn more at and and

Incidentally, the first Labour government in 1935 was responsible for founding the RBNZ. While that Labour government did not try to prevent banks from creating new money ex nihilo, it nevertheless used RBNZ-created money to build the state houses, plant the Kaingaroa Forest, build new road, hospitals and schools. Because it was facilitating the use of resources and manpower that were otherwise under-utilised, this did not cause inflation.

Until the 1980s deregulation, banks generally did not grant house mortgages. Rather, most people borrowing house mortgages did so from the Post Office Savings Bank, trustee savings banks or building societies. These institutions were all financial intermediaries, taking in money from savers, aggregating it, and lending it to borrowers via mortgage contracts. In the mid 1980s, trading banks gradually took over and all of these financial intermediaries closed down. Surprise, surprise, once mortgage money started to bear no relationship to savings, resulting in virtually unlimited amounts of money being available to borrow, people were able to compete more fiercely against each other to bid up the price of real estate, with the result that the mean house price to (single) income ratio gradually climbed from around 3 to today’s 12 or more in Auckland.

Anonymous said...

Very interesting article. Some thoughts: Isn't the theory behind maintaining such low public debt that a large deficit reduces the supply of loanable funds (or increases demand for them) thereby raising interest rates, crowding out private investment and pushing up the exchange rate making our exports expensive? It seems to me that the US at the moment and Japan with their giant deficits contradict this theory - high debt, low interest rates - and that the "deficits are bad" dictum just doesn't hold when the economy is in a go-slow. Why do we cling to this belief?
In NZ we have such high private household debt - close to top in the world - that is often given as a reason for the 'need' to maintain such low public debt so as not to raise interest rates. But the OCR is currently 1,75% - not exactly a stratospheric rate - and to me it seems this rate simply inflates asset bubbles - rather than increasing productive investment - and increases wealth inequalities.
What I worry about is the combination of an aging population who are renting AND increased structural unemployment due to automation - think all of the drivers and pilots in NZ replaced, for example. All the IT systems and network engineers replaced by off-the-shelf cloud based IT systems. There will be mass destruction of jobs without much creation of new ones. An erosion of the tax base on a grand scale. Then what do we do? Varoufakis's idea of a public dividend on profit from automated production to finance a UBI seems to me the only way forward in a world dominated by AI. Where the demand comes from in an economy where hardly anyone has a job anymore beats me.

jh said...

Our Rockstar [economy] is looking like a Rockstar who rocks at the Dunsandel Hall.

pat said...

the Chicago school acolytes have neither the ability nor the inclination to solve the looming the politicians they will continue the Randian tradition of extend and pretend....and head for their boltholes when the shit hits the fan.

jh said...

The whole super debate needs to be framed in a debate about future economic policy and that should consider a population policy. Not that we are allowed free and frank discussion where vested interests are concerned (last time we had a population conference it cost $750 or so a ticket).
Of course population has been increasing thanks to a progressive/property developer consensus. Tony Alexander claims we are no longer a land-based economy whereas Ian Harrison says we are (in which case) each additional worker has a lower marginal product than the worker before him/her.
The evidence is that diversity makes it harder to achieve an inter-generational consensus.

Victor said...


We probably differ over the inherent ethical, psychological and aesthetic benefits of paid work.

Having said which, I've suggested the inception of UBI payments at recipients 30th birthdays in appreciation of a previous post of yours on the subject. I see it as a compromise between your instinctive view and mine.

But, underlining my position is the simple realisation that jobs, as we've known them, aren't going to come back for many people. We need to turn this into a blessing rather than a curse.

And, personally, I'm fed up with being downsized, retrained and reconfigurated, let alone worrying about the colour of my next parachute and the abridgements of truth required to get it open.

There's so much more to life than pleasing HR consultants, your bosses or, if you're self-employed, your clients.

Jens Meder

Of course I'm aware of the events to which you refer. But I'm not arguing for a Greek-style free-for-all, merely for an approach less rigorously focused on one single objective.

Would it matter all that hugely if our debt to GDP ratio floated up over time to, say, 35% (i.e. half of Germany's)?

Or is it your opinion that, once you loosen the purse strings, they just keep getting looser?

Meanwhile, although I'm far from being a Marxist, I see nothing wrong with the abolition of wage slavery and the deification of paid work (useful and necessary though these have been for the last few millennia).

Anonymous @ 8.42

We seem to be of one mind on all this.

greywarbler said...

Chris and PJM have been thinking. We all should read through their thoughts at least twice and will then know possibly three times more than the average politician or Joe and Josephine. That's nearly everybody excepting of course, Treasury and 'dry' economists, who don't know to read anything except their Sacred Texts that their Special Cult disperses to them.

Victor said...

Jens Meder

A further thought on our disagreement.

I agree that public debt is at its least unacceptable when used for investment in things that are going to make the country richer (e.g. economic development, restructuring, export growth, infrastructure etc.)

But money is infinitely liquid and, therefore, if you have a variety of goals (e.g. all the above PLUS ensuring a decent life for your citizens,) then an increase in the funds to hand for the first set of priorities should free up other funding for less obviously wealth-generating goals.

Moreover, a government that made more effective provision for the welfare of the population, through regular and predictable income boosts, might find itself reducing other areas of expenditure and, hence, public indebtedness (e.g. health and corrections) whilst also helping to keep the domestic market stimulated during global downturns.

What should be unacceptable, though, is the kind of UBI championed by Gareth Morgan, which, to the best of my understanding, would reduce the income of current superannuitants to the same level as that of UBI recipients, despite the fact that they wouldn't have had the opportunity to benefit from the regular receipt of UBI payments during their earlier decades.

This would be simply inhumane as well as unequitable. A transition period of at least 20 years would, to my mind, be necessary.

Jens Meder said...

Briefly, PJM - while you have a point that houses financed by savings societies are economically more sound than when financed by fractional reserves banking based overdrafts - the latter are not "out of nothing" - but still need an adequate capital reserves base to come up with the cash whenever some is required by the tradesmen etc. paid by cheque when building the house - and this extra credit (for profitable investment) is very helpful for accelerated wealth creation - as long as the savings rates for adequate debt repayments are kept going.

It is the repayment of (useful, profitable) investment debts that create the wealth for the borrower - with the help of the bank, who take a risk of losing the lot - and only earn the fees and interest they charge, when everything is repaid.

Without this additional credit we would have a slower economy - which might be all right in principle - but which does not satisfy those not wishing to fall too much behind other countries in economic prosperity opportunities.

Keynesian deficit financing is also O.K. as long as an adequate rate of debt repayment prevents consuming all the reserves available(according to an Auckland University Economics Professor in 1950,there were idle bank reserves in NZ in 1935) - and public works and state housing after WW2 were increasingly financed by our 7%Universal Super Fund savings in those days - unfortunately not as assets owned by the Fund and to be paid for by the pubic eventually - but as just plain public debt not backed by any assets ownership other than taxpayers' obligation to pay.

What we need is only a higher and more widespread capital savings and ownership rate culture - so that all citizens participate directly in all the (colossal?) capital ownership of jobs eliminating "robotization".

britbunkley said...

An increasing number of pundits are suggesting that we should, in fact, be lowering the retirement age, not raising it. Life expectancy has remained stagnant for the poor, whereas it has skyrocketed for the upper classes. President of the Center for Global Policy, Maya Rockeymoore writes “People who are shorter-lived tend to make less, which means that if you raise the retirement age, low-income populations would be subsidising the lives of higher-income people.”

It took New Zealand workers almost half the amount of time it took them in the late 70’s to produce the same amount of wealth - productivity has been up 82% since 1982, while, according to Statistics NZ, wages had declined 25% in inflation adjusted value. Journalist Jeff Spross suggests “As the economy becomes more productive, the sane and decent thing to do is lower the retirement age”. Spross suggests that “when you lay it out like this, the push to raise the retirement age begins to look more than a little perverse. Retirement is a valued and time-honoured part of Western culture. It's an acknowledgment that people deserve a break after putting in their years in the economy, and that the elderly among us should have a chance to enjoy themselves, spend time with their families, and give back to their communities in other ways.”

According to the data, the higher productivity has easily outstripped the increased ratio of retirees to productive workers of baby boomers. It is time to lower, not raise the retirement age.

David Stone said...

Hi Chris

I ref your last paragraph

This is the nitty-gritty isn't it!

Most of the contributors to Bowalley Road seem to be Boomers, and we are in a unique position in regard to addressing this.
We have mostly been well and freely educated, well fed, well brought up in families that were able to dedicate one full-time parent to 24hr childcare, and free and world leading health care. We spent our childhood and first decade or so of adulthood in a capitalist world shaped by the influence of John Maynard Keynes.

My understanding of the pervading principle of his ideas was/is that in order for a capitalist society to function efficiently, fairly, and sustainably, most of the disposable wealth in the economy must be in the hands of most of the population. That does seem bloody obvious. If most people are at a hand-to-mouth survival level of income or below then there is no market for a market led economy to work with. This has been the real situation for probably 20 years, disguised by banks being allowed to issue almost unlimited debt so the population can continue to consume on an ever growing mountain of unsustainable debt .

In his first short chapter of Keynes' General Theory of Employment Interest and Money he observes that "The object of such a title is to contrast the character of my arguments and conclusions with those of the classical theory of the subject, upon which I was brought up and which dominates the economic thought, both practical and theoretical, of the governing and academic classes of this generation, as it has for a hundred years past." He had just lived through the depression and was referring to a pattern in capitalism (lasses Fait capitalism) of periods of comparative general prosperity punctuated by catastrophic collapses like the 20s -30s depression. He saw what caused it, explained it to a world prepared to listen because it had just come through the war that germinated from within it and was ready to try to avoid it happening again.

This gave rise to the most prosperous, dynamic,creative , peaceful and inclusive period the world has ever seen. From Thatcher- Reagan-Douglas on the fruits of that shared prosperity have been steadily gathered up into the hands of a tiny minority, and the period we boomers think of as having been normal has gone . Replaced by rampant uncontrolled predatory capitalism which is fast approaching the destructive phase of it's natural cycle. Neoliberal capitalism is normal. The baby boom period we knew was the aberration. But it proved that it is possible to organise the world that way.

Those of us who have experienced life in both regimes are mostly retired or semi retired. We mostly still have our wits. We have life experience ,education, knowledge, wisdom and time. If there is a body of people who can address the challenge you have identified above it has to be us.

I would like to suggest Chris that you open a side-road off Bowalley Road , and create a forum that is not constrained to the topic of the day, but seeks a major lengthy examination of what should be done. Welcoming constructive ideas and criticism from whoever wants to contribute of whatever age or political hue , ultimately organised into a generally approved , economist critiqued , potential programme. Not for the benefit or interest of any particular political party .

There is one matter that was not mentioned in your list of issues above ,must qualify them all, and makes a simple return to a pre 1984 regime impossible, is climate change. Together with resource depletion and environmental degradation. we can't treat the world as an unlimited resource any more, and free market capitalism is peculiarly unsuited to managing these.
Cheers David J S

David Stone said...


Please stat your side road (call it Kelso Lane if you like) with PJM's comments.

David Stone said...

A pesky pedantic detail ... "freehold" does not mean "debt free" though it is commonly used this way. I think you have meant the latter in your blog. The alternative title is" Leasehold"

Guerilla Surgeon said...

"productivity has been up 82% since 1982, while, according to Statistics NZ, wages had declined 25% in inflation adjusted value."

Interesting, given that the received wisdom is that wages cannot go up until productivity has gone up. And that wages will go up once productivity goes up.

David Stone said...

@ Jens Meder

I think that our banks are no longer constrained by the fractional reserve system. US banks are but UK banks and ours now use some vague formulae that relates the volume of debt they are supposed to issue to their asset base. For all practical purposes I believe PJM's statement is correct.

Victor said...

David Stone

Total agreement with you on all points (including the meaning of "freehold").

It seems to me there are two huge differences between our epoch and that of Keynes.

The first, as you point out, is that we're now firmly up against the limits of growth, in terms of environment and resources.

The second is that all the investment in the world isn't going to continue producing steady, dignified and reasonably remunerative employment for most people in advanced societies.

Having said which, the notion that you can produce prosperity through austerity remains as obviously false as in the 1930s.

And it remains true that the origins of almost all wealth are social and that none of us, in the course of just one lifetime, can possibly put more into society than we take out.

Carol said...

I have given up on correcting that one David, no-one seems to get it. Just like trying to tell people, even within the banking system, that collateral is not security. Then we have the word "literally" also "reverse racism" No-one appreciates being corrected at the best of times.

greywarbler said...

David Stone said -
Amongst other worthwhile points, good ideas below. And I ask Chris too, if you could set up some opportunity to discuss the things now commented on, wider and in greater depth but most necessarily pertaining to New Zealand, its internal and external considerations, with an eye to the eternal as well. What we can't change, perhaps we can turn to our advantage, go round etc. We might get to the point of producing workable policy perhaps.

Those of us who have experienced life in both regimes are mostly retired or semi retired. We mostly still have our wits. We have life experience ,education, knowledge, wisdom and time. If there is a body of people who can address the challenge you have identified above it has to be us.

I would like to suggest Chris that you open a side-road off Bowalley Road , and create a forum that is not constrained to the topic of the day, but seeks a major lengthy examination of what should be done.

Jens Meder said...

Aah David Stone - is not "the volume of debt related to their asset base" in principle the same as "fractional reserves banking", with the asset base being the reserve ?

Victor - do you really believe that unlimited Keynesian credit creation or deficit financing is sustainable without the austerity of debt repayment ?

Or that "social wealth creation" through issuing "debt free" money(?) will not end up as a "barter economy" with more poverty for the "have nots" than before ?

And how can you have anything at all apart from the gifts of nature - without capital(or "spare labour") investment? Can you give an example, please ?

And if you build a house, have you not left more behind than when you were born as a totally dependent "have nothing" ?

Yes, "Kelso St." would give us an excellent "venue" and opportunity to clarify those matters.

Victor said...


I like to think I can out-pedant anyone. But what exactly is wrong with "literally"?

Jens Meder and greywarbler

Re-reading some of my previous posts on this thread, I seem to have erred a bit in over-emphasising freedom from the daily grind as a key rationale for UBI.

Of course, much more important would be its role in helping people survive periods of unemployment without jumping at the first dead-end apparent opportunity and/or losing out in terms of benefits if they took a low-paid, entry-level job or a job that folded.

It could also provide a platform for retraining, which (to my own personal horror) seems to be a constant of the modern economy and is likely to remain so.

The experiment in Manitoba (can't remember the name of the town) suggested that this leads, over time, to more satisfying and better paid subsequent employment for those who find themselves without work.

But, assuming you were in work most of the time, you would then have a steady flow of income, some of which should, normally, be saveable.

It would then be up to government to encourage the citizen to invest at least some of this income in saving for retirement, perhaps through the Cullen Fund or perhaps through a Sovereign Wealth Fund predicated on building New Zealand's economy/infrastructure.

It would also, Jens, allow for the creation of individualised superannuation accounts, should this be deemed desirable (a subject on which I retain an open mind).

Most UBI models are posited on the notion that payments would be substantially lower than a normal wage. So most people would continue to seek employment, particularly if (as per my post of 14.07 yesterday) they'd got use to the idea of work and the attendant self-discipline, by not receiving UBI till they were thirty.

A variant of this plan would be to pay everyone UBI from the age of (say) 18 but not enable them to touch it until their thirtieth birthdays.

In the meantime, it could be invested in a sovereign wealth fund on their behalf, to help kick-start their retirement savings.

A further variant would be not allowing them to touch this nest egg, even after they've reached their thirtieth birthdays. And a further variant still would be to only allow them to touch it in order to raise a house deposit and/or pay off education fees.

It would then be up to the individual whether or not to keep on adding to the nest egg after the age of 30, although the prudent might well do so.

I appreciate that I've suggested all these ideas in a very superficial way, without any clear idea about the numbers. But, like Chris, I genuinely believe that we need new thinking on this complex of subjects. So I offer my thoughts in that spirit.

Perhaps these suggestions are actionable within our current debt to GDP settings. Perhaps not. I'm no expert. But, if it's not affordable on current settings, I'd like to hear from people better trained and briefed than I over how much slack we might be able to get away with.

It must surely be possible to cease positing our entire economic future on remaining the austeriac's poster boy without becoming the Hellas of the South Pacific.

Victor said...

One last thought.

It now appears that Gareth Morgan is offering us a sort of Clayton's UBI, under which many superannuitants would only be able to survive with the help of an additional means-tested benefit.

But among the virtues often ascribed to UBI are that it strips away perverse economic incentives, removes people from the invasive and sometimes bullying purlieu of bureaucrats, slashes administration costs and removes anxiety over survival (particularly among the old, sick, confused and powerless).

A UBI proposal that fails to display these characteristics isn't worth having!

greywarbler said...

Thinking about Keynesian econonics, in what context did John Maynard Keynes say this:

For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.

EF Schumacher quotes it in his piece on Peace and Permanence. Schumacher says it came from 1930 and Keynes said he foresaw us all being rich saying that then "once more value ends above means and prefer the good to the useful...But beware!...For...another hundred years we must pretend...that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still."

Puzzling much, to me. I start talking like Yoda when I come upon indecipherable stuff like that.

Wikipedia says:
In the 1930s, Keynes spearheaded a revolution in economic thinking, challenging the ideas of neoclassical economics that held that free markets would, in the short to medium term, automatically provide full employment, as long as workers were flexible in their wage demands.

He instead argued that aggregate demand determined the overall level of economic activity and that inadequate aggregate demand could lead to prolonged periods of high unemployment. According to Keynesian economics, state intervention was necessary to moderate "boom and bust" cycles of economic activity.[7] Keynes advocated the use of fiscal and monetary policies to mitigate the adverse effects of economic recessions and depressions.

Workers not being flexible in their wage demands, ie the Cooks and Stewards Union could then have been major in bringing the end of the post-war prosperity and the sharp correction, to the extent of punishment, of Treasury's neo lib prescription with faux Labour Roger Douglas and his Merry Men going gangbusters with the executions of this faux revolution.

Now superannuation must go. The dreadful denizen of the welfare state must be burned up in a fire, therefore to purify NZ and make her acceptable to the gods of consumption. Consumed by fire we must be, yey!
Gosh Yoda is gone, and I'm channelling some other weirdo. That's what thinking about NZ's economics does to you. There is probably a beer coming from some boutique brewery with a quirky name to cure this case.

Victor said...

Jens Meder

At no point have I suggested “ unlimited Keynesian credit creation or deficit financing...... without the austerity of debt repayment”.

Why do you think I have made this suggestion when all I have proposed is that we should not be fixated, to the exclusion of all other considerations, on keeping our debt to GDP ratio many times lower than those of other nations, a point very similar to that made by Chris in his article?

Why, furthermore, are you asking me “how can you have anything at all apart from the gifts of nature - without capital (or "spare labour") investment?”. I really don’t understand the provenance of your question.

And I can’t imagine how you could possibly imagine the mere building of a house to be more significant than the gifts of language, education, science, culture, social capital, health services, political and other institutions and physical infrastructure bequeathed to us by previous generations.

We are not Robinson Crusoe marooned on a desert island. Nor are we dwarfs standing on the shoulders of giants. Instead we stand on the shoulders of multiple generations of other dwarfs (with a few giants thrown in), stretching back deep into the past of our species.

greywarbler said...

A UBI proposal that fails to display these characteristics isn't worth having!
Don't please run it out of town. I know you haven't said let's not have UBI but it sounds as if you are working towards it.

As an oldie I can just manage with some extras by getting help from my kids. Having the certainty of a workhouse and gruel twice a day, which could happen in NZ if present trends continue, is not my idea of a reasonable life for older, average citizens, and even for those with special difficulties and non-average problems.

So we need to point out that UBI isn't a magic incantation, it's the ingredients, their potency and quality and the right recipe that will bring the result that will not perform magically, but adequately with tweaking, after consultation with the people who are given say five options to consider.

There needs to be a chance for people to choose from a number of reasonable policies, with explanation of the scenario at the back of each. At present there is just a gaggle of know-it-alls gargling away in Parliament, and employing a bunch of propaganda-fed advisors who know which side their bread is buttered when they advise.

Wayne Mapp said...

A number of commenters on this item have said there has been a real reduction in wages of 25% since 1982, apparently on the basis of NZ Stats information. As soon as I read this, I thought it would be bogus.

There is a publication by NZ Stats which shows between 1982 and 1996 there was a real reduction of 8%, most of which occurred in the 1980's. In fact after 1991 there was a partial recovery.

I am absolutely confident that the period 1996 to the present, which is a 20 year period, that the the trend that occurred after 1991 has continued with increasing incomes. I would expect that real wages are now significantly higher than in 1982.

The stats confirm what we all know. That the economic revolution of the 1980s was very dislocating and that this still drives many political activists on the left. But since the new settings were in place, incomes have continued to rise in real terms. It also verifies that there has been no real change in inequality since the early 1990's.

Guerilla Surgeon said...

And now I see tax cuts are back on the table. Christ if they want to cut taxes how about getting rid of that regressive GST, the best way to help poor people by way of taxes IMO. But could you imagine what would have happened if Labour had said something like this – "pure election bribery. Harrumph, harrumph." It surely is.:)

Victor said...


The last thing I'm doing is backing away from real UBI.

The "U" stands for universal, which is a virtue such schemes share with NZ Super as currently configurated.

And, in turn, a key virtue of universality is that it isn't means-tested and does not, therefore, subject the recipient to bureaucratic bullying and/or incompetence. Nor does it create perverse incentives, such as reluctance to take up employment or declare your true income because you might get penalised. And nor does it create fear and confusion amongst (often sick and vulnerable) recipients or require yet more bureaucrats to administer.

Morgan wrote an at least half decent book on this subject a few years ago. The logic he deployed therein, he has now betrayed by his stated desire to take money off super-annuitants and thus force them to apply for yet another means-tested benefit.

If he and his ilk think that everyone over 65 owns three or more properties and won't therefore need this additional payment, then they are not living in the same country as I am.

As to the rest of your post, you'll find me in total agreement.



greywarbler said...

There needs to be more than a telescope used to study how wages have gone since the 1980s. That is a useful device for concentrating on one aspect of interest, the area around is virtually ignored.

Binoculars can be swept from side to side giving and overall picture, but can be trained to enlarge and concentrate of important points. Let's use those for a start and search for signs of rising incomes matching rising costs amongst the poor - those on pensions only, those on low wages, those on low hours, etc. The averages are useful to follow trends across decades, keeping to the same parameters, comparing apples with apples.

We need to follow strata, particularly where the most poverty is, rather than where the most wealth opportunities are. That is if we want to know that is. The political message these days is to say, it's cyclical, they didn't do anything while they were in government, and Hey, look over there!

And I am absolutely confident that those are the main ways of dealing with such dodgy statistics. There are lies and there are statistics that are trotted out as straw men. No wonder we get confused about the reality of poverty in our streets and crying in our clinics, departments and prisons at a time when we have never had it so good in a rock star economy.

Guerilla Surgeon said...

"It also verifies that there has been no real change in inequality since the early 1990's."

True possibly, but there was a huge growth in inquality before that. And the fact that successive governments both national and labour have done nothing much about it is disgraceful.We are in the top third for income inequality, And God knows where we are with wealth inequality, because it's almost impossible to calculate due to the fact that rich people hide their bloody money.

Galeandra said...

If Mapp had followed the supplied link he would have realised that the 'bogus' 25% decline in real wages derived from Stats NZ data uses a measure called 'Labour Cost Index' which considers the whole labour force and avoids the inflating effect of rampant high-end wage growth and attendant attrition of workforce at the lower bound. It is no more bogus than Mapp's preferred Quarterly Employment Survey.

Anonymous said...

It is not rocket science that the current superannuation benefit is unsustainable it's current form. When you have families living in cars (because rent prices have be ome too high for workers to live in houses), while the parents of the car/she'd dwellers work to pay taxes that enable unemployed seniors to go on overseas holidays, there are some things that simply don't stack up.

Anonymous said...

The superannuation benefit is not worth risking our infrastructure for. Let us learn a lesson from Greece.