A lot of contra-cyclical nonsense [update 2]

More economic illiteracy to point out today from both commentariat and cabinet, from both NZ and overseas.  I blame their teachers. 
First up is Cactus.  Yep, in getting the right end of the stick here she's got the wrong end of supply and demand when she says:

It took me one day being in Hong Kong to realise that the price in a market is not necessarily a straight and easy supply = demand equilibrium, but whatever the seller knows you are willing and able to pay for it.

Wrong on the first point, but dead right on the last.  It doesn't matter a damn what you or a government valuer think your house (or your car or your hour of pointless labour) is worth: it's only worth what someone wants to pay you for it.  Something for vendors (and minimum-wage advocates) to think about in coming months.
You see, whatever your teachers might have told you, demand is simply desire backed up by the ability to pay.  The value of your goods brought to market depends on how many other people are offering the same or similar to you, put in the same room with those desiring to buy them backed up by their ability to pay.  Bingo.  That's supply and demand, although it's not an "equilibrium" at all: it's a (cough) "double-coincidence of wants." What's that mean?  It means that you want that money more than you want the goods -- and seeing your bills and the maintenance payments on your first wife piling up, you want that money desperately; whereas the buyer wants the goods more than he wants the money -- and seeing you sweat, he knows he doesn't have to pay as much money as you first said.
Like I said, I blame her teachers for not knowing she was disagreeing with herself.
Anyway, as she points out -- and as a perfect illustration of "demand" being "desire backed up by the ability to pay": there's been "immediate moves" by Aussie house sellers to up their prices to match Kevin Rudd's pre-Xmas bonus to first-home buyers.  (Much like owners of NZ rental properties up their rates to match their tenants Accommodation Supplement -- making this a gift to owners of NZ rental properties.  But I digress.)  Another example of how the important lesson pointed out by Henry Hazlitt is, or should be, the very first lesson in economics, i.e., that

the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

I blame Kevin Rudd's teachers for not knowing the lesson themselves.
Anyway, onwards to more ignorance at The Hive where they say "We agree fully" (their words) with this economically illiterate crap (my assessment) from the Herald's John Armstrong.  Yes, John Boy Junior again, ever the economic illiterate, who starts by observing (correctly) that "the pretend [election] campaign is having to make way for the real one as the international crisis has worsened," before slipping as usual into blissful know-nothing illiteracy:

    Labour has now grabbed the bull by the horns, using the likelihood of the country's slipping into a deep recession as an opportunity to demonstrate political leadership.

See what I mean?  In what exactly does Labour's "political leadership" consist, one wonders?  Turns out it's in abject economic ignorance, on which the other team is now steaming hard to catch up...

    [Labour] is now proposing a Keynesian-style spend-up as an economic stimulus. A December mini-Budget would bring forward rail, road and other construction projects to keep people in work.
    In what is termed "counter-cyclical economic management", Cullen is saying paying off debt during the good times has provided room to borrow to stave off the bad times.

Now here one can only blame the teachers.  A "Keynesian-style spend-up as an economic stimulus" is not what the doctor should be ordering -- or The Hive or Armstrong applauding.  Quite apart from being a nonsense phrase even on its own terms, "room to borrow" is not the same thing at all as "able to pay."
Remember that point?  Desire is one thing. Being able to pay for your wishes is another thing altogether.  (And governments, and Michael Cullen, use the power of economic ignorance to get you to pay for their desires.  Brilliant, huh.) 
Once you grasp the nature of government economic management and that simple economic point, that every wish has to be paid for if it's ever going to come true, then you'll understand that Government deficit spending doesn't stimulate the economy at all (if it did, a decade of then-record US deficit spending in the thirties wouldn't have prolonged the depression for a decade) because unless you've got the cash flow to match your spending, you're taking real capital away from the pool of real savings.  And who you're taking it away from is producers, real producers, who would have used those real savings to build real things that show real profits, not to build things like electric train sets and large holes in the ground. That's not stimulus, it's rank stupidity -- taking resources out of the mouths of the productive to pour down black holes marked economic ignorance.
And what's this about "counter-cyclical economic management" leaving us ready to face the bad times?  Have any of these people noticed the NZ government is only making us ready to join the bad times?
Even if Cullen hadn't pissed away eight years of unrepeatable economic golden weather and had actually followed the prescription of "counter-cyclical" prudence he claimed to have followed, contrary to the claims of most of the mainstream economists (there's those teachers again) that would have left us no better off.  Why? Because the whole theory is a crock.
Since the theory is so widely held; since it's still -- unfortunately -- so widely taught; and since whichever of the main parties takes up the reins in a month's time so much of New Zealand's real wealth is going to be wasted on it in the coming years, let me quote at some length Ludwig von Mises' explanation of exactly why the theory is a crock.  If you can't afford to watch your money being wasted, then you can't afford not to read on and find out exactly how it's going to be wasted, and why:

The Chimera of Contracyclical Policies
    An essential element of the "unorthodox" doctrines, advanced both by all socialists and by all interventionists, is that the recurrence of depressions is a phenomenon inherent in the very operation of the market economy.
    But while the socialists contend that only the substitution of socialism for capitalism can eradicate the evil, the interventionists ascribe to the government the power to correct the operation of the market economy in such a way as to bring about what they call "economic stability."
    These interventionists would be right if their antidepression plans were to aim at a radical abandonment of credit expansion policies. However, they reject this idea in advance. What they want is to expand credit more and more and to prevent depressions by the adoption of special "contracyclical" measures.
    In the contest of these plans the government appears as a deity that stands and works outside the orbit of human affairs, that is independent of the actions of its subjects, and has the power to interfere with these actions from without. It has at its disposal means and funds that are not provided by the people and can be freely used for whatever purposes the rulers are prepared to employ them for. What is needed to make the most beneficent use of this power is merely to follow the advice given by the experts.
    The most advertised among these suggested remedies is contracyclical timing of public works and expenditure on public enterprises. The idea is not so new as its champions would have us believe. When depression came in the past, public opinion always asked the government to embark upon public works in order to create jobs and to stop the drop in prices.
    But the problem is how to finance these public works. If the government taxes the citizens or borrows from them, it does not add anything to what the Keynesians call the aggregate amount of spending. It restricts the private citizen's power to consume or to invest to the same extent that it increases its own. If, however, the government resorts to the cherished inflationary methods of financing, it makes things worse, not better. It may thus delay for a short time the outbreak of the slump. But when the unavoidable payoff does come, the crisis is the heavier the longer the government has postponed it.
    The interventionist experts are at a loss to grasp the real problems involved. As they see it, the main thing is "to plan public capital expenditure well in advance and to accumulate a shelf of fully worked out capital projects which can be put into operation at short notice." This, they say, "is the right policy and one which we recommend all countries should adopt." [7] However, the problem is not to elaborate projects, but to provide the material means for their execution. The interventionists believe that this could be easily achieved by holding back government expenditure in the boom and increasing it when the depression comes.
    Now, restriction of government expenditure may be certainly be a good thing...

And it sure would have been if we'd seen it.

But it does not provide the funds a government needs for a later expansion of its expenditure. An individual may conduct his affairs in this way. He may accumulate savings when his income is high and spend them later when his income drops. But it is different with a nation or all nations together. The treasury may hoard a considerable part of the lavish revenue from taxes which flows into the public exchequer as a result of the boom. As far and as long as it withholds these funds from circulation, its policy is really deflationary and contracyclical and may to this extent weaken the boom created by credit expansion. But when these funds are spent again, they alter the money relation and create a cash-induced tendency toward a drop in the monetary unit's purchasing power. By no means can these funds provide the capital goods required for the execution of the shelved public works.
    The fundamental error of these projects consists in the fact that they ignore the shortage of capital goods. In their eyes the depression is merely caused by a mysterious lack of the people's propensity both to consume and to invest. While the only real problem is to produce more and to consume less in order to increase the stock of capital goods available, the interventionists want to increase both consumption and investment. They want the government to embark upon projects which are unprofitable precisely because the factors of production needed for their execution must be withdrawn from other lines of employment in which they would fulfill wants the satisfaction of which the consumers consider more urgent.
    They do not realize that such public works must considerably intensify the real evil, the shortage of capital goods.
    One could, of course, think of another mode for the employment of the savings the government makes in the boom period. The treasury could invest its surplus in buying large stocks of all those materials which it will later, when the depression comes, need for the execution of the public works planned and of the consumers' goods which those occupied in these public works will ask for. But if the authorities were to act in this way, they would considerably intensify the boom, accelerate the outbreak of the crisis, and make its consequences more serious.[8]
    All this talk about contracyclical government activities aims at one goal only, namely, to divert the public's attention from cognizance of the real cause of the cyclical fluctuations of business [which is their earlier inflationary credit expansion]. All governments are firmly committed to the policy of low interest rates, credit expansion, and inflation. When the unavoidable aftermath of these short-term policies appears, they know only of one remedy--to go on in inflationary ventures.

Mises' prescient comments come from his book Human Action, from the Chapter 'Currency & Credit Manipulation, Section 5: Credit Expansion' -- which is happily online right here.  It's as up to date as next week.
Why not print out Mises' description of what's about to happen and keep it handy over coming months, and just check back occasionally to see how damned accurate Mises' description of the coming capital consumption will be.  It won't be pretty, but at least you'll have the chance to learn something -- as long as you forget what your mainstream economics teachers taught you back in high school.
UPDATE 1: Now here's an Economic Plan to I can agree with -- one that's serious about the scale and the nature of the economic crisis:

    With chill economic winds blowing and all the mainstream political parties either unaware that the global economy has changed while they've been out campaigning, or abjectly clueless what to do about it, Libertarianz finance spokesman Mr Darby released the only credible plan to confront both galloping government deficits and collapsing financial markets.
    "I call it the Don't-Spend-So-Goddamned-Much Plan," he says.

Great stuff (read on here).  And looks like it's a two-parter, with more to come shortly...
UPDATE 2:  And here's the second part and it's a beauty -- and urgently needed:

    "The response of the mainstream political parties to the global economic crisis has been universally appalling," says Libertarianz party leader Bernard Darnton. "First denial, then promises of deficit spending of both the type and degree that helped delay recovery from the Great Depression for more than a decade" ...
    "This morning, Libertarianz finance spokesman Mr Darby released the first part of our plan outlining what government can do to prepare New Zealand to weather the crisis: the Stop-Spending-So-Goddamn-Much Plan. This afternoon," says Darnton, "I'm announcing the crucial second part."
    "I call it the Get-The-Hell-Out-Of-The-Way Plan."

And a damn good plan it is if I say so myself -- the only credible plan I've seen -- the only one which doesn't call for growing the bloody state, which every other moron is promising to do.  Read it here.