Sunday, October 31, 2004

Brash and a land of plenty


Last weekend I saw two of the documentaries about unemployment, neoliberalism and the New Right. I`d already seen Someone Elses's Country a few years ago at the film festival.

I wasn’t going to blog about issues arising from Land of Plenty until I saw No Right Turn had linked to this 1996 lecture given by Don Brash when he was Reserve Bank Governor, referred to on the programme.

This Hayek Memorial lecture discusses New Zealand's "Remarkable Reforms" in light of the events in the early 1990's, where the Government's main goal was to eliminate inflation, which would supposedly lead to low unemployment. Of course most voters, particularly those who were unemployed, wanted the Government to eliminate unemployment.

Frederick von Heyek, a critic of Socialism, believed that unregulated marked capitalism would lead to growth, and so did Ruth Richardson and the Treasury.

So in 1991 the National Government cut benefits by up to 24 percent to reduce government spending and widen the gap between welfare and work to force people off the dole into jobs that didn’t really exist due to a struggling economy. The Government didn't want to reduce taxation as that would cut into the money it had to spend.

Reduction of Government spending was seen as a way of lowering inflation, but the benefit cuts also meant less spending on goods and services, leading to wages falls and job cuts. The general price level was lowered, but that raised the value of money to spend on goods and services. But of course that didn’t help those who all of a sudden had to pay market rents and copped interest rate rises. Inflation was kept down, all right, more was spent on goods and services (eventually) as economic growth started to kick in, but the unemployed were used as pawns in the process.

This is the kind of monetary policy Don Brash supports when things get tough. This lecture is not on Don Brash's personal web site, as it used to be. It is under "Don Brash National Party leader."

What will he decide if he was the Prime Minister in a struggling economy? Too much money chasing too few goods, or too many people chasing too few jobs.

At the moment, we seem to have too many employers chasing too few qualified workers - and too many unqualified unemployed chasing too few unskilled jobs.

Given the above comment, what is the answer to increasing productivity (and skills and wages), and decreasing unemployment in this current political climate, irrespective on what side of the monetarist fence you are on?.

4 comments:

Idiot/Savant said...

The term you're looking for w.r.t the effects of the benefit cuts is "death spiral". It describes the consequences of slashing welfare spending during a recession to a T.

Oh, and screwing the unemployed isn't monetary policy. Monetary policy is to do with inflation. What's really toxic about Brash is that he favours screwing the unemployed as well as monetary policies that increase unemployment. In other words, he wants to further victimise the victims of his own policies. This is simply grossly immoral, akin to choosing someone at random and then giving them a good kicking for being chosen.

peasant said...

One other looming problem springs to mind, the over emphasis on tertiary education in so-called 'professional' occupations. The impending lack of skilled tradesmen means there will soon be some wealthy plumbers and builders living better than mass-produced lawyers and stockbrokers (graphic designers, ESOL teachers are probably the worst cases)

Rich said...

But is the answer to the skills mismatch to limit access to higher education, thus forcing people into non-graduate careers, or to encourage industries that require highly skilled people to expand in NZ?

I think the latter is likely to be more popular, as well as helping make NZ a better place to live in the long term.

There is probably a case to make higher education institutions provide better information on the employment outcomes for their students. A lot of claims by HE institutions seem to be a bit far-fetched: "I did business studies at the University of Piha and now I'm the CEO of a major global corporation at the age of 21."

Anonymous said...

I know what monetary policy is, its just that in that context I was writing on Gov't policies on inflation rather than the alteration of interest rates as the policies on inflation were at the expense of the unemployed. Brash did not care about the dignity of unemployed as that problem was secondary to inflation- as well as interest rates, the value of the dollar and the level of the salary of the governor of the Reserve Bank.
Whats the bet the Brash version of increasing productivity is workfare, and time limits for benefits?
Dave