Is the Cost Of Living Really Rising Out Of Control?

There are plenty of stories at the moment about higher prices impacting on New Zealanders. Let’s look behind the headlines.

Inflation is 3.2%, slightly out of the 1-3% target range. In the last quarter, inflation was 1.2%, the major drivers were: petrol (responsible for 0.27%), international air travel (0.16%), ‘milk, cheese, and eggs’ (0.12%), and package holidays (0.11%). Basically, our inflation is a little higher than we would like because of oil and milk prices. Both of these are global commodities, we buy at the world price, and at the moment that price is high. That’s a good thing for us in the case of milk, because we’re an exporter, even if we have to pay more we get much more in increased export earnings. Not so good in the case of oil: although our oil exports are increasing, we are still net importers. Both these rises are being driven by global demand straining supply: the oil supply is peaking and their aren’t enough dairy cows to satisfy growing Asian markets, especially now that large amounts of feed are being turned into biofuel instead.

Another rising cost is mortgage payments. The driver behind the recent increase in mortgage interest rates is also international. The ‘credit crunch’ has seen the supply of money that New Zealand banks borrow from overseas to lend in mortgages dry up, so they are having to pay more to borrow and are passing on the cost. Because of this, interest rates have continued rising although the Official Cash Rate has been steady for nearly a year and even if the Reserve bank were to drop the OCR it might not bring down mortgage rates very much (likewise, the RB had great difficulty rising interest rates to combat inflation in 2006 and 2007 because of the huge supply of cheap credit for the banks to borrow from overseas).

John Key blames wage rises for boosting inflation, and uses that to justifiy calling for wages to fall, but the figures clearly show the dominant impact is from international problems beyond New Zealand’s control that are behind the rising cost of living. Fortunately, New Zealanders aren’t poorer despite these price increases. In fact, most New Zealanders are significantly better off than they were last year. Unemployment has fallen to a record low of 3.4% and a tight labour market means wage rises as businesses compete for staff. Median household income rose 9.4% in the year to June. If you didn’t get a pay increase last year, you should consider joining a union to get your fair share, because company owners are raking in cash in our still-buoyant economy.

The Wages Record

On review, John Key’s accidental admission that National “would love to see wages drop” is entirely consistent with National’s track record on wages. The last two times National was in Government, they did make wages drop for those on or near the minimum wage. All they had to do was not up the minimum wage and let inflation eat away at those most vulnerable wokers’ pay packets.

(in fact, they actually did much more than this including introducing the ECA to destroy workers’ collective strength, resulting in inflation-adjusted average incomes staying flat for the whole 1990s)

Taking From The Poor And Giving To The Rich

Even while Key has been calling for wages of ordinary kiwis to fall (coverage here, here, here, here, and here), he’s offering taxpayer largess to his mates.

It has emerged, thanks to Jim Anderton, that Key has offered a Southland meat export company $200 million in subsidises. Not only is this a violation of world free trade rules, which New Zealand depends upon for access to export markets, Key did not consult with the farmers or his own party before making the offer.

Apparently, he met with the farmers, made the offer, then:

“When National Party finance spokesman Bill English ambled across the paddock, Mr Key quickly told him, “I’ve just committed you to a suspensory loan.” Apparently unfazed, Mr English replied: “As long as it’s under $200 million I don’t care.

‘I don’t care, because there’s vote in it’. Pretty much sums up National’s attitude. They have tried to hide both their desire to cut ordinary kiwis incomes and to give corporate welfare to their allies. But the cat is out of the bag now.

Not an economist neither

Wat’s commented that Davey’s no lawyer nor statistician, now its clear he’s no economist neither. Commenting on some of the many reasons John Key’s given for suggesting wages should drop, Davey opines:

The notion that NZ would suddenly be 20% wealthier if everyone in NZ got a 20% pay rise is false. NZ would not be wealthier - we would just have much higher inflation and interest rates.

Of course this is largely the logic underpinning National’s tax cuts. Whereas Cullen has a clear set of tests by which the merits of tax cuts are assessed, the effect of which is to insure increases in disposable income are not soaked up by higher inflation, National’s simply hopes that the electorate will notice only the fatter pay packet and not the increasing mortgage.

As is all to often the case with Davey’s ‘think-pieces’, as opposed to his gratuitous dog-whistling, his analysis is limited to first order issues. It’s not that he’s incapable of deeper analysis, it’s just that he’s forced to defend the endless stream of idiotic statements coming from Bungle.

Two-Face Strikes Again

Key has had 24 hours to come up with an excuse for his statement that “we [National] would love to see wages drop”, and he’s come up with not one but two, contradictory, excuses: he was talking about Australia and he can’t remember making the comment.

It’s not in any way credible that he was talking about Australia. A) the report on his comments makes no mention of him talking about Australia, B) why would he want wages in Australia to drop, unless he’s displaying the same kind of thinking that makes him want wages to drop here C) A New Zealand government has no power to make wages drop in Australia, but as National showed in the 1990s a New Zealand government can make wages drop here.

As for the second excuse, saying he doesn’t remember doesn’t hold water, he is reported as having said those words and hasn’t denied the accuracy of the quote. When the report was initially published, probably even before publishing, on the 20th of December last year he had the chance to correct the quote if it was factually wrong. It is not.

Key stands accused of wanting to lower wages, which would have a negative impact on every one of the 4.25 million New Zealanders and all he can say is “I don’t remember what I said and I was talking about Australia”. As Bill English said yesterday, “is that it?”

I don’t buy it. When Key spoke to the Kerikeri Business Association he was revealing his real face, the one not fit for public consumption because it would turn off voters. Now, he is exposed. Now, we know: a vote for National is a vote for a pay cut.

Kiwisaver Continues To Soar

Looks like Kiwis know a good policy when they see one.  Watch for another John Key back-flip any day.

Labour’s Record On Labour Unbeatable

The unemployment rate hit another record low in the December quarter.  There are 2,173,000 people in work compared to 77,000 who are unemployed.

But just as important as the unemployment rate is the labour force participation rate.  If there are no jobs about people drop out of the labour force and unemployment seems lower than it is.  Here’s how the percentage of the working-age population not working has changed in the last 21 years.

As soon as National came to power, it slashed work rights, privatised State assets and cut benefits.  Hundreds of thousands of jobs were lost, and many dropped out of the labour market altogether.  Nearly half of adults were not working at the worst point.

The Labour-led Governments have stayed true to their founding principle that the basis of a healthy society is well-paid, decent work for all.  Unemployment has plummented and tens of thousands have re-entered the workforce. 

 Today there are 670,000 (45%) more jobs than at the worst point under National.

Mr Key Swings In The Wind

This week Mr Ambitious showed he can change his tune more frequently than Mariah Carey. 

On Tuesday: after years opposing the Cullen Superannuation Fund and KiwiSaver Mr Key admitted he had been wrong and that these programmes were delivering positive resutls for New Zealand.  Still no guarantee that he won’t cut Kiwisaver government top-ups though. 

On Wednesday: the experts and the Government took a wait and see approach to the global sharemarket jitters and the possibility of a US recession, secure in the knowledge that New Zealand’s economy is growing well and, if need be, surpluses and interest rates can be cut to boost growth.  Key demanded knee-jerk government spending cuts (it turned out the global sharemarkets were recovering even as he spoke).

On Thursday, trying to suck up to the Maori vote, Mr Key abandoned his (flawed) economic arguments and was suddenly the big spender.  Now, he wanted big increases in government spending on the Waitangi Tribunal. 

I wonder what opinions he’ll change next week?  

What about the workers?

OK, it’s an old refrain usually being made by some sort of stereotypical lefty/unionist - character on a sitcom.  And it’s funny - usually.

But when this refrain emanates from the mouth of the National Party (or its unofficial mouthpieces like Kiwiblog) and it’s about productivity, well…it takes on an altogether more insidious tone.

DPF’s been banging the productivity argument with some half-gleaned arguments derived out of some basic Stats NZ figures and some cobbled together talking points from the National Party research unit.

But I want to put aside the arguments about whether David’s conclusions about these Stats data is correct…and focus more on the subtle undertone of the message: That workers or the Labour-led government are to blame for the alleged decline in productivity.

It’s an insidious type of blame game and one that should give working New Zealanders pause for concern about what National’s agenda might be in terms of labour relations and our pay and conditions.

What’s more interesting about this blame game is that it is seldom if ever directed towards bosses.  You know, the so-called “Captains of Industry” who are supposed to be navigating their enterprises through tough investment and strategic decisions. When times are good, these very same people are quick to claim ownership in any kind of business improvement.  But when productivity wanes - it’s the lazy arse workers who are, apparently, to blame.

Farrar’s spin on the productivity data shows the nastier side of Key and co’s plans for labour relations in this country. A willingness to assign any downturn in business to the inefficiency of New Zealand labour and an almost wilful blind-spot to consider that maybe  New Zealand has some of the best workers in the World - just the crappiest bosses.

I don’t really believe NZ has crappy bosses.  Neither do I think we have crappy workers.  My point is this stupid blame game that National and its marionettes engage in is brainless idiocy.  Every time Farrar repeats this kind of stuff - it reinforces why people need to keep challenging Kiwiblog and its ascendant position in the NZ blogosphere.

Back on message

Davey’s back on message (unions bad, tax cuts good) with two deeply analytical posts on labour productivity and wage movements. The recurring theme in his posts is, of course, National are far better at managing the economy than Labour. As usual, his argument requires the suspension of sensible thought in preference for a narrow focus on a single point of data. Presumably someone from the National Party Research Unit’s put him onto the Stat’s labour productivity report having tried unsuccessfully* to get an Opposition spokesperson to run it.

Davey’s problem however is that too few are prepared to support his conclusions based only on his little bit of cross-tabulation. Neither should they. Changes in wages are important, but in isolation they present a limited picture of economic performance (let alone the government’s performance). And as others have pointed out here and in the relevant threads, government’s have few direct levers, e.g. the minimum wage, with which to stimulate wages and frankly that’s how it should be - National surely aren’t proposing to play a more active role in setting wages? All this is frustrating for Davey ’cause his argument relies upon the reader knowing nothing other than what’s presented them - something that usually works with his regulars but what to do Sam, rogernome, Tane as well as professionals like Matt Nolan? They don’t fall for the reductio ad absurdum technique.

At the risk of getting into a genuine discussion however, it is true that NZ is not performing as well as it needs and NZ wages have tended to be sticky - they don’t move as much as might be expected if compared directly with company profits. There’s no simple explanation for this and sadly limited data, however, all parties agree that improving NZ’s multi-factor productivity is the focus over the medium-term - kiwiblogblog likes a lot of the thinking coming out of the New Zealand Institute (a far more constructive and professional outfit compared with the NZBR) particularly increasing international engagement, savings, R&D and workforce skills - Labour’s policies on these matters don’t need to be rehearsed here (for the moment) but I’d have hoped Davey might provide some insight into National’s?

*Unsuccessfully because (a) they don’t understand it themselves but figure its important or (b) they understand it but the Opposition Spokesperson doesn’t or (c) the Opposition Spokesperson does understand it and realises that once they open this can of worms they’ll be exposed as having bugger all to contribute!