Wednesday, 31 August 2011

Fran O’Sullivan jumps Bernard Hickey’s shark

Every taxi driver, barber and newspaper columnist is the same.

They know how the world works. They know what needs to be done to fix things.  They know, uniquely, what has to happen, and all they need is is big bossy gummint to give them the big stick!

Fran O’Sullivan is no different.

Staring at Christchurch and seeing only months of inactivity brought about by government meddling both central and local (waiting for EQC to sign off houses, builders and buildings; waiting for CERA o demolish what’s left of people’s property in the central city; waiting for council to release its “strategy” for what property owners in the city might be allowed to do;  waiting for government to decide what regulations it might issue mandating how they might be allowed to do it;  waiting (vainly, I might add) to see if council’s District Plan might be relaxed to allow businesses to relocate to new office buildings in different parts of the city, and new housing to be built in places the planners never contemplated) Fran doesn’t draw the obvious conclusion that making the country’s second-largest city a ward of the state is neither sustainable nor affordable.

Instead, she leaps for the same big stick beloved of blowhards everywhere: the gummint must do something! (As if it weren’t already doing enough!)

_osullivan_fran1602091Fran has a plan. It’s not very complicated, or even very well thought out. Specifically, Fran demands the government:

  • nationalise all the private land on the outskirts of Christchurch (i.e,, completing the job CERA have already largely done in the CBD);
  • build houses on it (because the government does this so well); and
  • raid the pocketbooks of everyone in the country able to afford a Rugby World Cup ticket to pay for it.

Simple as that. A plan that every barber, every taxi driver--every blowhard and Bernard Hickey in the country--could agree with and call their own.

Fran O’Sullivan is a business columnist.

But she has no idea, apparently, how business works. She doesn’t realise that regime uncertainty and a loss of property rights between them have barred businesses from doing what they do best.

Fran O’Sullivan writes about politics.

But she has no idea, apparently, that making the city a ward of the state has caused the very malaise she decries.

It can be undone, but not by making the state’s interference even bigger. It can be done very simply: by letting businessmen themselves rebuild the city businessmen created.

Tell business owners they can relocate wherever in Christchurch they want, and that zoning will be relaxed to accommodate that, and watch businesses start to take off again.

Tell owners of stable land that they can build as many houses on their land as they can provide services for, with neither costs to nor charges from council, and watch a festival of house-building take off.

Let those who own their own property determine between them and their insurance company what they wish their building standards to be. Such a system can be set up very quickly as it already exists in government reports. And then watch the festival start producing innovative affordable homes.

Bus Bob Parker, Gerry Brownlee, Roger Sutton and all the town planners--and Fran O’Sullivan--out of Christchurch permanently, get the hell out of the way, and allow the city and the people within it to reinvent itself spontaneously. This would be a wonder to see.  Call it spontaneous order, if you will, since that’s what you’re trying to kick off. Call it crowd-sourcing, if you like, since that’s what markets and entrepreneurial activity like this are really made of.

In fact, call it an Enterprise Zone and allow some enterprise to happen in the city for the first time in nearly a year.

Make it an Enterprise Zone instead of a Ward of the State, get government out of the way (and provide land-owners and businesses some certainty they’ll stay there), and can I assure you you’ll be surprised what might happen. 

Even Fran might be.

Because Fran O’Sullivan is a business columnist. Or was.

Tuesday, 30 August 2011

UoA Economics Group: Postponement

If you’re wondering, just like I was, what was happening tonight with the group, I’ve just had this message from the organisers:

Hello all. Due to the mid-semester holiday the university economics group will take a break from our regular seminar tonight. But we will be back next week and looking at a lecture titled "Why Your Grandfather’s Economics Was Better Than Yours." We look forward to seeing you next week.

UoA Economics Group

John Boy channels Marx [update 2]

“The ideas of economists and political philosophers, both when they are right and when they
are wrong, are more powerful than is commonly understood. Indeed the world is ruled
by little else. Practical men, who believe themselves to be quite exempt from any
intellectual influence, are usually the slaves of some defunct economist…”

-John Maynard Keynes

I’ve never quite understood why the Prime Minister, John Boy Key, is considered some sort of economic guru.  I’ve seen no evidence of it, despite his obvious predilection to meddle as if he knows what’s going on.

He’s certainly got no handle at all on what to do in the present crisis—allowing his deputy to keep borrowing and spending as the economy collapses and NZ’s second-largest city is allowed to die. (He was happy for example to boast about how flush EQC was straight after the quakes, $15 billion of good assets he said; turns out it only has $6 billion, and most of those in the form of IOUs from the government.)

Even in his supposed area of expertise for example, currency trading, I can remember him telling a business journo a while back that the New Zealand dollar would soon decline and “have a four in front of it” in relation to the US dollar—whereupon almost it began its climb to where it now has double that number against the American.

_JohnBoyAnd yesterday he reinforced his credentials as a chap with about as few economic clues as that last big-time economic meddler, Robert Muldoon. Speaking to Newstalk ZB’s Mike Hosking about the minimum wage—the existence of which has driven an explosion in youth unemployment all round the world, not least in NZ—Smile and Wave told Hosking “cutting the minimum wage rate to what the market can bear would lead to some very low wage rates in New Zealand.”

"It's the classic neo-liberal [sic] economic theory that you pay what the market can bear, and I think you would see very low wage rates on that basis," Key said on Newstalk ZB when asked about his view on the ACT Policy.
"You would definitely see some companies that would say, well ok, I'll hire you at two bucks an hour," Key said.

This is ignorant on at least three fronts.

First, this is not “neo-liberal” economic theory, whatever that actually means. (I’ve only ever heard the term used by people forced to study under Jane Kelsey.) It is economic theory reinforced (as all good theory must be) by economic fact: Price things above what people are willing and able to pay for them, and you won’t sell as many as if you lower your price; and when you have a whole lot of things left on your shelf that you simply can’t sell, only a moron (or a Prime Minister) would raise the price.

Second, does he really think that NZ labour is so bad that two dollars per hour is all they’re worth? And if he does, how does he think producers manage to make any profit at all when they have to pay them six times that amount? [What an idiot!]

Third, and most fundamentally, this just flat-out Marxist nonsense. Yes, Marxist. The idea that in the absence of legislation saying otherwise, employers can gleefully exploit workers by paying them whatever they feel like, right down to the level they need to just stay barely alive—i.e., the Exploitation Theory of Wages—was widely promoted by Marx and his followers, even as it was being soundly debunked before that century was even out by that great economist Eugen von Bohm-Bawerk and his [see here and here].

Since the exploitation theory “is one of the most powerful factors that have been operating to lead the world down The Road to Serfdom” it is worse than disappointing to see a Prime Minister lauded (for some reason) for his economic intelligence peddling this particular poison pill.

Especially so since it is so easily debunked, as George Reisman does here in explaining the irrelevance of both worker need and employer greed in setting wages: essentially “the payment of higher wages in the face of a labor shortage is to the self-interest of employers because it is the necessary means of gaining and keeping the labor they want to employ.”

The Marxian doctrine of the alleged arbitrary power of employers over wages appears plausible because there are two obvious facts that it relies on, facts which do not actually support it, but which appear to support it. These facts can be described as “worker need” and “employer greed.” The average worker must work in order to live, and he must find work fairly quickly, because his savings cannot sustain him for long. And if necessary—if he had no alternative—he would be willing to work for as little as minimum physical subsistence. At the same time, self-interest makes employers, like any other buyers, prefer to pay less rather than more—to pay lower wages rather than higher wages.
    People put these two facts together and conclude that if employers were free, wages would be driven down by the force of the employers’ self-interest—as though by a giant plunger pushing down in an empty cylinder—and that no resistance to the fall in wages would be encountered until the point of minimum subsistence was reached. At that point, it is held, workers would refuse to work because starvation without the strain of labor would be preferable to starvation with the strain of labor.
    What must be realized is that while it is true that workers would be willing to work for minimum subsistence if necessary, and that self-interest makes employers prefer to pay less rather than more, both of these facts are irrelevant to the wages the workers actually have to accept in the labor market…

Read on here for the economic lesson that Smile and Wave never got. And then, in the name of every young person out of work and struggling to gain employment at the rates that have been set for them by the ignorance of this Prime Minister, send him a copy.

UPDATE: Eric Crampton runs the rule here and here over the economic facts regarding youngsters being priced out of work—and says:

While we're talking youth unemployment, I'm going to be charitable and interpret John Key's assertion that, in the absence of minimum wages, youth pay rates would drop to a couple of dollars an hour as his just opening up room on the right for ACT. Employers do have to compete with each other for employees.


UPDATE 2: Since we’re talking about morons and the minimum wage, check out the shill for big government Obama’s just appointed as Chairman of his Council of Economics Advisor—a man who made his name faking minimum wage research.

No wonder the union bloggers at the Sub-Standard here in NZ like him.

Warmism jumps the shark [updated]

So what does it mean when the religion of global warming goes from insane to batshit insane?

Amy Peikoff reckons it means they’ve jumped the shark.

If an idea’s proponents grasping at ever more implausible straws is an indication of how badly that idea is faring in the court of public opinion, it seems that global warming alarmism is not doing so well. Set aside the predictable, feeble speculations about the existence or severity of Hurricane Irene being due to global warming. I have seen, in about one week’s time, three more examples of how desperate the global warming alarmists are becoming.

Read on, oh wise ones.

UPDATE: Here’s one warmist doing a Fonzie over carbon (dioxide) and water, the root of many a tasty beverage. [Courtesy of cartoonist Blunt]:


Hurricanes, broken windows, and the EQC

We have it reconfirmed this morning, as if we needed reconfirmation, that earthquakes, hurricanes, tsunamis and other natural disasters are not good for economies, or for people.

First of all, we’re now told (nearly a year after the fist quake, that’s how “fast” these people move) that the liability of the Earthquake Commissionalone after the Christchurch Earthquakes has now more than doubled to $7.1 billion.  Not bad when the EQC has only around $1.5 billion of real assets to call on. The rest of the bill rests on you and me and every other taxpayer—calling into question the reason for this blundering bureaucracy to even exist.

And second, after the damage caused by Hurricane Irene we’re starting to see the realisation spread that destruction really isn’t good at all. Jeff Jacoby, for example, writes in the Boston Globe that Disaster isn't a stimulus package, even though mainstream economics still teaches that it is:

Consider the massive earthquake and tsunami that devastated Japan earlier this year -- a catastrophe that killed more than 22,000 people, caused the worst nuclear crisis since Chernobyl, and pitched the already sagging Japanese economy into recession. Three days after disaster struck, the Huffington Post published California intellectual Nathan Gardels's essay celebrating "The Silver Lining of Japan's Quake." Urging his readers to "look past the devastation," he rejoiced that "the need to rebuild a large swath of Japan will create huge opportunities for domestic economic growth" and observed that "Mother Nature has accomplished what fiscal policy and the central bank could not." …     "The result of all the new wealth creation," Gardels concluded, "will be money in the pockets of Japanese."
    Japanese who survived, that is. The tens of thousands who died won't be pocketing any new wealth… True, trillions of yen will be spent to repair, rebuild, and restore. But equally true is that all those trillions will no longer be available for everything they would have otherwise been spent on…
    Yet the conviction that devastation is really a boon never seems to go out of fashion.
    "It seems almost in bad taste to talk about dollars and cents after an act of mass murder,"
wrote Paul Krugman in The New York Times less than 72 hours after the atrocities of 9/11, but the terrorist attacks could "do some economic good." …    The same was said of Hurricane Katrina, one of the severest calamities in US history. Barely had the storm subsided when J.P. Morgan economist Anthony Chan was assuring CNN/Money that hurricanes tend to stimulate growth
    In 2007, immense wildfires in southern California consumed more than 1,600 homes, burned 500,000 acres, and forced the largest evacuation in state history. A senseless tragedy? No, a blessing! "This will probably be a stimulus," University of San Diego economist Alan Gin
told the Los Angeles Times [hat tip Jeff Perren]

You can see lots more examples of this rank insanity after the Christchurch earthquakes, including from a Prime Minister who said the destruction would create “tremendous stimulus.”

Where’s that stimulus now, Prime Minister?

But as Jacoby points out to these numb nuts, the money and resources spent on fixing the destruction has to come from somewhere.  From capital. Or from savings. And this money he money spent to repair destruction is not bein g used for now the purposes its owners had previously planned. “This  represents a loss of wealth, not an economic gain.”

Astute readers will notice that this is just our old friend the Broken Window Fallacy again. As Jacoby writes,

More than 160 years ago, the French political economist Frederic Bastiat skewered such attitudes in a now-famous parable:

A boy breaks a shopkeeper's window, and everyone who sees it deplores the pointless destruction. Then someone insists that the damage is actually for the good: The six francs it will cost the shopkeeper to replace his window will benefit the glazier, who will consequently have more money to spend on something else. Those six francs will circulate, and the economy will grow.
  The fatal flaw in that thinking,
Bastiat wrote, is that it concentrates only on "what is seen" -- the glazier being paid to make a new window. What it ignores is "what is not seen" -- that the shopkeeper, forced to spend six francs repairing damage, has lost the opportunity to spend them on better shoes, a new book, or some other addition to his standard of living. The glazier may be better off, but the shopkeeper isn't -- and neither is society as a whole.
Broken windows aren't economic stimulus. Hurricanes aren't either. There is no silver lining in useless destruction. Not even if "experts" say otherwise.

UPDATE: Oh, by the way, the government’s deficit is now “expected” to be around 18 billion dollarsEighteen billion large ones.  And that’s at present exchange rates, which can change very quickly. And for a country with just one million taxpayers.

Just thought you’d like to know what this “responsible government” is loading onto your shoulders without your say so.

And speaking of economic fallacies, here’s another one on display in Bill English’s announcement of EQC’s increased liability:

The increased liability will have a one-off impact on the Government's books this year. But English said he still expects a return to surplus by 2014-15.

Remember, that expectation is based wholly and solely on a Treasury forecast making some rather heroic (not to say “imaginary”) assumptions about “growth” between now and then. And you know now what shysters economic forecasters are.

If we had a decent opposition, this guy would be being battered about now.

Unfortunately, however, we have an opposition wants to borrow and spend even more…

Friday, 26 August 2011

Time for a stiff drink—and a one-fingered salute to the wowsers

Parliament's Committee for Wankers, Wowsers and Bluestockings has finally returned its verdict on the Law Commission's proposal to hinder access to alcohol-fuelled fun and enjoyment for you and I and your dozen closest friends.

Want a good night out that goes on as long as the craic does? Want to fill your cocktail cabinet from the store down the street? Want to load up on beer as you load up on groceries?

To all these things, the Wowsers say “No!”

Like puritans everywhere, they’re agitated at the idea that someone, somewhere, might be having fun in a way for which they haven’t got a license. So in order to push back pleasure on all fronts, they've predictably tapped into existing competitive pressures to claim some kind of public support for their lemon-sucking.

They know that supermarkets would like to shut down local liquor sales, so they’ve joined supermarkets in trying to squash local liquor stores; they know that pub owners object to both, so they've joined with the Hospitality Association in trying to squash supermarket sales and local liquor shops; and they've joined with wowsers, bluestockings and the lemon-sucking lawyers at the Law Commission in trying to shut down drinking at any place at any time that’s after Geoffrey Palmer’s bedtime.

It's a rat's nest of self-interest harnessed for political effect, with no-one of sufficient volume to speak up for you and I who just want the freedom to enjoy ourselves—and virtually no-one at all to speak up for the owners of small local liquor shops who, since one of their number was murdered, have been taking it on the chin by virtually every political pressure group around, starting with the Prime Minister.

Neighbourhood liquor store owners selling to willing buyers appear to be the chief and easy scapegoat for every alleged social harm dreamed up by the writers of fiction researchers, from bad driving to burglary to broken families to the failure of Hosea Gear to make the final All Black squad.

The quality of the arguments against them can be seen from their argument against small neighbourhood liquor stores—the opening, closing and distribution of which, say Parliamentarians,  “should be up to communities to decide.” But local communities are already deciding those matters every single day.  What these numb nuts appear never to have understood is how markets work, since in every important sense the opening, closing and distribution of every single retailer is already decided by the members of their communities, in their capacity as consumers.

The quality of other argument is no better, climaxing in the abortion of a so-called “economic report” commissioned by the Law lords on which the figures on the so-called social costs of alcohol are pulled out of the researchers’ arses derived.

But neither facts nor sound reasoning are wanted here. Political self-interest is on the prowl, and when that’s allied to the puritanism of the lemon-suckers, we’ll all end up as losers.

I think I need a stiff drink, while I can still get one.

“Architecture is … “

From the howtoarchitect

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.

The failure of forecasting, part XVII [updated]

I've posted before on the failure of economic forecasters to do what they purport to do best, i.e., forecasting the future (see here, here and here, for example.)

For all their high-tech mathematical models however, when it comes to it these alleged forecasters are as blind as an English referee.  Why? Because all their models do is spit out information that extrapolates existing trends, and suggests that things will always tend back to the mean.

Which is not only fatuous, it doesn’t work. Especially at times like these.

Just look at recent evidence gathered by Orewa-based commentator Rodney Dickens using NZIER research [Reviewing the Consensus Forecasts for economic growth - pdf], which compares predictions-against-performance for the so-called “top-ten” economists surveyed each quarter by the NZ Institute of Economic Research—the sort of chaps you see on the news each night being asked by newsreaders to comment sagely on what’s going to happen next. The average predictions by these chumps are called the 'consensus forecasts.'  And they’re decidedly below average.

They all got it wrong predicting GDP.  They all got it wrong predicting residential building activity. They all got it wrong predicting interest rates. They all got it wrong predicting bond yields. And most got it wrong predicting the TWI (but even a monkey on a typewriter could get it right once, right?). So in sum, they were all as wrong as Gareth Morgan’s investment advice—and the fact is they’re always this wrong, almost very time.

Why? Because the future is inherently uncertain, and econometric analysis can’t change that one whit. All it does is provide mathematical justification for going wrong with confidence.

imageNow, it’s true as economist Ludwig Von Mises say that “historians and statisticians content themselves with prices of the past,” while “practical man looks at the prices of the future”--and that econometricians pretend to use the prices of the past to predict the prices and conditions of the future.  But the fact they can’t, and never can, just reinforces the crucial role of entrepreneurs in driving economic activity: in taking risks on the future with their own money based on their own individual estimations of the future.

It’s not blind crystal-ball readers who move the world, it’s entrepreneurs. And most econometricians wouldn’t even know how to spell the word.

UPDATE: Kudos to Matt Nolan at the Visible Hand blog for taking on the challenge of defending forecasting.  His defence, really, rests on two things. He says:

  • “Entrepreneurs  … make the choices, and … they will value this type of service insofar as it helps give them information that allow them to make better informed choices”; and
  • “If it was possible to forecast the sharp rise in fuel prices, the impact of new banking regulations (with no relevant history), the global droughts, the earthquakes in Canterbury, the snow storms during lambing in the South Island, and government policy changes they would have been less wrong.”

Now it’s true that lots of things went wrong last year.  But forecasters’ failures can be seen every year, not just last year.  See what I mean. (Not to mention their signal failure to spot either the Crash of 2008 or the slide that started this latest Depression within a Depression Recession within a Recession.

And while it’s certainly true just as Matt says that entrepreneurs take advice from all over, including from forecasters (as Ludwig Von Mises also observed* in the link I posted above) that doesn’t mean they should listen to every charlatan that comes through their inbox. 

Frankly, what’s the point if they’re consistently and abjectly wrong?

* * * * *

* Ludwig Von Mises on “The Place of Economics in Learning”:

“In fact reasonable businessmen are fully aware of the uncertainty of the future. They realize that the economists do not dispense any reliable information about things to come and that all that they provide is interpretation of statistical data referring to the past. For the capitalists and entrepreneurs the economists' opinions about the future count only as questionable conjectures. They are skeptical and not easily fooled. But as they quite correctly believe that it is useful to know all the data which could possibly have any relevance for their affairs, they subscribe to the newspapers and periodicals publishing the forecasts. Anxious not to neglect any source of information available, big business employs staffs of economists and statisticians".”
”It is obvious [however] that men are fallible, and businessmen are certainly not free from this human weakness. But one should not forget that on the market a process of selection is in continual operation. There prevails an unceasing tendency to weed out the less efficient entrepreneurs, that is, those who fail in their endeavors to anticipate correctly the future demands of the consumers.”

“…just like shallow self-promoting tools” [updated]

After reading pathetic self-serving pronouncements this week by Sam Stubbs*, Sam** & Gareth Morgan***, Rod Drury**, Mark Weldon** and the like, I can only agree with Cactus Kate:

There are a new breed of weasel word corporate-welfared CEO's and Directors in NZ. They promote themselves as anti-Business Roundtable establishment, hip and new age.
They like to be liked by the public.
They are starting to look however just like shallow self-promoting tools.

No wonder we have a government happy to keep borrowing billions as the bubble is about to burst again--when there is no political opposition, and so-called “business leaders” are this bad.

* * * * *

* Kiwisaver provider calls for compulsory Kiwisaver.
** Do as I say, not as I do.
*** Rot at the centre of Gareth Morgan’s brain.

UPDATE:  Rod Drury wrote to Cactus defending himself. He shouldn’t have bothered: she ripped the bludger a new one.

DOWN TO THE DOCTOR'S: Sack the buggers

_richardmcgrathYour weekly prescription of good hard sense from Libertarianz leader Dr Richard McGrath.

At the 2011 Libertarianz Party conference, Wellington Central candidate-to-be Regan Cutting made a brief speech in which he highlighted this pie chart of government spending.


If you look past the three usual suspects, note if you will which branch of government presently has the fourth-highest budget…

As Regan pointed out, more than Police, Justice and Corrections combined - yes, it's the Department of Legalised Theft, the department with the power to go through your bank account, empty your pockets, and to bankrupt more New Zealanders every year than start new businesses.

It is this department of bloodsuckers that accounts for nearly 8% of government spending. Even if you add spending on the NZ Defence Force and Ministry of Defence to that for Police, Justice and Corrections (which collectively comprise almost all the legitimate functions of government) their total still only comes to 8.01% of spending.

Meaning, of course, that virtually all the other 92% should be returned to those from whom it was stolen.
Now, none of this namby-pamby “110 positions based in the capital are to be axed” after-one-Ministry-is-“folded-back” into-the-other nonsense. Libertarianz says any responsible government would immediately get to work on reducing the government's runaway spending by trimming all  the easy stuff, getting rid of all the non-essential departments, starting with a month-long wind down of the following useless state entities:

Department                                               Current Percentage of Govt Spending
Statistics NZ                                                                     0.17
Land Information                                                          0.20
Te Puni Kokiri                                                                  0.26
Ministry for Culture & Heritage                                0.45
Ministry for Science & Innovation                          0.94
Dept of Building & Housing                                         1.22
Ministry for the Environment                                   1.33
Dept of Labour                                                                 1.75
Ministry of Economic Development                      1.94
Total                                                                                    8.09

There you go, 8% of spending - $6.6 billion - gone in the space of one month. Easy. (And to stop the buggers therein whimpering, give them a year-long holiday if you have to; no-one will mourn their absence, and it will still save us money even in the short run with all of them out of our hair.)

And parenthetically, this is what responsible governments do in a recession—and did do, successfully, in every recession until Mr Keynes came along.

And those other government departments listed in the pie chart above? Well, they could literally abolished overnight—gone by lunchtime. Or if any were doing anything at all commercial (fat chance) privatised within four weeks.

This would, of course just be the start of massive tax cuts, a freeing up of the economy and an end to the rampant and out-of-control spending made fashionable most recently by those partners in fiscal recklessness Bill English and Michael Cullen.

We haven't even started on the Ministries/Departments/Offices of 'Yoof' Development,  Ethnic Affairs, Archives, National Library, Tourism, Pacific Island Affairs, Women's Affairs, Consumer Affairs,etc. I'm guessing these could be wound down or denationalised over 3 months, to give them some time to sort out their own affairs.

The Result? Billions of dollars back in taxpayers' pockets, thousands back in your own pocket—and businesses free to run their own affairs without a bullying paper-shuffler hanging around their neck.

Because your “refund” actually belongs to you anyway, and you should have a choice about the destination of your dollars. Politicians shouldn't be able to bully you and tell you where it must be spent. You have the right to make that choice, because it's your goddamn money, right?

Only one political party respects that right, and Regan Cutting will be representing it in the coming election, in the Wellington Central electorate. Good on you, Regan.

And, on an unrelated topic, a salute to my elder son Andrew 'Bloodbath' McGrath (as he was promoted on the event programme) who retained his undefeated status over five rounds of full-rules kickboxing at the Lower Hutt Town Hall last Saturday night. Way to go, Andrew!

See you next week!
Doc McGrath

Tuesday, 23 August 2011

ECONOMICS FOR REAL PEOPLE: Great Myths of the FIRST Great Depression [updated]

276464_137539366339987_1226509_nHere’s what’s being presented at tonight’s UoA Economics Group meeting. It could hardly be more topical:

Hello all,
The history of The Great Depression grows more relevant by the day, yet very little is known about it today--at least, very little that is true.
Tonight, we look at a few of the many myths around the Great Depression: was the Depression a Crisis of Capitalism; did margin trading bring on the Crash; did the Fed do too little to help; did Herbert Hoover sit back and do nothing; did Franklin Roosevelt and Michael Savage set everything on the right track; did World War II bring on the Recovery?
Join us tonight as we examine these stories and many more about The FIRST Great Depression.
Date: Tonight, Tuesday, August 23
Venue: Case Room One, Level Zero, University of Auckland Business School
Time: 6pm

UPDATE: For those who are interested, who couldn’t make it last night, here are the Recommended Readings—all of them (relatively) short and pithy. Since there were six phase to the (First) Great Depression, there is at least one reading on each:

And here, hopefully, is a copy of the Lecture Guide:

LECTURE-Great Myths of the First Great Depression

Polls, uugh

I don’t usually comment on polls, the mainstay of political blogs and commentators who have nothing much to say.  So I don’t know why I’m bothering now—unless it’s because I hate stupidity as much as I loath the errant certainty that folk always feel about their favourite polls.

Anyway, for all the triumphalism and rending of both garments and alliances over recent polls (the reaction depending entirely on your party perspective, of course), few seem to have observed that even if Phil Goff’s own party does as poorly in this Election as the pollsters expect—as poorly even as Bill English’s did a few years back—the Red Team as a coalition is only a dozen or so seats away from the Blue Team, which has fewer and lesser partners.  And there has never been a time under MMP when a party has scored more than fifty per cent of the vote on election night.

I’m just sayin’…

Google, Motorola Mobility and the Patent Wars

Guest post by patent specialist Dale Halling

Google agreed to acquire Motorola Mobility for $12.5 billion.  Most people believe the main motivation for Google was to acquire Motorola’s patent portfolio of over 17,000 patents and patent applications.  The comments on this deal encompass all the insanity around the  Patent Wars.  Below I will discuss some of these issues

Business Deal
Is this a good deal for Google?  Does it make economic sense?  In buying Motorola, Google gets a company that has been in the forefront of mobile communications since its inception. 
    The biggest risk is that Motorola is a bit bureaucratic.  They were slow to develop CDMA phones in the 90s and never completely recovered.  Motorola has been hardware focused, when the industry is clearly being driven by software advances now. 
    The main reason for acquiring Motorola is to get their patents and leverage them into freedom of action in the Android market space.

Innovation and Paying for Patents
There are numerous people complaining that Google’s $12.5 billion is being spent on patents instead of being spent on engineers and products.  Actually, spending money on patents IS spending money on engineers.  Engineers created the inventions and the patents just provide legal title to the inventions.  When companies spend money acquiring patents they are spending money for the development of inventions and therefore engineers. 
    If inventions are not protectable, companies do not spend more on engineers they spend less.  They just take other people’s inventions, rather than paying for internal or external development. 
   In fact, you can trace engineering salaries and employment to strong patent laws.  Countries with weak patent laws either have very few engineers or their salaries are fairly low or both.
    New products are the result of inventions.  Increases in our level of technology are what make us wealthy.  When people pay for patents (inventions) it does not discourage innovation, instead it encourages other people to innovate.

Too Many Overly Broad Patents being Issued?
There has been a lot of wailing about too many over broad patents being issued.  This whining is coming from the same people who complained about Amazon’s one click patent, which was upheld after numerous challenges.  Why did Barnes and Noble get a 10x increase in online sales (after copying Amazon’s one-click technology) if the one click patent was not innovative?
    All objective measures of patent quality have been increasing for years.  For instance, the metrics of GDP-per-patent, R&D-dollars-per-patent, and number-of-citations-per-patent have all been on the increase.  For more information see my post Patent Quality Nonsense.
    Do some bad patents get issued?  Absolutely and some of my clients have been affected by this.  However, most people making the claim that there are too many bad or overly broad patents do not even know that the scope of a patent is determined by its claims.  They do not know that claims cannot be read like prose, they have to be read like an equation where every word has to be given meaning.

Litigation Explosion
Many people see this acquisition as just another outgrowth of the numerous frivolous patent cases being filed.  However, the facts do not support this point of view.  Judge Michel, former head of the CAFC, the court which hears all patent appeals, points out that the number of patent suits filed each year has remained constant at less than three thousand.  Only about 100 of these suits ever go to trial.  In a technology based, $14.5 trillion economy with over 300 million people and 1 million active patents- THIS IS A TRIVIAL NUMBER.

Are there any problems with our patent system?  Absolutely.  The underfunding of the patent office causes inventors to wait years and even up to a decade to receive their patent
    But, more specifically to the Google/Motorola case, the wireless smart phone space needs a more efficient method of clearing patent rights.  I suggest a non-profit entity similar to ASCAP, which clears copyrights for musicians and composers.  For more information see my post Patent Wars a Market Solution.
    Finally, for those worried about the poor, small company who had a great idea for an app and are now scared they may find themselves embroiled in a patent lawsuit- GET A PATENT CLEARANCE OPINION before you develop.

Dale Halling is an American patent attorney and entrepreneur, and the author of the book The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.
Read his regular thoughts at his
State of Innovation blog, and his other Guest Posts here.

Quote of the Morning: On Libya [updated]

Picture from

Few will mourn the passing of Muammar Qaddafi, but does that mean we should already be celebrating the winners? I don't often agree with him, but I'm with Matt Yglesias when he says:

"...let’s wish the best of luck to people of Libya. Part of the problem with this intervention has always been that the fall of a dictator seems to me just as likely to lead to a bloody civil war or a new dictatorship as the emergence of a humane and stable regime. The effort to build a better future really only starts today."

So it does. And for many rebels, that future seems to hold sharia...

UPDATE 1: And, like Perry de Havilland at Samizdata, now that Qaddafi is on the skids “I cannot help but hope the dirty secrets now emerge of how overseas politicians aided and abetted Qadaffi over the years, in particularly the disgusting deal over [Pan Am bomber Abdelbaset al Megrahi. It would be wonderful to see the polities in England and Scotland take one in the face if the unlovely details eventually come out.”

It will also be interesting  to watch details emerge about all the nasty little deals done by businesses seeking favour from the corrupt thug. For instance, a friend in Uganda tells me this morning about a juice processing plant in Kampala owned by Qaddafi and sons, which is happily churning out juice for Coca Cola. Perhaps, wonders my friend, Qaddafi is already holed up in the five-star hotel in Entebbe he also owns with his sons…

UPDATE 2: Steve Negus at The Arabist has been watching how the rebels established their authority in Benghazi over recent months, and has some pluses and minuses about what we might expect to see in the wider Libya. Meanwhile, former Aussie diplomat Philip Eliason sees dark days ahead for Libya. “He is not optimistic — the rebel movement is not coherent (expect fighting to continue even after Qadhafi escapes, is captured or killed) and has shown worrying signs that it will seek retribution against its enemies.”  [Hat tip]

Monday, 22 August 2011

Help harried home-buyers! [update 2]

Residents of Kaiapoi and Canterbury contemplating taking the government's payout face the dire prospect of paying far more for a new home than the payout for their old damaged one, even with the inflated 2008 prices residents are being offered.

There is a reason for that, and not a good one. At a time when building new houses has never been more important, the cost of building a new home has never been so high.

There was once a successful model by which New Zealand builders built thousands of speculative homes--"spec homes"--at a small profit to themselves, yet cheaply enough to be bought by thousands of New Zealanders. They bought land cheaply, built a house inexpensively, which was bought gratefully by a New Zealand family eager to move in.

Everyone was happy.

But that model is now broken.  The price (land + building cost) has exploded because of planners and regulators. The cost of building sites has gone through the roof because planners have been restricting the supply of land, and hitting developers with ever-increasing development levies . The cost of building has gone through the roof because government has whacked builders with gold-plated building regulation, and council’s have whacked them with ever-increasing fees and building levies. Meaning that the small profit that once existed for those former builders of spec homes has long since disappeared—as have many thousands of builders themselves, many of them to Queensland. The result, all round this country, is that new homes are simply not being built in the numbers needed.

And the result in in Kaiapoi and Canterbury is that residents facing forced eviction from their damaged homes face paying much more for a new one--even with the payout for their old home at the inflated 2008 prices. The model for building spec homes is broken. And the supply of affordable homes won't be fixed until that model is fixed. Hugh Pavletich expands the point:

Offer to Christchurch earthquake red zone owners a disgrace: The sad reality is that the Christchurch City Council has DELIBERATELY NOT ALLOWED new fringe lots / sections at $50,000, to be put in place for years.
Christchurch housing is currently “severely unaffordable” at 6 times annual household incomes. It should not exceed 3 times – refer 2011 Demographia International Housing Affordability Survey and extensive other material on this issue at Performance Urban Planning.
Due to the incompetent governance of the Christchurch City Council over many years (refer recent Pavletich interview “Christchurch earthquakes: Council stalled recovery” ), the earthquake events costs are likely $8 - $10 billion more than they should be. The problems of the displaced people from the “red zones” are part of these massive and unnecessary costs.
House and land packages of $200,000 ($50,000 lot / section - $150,000 house construction) should have been available on the fringes for these people well before now – near 12 months following the first major earthquake event on 4 September 2010.
Politicians don’t give a toss – as they are more interested in protecting the interests of Bankers (PM Key’s mates), so that these people from the “red zones” are conned in to excessive mortgages, or forced financially to relocate from Christchurch. As though they haven’t suffered enough.
The recovery cannot start until these issues are dealt with. Why are we STILL waiting Gerry and Bob?

‘Public sector land use’ ... turns out to be barracks, canals, railway sidings, and turf owned by the National Health Service (NHS) or by local councils. Here we are asked to scrape the bottom of a very small barrel. In effect, the [government] searches for the public sector bits of the 5.5 per cent of England’s surface that is brownfield land.

In effect, as Woudhuysen says, this amounts to little more than a little massaging of existing "ultra-restrictive land provisions" in the addled expectation it will have some effect. It won't.

The hope is that a tiny relaxation of planning constraints will encourage the private sector ... and numerous hybrid housing vehicles, state monoliths and quangos to build more homes, especially homes that are ‘affordable.’
    That approach won’t work. It will mean some extra homes are built, but it will not make proper home ownership cheap.

No, it won’t. It won’t bring New Zealand builders home from Queensland, and it won’t do enough to lower land to Hugh Pavletich’s $50,000 per site.  Something more radical is needed.  Woudhuysen has such a proposal, one on which both Gerry and John boy should sit up and take note.  I paraphrase his proposal for a New Zealand audience:

Real homes will only become affordable if, in principle, everyone can go to a farmer, buy an acre of land for $30,000, and freely build a house there at a cost, perhaps, of just $100,000. That kind of transaction would lead to significantly lower prices than the $414,261 average asked for a home in NZ today.
    The state should stop preventing deals like this from being done. It should step back, and instead provide the infrastructure to let that house-on-a-freely-bought-hectare thrive.
    That such deals can't be done, and won't be done as a result of either Clark's or Key's announcements is a measure of the overbearing powers of the state in relation to the land.
    Ever since the Town and Country Planning Act of 1927, to buy that $30,000 hectare of land and build on it has been illegal. The nanny state, not the popular will, determines who may build where. The state essentially retains a complete monopoly over what land can be developed for housing and what cannot. To end house price inflation therefore, Britain must end its state-imposed scarcity of land.
    The lack of affordability that characterises Britain’s housing market is not about too many people – single-person households, divorced families, immigrants and their children – chasing too few homes. It is not simply an economic question of supply and demand. The housing market is profoundly distorted by the political intervention of the state, which imposes drastic limits on land that can be developed upon.
    Only a similarly drastic counter-attack on state controls, amounting to a veritable bonfire of National's Resource Management Act and the country's forty-odd District Plans will allow housing in NZ to acquire a semblance of either rationality or efficiency.

What's needed in other words is neither massage nor spin, but the full-blooded planning revolution the destruction of NZ’s second-largest city should have encouraged; one that sees the country's planners joining the growing queues of the unemployed—and by their inclusion, shorten them.

UPDATE 2: I can already hear the whining of anti-development zealots that such a common-sense dispensation as Woudhuysen proposes would see the whole country blanketed in houses.  Bullshit.

As a simple back-of-the-envelope calculation would tells you, there would be no problem with sprawl if the ring-fencing were relaxed: New Zealand's existing urban areas account for less than 1 percent of the total country, one quarter of that in the Auckland region. Even if all of NZ's 1,471,476 existing households were to be rebuilt on an acre of land -- which was the sort of thing proposed by Frank Lloyd Wright in his Broadacre project (right)—we'd all of us fit in an area less than one-quarter the size of the Waikato.  (And just think how easy it'd be to thumb a lift out to Raglan!). 

There’s more than enough room to go around. Especially out there on the Canterbury Plains.

Sunday, 21 August 2011

Thought for the day: On suffering…

‎"Men have been taught that their first concern is to relieve the suffering
of others. But suffering is a disease. Should one come upon it, one tries
to give relief and assistance. To make that the highest test
of virtue is to make suffering the most important part of life…
The creator is not concerned with disease, but with life. Yet
the work of the creators have eliminated one form of disease after
another, in man’s body and spirit, and brought more relief from
suffering than any altruist could ever conceive…"

            - Ayn Rand, The Fountainhead

Friday, 19 August 2011

DOWN TO THE DOCTOR’S: Those Great Pretenders

_richardmcgrathGuest post by Libertarianz leader Dr Richard McGrath

The 2011 Libertarianz conference and AGM was held last Saturday, at Mac’s Brewbar in Wellington. This is the speech he delivered to the assembled throng.

The 2011 general election is now a little over three months away. As of 24 June, there were 15 political parties registered in New Zealand. Since I’ve heard it said that several of these parties claim to hold principles similar to those of the Libertarianz Party, I checked out the websites of these Pretenders to find out more. Here’s what I discovered:

  • There is the National Party, whose stated values include individual freedom and choice, personal responsibility, competitive enterprise and limited government.
  • The ACT Party describes individuals as owners of their lives, with rights and responsibilities—and the purpose of government is to protect these rights and not to assume the responsibilities.
  • The Kiwi Party supports freedom of association, speech, assembly and religious belief.
  • The Aotearoa Legalise Cannabis Party, whose candidate in a recent by-election promised to put the toke back in Tai Tokerau, believes adults have the right to exercise freedom of choice, unless that choice harms other people.
  • New Zealand First’s policies include cutting government advisers and consultancies by 50%, lowering taxes and eliminating corruption within the state sector.
  • The Democrats for Social Credit say the individual is more important than the state, that co-operative enterprise should be the basis of economic organisation, and that the current monetary system is the major cause of war, poverty, inflation and other social problems.
  • The Maori Party’s policies include stopping Maori-owned land being confiscated under the Public Works Act, making the first $25k of income exempt from income tax, dropping the GST on food, dropping company tax and stopping any rise in compliance costs for businesses.
  • Not yet registered as a political party is the NZ (Taxpayers) Tea Party, who wants smaller government with lower taxes, less regulation, and less borrowing.

The remaining seven parties don’t even pretend to be interested in freedom, or in protecting the rights of New Zealanders.

  • United Future mentions, in passing, self-reliance.
  • The New Citizen Party appears to be a race-based party, along the lines of the Maori and Mana Parties, aiming to represent Chinese New Zealanders. No values or policies are available as yet and as the party did not apply for broadcasting funding for the 2011 election, we are unlikely to learn much more about them before November.
  • The Mana Party has no stated values and one policy, wanting more money from Treaty of Waitangi settlements.
  • As of 28 July, the NZ Labour Party had no values or principles it was willing to share on its website. There is a link to a 2-minute video with Phil Goff and others talking platitudes about people caring for each other, teachers being the best they can, owning our own future, a land of our own, development of the community, obligations to provide for others, a no-nonsense attitude,  a steak on every plate, a car in every house, and to every young girl a new pony. (At least one of these I have made up.) 
    There were brief glimpses of sanity on the Labour Party website with mention of ‘focusing on achievement’ and ‘people taking responsibility for their families,’ but nowhere could I find principles or policies by which these goals could be achieved. (But high up on the Labour Party plans for that would be, I’d wager, a need for oodles of taxpayers’ money.)
  • The Green Party's values are said to be: engaging respectfully, supporting ideas on their merit, challenging oppression, and fostering compassion, a sense of humour and enjoyment in the workplace.
  • The Alliance Party believes the dreams and aspirations of individual, identifiable New Zealanders should be sacrificed to the needs of anonymous, non-identifiable New Zealanders.
  • The website for Jim Anderton’s Progressives is rather quaint, with just 3 policies mentioned – free dental care, partial alcohol prohibition and increased levels of taxpayer-sourced superannuation. Like the Labour Party, it appears devoid of principle or – more likely – too afraid to make any principles available for private consumption. (Scary things, principles.)

Thus there are, on the one hand, at least seven registered political parties, plus two as yet unregistered with one or more policies said to be underpinned by the sort of values shared by libertarians everywhere.

There are also six registered political parties in this country that fail to acknowledge in any way at all the concept of inalienable personal rights—the protection of which is the single most important (in fact, only) job of government.

And then there is the Libertarianz Party – a party that has unequivocally held to the same principles and policies for the entire 15 years of its existence.  In summary those principles are:

  • individual sovereignty & tolerance for the choices of others
  • the right to create, acquire and control private property
  • voluntary interaction & the non-initiation of force
  • limited government
  • the rule of law
  • capitalism

In essence, these are corollaries of that one single principle: the non-aggression or non-bullying principle.

Simply put it is wrong for one person to bully another, and for governments to bully their citizens. Physical violence, and the threat of it, is immoral regardless of who is threatening who.

Unlike several parties in parliament whom I could mention, the Libertarianz is a party that does not merely pay lip service to the principles of small government while daily effecting their betrayal.  Unlike them, we have an unswerving commitment to expanding the freedom of every New Zealander by rolling back the gargantuan, bloated and overbearing Nanny State.

So what distinguishes the Libertarianz Party from the pretenders, from the others who smile and say nice things about freedom—which incidentally even the most diehard socialist wants for themselves, but not for others?

Well, clearly enough we are not in parliament while they are.  But to be there while doing over and daily voting against the principles on which you claim to stand neither advances your cause, nor your principles.

The one characteristic that sets Libertarianz apart from these pretenders is: INTEGRITY. Integrity is a wholeness, a consistency, an adherence to moral and ethical principles. A virtue, in other words, that is wholly and utterly alien to every single one of our elected representatives.

  • The problem with the National Party is that despite throwing about words like freedom, choice, responsibility and limited government, it does nothing in government to uphold them. Meanwhile, it shoots itself in the foot by throwing into the mix other values such as Queen-worship, caring communities, security and capitulation to Greenwash.
  • The ACT Party has allowed itself to be distracted from promoting classical liberal values by the antics of its former leader Rodney Hide and the resulting power struggle within the party, its increasing obsession with race, and the bizarre candidacy of John Banks in Epsom.
  • The Kiwi Party wants to nationalise native animals and plants and have government interference in the media, and restrictions on freedom of speech.
  • ALCP oppose the prohibition of their favoured substance, but favour the prohibition of those they don’t favour—like alcohol.
  • NZ First, as their name suggests, want a Fortress NZ, an expansion of the welfare state (especially for over-65s) and a knighthood for Garth George.
  • The Democrats for Social Credit would promote wasteful biofuels, the downside of which includes human starvation; would ban foreign investment in farm land, which would reduce local capital; would promote a state broadcasting arm to spread government propaganda; would subsidise the disabled at the expense of the able-bodied; introduce new taxes; would tolerate a central bank; would allow a government monopoly on energy sales; ‘free’ health care; subsidy of the performing arts. The few policies that are good, such as armed neutrality and restorative justice are outweighed by multiple Nanny State policies.
  • The Maori and Mana Parties promote special rights for racial groups, thus judging people by the colour of their skin and not by the content of their character.
  • United Future believe that adults who self-medicate without harming other people should be arrested, and that people who sell medication to others should be jailed without the option of home detention.

There is thus a tendency for New Zealand political parties to promote one or two token libertarian values, but you don’t have to dig far to discover they are all closet statists. It seems clear then that at this election, as in every other, you really only have two choices: either vote for one of the statists (with whichever favoured face of authoritarianism you choose) or you vote for the Libertarianz Party, the only party whose policies are compatible with freedom, with tolerance, and with deregulating every facet of human activity while outlawing every new form of coercion.

If you are looking for a registered political party advocating limited government and maximal personal freedom with consistency and integrity, then look no further then the Libertarianz Party of New Zealand—the party I am proud to lead.

Thank you.