The story of one control after another, and how the "mortage levy" fits in.

The natural progress of things is for liberty to yield and government to gain ground.
- Thomas Jefferson

They say one bad apple spoils the barrel; one rotten apple will quickly affect a whole bunch. The same is true of government controls. One control is introduced to 'correct' something that's making some legislator unhappy, following which economic imbalances occur; new controls are pretty quickly called for to try to correct them, following which more are introduced to correct the dislocations that occurred from those controls, and so on. Control follows control, as dislocation follows imbalance.

The history of government controls is like the story of the Emperor's New Clothes in reverse: New controls are added all the time in order to fix the problems caused by previous controls, but no one is listening to the little boy who is saying, "Why not just take off the controls altogether, and then you won't need to make up new ones."

The New Zealand history is no different to elsewhere. On Friday, and on the recommendation of the Reserve Bank, finance minister Michael Cullen floated the idea of an "adjustable mortgage levy" -- a tax, in other words -- on home-owners' mortgages. This new idea was made up by Reserve Banker Alan Bollard.

The reason? Large increases in house prices and construction costs are affecting the Bank's inflation figures -- in order to control inflation, the Bank needs to control house prices. If they keep house prices down, then they don't need to put interest rates up. If they don't put interest rates up, then foreign investors won't find our currency so attractive, and if they don't find our currency so attractive, NZ exporters won't find it so difficult selling on the world stage with a currency that's so over-priced.

This proposed tax is supposed to fix this problem. In the words of Reserve Banker Alan Bollocks, it is "designed to force a wedge between the price paid for credit by mortgage borrowers and the returns available to the savers financing those loans (especially the interest-sensitive foreign savers)."

The interesting thing here -- and here I go back to the apple analogy I started with -- is that every link in this inflationary chain is the result wholly or in part of some government control.

The money supply is controlled by the The Reserve Bank, a central bank in the model of the US Federal Reserve, which as history and yesterday's post suggested generates statism, inflation, and business cycles. In an effort to tame this monster, governments created the Reserve Bank Act, which has for some time been strangling producers, exporters and economic growth in the name of "price stability." It hasn't worked. Growth is said to be "too fast." Property keeps "blowing out." And no matter how much Bollocks shakes his fist and stamps his feet, it just keeps right on "blowing out."

There are of course many reasons for his impotence, and for the blowout. But as recent research and recent posts here at Not PC have argued, a major factor in housing in NZ's major cities being rated severely unaffordable is the strangling by regulation of the land supply, and the enormous rise in construction costs brought on both by by huge spending on long-delayed infrastructure projects, and excessive regulation (which were themselves brought on to "fix" earlier government controls ).

So as control has followed control and as dislocation has followed imbalance, a new measure is now proposed to "fix" the problems created by all these earlier "fixes." Another tax. A "mortage levy." Another imposition on taxpayers. Another hurdle for home-owners.

It's always more of the same, isn't it. New controls are added all the time in order to fix the problems caused by previous controls, but no one is listening to the little boy who is saying, "Why not just take off the controls altogether, and then you won't need to make up new ones."

The Emperor is still naked. And he's getting fatter every day.

LINKS: What Reserve Banks do to our money - Not PC
Refugees from urban areas thanks to Smart Growth - Hugh Pavletich
3rd Annual Demographia International Housing Affordability Survey (2006) - Demographia
Taming the inflation monster - Not PC
Denying prosperity by misunderstanding inflation - Not PC
Too-fast growth is bad, right? Wrong! - Not PC
Bollard shaking fist against buyers - again - NZ Herald
Not PC's posts on 'Housing'
High and higher regulation. High and higher house prices - Not PC
Cullen says mortgage levy has merit - NBR

RELATED: Housing, Economics, Politics-NZ, Politics, Libertarianism