Inflation is all your fault
Dear ordinary New Zealanders. It’s all your fault. You currently spend too much, so you need to reduce your profligate habits. Don’t put any sweeties in your kids’ Christmas stockings this year. For some weird reason, you seem to be spending increasing amounts of money on rent, fuel, groceries and other luxuries. Yes, I know there’s a bit of inflation about, but come on, you’re spending like there’s no tomorrow.
If everyone reduced their spending by just 1% that would really help things. It’s your fault you bought houses when it was obvious that interest rates were going to skyrocket – not that we said at the time – and that’s why we’re ratcheting up interest rates now.
Never mind that the Government bailed out businesses during the pandemic and provided money to Australian-owned banks who continue to make record profits. It’s still all your fault.
And when you lose your job in the recession we’re currently engineering, and when you lose your house because you bought it at the height of the housing bubble, which we added to by keeping interest rates low and getting rid of LVRs (loan-to-value ratios), that will be your fault as well.
That seems to be the current message from Adrian Orr at the Reserve Bank, and I haven’t heard such sanctimonious claptrap since the days of Rogernomics and Ruthanasia. Then, despite overseeing the biggest transfer of wealth of the 20th century, from ordinary wage and salary earners to the financial elite, we were told that changes had to be made and that every single one of us had to make a big sacrifice. No pain; no gain. I’m beginning to wonder if RogOrrnomics is that different.
In the coming recession that Orr has admitted he is planning, it will be mainly those at the bottom of the heap who lose their jobs. Worse, despite a massive rise in profits amongst banks and other corporates, workers are being told by Orr to stop asking for pay rises.
‘‘The power is in the hands of the people,’’ said Orr last week, reminding us that when you want to entrench inequality, it’s good to use the language of the left – something Roger Douglas and Ruth Richardson excelled at. ‘‘I want to do everything I can to keep New Zealanders in jobs, but this is going to be a tough time,’’ added Finance Minister Grant Robertson, effectively endorsing RogOrrnomics and heeding the National Party’s call to raise unemployment.
If a government wanted to protect those at the bottom from the worst effects of the coming recession, are there things it could do? One of the features of Thatcherism, Rogernomics and now RogOrrnomics is Tina – there is no alternative. And yet there are always alternatives.
The Government could make it very clear to banks that if homeowners, especially those who only own one home, have problems meeting their mortgage payments, then the banks should give them temporary relief.
It’s the least the banks – given the assistance they have received from the Government in the past – could do. After all, it’s likely that interest rates will eventually drop, so we may not be talking about a permanent problem for homeowners.
If banks don’t play ball , then the Government could offer alternatives via Kiwibank or legislate. Isn’t legislating a bit draconian? Yes, yet draconian measures to prevent Covid were massively popular with a large part of the population, and I suspect no New Zealander wants to see people forced out of their family home thanks to a housing bubble helped along by both Labour and National governments.
As for those who lose their jobs, let’s hope the government – whether it’s Labour/Green or National/ACT or some combination – doesn’t punish those, as they did in 1990 with the Mother of all Budgets, when they were simply victims of policy made on the hoof.
Though a small rise in unemployment doesn’t look too brutal on paper, it often disproportionately affects the low-paid, women and Mā ori and Pasifika workers.
As for spending, despite Orr’s warning, it’s not always a bad thing. Yes, it’s inflationary if people spend vast amounts of money on luxury items – but other spending – such as investing in business infrastructure, is money well spent. But up until this year, who was going to invest in businesses when there was easy money to be made buying property for capital gain?
I’m afraid I must agree with economic commentator Bernard Hickey who believes we have, rather than a real economy, ‘‘a housing market with bits tacked on’’. That’s the real problem, and the real challenge for this and future governments is to do something about it.