The productivity scam

Tane, over at The Standard, posted today on Prime Minister John Key's reported comments on wages and productivity. The Herald carries an NZPA report that quotes Key as saying,

"In reality, lifting the minimum wage will only take workers so far," he said. "In the end, it's productivity that drives wages.

How does that work exactly, John?

In his post, Tane made one point that stuck in my mind:

"...in a capitalist system any benefit from productivity increases goes directly into the pockets of business owners. You need a mechanism to translate that into wages. And that mechanism is decent employment protections and a unionised workforce that has the strength to bargain decent wage increases."

It's obvious when you say it. Anyone who has been working for wages knows it's true. What amazes me is how rarely we hear that said. Instead, the vast majority of politicians, media and business people, almost to a man (or a woman), have for decades been telling us all the same thing John Key said: Increased productivity is the key to higher wages.

Oh..and they have also told us unions are bad. To be fair, some unions have been bad (just as some businesses have been bad - Blue Chip anyone?). No one could argue the union that used to regularly hold the inter island Cook Strait ferry service to ransom did themselves or anyone else any favours in the long run. In the US, unions were too often the target for infiltration by organised crime. But as we can clearly see today, the boardrooms and trading rooms of the banking world have been similarly infested by either idiots or criminals (or both) and to much worse effect. The failures are mainly human failures and don't necessarily invalidate the original purpose of the organisations they pervert - be they unions or banks.

The question Tane answers is HOW productivity can be turned into higher wages. When we consider his answer and look at how the labour market has been changing in recent decades, we see organised labour getting weaker, not stronger. As a consequence, whatever the productivity gains might be, there is absolutely no guaranttee whatever that those gains will flow through to employees as higher wages.

My own anecdotal observations suggest strongly the supply of labour more than outweighs any effect productivity might have. If labour is scarce, wages will go up almost without reference to productivity improvements. If labour is abundant, employers can and do bid wages down, again without regard to productivity. They may even move the whole business from a place where labour is tight to another where it's abundant and therefore cheaper. Productivity is very much an also-ran. 

If labour is abundant in a given sector, or in the economy as a whole, I'm betting you could improve productivity all you like and wages won't budge. Wages may even fall if too many people are competing for the same jobs.

I know of a company in Auckland where the workers have been told they won't be getting any wage rises this year. Word came down from HQ in the US. Some of the conglomerate's other units in other regions are struggling in the downturn. We're all supposed to pull together and share the pain. It's an admirable sentiment. We're all in it together. The motivation hardly matters. The point is: productivity is irrelevant.

But the local company (originally a Kiwi company until bought in 2007) in NZ and Australia has just had its best year ever and is in the middle of a strong first quarter. Still no wage rises. Clearly, performance here means nothing to the people making the decisions.

If you don't like it, your only option is to seek employment elsewhere. 

The productivity mantra would suggest to us that the more you increase productivity, the more money you will earn. But that money must first be filtered through the balance sheet of the company you might work for. That company's head office might be in New York, London, Amsterdam, Tokyo or wherever. History, even anecdotal as in my anonymised example above, shows very clearly the money tends to get stuck there and what money does go to employees tends to be huge bonuses for those at the top. The folks down the bottom get.....not so much. Maybe they get to keep their jobs. Maybe not. They may even be outsourced entirely as management looks for the next "productivity increase". Many is the worker who was sacked from the place they work and offered what is essentially the same job - at lower wages - with a contractor who will now perform the same service for the company they used to provide. I could bore you with the sad tail of the Polish cleaning ladies at a bank.....but I won't. It's too typical. 

Tane cites experience in the US:

"The American experience has been even more stark - since the mid 1970s productivity has increased by 70 percent but wages have remained static. Between 2001 and 2004, when productivity rose 11.7 percent, median household income grew by a mere 1.6 percent."

"That’s what happens when you remove employment protections and make it harder for workers to organise through their unions - wages stagnate and the benefits of economic growth go exclusively to those at the top."

The more you think about it, the more obvious it becomes this has been a scam all along...and it's not the only one.

We already know "trickle down" is essentially a lie. The wealthiest told us if they get all the money, we will get some of it as they spend it.Then they bought a lot of expensive imported stuff and at the same time millions of jobs got outsourced to India and China or Mexico or wherever. Trickle that.

Then there was the automation scam. This was a great uncle to the later productivity scam. I remember back in the 60s and early 70s, automation was going to lead to shorter working hours and more prosperity and free time for everyone. We might not have to work at all as one day robots might do all the work for us. That was a scam, too. You know that if robots could do it all, there would also be police robots used to suppress the unrest among the burgeoning hungry unemployed.

Poor dumb beasts that most people are, many have been convinced that what is best for them is actually bad and what is worst for them is actually good. One might think of it as a form of the Stockholm Syndrome: trapped inside a corporate-owned and driven propaganda bubble, where they are told endlessly policies that reduce their own wages, conditions and job security are "good", they come to think of their captors interests as being their own and fight hard to stop anyone from improving their situation.

The evidence is accumulating that rampant capitalism must be offset by transparent and effectively political institutions and strong organisations of workers collectively representing their own interests as effectively as those at the top have done for the past 30 years.

This brings me back to our Prime Minister, John Key. Yes, broadly speaking, at macro-economic level, if one economy is more productive than another (and what they make is sought after), that economy will do well.

But militating against that are all of the factors above which render completely invalid any presumption that IF productivity rises in Workplace A, THEN wages will certainly rise.

They may and they may not....as other, more significant factors allow or require.

Is Mr. Key knowingly perpetrating the productivity scam? Or has he simply embraced it as an article of faith, part of the catechism of the Business Religion.......and not actually looked at what happens in real life and seen it for what it is?

Finally, please note that almost all people, if properly managed, trained and motivated, do work at their jobs diligently and do the things they are expected to do. Many perform at a higher level still. Any worker - unionised or not - must be productive and do the job that needs doing. NO arguments there. The point of this post is to highlight that most often this is taken for granted and is irrelevant to their wages and conditions. For example, people working in a busy restaurant for the minimum wage are paid the same amount as people working in a less busy restaurant who don't need to work as hard. They are often spectacularly productive and conscientious. But as far as wages are concerned, it doesn't matter. They still get paid the same. Productivity doesn't matter enough to see them paid any more.

If you got this far and you're finding this hard to accept, that's OK. Like all of us, you've been conditioned for years to think otherwise and seeing things as they really are can give one a headache.

Take an aspirin/disprin and keep your eyes open. 

The nine day fortnight vs interest rates

The government is prepared to put up $60 each fortnight for each employee in a company with over 100 employees or more in a bid to save jobs. That would amount to a subsidy to a business taking it up of at least $3,000 / week. This is projected to cost up to NZ$20million.

Let's do some math - at risk of embarrasing myself. Give me credit for trying here.

The RBNZ says there is over NZ$90 billion ("BB1" in RBNZ-speak) in term deposits as of January '09. The terms will vary in length. If I've read the numbers right, there is another $84billion or so (BB2.4 and BB4.4) made up of deposits that aren't term deposits. Presumably they attract some interest. I think the latter pair exclude household chequing and transaction accounts.

Assuming just $100 billion in deposits attracting interest (very conservative, given the number appears to actually be $170 Billion), how much money goes up in smoke for every drop in interest rates of 1%?

$1,000,000,000 per annum.

Every 0.1% drop in interest rates is like losing $100 million / annum from the pockets of savers / people with capital.

If that number is remotely accurate (probably too low), the savers and people with 'capital' (money in the bank in huge gobs) are paying a high price, as a group, to provide cheaper credit to everyone else. It makes the $20 million the government is putting up look like.....well....very little.

The cost of the nine-day fortnight offer is further limited by the required size of the company - at least 100 employees. It would also make the number of applications easier to handle. After all, if you made it so every company with more then two employees eligible, the crash would be over before all the applications were cleared and 10,000 civil servants would need to be hired to ensure compliance.

Where I work, the $60 amount to 2 or 3 hours pay - at the very most and usually less, making this offer a 9 day, 6 hour fortnight. That would translate into maybe two long lunches each fortnight.

It looks like more of a gesture than a move of real substance.

The RBNZ's OCR cuts in recent months will have seen at least several billion dollars in interest income removed from savers over the coming two years. On the face of it, these rates cuts look contractionary.....not stimulatory.

The $20 million for the nine-day fortnight is less than 2% of the money that would be put into the hands of savers by NOT reducing interest rates by just 1%. The tax money the government would earn in tax (even if just 20%, more likely 30%) on the lost $1 billion or so in interest income would dwarf this amount.

I'm new to these stats. If I've mis-understood BB1, BB2.4 and BB4.4, I hope someone will put me right.

How's the Maori Party doing?

As the inevitable deterioration of the economy begins to bite in real flesh and blood ways, I'm wondering how much longer the Maori Party (and its supporters) are going to support the National / ACT government. Recent changes to employment laws have seen the working conditions and protections for all workers reduced, but especially for Maori workers, who tend to work in the more vulnerable low-skilled parts of the economy.

It was interesting reading Rahui Katene, MP for Te Tai Tonga, having a bit of waffle about ACC on the 10th of March. Firmly on-side with National:

"I am somewhat bemused at the reaction to the announcement from the Minister that ACC needed a fresh start to face up to its funding issues. What is so wrong with a fresh start?"

Nothing, really, if it is necessary. But is it necessary in the case of ACC? ACC is in the crap because they invested their reserves and the downturn has meant they have lost a mountain of money - along with all their private counterparts and many of those lost a LOT more. AIG, anyone? US$130 billion and counting.

Sacked ACC boss, Ross Wilson, had nothing to do with the credit crash, but he might get in the way of National's plans to privatise ACC and hand it over to multi-national insurance companies. I hope no one thinks Kiwis are gong to end up owning it!

How is privatising ACC going to fix any of this? It merely means changing ACC into the very sort of operation - like AIG - that played a major role in causing the crash in the first place. Less accountable, ultimately vastly more expensive.

Is someone going to hold AMP to account for seeing my super fund decline in value by 50% over the past 18 months? I'm assuming it's 50% - at least - though they haven't had the guts to send me the latest statement....and the one before it showed a substantial loss...and that was before the crash. Good thing I realised a decade ago the share market was a con and stopped puting money into it anyway. My point here is that even when ACC does much BETTER than the private sector equivalents, they still get punished...and that's because it isn't really about accountability. It's REALLY about handing over ACC to the global insurance industry backers of the National Party. Just as privatising prisons is about handing them over to foreign prison operators. Geo used to be Wackenhut until that company disgraced itself by running private prisons so badly.

There isn't anything much in any of this for Kiwis. But that's been how the neo-liberal, post-Muldoon version of the National Party rolls.

As for privatising ACC, (once again), National's "solution" to the problem is akin to: having lost one leg, you fix it by cutting the other one off.

The Maori Party won't have much of a future signing up for dodgy thinking like that.

But so far, they seem to be into it boots and all. I wonder how Associate Corrections Minister, Pita Sharples, is getting along with Minister Judith Collins. Fully consulted is he? I can imagine Health Minister Tony Ryall speed-dialing Associate Health Minister, Tariana Turia, for her views on his next round of grandstanding in the Health portfolio. Maybe they are all getting on like a House on fire.

I guess we'll find out.

How not to do TV journalism

This clip from CNBC is, in my view, an example of the appalling disservice done to TV viewers every day, everywhere, by the bubble heads who appear to dominate in that medium.

Billed as: "Predicting Crisis: Dr. Doom & the Black Swan", guests Nouriel Roubini ("Dr. Doom") and Nassim Taleb ("The Black Swan") are given little opportunity to clearly state their respective theses or make a reasoned case in support of anything.

Instead, they are asked ludicrous questions like: what advice they might have for someone with a newborn who wants to invest in a college fund.

At one point, the female host simply wittered on about something....I'm not sure exactly what. When Roubini said nationalising banks that have failed was the answer, they virtually talked over him in their rush to change the subject. Similarly, they were unable to grasp Taleb's central thesis that the people who couldn't see the crash coming were the wrong people to have driving the recovery.

The interview was essentially useless as anything other than a prompt for any viewer who wanted to know more to go to some more serious medium and get the whole story. It certainly wasn't to be had on CNBC. Not seriously and not today, anyway.

Monbiot on Keynes and the mess.

Well worth reading.

Clearing Up This Mess

Deficits and crony capitalism - Kiwi style

It's fascinating watching our local politicians, especially the National Party, following the path laid down by George W Bush in 2000 / 2001.

Throughout the election campaign in the US in 2000, Bush promised tax cuts that he said would benefit everyone, but actually benefited the top 1% of tax payers the most. The rationale for the cuts was based on the prosperity of the Tech Bubble.....and that rationale disappeared in smoke as the Tech Crash in mid / late 2000 unfolded.

But Bush went ahead and implemented the tax cuts anyway and ended the string of budget surpluses, replacing them instead with an unending string of deficits of at least US$250 billion / year prior to the invasion of Iraq and almost double that since then. His crony capitalist mates filled their pockets from the public trough through ten thousand and one PPPs in the US, Iraq and anywhere else the American Empire had a presence.

It has all ended in tears with higher interest rates to fund that deficit eventually leading to the fall of the US dollar, higher oil prices and the credit crunch not unfolding.

It's a wonder then that the National Party, in particular, with all this waste and wreckage in the global rear-vision mirror, is apparently blindly (or purposefully misleadingly) still promising large tax cuts. It says these cuts will be funded by reducing waste. So far, it has not identified any waste within two orders of magnitude of the amount of money required. National now says it will borrow to fund infrastructure and "growth"......though if there were no tax cuts, they would not need to borrow, or borrow as much, to fund that infrastructure. They are essentially saying they will borrow to fund the tax cuts.

That is exactly what George W Bush did and we know where that lead.

I'm not saying borrowing is bad. It's not.

I am saying that borrowing to fund tax cuts is bad. It is.

The way National propose to "save" money is through shifting many government services to public private partnerships - a.k.a. PPPs. I've seen PPPs operating first hand and they most often cost more than the original service, while providing less service, and they are less transparent and thus less accountable than their public sector equivalent. After all, their books are closed and their operations typically described as "commercially sensitive". The funders they are accountable to have strong political incentives to declare success even when failure is obvious.

It's a recipe for pocket-stuffing by political cronies and clients.

Even better, electoral finance laws making donations more transparent allow a government to see clearly who is donating to whom....and the winning of contracts for PPPs may be dependent on delivering exclusive donations to the incumbents. Florida under former Republican governor, Jeb Bush, is an excellent precedent. If you wanted a PPP, you had to donate to only one party - his - in order to improve your chances of getting the business.

National's entire approach is a proven recipe for more cost, less accountability, lower levels of service....and bigger deficits.

The evidence is there for all to see. The US has been doing for the past 10 years or more what National proposes to do here if they win.

Labour has tried to guess where the line between surplus and deficit may lie...and probably hoped to render any additional tax cuts impossible without cutting into "core" services that would be deeply unpopular with voters.....looking toward the 2011 election.

Large numbers of Kiwi voters, unaware of all this, plan to vote for one or other of them. It's like watching a low-motion train wreck.....

NZ third in the world in "economic freedom"

Contrary to the apparently unfounded assertions made by the National party and echoed their media backers at Fairfax and APN, the Canada-based Fraser Institute has (again) judged New Zealand to be the third most economically free country, after Hong Kong and Singapore.

This would appear to yet another example of reality contradicting the propaganda of the Right in NZ.

A separate debate is whether or not every aspect of individual economic freedom is a positive thing for everyone. Enabling the rape of the commons might be freedom, but it won't be good in the end.  Society at large should have some understanding of the difference between knowing the price of everything and the value of nothing. At the very least, it is a debate worth having.

The full report can be read here.

Surprise! Doha failed......

I have no idea why anyone is surpised that the Doha round of trade talks failed. The US was never going to agree to cutting farm subsidies. India was never going to destroy the livelihoods of hundreds of millions of peasant farmers....thus driving them into its over-populated cities.

This sensitivity, particularly by India, to the potential for massive social destruction through ill-considered policy changes is laudable and sensible. Sure, some people will deprived of cheaper prices and others of some portion of potential profit. Those losses pale into insignificance alongside the potential loss of life and health by India's huge rural population.

Maybe in 20 or 30 years their children - those who survived - would be better off. But "creative destruction" cannot be allowed to join "collateral damage" as the equivalent financial euphemism for wrecking the lives of millions on the way to making a buck.

This round needed to fail. It did not deal with the full costs of the trade changes sought.

"32"

Pulitzer prize-winning author Jared Diamond was interviewed Monday evening on National Radio's "Nights with Bryan Crump".

"If your listeners remember anything from this interview at all, I hope it is the number 32."

Diamond is working on an index of resource use per capita by country. His index is derived from the total amount of a particular resource consumed by a country, divided by the population of the country concerned. He makes the argument that population isn't the problem we need to worry about. The real problem is waste of the resources we do consume.

For example, a person in the United States or New Zealand will, on average, use 32 times more fossil fuels than a person from China. Doing the math, China may have 350 times more people than New Zealand, but they use only a bit more than 10 times the fossil fuels we use.

Diamond brought the issue of population into sharp focus. The Earth may be able to support as many as 9 billion people if resources are managed carefully. We would each have to reduce our consumption of all resources significantly over current levels to achieve that. But if all 9 billion people were to live the lifestyles currently lived by Americans or Kiwis, it would be equivalent to having a global population of 72 billion people. Diamond says that level of resource use is unanimously deemed to be not only unsustainable, but completely impossible.

Food for thought. It represents more of the simple math demonstrating now is a good time to make rational choices for a healthy, prosperous future. The alternative is nasty, desperate choices between rocks and hard places. That is where the greedy and stupid too often go, but we don't have to go there.

Diamond is optimistic that people can and will make the right choices if they understand what is at stake.

I agree. But I'm also well aware that the vested interests in the status quo will do all they can to inhibit and confuse people and prevent such an understanding. We are already seeing this happening on the climate change.

The best article I could find on the net covering his thinking is found here It's focused on the US, but most of the points made in the interview I heard are covered.

National: Slavery is freedom

If we were wondering how the National Party plans to stop young and low-skilled workers fleeing to Australia due to low wages and poor working conditions here in New Zealand, we now know more about the answer: Give MORE arbitrary, unaccountable power to employers.

Nationals is promising to allow small employers with less than 20 employees to sack anyone without cause in the first 90 days.

The policy, which will apply to businesses with fewer than 20 workers, allows employers to dismiss staff in the first three months without risking a personal grievance claim for unjustified dismissal.

While probationary periods are already allowed under existing law, proper process must be followed before the worker is dismissed.

Workers can still take a personal grievance if they feel the decision not to keep them on is unfair.

Yesterday, National deputy leader Bill English said the policy would give small businesses some insurance so they could take a risk on workers they might otherwise be reluctant to employ, such as former prisoners or people with little work experience.

The examples provided make it clear that low wage workers are being targeted. These are also the groups who already suffer from the predations of unscrupulous employers. They can already be fired more or less at will as few people will kick up a fuss over a $12 / hour job. Grievances are much more likely to be brought by employees in much higher paying jobs.

National's promised law change will effectively legalise the worst abuses of unscrupulous employers.

I can't wait to see what National plans to do next to stop workers fleeing to Australia. We already know they want to backpedal on employer contributions to Kiwisaver and get into union-busting in education and health by off-loading more to the private sector in those areas.

Tax cuts now are dumb.....

I’ve been reading “The Great Unraveling” by well-respected economist, Paul Krugman. It came out in 2003. In it, he details how President Bush and the Republican Party promised big tax cuts in the 2000 election campaign. These tax cuts were conceived at the height of the Tech Boom in late 1999. Bush and his party said it was time that people be given some of their own money back instead of the US government piling up ever larger surpluses, as it had been. Paying down the US government's ever-expanding US$8 Trillion debt and building up reserves to fund Social Security and Medicare for aging baby boomers wasn't something he was concerned about.

By the end of 2000, the tech boom had turned to bust and tax revenues were falling significantly. There were not going to be any more big surpluses but there need not be large deficits either. The economy was slowing and there was a serious risk of the US slipping into recession. Alan Greenspan, governor of the US Federal Reserve (central bank) began lowering interest rates.

With no surpluses to pillage, Bush and his party shifted gears and sought to justify the big tax cuts by saying they would give taxpayers more spending power and boost the economy and growth - um….next year. As Krugman points out in detail, these tax cuts were going to create a US$ 2.3 TRILLION deficit over 10 years. This was before 9/11 and the invasion of Iraq…which has resulted in that figure doubling to almost US$5 TRILLION.

Krugman says if you want to boost a slowing economy, it would be far better to lower interest rates and increase spending to help consumers now than to give them a tax cut in 6 months or next year or in two years. By then, the economy may be reviving and the cuts merely add fuel to the inflationary fire. You'd then have to raise interest rates and transfer those tax cuts from people with debt to a bank instead. They still end up without "their" money.

In 2001, after concern from the Democrats about the effect on the deficit, Bush went ahead and implemented those big tax cuts and the deficit duly exploded, leading Krugman to predict - rightly - that we would inevitably see higher interest rates, inflation and ultimately - stagflation. His tax cuts were to kick in a new level each two years, coinciding with the electoral cycle. He also scrapped the inheritance tax.* *

We’re almost there already in NZ, based on the consequences of what Bush did in the US 7 years ago, and now National wants to repeat the same errors with our own government finances. National is promising to implement tax cuts in a bust that were conceived in a boom, shifting rationales just as Bush did from giving people back their money to stimulating the economy.....next year....while it slows down right now.

Incredible.

Finance Minister, Micheal Cullen’s strategy appears to have been the correct one. He has said several times that there would be a downturn and it has now come to pass. I should say I have had the same expectation. Mine own view was driven by the parallels between the likely economic and fiscal consequences of Bush invading Iraq and the consequences on those same things of Vietnam war. In both cases, huge deficits lead to a fading US dollar, higher interest rates and inflation and ultimately to stagflation. I’ve been planning for it for 5 years myself. It was screamingly obvious to any student of history what the effect of Bush invading Iraq was going to be……for the whole world, not just the US.

We must also factor in the impact of climate change and peak oil, two things National is still in denial about.

Cullen appears to have seen the present downturn coming at some point and has been prudently planning for it. His actions and statements make that clear.

It’s equally clear that National hasn’t got a blind clue what is going on or why or they would never have promised big tax cuts to begin with.

Read Krugmans’s book. His concerns of 2000-2003 have turned into the reality of 2008. He called it 5 and more years ago…..bang on.

NZ risks repeating Bush's error of implementing tax cuts without regard for the state of the economy or future risks to tax revenues.

** Concern about affordability of Bush's tax cuts was sufficient that a provision was included in the law that will see it expire at midnight, December 31st, 2010. At that point, tax rates will return to the 2000 levels and the inheritance tax will resume. As Krugman blackly jokes, an American's wealthy granny will be worth a lot more dead on December 31st, 2010 than than she will be if she dies on January 1st, 2011.

Energy: Thinking outside the square

Here's a business opportunity for a government or private company with an eye to the future of energy in New Zealand.

Implement a buy-now, pay later approach to home and business installations of passive solar water heating systems. This could be done by any of lines companies, generators, government or local councils or all combined. It would also represent a new revenue stream via providing contractually required on-going maintenance contracts.

Advantages

Security of supply would be greatly enhanced. The country starts saving power (coal, diesel, hydro lake water) from the first install. The hydro lakes begin the Winter less depleted and the risk of power problems ovr winter would be reduced or eliminated.

Power consumers will see lower power bills over time.

Civil defence capability is enhanced as water in homes can be heated to some extent daily during daytime power outages or if natural disasters cut off mains power.

Large scale power generation projects could be deferred. They wouldn't be necessary.

People currently on gas water heating are provided with a migration path away from that declining resource.

There would be a new and permanent monthly revenue stream from servicing and maintaining the large number of installations. Hundreds of thousands of homes and businesses paying some amount every month.

A new industry employing thousands of people would be created and would have a long term, local future.

Reduces the incentive (and the ability) to keep power in short supply in order to maximise profit.

Disadvantages

Power conservation means lower revenues for generators. They have no financial incentive to reduce power consumption or to make power cheaper. The ONLY financial incentive for generators is to produce slightly less power than is actually required in order to maintain price and maximise profits.

Obvious Problems

Companies focused on maximising profit won't find this attractive. It may fall to government to somehow enable this in the national interest. No one is going to lose money. The problem is they stand to earn less.

In order to avoid people shirking their obligation to pay, over time, for the installation of the systems, the cost of the installation could be attached to the dwelling or structure itself instead of being the personal property of the persons or company currently occupying the structure. Ideally, this would involve local councils as they already operate to this model. Lines companies could do it to, as they can track power features by address as well as by person.

Either way, if you buy or sell a building, the liability for any remaining passive solar install debt and ongoing maintenance charges goes with it. You buy the house on the understanding that you may be paying $20 or whatever / month to pay off the install cost over whatever number of years and some additional amount for the service contract. The amount being paid could be capped at an amount equivalent to the power being saved.

Bottom Line

Had such a program been started in 1992, after the first major power scare, every home and business in the country could have already been upgraded this way. These installations would/could have saved a huge amount of power already. Far more power than several Project Aquas would have generated after the decade it would have taken to build it.

From a commercial perspective, they would now have all been paid off and generating ongoing service contract revenue for the providers/maintainers of the systems. Every new home would be required to have one installed - funded on the same model in order to lower the cost impact on new homes.

The benefits are many and obvious. The downsides are few....and none, if you aren't worried about generators earning less profit in a relative sense, while still earning huge profits in nominal dollar terms.

Cullen and Manufacturers

Stuff's Colin Espinor and the Herald are making much of the poor turnout to hear Finance Minister, Michael Cullen's pre-budget address to the Canterbury Manufacturers Association lunch in Christchurch.

Maybe the phone is off the hook with respect to Labour. It's tough times in New Zealand for manufacturers. The low US dollar they insist on pricing everything in has been a real problem for them. The competition from manufacturers in much larger countries with 3rd-world labour laws and better access to markets and capital has been crushing. Maybe there aren't many manufacturers left in Canterbury to attend.

But I honestly can't see how local manufacturers could get any more excited by the prospect of a National-lead government later this year. That party is even more committed to free trade and open markets - especially the China deal - than Labour is.

There can't be any real benefit from that quarter for local manufacturers. Trimming a little "red tape" by exposing the environment to renewed plundering and spoilage won't save much money for manufacturers.

How can National credibly enact policies to force wages down even further when criticising the present government for not doing enough to see wages rise? My eldest daughter's employer is already refusing to pay the legal minimum wage and my daughter begs me not to say anything lest they not give her a good reference if she should decide to leave that job. So they get away with breaking the law and low-balling a teenager who works hard.

As for tax cuts, the banks and the oil companies will soak those up in 15 minutes flat via interest rates and petrol prices and thanks to the lower tax take, services will be reduced, enforcement will be gutted and we'll all have to pay more and higher user fees and larger health care costs out of what's left, reducing our already shrinking disposable incomes. What good is a tax cut if the Reserve Bank of New Zealand can deem it inflationary and confiscate the money right back off you and transfer it to the commercial banks via higher interest rates. If that fails, the RBNZ can cut interest rates, the NZ dollar falls and our buying power for all the imported stuff we used to make here takes another hit. Tax is the least of our worries. It's close to being a red herring.

People can be perverse. Maybe the Canterbury Manufacturers Association should all be NZ First or Green Party supporters. Both have policies more in tune with the needs of local manufacturers than National or Labour, who will (apparently) hold to current policies until the last local manufacturer in NZ turns out the lights and moves to China, Mexico or those special export zones in Thailand where the usual labour laws don't apply.

Those "Buy Kiwi Made" ads should soon be changed to "Find Kiwi Made". It's getting harder to do that.

[UPDATE 2008-05-20: Audrey Young's blog gives a hint as to the most likely reason for the poor turnout for Cullen's recent speech:

His long-serving private secretary Kim McKenzie departed suddenly, apparently after a dispute of some sort - unrelated to the Budget. (He said today that she had not been sacked and was on leave and did not know if she was returning).

His traditional pre-Budget speech to the Canterbury Manufacturers’ Association drew a pitiful audience of 36.

Clark noted on Newstalk ZB this morning that the person organising it should have been shot given the fact that she had given a speech there only two weeks previously to a packed audience - wherein may lie the reason.

Little wonder that Cullen’s office is quick to say that his post-Budget speech on Friday to the Wellington Chamber of Commerce is a sell-out - sorry, is sold out - with 85 acceptances for tickets at $60 a head.

]

Your job's gone to India / Mexico / Italy - or just gone

ANZ National Bank

The ANZ National Bank has announced that 500 back-office jobs are going to Bangalore in India. Finsec, the bank employees union says these jobs are gone. The ANZ Bank CEO says the staff replaced will be retrained and allocated to alternative jobs.

I'm not buying it. There are 500 jobs not currently being done that need doing? The cost of retraining and supporting these "alternative" jobs is STILL less than the setup and running costs of moving the jobs to Bangalore? If not, why do it at all? Mayb this is just the opening move in a larger plan to outsource Kiwi jobs to countries where people work for next to nothing.

I am currently an ANZ customer and have been for 23 years. In light of ANZ's apparent (in my view)lack of commitment to New Zealand, when our mortgage disappears next Tuesday with the sale of our farm in Foxton, I'll be moving my accounts to Kiwibank.

Fisher & Paykel

I have always bought Fisher & Paykel appliances because I found them to be of good quality and they were made right here in New Zealand.

Today, Fisher & Paykel announced they are moving manufacturing ovrseas to Mexico, Thailand and Italy. There will be 450 jobs lost in Dunedin as a result.

I can understand Mexico. It's the cheapest country in NAFTA, the North American Free Trade area (Canada, the US and Mexico). Tens of thousands of Canadian jobs have gone to Mexico in recent years. The number of American jobs probably numbers in the millions.

I can understand Italy. That country provides access to the EU as a market.

I'd be interested to know what the advantages to F&P are of locating in Thailand.

I guess I'll be free to buy my whiteware from any company in future. I may stil buy F&P if their product is good and the price competitive.

Tamahine Holdings

In the third leg of today's job-loss treble, Tamahine Holdings, a knitwear manifacturer, also in Dunedin, is closing down. These aren't going anywhere. They're just going.

What now?

I can see that part of the problem is that our goods are priced in a rapidly declining US dollar. That's not our doing. It's was caused by the Bush administration blowing trillions of dollars down the plughole in Iraq, an invasion that caused oil prices to explode. The US fiscal debt "bomb" Bush detonated forced interest rates up, leading to the sub-prime credit crisis, resulting in a spectacular destructions of wealth. All of this has been inflationary.

It's all resulted in our manufacturers being uncompetitive in US dollar terms.

So what will the impact of this and future manufacturing losses be? I can see the companies that supplied goods and services to the manufacturers who have departed operating in a shrinking market. Let's be realistic. There will be no new manufacturing enterprise replacing these, or most other, lost manufacturing jobs. Otherwise, why would they be leaving in the first place?

Then the skills that were supported by the enteprrise being located here will not longer be supported. They may disappear entirely. No one will be starting a manufacturing business in a place with no skills to make it possible. They would bear the entire cot of educating their workforce as part of starting up.

Once the skills are gone, where does any future innovation in those areas come from?

If we keep crawling along the links of this chain, we see either a downward spiral or an ever-decreasing circle. Take your pick. Ultimately, will we be farmers, bankers, white collar professionals and their support staff, McJobs and shopkeepers? Yes, we'll need a basic maintenance crew to keep it all running. Unless it becomes, for example, cheaper to fly mechanics from India on 6-month contracts in NZ to do low-cost car repairs.

You might laugh now......

it seems to me that one of the few reasons NZ built up a diverse skills base in manufacturing and the engineering and design skills to support it, was the need to operate behind a wall of tariffs that meant the only option was to train New Zealand workers to provide all the things we needed to function as an economy.

To a considerable extent the New Zealand economy has continued to benefit from the legacy of skills and knowledge accumulated during the period of protection. Can that legacy be maintained? Is there a possibility of that legacy gradually degrading and slipping away should the manufacturing and design requirements of the NZ domestic economy slip below some critical mass that maintains their viability?

How does reducing the scope for employment in all facets of manufacturing, from start to finish, keep young people from leaving New Zealand in search of opportunity?

I'm having some trouble seeing a good future for us here while this trend continues to denude the economy of more and more manufacturing jobs and potentially, skills.

Bush's invasion of Iraq caused the "sub-prime crisis".

Back in 2004 I was anticipating what is happening now. We sold our several properties and concentrated the equity in one in order to reduce our exposure to debt and the risk of higher interest rates. I was certainly quick off the mark in taking action, but definitely not wide of it. I wasn't sure exactly "when", but the "if" of higher interest rates and more inflation was being converted into a sometime "when" as the tanks rolled toward Baghdad. George W Bush's tax cuts certainly didn't help any either, as they contributed to the growth of the US government fiscal deficit, instantly wiping out the surpluses of the Clinton years. It was suspected the goal was to create deficits that would allow the Social Security fund to be dismantled or reduced in scope, creating more business opportunities for private insurance funds. Whatever. The deficits were duly created. Invading Iraq was like pouring petrol on the bonfire.

As the effects of the most recent consequence of the invasion - the US sub-prime crunch - continue to fall out, it's more and more like watching a slow-motion train wreck. The engine went off the rails in March 2003 and the rest just unfolded more or less as it would have in any case. Greedy bankers and myopic derivatives speculators, blind to the risk they were taking, merely helped decide exactly which links in the chain would pop first.

Like the slow motion train wreck, we're seeing stories of failures of institutions and funds, at first distant and seemingly irrelevant, become more numerous. As each succeeding car comes off the rails, the consequences of all this creep closer and closer to home. Each failure leads to trouble and strife for those further downstream.

Tower's "Mortgage Plus" fund closure detailed in this report by Bernard Hickey of JDJL / interest.co.nz is the latest of the local stories emerging from the property slump caused by higher interest rates and rising inflation combined with stagnant wages. Interesting to note Hickey's comments about Trustees Executors and related activities of mortgage brokers. I think we might expect to hear more from those organisations as time passes.



The sub-prime crisis is being blamed for all this, but it, in turn has its roots in the fallout from US President Bush's disastrous policies. Lest he hog all the blame, we should reserve a small share for those banks, greedy to the point of idiocy, who lent money to people with little equity who wouldn't be able to pay ballooning mortgage payments if rates rose. As banker after banker has said: "We never expected the interest rates to go crazy".

Why not? I did. Maybe not inevitable, but certainly highly likely. Worth being prudent about.

I'm no economics boffin. But I do study history and have a working knowledge of how the major chunks of the global money/banking system hang together. The effects on the global monetary system of the Vietnam War and the first two oil shocks provide insight into what is happening now.

The invasion of Iraq in 2003 lead to vastly increased oil prices and ballooning government spending on an utterly unproductive activity: war. Both are inflationary. Inflation is corrosive. Unlike Vietnam or the discretionary oil shocks of the early 70's, today there is no end in sight.

In order to fund the deficit and maintain the value of the US dollar, interest rates were raised for 11 straight quarters by the US Fed. The Fed was trying to quell inflationary pressures based on higher oil prices and attract funds, mainly from China, Korea and Japan, to fund the deficit. The higher interest rates resulted in rising costs for all businesses and consumers, especially those who held those "sub-prime" mortgages.

One can imagine they then found they had trouble with making ends meet due to the rapidly rising interest rates and rising cost of living. Daily expenses and "balloon" payments on sub-prime mortgages as they rolled over probably crept out onto credit card balances and eventually the total became unsustainable for ever-larger numbers of people, leading to large numbers of mortgage defaults.

The sub-prime crisis is a symptom. George W Bush's invasion of Iraq, combined with his tax cuts, is the root cause. If that money wasn't being wasted, interest rates would not have had to rise...and we would not be seeing what we are now seeing.

It was not impossible to see this coming. I didn't know exactly how or when, but I saw the risk of such a thing happening and prepared for it. Why couldn't the banks and people with a lot more economic and financial nous than me do the same?

A bigger question for me is how the people who started all this - Bush and his team of advisors - failed utterly to appreciate what the consequences of their actions would be. Maybe they really did believe Iraq would be all over in a few weeks and they could rake in the oil money ever after and never dreamed it would cost a trillion dollars with no end in sight.

If they believed that, they really were incompetent, dribbling idiots loose in a dynamite store with a pack of matches. If they didn't believe it, then we are now suffering the effects of one of the greatest acts of deliberate economic vandalism in recorded history.

Don't trust. Verify

This blog isn't called "Truth Seeker" for nothing. In my life I've found that one makes errors in direct proportion to the extent to which one is prepared to accept as true things that are not true. In an effort to avoid inflicting the consequences of my errors of fact or understanding on myself and others, I do try to see any thing from a variety of perspectives. I then weigh that up against my own values (tested for validity every day if the subject is new and / or there is uncertainty) and arrive at something resembling a conclusion. A provisional decision, valid unless new information invalidates it.

Caveats: Knowledge of anything complex usually isn't perfect. In turn, understanding is limited by the usual 5 senses and the brain (large or small) that has the job of making sense of them. Some do better than others. Some make no effort in either case, knowing little and understanding less. (But they vote anyway. Oh well....)

Already, we can see there is an inbuilt tendency to err based on imperfect knowledge and incomplete or inaccurate understanding and underpinned by motivation - or lack of it - to even try.

With that in mind, I read Matthew Hooten's column ("Labour fighting tooth and nail", 6/4/08 Pg A11) in the Sunday Star Times this weekend. I can't find a link for it.

What caught my eye in the column referred to were several assertions that - to me - appear to be insupportable.

The first was the almost throw-away claim that a fourth Labour term would "accelerate our brain-drain". That surprised me as there have been several recent reports that show the so-called brain drain is a myth. Journalist Nick Smith found the same thing when he looked into the claims there was a brain drain.

It's a hollow claim. My daughter is on an employment contract that says she'll work any time, for any number of hours, with no overtime, as required, if required. For the minimum wage, if she can coax them into paying it. Can you say "powerless"? The 40-hour week is stone, cold dead.

Apparently, this isn't "free" enough for some employers. It's hard to see what more they could ask for in terms of being able to dictate terms of employment. Not at all hard to see why Australia might be more attractive. But it would be the young and low-skilled who are being driven out of New Zealand and this appears to be what the statistics actually show to be happening.

Later, Mr. Hooten refers to "our demand for tax cuts". Who wants tax cuts? A recent NZ Herald-Digipoll showed that tax cuts were an issue for 22% of Kiwis. They made much of this, but I would have thought it more significant that 78% of Kiwis weren't fussed about tax cuts. I'd be among them. My impression is that "demand" for tax cuts has been largely media-driven. I've not seen any poll over several years that showed a level of demand for tax cuts warranting the sort of media campaign we have seen for several years now on the subject.

Hooten then goes on to assert that Labour will employ dirty tricks and speculates rumours will be "invented about hidden agendas and malign foreign influences".

I can't dismiss, as Mr. Hooten does, the clear hunger of some in the National Party for even less worker protections than the few that still exist. Nor can I easily forget the business-as-usual co-ordination with the US-lead Exclusive Brethren in the last election.

These aren't rumours. They are genuine concerns raised by National's own past behaviour.

Hooten then asserts the "economically ruinous effect of Labour's policy agenda". I'm sorry, but every economic indicator I know of indicates that since 1999 the present government has done as well as any government ever has economically and better than almost all others of any era. Low unemployment, solid growth, an open economy, a demonstrated capacity to withstand global downturns through sound local macro-economic management. NZ is ranked as one of the easiest countries on Earth to do business in. We even have a growing fiscal surplus that gives some hope the passing of the Baby Boomer generation into the ranks of the elderly will be fundable.

The summary is I found Mr. Hooten's column to be more misleading than it was informative. But I wouldn't know that if I hadn't actively sought to verify the assertions he made. I'm glad I made the effort. I hope the Sunday Star Times has a negative view of any columnist whose column is found to be full of assertions that don't stand up to scrutiny.

NZ's soul for sale?

Wonders never cease. Today I had the rare treat of reading something (no link to it) in the Weekend Herald by Fran O`Sullivan that was (indirectly) complimentary to Helen Clark and Labour. The subject was a free trade agreement with China and Ms. O`Sullivan is all on board. To say she is enthusiastic would be an understatement. So much so that she fully endorses the agreement....whatever it is. We don`t know yet. She says she has a few hints.

On the flip side, Ms. O`Sullivan was dripping with venom and contempt toward anyone who might have any doubts about the still-secret agreement. Especially people who might wish to put human rights ahead of (unknown, but presumed) benefit to their wallets. Well...someone's wallet if not your own.

I'm always amazed that principles don't seem to be worth anything to people like Fran O'Sullivan when there's money to be made. That's the same sort of thinking that would lead some people to think that whoring the lives of your country's soldiers in - say - an invasion of Iraq would be a worthy thing to do in order to (maybe) win a free trade agreement with the United States....as National's Wayne Mapp and Simon Power briefly did in 2003, before getting their chains yanked by more thoughtful and senior colleagues for being so silly.

Anyway, it's not often one sees a staunch advocate of right-wing policies like Fran O'Sullivan blindly and unquestioningly supporting Helen Clark and Labour!

I'm neither in favour of, nor opposed to, the FTA with China. How can I be? I've got no idea what's in it. I am inclined to be optimistic about it.

I have no problems with a free trade agreement with another democratic country that operates under the rule of law and where we know the justice system is generally reliable. Even an FTA with the United States would make some sense, despite their considerable history of ignoring the terms of the free trade agreements they sign when they are contrary to politically powerful domestic interests, as Canadians well know after 15 years of NAFTA.

China is a whole other thing. They arrest and imprison or kill people who simply want to vote for who governs their country.

I do have real concerns that binding New Zealand's future to an unaccountable and ruthless dictatorship disrespectful of human rights will leave a small country like ours little latitude for action when major human rights issues do arise. How large an outrage would be required to make us draw back? A thousand dead? A hundred thousand? A million? Or are we ready to do anything, pay any price, for the "baubles of office" associated with an FTA with China?

Some people clearly are. Fran O'Sullivan, and people like her, clearly have no problems there. Their own words make that clear. Liberal values like democracy, justice, liberty and the people who uphold them are to be held in contempt if they obstruct making money.

Read her article "Cuddling up to China" (Weekend Herald, Review, B1). You'll see what I mean.

It's important to make clear that I'm not disagreeing with Ms. O'Sullivan about free trade that's conducted fairly. That can be a very good thing for all concerned.

Instead, I'm suggesting we not sell our liberal democratic souls for a few pieces of silver. So whatever is in the agreement to be signed, we would be imprudent to not also consider what else we will be giving up in order to maintain the relationship with a China that is not only not democratic, but a ruthless dictator.

In case anyone thinks otherwise, I'm a huge fan of Chinese people and culture. But I'm able to distinguish between a people and the government they find themselves lumbered with.