Thursday, 25 August 2011

Why we don’t need Kahunas or compulsory saving—or the c***s who promote them

Here’s a thought for those of you contemplating the self-serving proposals peddled by suits wanting more welfare for suits. (Come in Gareth Bloody Morgan and Sam “I’m Just Another Self-Serving Suit” Stubbs.)

You’ll have noticed by now that prices have been rising every year since the Reserve Bank of New Zealand was born. (This compared to a half-century of prosperity and gently falling prices in the period before  modern central banking was born.) You’ll have noticed too that they’ve been rising even in the period that “inflation” is supposed to have been tamed, rising this year at least five percent on last year’s prices, and about four percent the year before that.

If you think about it however not so much as prices rising, but as the value of money falling, you’d actually be more accurate—more accurate, since that is what is a actually happening.  Every dollar the Reserve Bank prints (or allows to be created out of thin air by the banking system) dilutes every existing dollar in your pocket or your savings account. That, in short, is the reason both for rising prices and for your dollar buying less and less every year.

Your dollar buys less every decade than it did before.  According to the CPI (which famously understates inflation) since the beginning of 2002, every dollar has lost over 20% of its purchasing power, a precipitous decline in less than 10 years—and if your savings were invested at less than the CPI rate (or less than the real rate of money dilution), you’d have lost the value of your savings each and every year.

The loss is significant. Especially when you consider that the value of your dollar is around ninety-five times less than it was just ten decades ago, when the First World War blew apart the period of peace and prosperity backed by the gold standard.

You want to know why people don’t save as much as they used to? Because they noticed that their goddamn money after they’d finished saving wasn’t worth as much as it was when they started! They noticed that the grey ones were stealing from them by inflation! People aren’t stupid. Not as stupid as the pollies and the central bankers think they are. You keep diluting their money, and they’ll keep trying to get rid of it while it’s still worth something. And you keep interest rates below the rate at which their cost of living is rising, and they’ll borrow like hell—and know they’ll still come out on top.

Inflation is a killer, even at the so-called tepid rate of five percent that it’s at now. (But note that in 1971 five-percent inflation was enough to get Richard Nixon so worried his “brains trust” called for wage and price controls.)

So, instead of fatuous schemes by fatheads who lose you money (like the rum old Captain Morgan), or compulsory saving called for by the recipients of that compulsion (like the suit called Sam Stubbs), or shop talk about letting inflation fix things from Prime Ministers more interested in smiling and waving than effecting real repairs, why not just leave people’s money alone; why not stop the inflation altogether; why not stop diluting the currency, full stop, so that people’s savings actually start to mean something again.

They might even thank you for it.


  1. You forgot to highlight the absurdity of Sepuloninomics.
    Apparently the answer to inflation is to take GST off fruit and veg and slightly reduce income tax.
    (Not sure what you do the year after when inflation takes another bite)

    This video proves there is no hope, if this is the standard of economic literacy by politicians.

  2. Carmel Sepuloni seems to be eating well (the poor don't) and at the same time, she moans about the rich. She has to eat like a poor first, before she can convince the poor to vote for her and Labour.

    She is an idiot. There's no surprise there as her qualification from University is a BA in gender studies. She has no clue about economics.

  3. BTW
    Note that The ACT party super policy amounts to continuing compulsory saving and is internally contradictory.
    Participation in the new system for existing workers should be voluntary, but those choosing not to join would continue to pay current levels of tax i.e. not receive tax reduction or tax credit that goes to those who do join."

    i.e. You must save privately or pay tax for state Super - this is what they call voluntary retirement saving -go figure!

  4. Dilution of state-run fiat currency is quite a good means of taxation.

    Dilution requires just somebody with a keyboard, unlike the regular tax department which has hordes of spivs, bludgers and kleptocratic arcane rule-making maniacs. Just the tax collecting process takes about 10% of the total revenue.

    That cost doesn't include the vast effort by those forced to try to comply, diverting them from their actual business, nor the cost of hiring accountants and lawyers to help them deal with the mess.

    Tax by money dilution is quite painless by comparison.

    Dilution is avoidable - simply swap any money one gets for something of long term value. It didn't take me many years as a youngster to figure out their game.

    Part of their swindle is that they measure prices and fool people into thinking that if inflation measured by consumer price index is 3%, then that's the inflation rate. It is not.

    The true inflation rate should include the cost reductions provided by the vast economies of scale and technological innovation provided by millions of people inventing new things and better ways to do things cheaper.

    Prices should be falling, not remaining constant. Despite the talk of Peak Oil and resource shortages forcing higher prices, that's not true. Apple invents an iPad and then produces umpty million of them, with very low marginal cost of production and vastly improved later models. People who use them can operate much more efficiently and do things they never could. Those vast improvements should result in prices falling dramatically. But the dilution people click their mice flat out to ensure inflation, not deflation to which we should be entitled.

    Deflation is considered to be a bad thing, but I like it when supermarkets put things on special and I get discounted tyres and cheaper tanks of petrol. An A380 selling cheap rides to the other side of the planet in comfort and safety in 24 hours compared with 6 weeks by sea at huge cost is a wonderful thing.

    Cut spending. Then cut other taxes. Cut money dilution last.

  5. "Dilution of state-run fiat currency is quite a good means of taxation"
    Doesn't history beg to differ?

    "Tax by money dilution is quite painless by comparison"

    As long as you are not on a fixed income and either have requisite skills to speculate or trust the speculative classes to do it effectively for you and you have a benevolant government that will not go after assets that are infrequently traded.

  6. As a libertarian who wants a radical downsize in government, I could support The Big Kahuna as a transitional policy. Better to pay redundant bureaucrats $11,000 in place their current salaries. We would then steadily proceed to close most other government departments. Further reducing the cost of big government enables bringing your 30% tax rate down accordingly.

    There is one more thing I would add - a Pay-pal button on the IRD website for the use of all wealthy people who believe the rich should pay more tax so they can put their money where their mouth is. If they are not all hypocrites, then that income means we can get to our goal of no compulsory taxation sooner. After all taking money by force is theft and the number of people who believe they are entitled to play around with other people's hard earned money is the root of most of our problems.


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