Thursday, 3 March 2011

DOWN TO THE DOCTOR’S: National – More Government, Less Freedom

_McGRath Libertarianz leader Dr Richard McGrath invites you down to his clinic for an inoculation against this week’s stories and headlines on issues affecting our freedom.
This week: National – More Government, Less Freedom

THE DOCTOR SAYS: This is a bit surprising, as Power was thought to be future National Party leadership material. What disappoints me was his comment:
             “I had a three-year plan which we'd decided to execute once we came into
               Government and it had always been my plan to do that and then to exit.”
    Whaaaat?! Is three years the extent of National’s grand plan?
    This government has barely skimmed the surface of the spending cuts that are needed if New Zealand is to stop its crazy borrowing (a billion dollars every three weeks). There are dozens of government departments that could be sold off, opened to competition or simply shut down.
    Has National done this? No.
    Has it done anything consistent with its values of individual freedom, limited government and personal responsibility? Well, let’s see. We have a higher rate of GST (an election promise broken), the RMA still clobbers anyone wanting to improve their land, and we have an Emissions Trading Scheme to further tax industrial productivity.
    That doesn’t sound like freedom to me.
    The good news is that voters don’t have to vote this directionless administration back into office in November. There is a political party that represents the very ideals that the National Party has soiled by association—that genuinely wants lower taxes, greater freedom for New Zealanders to improve their lives by their own effort, and an end to the parasitic welfare state that threatens to consume those productive people who haven’t yet headed overseas. 

  • DOMPOST: ‘Lost taxes dig deeper hole for financesBureaucrats are concerned that the tax take will drop by $5 billion as a result of jobs lost and capital destroyed by the Christchurch earthquake…

THE DOCTOR SAYS: I can’t hear a single voice rejoicing in the employment opportunities created by the devastation of last week. Thank goodness.
    And that’s because the broken window fallacy is just that. A fallacy.
    When there is destruction on this sort of scale, any benefits to those employed to rebuild homes and infrastructure are enormously outweighed by the loss of plant and capital, real wealth,which had it not been for an accident of nature would have produced goods and services of far more value than the benefits to the rebuilders.
    The broken window fallacy only has legs because the benefits are seen, but the lost savings and production are not.
     What the statists do see however is that the tax take drops sharply when people can’t work. This leaves the government with less stolen money to redistribute and thus less ability to buy votes. Bad news indeed for state-worshippers. Hence, after this February 22nd earthquake there has been a blessed lack of people peddling the broken window bullshit (unlike the situation after the September 22 quake when dozens of alleged economists leapt into print to talk up the earthquakle's "stimulus" effect).
    As for the suggestion that taxpayers put thousands of beer-sodden boofheads into luxury accommodation aboard a cruise liner during an international rugby tournament later in the year, the bureaucrat who came up with this Great Ideas should be released from his current job and made to raise the money needed privately.

  • STUFF: ‘Super regulator to get extra powers A new “super regulator” will be able to force anyone making unsolicited approaches to buy shares from investors to reveal how much the shares are on the open market…

THE DOCTOR SAYS: Oh dear. Seems investors are too dumb to look at share prices and calculate the net worth of their shares, so Nanny has to ensure that anyone who wants to buy those shares tells them.
    What next? All vendors on TradeMe having to state a market value on the items they are selling?
    This is another embarrassing demonstration of National’s failure to grasp the fundamentals of market economics.
    Information held by buyer and seller is always asymmetric in every transaction. Understanding that this is a feature not a flaw is one of the starting points for understanding real world economics.
    A free market does not mean perfect information and equal knowledge. It does mean freedom of speech and expression. It means the absence of coercion. It means buyer (and seller) beware. It means willing buyer, willing seller and the government minding its own business and staying out of people’s private affairs.
       For goodness sake readers, chuck out these blue-rinse-socialist Tory tossers this coming November. Don’t give these wankers the sanction of your vote and the opportunity to run your life for you with your own money.
    Vote instead for a party that acts according to principle, or don’t vote at all. It only encourages the two-faced lying bastards.

Liberty means responsibility.
That is why most men dread it.”
- George Bernard Shaw


  1. Richard McGrath3 Mar 2011, 09:46:00

    As usual, PC, nice editing job. Thanks for adding the link to the article on

  2. A new “super regulator” will be able to force anyone making unsolicited approaches to buy shares from investors to reveal how much the shares are on the open market…

    I don't get it...surely anyone in their right mind would check that, but ... they do that anyway! I've had quite a number of these offers, and they always say the current price (2 to 3 times what they're offering). I've always wondered what kind of an idiot you'd have to be to take it up.

  3. Maybe I'm a cynic, but is it a coincidence that the minister of SOE's decides to resign right as there is talk that those same SOE's may be privatised?

    "Opportunities in the private sector" indeed.

    If a businessman did this, it would be considered insider trading.

  4. I can’t hear a single voice rejoicing in the employment opportunities created by the devastation of last week

    This is the first mention I have seen of the "silver lining" for rebuilding:

  5. Yes PaulB, and here is that point elaborated in the NZ Herald. Bastiat wept! Time to open up a Broken Window dossier.

    "The earthquake will have a negative impact on activity in the near term through its direct effect on activity, ongoing confidence effects and a further delay in the reconstruction from the September earthquake. However, it will have a positive impact on economic activity once the recovery phase gets into full swing in 2012."


  6. New Zealand and Christchurch will get a net economic gain from reconstruction because much of the money to pay for it will come from overseas insurers who will bear a major part of the losses. The global economic loss is about $15 billion.

    Against the economic gain from offshore insurers is the loss of production. With rapid reconstruction the loss of production might be less than the
    gain from offshore insurers.

    With the earthquake ignoring government departments which require privately owned heritage buildings to be left alone, some property owners might breathe a sigh of relief that the earthquake demolished what should have been demolished for economic reasons.

  7. @Maurice: No, I think not.

    Kris Sayce points out that "Australians will pay for Queensland's floods," which they will just as certainly as NZers will pay for Christchurch's earthquake:

    "Think about it, how do insurance companies raise money? They charge premiums. Premiums paid for by Queenslanders and others.

    Now, how does an insurance company pay for the claims made by policyholders? It covers the costs from its reserves but would also issue bonds to investors which it will then repay over time from insurance premiums.

    Here’s the problem for the insurance company. Aside from the big payouts such as the Queensland floods, or the Christchurch earthquake, the insurance companies also need to pay out other everyday claims.

    So, the insurance company will need to rebuild its cash reserves.

    How will it do that?

    Simple, it’ll need to increase insurance premiums.

    And who pays for the insurance premiums? Individuals and businesses. In other words, money that would otherwise have been spent elsewhere or saved will be now spent on increased insurance costs.

    Yes, some industries may benefit as claimants buy another item of furniture to replace the item that was destroyed. But it is at the expense of say, the clothing store where someone may have spent money but they are no longer able to do so because of the increased insurance premium.

    But what about this idea that foreigners are actually funding the rebuilding as the cash flows in from overseas.

    While that may be true, it ignores the attitude of those overseas investors. If a reinsurance company has to fork out more money than expected to pay for a major incident then it will naturally demand an increased return or premium before it invests more money.

    That means the Australian insurance firm paying a higher rate on the bonds it issues or on the reinsurance policies. And that means passing on higher premiums to policyholders.

    In economics there’s no such thing as a free lunch. If something is destroyed and needs replacing then there will be a cost to replace it. That cost will either be a direct or indirect cost.

    Think about it this way. If there really wasn’t a cost, then why wouldn’t you just crash your car and write it off at every opportunity? I mean, that’s the logic Mr. [Winn] is using...

  8. Of course there is a cost and that's misquoting me: << If there really wasn’t a cost, then why wouldn’t you just crash your car and write it off at every opportunity? I mean, that’s the logic Mr. [Winn] is using..." >>

    The point is the insurers lost their bet on earthquake in Christchurch. A supplier can't just put their premium up because they got the short straw.

    The game starts again and any insurer can place a bet. If the losing previous insurer raises their premium, they won't get the business.

    Please quote me correctly rather than make up what I wrote.

    What I wrote was edited, leaving out parts. That distorts the ideas.

    To help make it clear, if a rich Russian oligarch decided to start a "Christchurch Insurance Fund" with their $billions in 2009, mistakenly thinking it was at low risk for earthquakes, then they would have lost their bet and lost their money which will be transferred to reconstruction. They could not just raise their premiums to make up their loss. That's life in the investment business. Tough luck.


  9. @Maurice: No one quoted you. No one edited you.

    And you seem to have heroically missed the point about the effect of a calamity on the reinsurance market, at which all insurers are buyers.

  10. To use your car crash analogy Peter, a South African now living here made a mistake and crashed into the front left of my car. My car was uninsured [I don't see why I should bet that I crash my car and have saved a fortune over the decades].

    He was insured. My car had little nicks and deterioration of a superficial nature before the crash. After the crash was repaired, my car had a nice new front left side, looking better than before.

    I was happy. The repairer got work which he would not otherwise have got, the South African would get an increased premium to pay having been shown to be an increased risk. The insurers moved money from their stash to the repairer.

    There was an economic gain to the repairer and a small one to me. There was an economic loss to the insurer and the the South African.

    There was a total economic loss.

    That was my point about Christchurch. There are economic winners and losers. Overall, the overseas insurers lost, overall the insured buildings will be replaced and the builders and architects will get work they would otherwise not have got, and the government will tax their efforts keeping the Wellington kleptocrats in the manner to which they have become accustomed.

    And no, the insurers and reinsurers can't just make up their loss by raising premiums.

    There is a risk involved in insurance. If they get the risk wrong, they lose. They lost. There is no free lunch. If it was Oligarch Christchurch Earthquake Insurance, then they have done their dough and will have to get a job more suited to their talents.

    If premiums are excessive, I will start "Broken Windows Christchurch Insurance Fund" and provide insurance to new building owners and undercut the insurers you think can just make up an insurance price to cover their losses.

    There's no free lunch Peter. Insurers don't get to decide the price. The market decides the price. Insurers who misjudge risk lose their money.

    So yes, crashing my car provided an economic gain [for some] and so did the Christchurch earthquake [for some - assuming the money is paid out, buildings replaced, architects, engineers and builders employed].

    But I have seen quite a few faulty broken window arguments recently and people really do seem to think that such disasters provide economic activity overall. You have obviously confused my argument with their's. Mine is that there are winners and losers. Theirs is that in total, a disaster is a win.

    If you have any buildings you want insured in Christchurch, I'm happy to do so. Broken Windows Insurance will keep insurance premiums reasonable. Don't pay twice the price to make up the losses of Russian Oligarch Insurance.

  11. part2....
    Meanwhile, I need an insured driver to crash their car into the front right of my car now. It could do with an upgrade and the repairer would like the work.

    If the government makes car insurance compulsory, I should be able to get the work done and maybe
    the back left and right too.

    Which is not to say that there is an overall economic gain by making car insurance compulsory. I would no longer have to drive with care and there would be a large overall economic loss if they do that. The car repairs business would zoom up. NZ's economic performance would decline further.

    Broken Windows Earthquake Insurance will not accept business in Wellington. It's absurd that the police and army are stopping people going about their business in Christchurch, where the buildings which are going to fall down have done so, but in Wellington, we recently walked around seeing hordes of buildings with people in them which are disasters waiting to happen. They should all have police and army guards outside to stop people using them [if the government really thinks it's their business to stop people from deciding their own acceptable risk levels as they do in Christchurch].

    Nor will the Broken Windows Volcano Insurance division insure houses in Taupo, Rotorua or the east coast within 100 km of Matata. People living inside those calderas are going to die. Those bleve type volcanoes do not give much warning at all [I guess not even half a day].



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