OnPoint by Keith Ng

You know you're in trouble when there's a map of the queue. It shows fifty ticket stations supplemented by a dozen temporary ones. There are only a few thousand people crowding around them – because the actual crowd is outside, waiting in a parking-lot-sized corral.

But how to get into the corral? Looking around, my spidy-senses started to tingle. It's a familiar mix: frustration, excitement and that magical caveman x-factor. Down the block, the police are holding the line – with a rope – and they start letting people through. The first man starts running, and the stampede begins.

Oh. Fuck.

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I've spent the last month deliberately not writing about economics. Well, okay, I spent the last month watching every season of The Wire. But, in my spare moments, I was very conscientiously not writing about economics. It's just such a bloody bore now – it's the only game in town, but we are as clueless as we were two, three months ago, and we haven't become any less screwed.

Lack of new insights hasn't stopped the fortune-cookie macroeconomics. “Wise man has fiscal stimulus. Wiser man has fiscal stimuli.” “Consumer confidence rise like tide, but fall like wave.”

And so on.

Not to pick on DPF, but just needed to get this off my chest. He said:

Borrowing money to save money is the sort of stuff that cuased the credit crisis.”

No. Like, seriously: no. Gah!!

My own understanding of the economic crisis has also been flawed. Having faffed around for weeks on the assumption that cheap oil, reduced demand and international terrorism (as opposed to the domestic ethnic separatist/ultra-nationalist/religious fundamentalists kind of terrorists) would make flights to India cheap, I discovered that I was wrong.

So under the guise of reducing my carbon footprint, I set out today for Hanoi, from Hong Kong, by train. Yet the stupid global economy still got in the stupid way.

Chinese New Years is a time when China's mobile workforce – the 130 million rural migrants who came to the cities to power China's reforms – go home to celebrate with their families. CNY is in late-January this year, and the mass movement of people usually happens about 10 days before.

Not quite, I discovered in Guangzhou Railway station, knee-deep in screaming children and dissatisfied passengers. It was a goddamn madhouse.

According to Reuters, more than 10 million migrant workers have already gone home, and more are on their way. Their jobs have evaporated. Guangzhou, a heavily-industrialised export region that has experienced massive growth is also the first to feel the chill in international demand.

It is probably more accurate to “just” call it a massive disruption at this stage – plenty of people were touting set-top DVD/MPEG-4 players and other fancy gadgets back home, and while everyone was pissed off at the conditions at the station, there were only a few with the thousand-mile stare. It felt messy and uncertain, but not irreparably grim – yet.

The Washington Post follows one of these workers all the way back to their village – it's a good read.

Seeing thousands of people literally sitting right there in front of you, as a consequence of the economic crisis... it's quite different from looking at Treasury forecasts, to say the least. It almost seems perverse that the destinies of so many people are affected so directly by something that's essentially abstract.

Plummeting consumer confidence + tightened credit conditions = that woman slumped over her bag on the floor, waiting hours (days?) for a train to take her home.

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After an hour-long delay at the previous city, my train stopped within throwing distance of Guangzhou – and stayed there for another half hour, taunting me as my connecting overnight train left. I got off, and the biggest human migration on the planet was standing between me and the ticket stand. So much for Hanoi.

So here I am, back in Hong Kong, eating ice-cream.

The US presidential system is a beautiful thing – when it’s all over, the losing candidates’ first job is to remind their supporters that the campaign is over: Respect democracy, respect the nation, respect the new leadership.

It’s a nice gesture that our crummy Westminster system doesn’t do. The second a government is turfed out, it takes on the sworn duty to say that everything the government does is wrong, and the country is going to hell in a handbasket.

It’s not terribly productive, really.

I don’t trust or distrust John Key. His agenda is pretty straightforward, and he’s made enough commitments to lock himself into a centrist agenda for the first term. He’s shown with his coalition deals that he’s aiming to be there for a while, and if there’s anything I trust, it’s that Key ambition for a second- and third-term will keep anything radical off the agenda.

But there *was* a deep dark secret behind this campaign: that there was no response to the economic downturn.

What about the infrastructure building? The fiscal stimulus package?

Earlier this year, the OECD’s Secretary-General visited New Zealand and laid out a recipe for boosting productivity: More investment in transport, telecommunications, education, innovation, and improving savings.

Essentially, National’s entire programme is about following this recipe. And tax cuts. The big-ticket items – roads, broadband, schools, tax cuts – were all in the works before the beginning of the campaign. They just started calling it fiscal stimulus for tougher times instead of bright ambitious future optimus-prime.

Sure, they do act as fiscal stimulus, even though they weren’t designed as such. But the problem is that the ideological drivers of the recipe became blinders to the real needs of the economy in the short-term, and the opportunities available in the medium-term.

Specifically, the Home Insulation Fund was a billion dollars’ worth of missed opportunities. The construction industry will be one of the hardest hit by the economic downturn, and investment here would protect the most jobs with the least disruption.

Second, it’s was going to generate an instant return in terms of energy efficiency, increased productivity (fewer sick days) and lower health costs. It’s a massive low-hanging fruit, and it’s inexcusable to not grab it.

Not only is the rest of the world doing it, they’re doing it under the guise of stimulating the job market.

We could’ve emerged from the other side of this a leaner and greener economy. It could have reduced household costs, improved health, quality of life, carbon footprint, etc. Economic growth should be a means for us to achieve these things, but instead, we’ve traded them in for growth.

I’m making my sad face.

Kiwisaver was arguably National’s biggest anti-recession programme. The media only focused on the $3b that was getting cut, but that’s literally just half the story. The $3b were government *incentives* for Kiwisavers, sweeteners to get people to save more. Take them away (and reduce the minimum threshold) and savings will drop.

Actually, that was the plan. Page 4 of National’s fiscal policy:

Fiscal stimulus comes because:
Much of the KiwiSaver tax credits that were going into long-term savings accounts will now be redistributed as tax cuts. These tax cuts put money into people’s pockets which can then be spent in the economy.
Similarly, KiwiSaver members will have the opportunity to put a smaller proportion of their salary into their KiwiSaver accounts, and therefore have more in their pockets to spend.”

I was intuitively horrified by this – actively discouraging saving in favour of consumption? Lower saving during a global credit crunch? Breaking barely established saving patterns just because they needed more money for tax cuts?

However, I’m slowly coming around to the idea that the changes to Kiwisaver aren’t all bad. For example, the 4% minimum contribution threshold was probably counterproductive. Namely, because the last IRD report on Kiwisaver said:

The minimum 4% contribution rate is the main feature that is discouraging enrolments.”

More significantly, it showed that a third of all new automatic enrolments chose to opt out of Kiwisaver. Contrary to the headline numbers, a lot of people are staying out of Kiwisaver despite the incentives, and lowering the threshold is probably a good move to bring them back in.

Still, lowering the minimum threshold to 2% has nothing to do with lowering the minimum employer and government contributions. The only reason for cutting them was to free up money for tax cuts.

The assumption is that less savings = more spending, and more spending = economic stimulus. If it works, it might mean a shorter, shallower recession; that would go part-way to making up for the lost savings. If it doesn’t work, it’s a mistake that we’ll have to pay for decades down the line, with compound interest.

On the bright side, it turns out that people’s savings patterns are very responsive to financial incentives. Basically, people will pile on and save if there’s free money in it. So, if we want to ramp savings back up again in a few years, it’s quite possible to do so. And National has signalled:

National will review KiwiSaver once it is bedded in with a view to introducing a “3+3” alternative option in the future, if economic conditions permit.”

That’s cause for some mild optimism.

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As you may have read from Kiwiblog, I spent this election in the heart of Helengrad. The reason was simple: I wanted to peek behind the curtain, and see what goes on in the heart of the machine.

But before I lead you on any further, I’m afraid that I won’t be writing about my time inside. The point was to learn and to understand – and I did – but I also need to respect the degree of trust they placed in me, and to maintain my reputation as a rhetorical mercenary.

All I’ll say is that it was a genuine privilege to be there at the end of the Clark era, and to witness it with such intimacy. But it’s damn good to have my own voice back.

“Four tests will need to be met – we’re not going to pay for tax cuts by increasing borrowing; we’re going to make sure any tax cuts don’t lead to a cut in social services; we’re going to have to ensure that there is a fair and just element in any tax cuts; and we’re going to have to be satisfied that any tax cuts will not add to the imbalances and pressures in the economy.” - Dr Michael Cullen, Minister of Finance, 4 November

That was 6 months ago, when the weather was warm, the cheese was plentiful and Labour was only 13 point behind in the polls. Back then, Cullen's tests read like a political haiku: simple, elegant and open to any interpretation you want.

But with this week's $10.4 billion tax cut package has turned it into a riddle. If it's not coming from increased borrowing or a cut in social services, where's the $10.4 billion coming from?

Most of it has come out of the surplus, which has been milked dry by this tax cut. The surplus in 2012 was predicted to be $3.9 billion, but with the tax cut, the latest forecast puts it at $154 million.

But the surplus wasn't big enough. To make the tax cut fit into the surplus, Cullen had to cut the allowance for future spending. That's the money that we see every budget for new initiatives. Cullen sliced $250 million off that allowance. But that allowance “stacks” – that is, every year where it's taken out, it impacts on the following years, too. So the effect would be twice as big in the second year, three times as big in the year after that, and so on. That adds up to $1.1 billion less spending in the next four years.

It's not a “cut in social services”, says Cullen. It's “a slower rate of improvement in social services than would otherwise occur”. It's some seriously dodgy ground.

And still, after eating up the surplus and cutting down the allowance for future spending, that still wasn't enough. Less taxes mean less revenue for the government. After 2009, there won't be enough cash for the NZ Super Fund, so that's going to have to be funded out of debt.

Gross Sovereign-Issued Debt (excluding settlement money held by the Reserve Bank) is forecasted to rise from $31.8 billion to $35.5 billion in 2012 – and it's virtually all because of the tax cuts. Does that mean it's failed the “increased borrowing” test? Not quite. The Government's debt target is fixed to 20% of GDP, so as GDP rises, the Government can borrow more money without “increasing borrowing”, since it's still within its “20% of GDP” limit.

It might sound like a whole lot of bollocks, but to be fair, the Government has aimed 20% of GDP target for a while now, and debt as a percentage of GDP is a fair way to judge the size of the debt relative to New Zealand's ability to pay for it. So as a percentage of GDP, debt is actually expected to drop from 18.2% in 2007 to 16.8% in 2012.

Despite all the numbers pointing in the other direction, the bottom line is that the debt track has not gone up – which means that in the grand scheme of things, there has not been increased borrowing. National have yet to release their economic policies, but unlike Labour, they see the 20% of GDP debt target as arbitrary and will have no qualms if it goes higher.

The fairness test is passed with flying colours – though everyone expected the brackets to shift, the changes to the lowest rate was unexpected. It benefits every tax payer, and it's a particular relief for low-income earners.

As for the final test, Cullen is counting on the economic cooldown counter the inflationary pressures of the tax cuts, but the pundits are not so sure. It's bigger and comes sooner than the Reserve Bank had expected, which puts pressure on them to keep interest rates higher for longer. The jury's still out on this question, but we're sure to know before the election.

It is with weepy puppy-eyes that I must bid farewell to you, dear readers. This puppy has been purchased and bound with a little pink contractual bow, and will have to leave this blog-house for a while.

I am really, genuinely disappointed that I won’t be around to fisk the hell out of this election. I came back to New Zealand last year with the intention of preparing myself for the election, and laying the groundwork for my factchecking empire, which would change the world forever, bring down the system, stick it to The Man, etc.

Unfortunately, my ideals wrote a cheque my diligence couldn’t cash. It was a spectacularly time-consuming task. Even with a newspaper column, it still took at least three days for me to earn a day’s pay. Maybe more difficult was the isolating nature of task. I wanted to do something different, and it meant doing it very much by myself. I got sucked into spirals of self-doubt more than once, which hasn’t been fun at all.

Not that I’m giving up. But I do need to change tact, and I need bigger guns. At the end of the day, experience matters, and as a young pup wanting to shake things up, I always found that I needed more of it. Hopefully, my new job will give me just that. And money. Which is nice.

I’m sure I’ll be back out in the wilderness – where I belong – before too long, and until then, hopefully there will be the chance for the odd, non-current-event blog on here.

But for all fisky intents and purposes, adiós!

Trumping the Herald's "28% price rise", Jeanette Fitzsimons has taken whinge-mongering to new heights with her claim that there has been 60% rise in the price of milk (and that Fonterra and the supermarkets are to blame).

It's not true. It's really, really not true.

According to StatsNZ's Food Price Index, the average price of 2 litres of milk in April 2008 was $3.22. The price in April 07 was $2.62. That gets us to 28% -- let's chalk that other 32% up to rounding error, eh? But how about we look over the slightly longer term?

2008: $3.22
2007: $2.62
2006: $3.15
2005: $3.12
2004: $2.96

Even ignoring the fact that Fitzsimons pulled the 60% figure out of her compost heap, her claim is still fundamentally bullshit. If we choose *any* point of comparison other than 2007, the current price of milk is completely and utterly un-goddamn-remarkable.

Second, even if food affordability is an issue, targeting dairy is nothing short of irrelevant.

Milk, cheese and eggs make up 1.2% of household expenditure, according to the 2007 Household Economic Survey. That's $11.60 per week. Even if Fonterra capped dairy prices at 2007 levels, how much are households expected to save? $1.20? $1.80?

More to the point, is it really Fonterra's responsibility to keep milk cheap for New Zealanders? Fitzsimons is essentially saying: "Please sell your dairy to New Zealand consumers at a *guaranteed* lower profit."

You don't need a fake PhD from the London School of Economics to realise that this is kinda stupid. It would, frankly, be slightly more reasonable to ask them to just give milk away. At least they would gain some public goodwill, and they'd be able to target who to give it to (schools, for example) rather than subsidise milk for rich and poor alike.

Third, underpinnings this dimwitted venture is the similarly dodgy promise:

[To] reject the free trade and globalisation dogma and develop a long-term food security strategy to ensure access to affordable food staples for Kiwi families."

Sue Kedgley elaborates in this excerpt from her speech at the Farmers Market Conference:

We are in danger of becoming a cash crop nation -- producing dairy and to a lesser extent meat for export -- while other sectors are being eroded by cheap imports. We import 2.8 million tonnes of food each year -- bananas from Ecuador, garlic from China, wheat from Australia -- and our imports are growing every year.

"In the 1980's before we removed subsidies, New Zealand was self sufficient in wheat. But now we import 75% of the wheat we eat, which makes us vulnerable to skyrocketing wheat prices."

Which, I assume, means that she wants New Zealand farming to diversify -- away from the areas where it's strongest, and into areas where it's not. Now, I'm no botanist, but I imagine that bananas would be one of the latter.

It may be helpful at this point to review the fundamental tenets of the "free trade and globalisation dogma". Let Dr Homer explain:

[Homer searches under the couch for a peanut]
Homer: Ah-ha! [Looks, then says remorsefully] Aw, twenty dollars? I wanted a peanut!
Homer's brain: Twenty dollars can buy many peanuts!
Homer: Explain how.
Homer's brain: Money can be exchanged for good and services.
Homer: Woo-hoo!

By specialising in and exporting dairy products, New Zealand can produce more at a lower price. The profits from the trade flow through the rest of the economy, boosting government revenues, too. That money can be exchanged for goods and services internationally, including other foods that -- because of specialisation -- are produced more cheaply than they otherwise would be. Result: Woo-hoo.

Don't get me wrong, as a Horseman of the Apocalypse, I appreciate a little contingency planning around food security. I sure as hell wouldn't want to be stuck in a country whose primary exports are My Little Ponies and Abdominizers when a global food crisis comes around. But clearly, the kinds of pressures on the world food supply are making dairy more valuable, too.

Not only is it what New Zealand is good at, it's also a valuable insurance against world food prices. To cutting down dairy production in favour of wheat etc. is like pouring water down the drain so you have empty vessels to catch rain with.

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This goes far, far beyond disappointing. Not only has the Greens managed to be wrong and stupid, but they've also managed to marry pre-Rod Donald naivety with Winston-like populism.

Surely, they didn't expect asking Fonterra to stop making money to achieve anything. It's the kind of stunt that Winston pulls -- making outrageous claims, safe in the knowledge that there will be no repercussions because it's too ridiculous to be taken seriously. They had other -- legitimate -- issues with the dairy industry, and concerns regarding poverty and food, so they thought they'd have a go and jump on the whinge-wagon, throwing their issues in with "everything is too expensive". That's selling themselves awfully short for a tiny crumb of populist glory.

But even while trying to be populist, they still manage to look like the boogeyman from the ideological fringes.

They are right that Labour has been all talk about climate change, and that National won't be any better. The only place where leadership on climate change can come from is the Greens. But they need to accept the simple fact that most of the people who support action on climate change are not out to destroy capitalism or globalisation.

We thought you did.

This is not about cynical political rebranding, it's about building a real consensus. The Greens can't earn the trust of a broader voter base until you give up the radical part of themselves. Every time you push a radical left agenda, you're pushing supporters of climate change action further away.

Why would you do that? Why now, at a crucial point when climate change is going mainstream? Why over food prices, which is a media beat-up from start to finish? Why?