Monday, 8 October 2012

Russel Norman wants to make bankers richer, and wage-earners poorer [updated]

_Russel-WagesThe world is full of monetary cranks.  Russel Norman is one of them.

If the Reserve Bank were to go out and print $2 billion of new money, as Russel Norman wants them to, are we all better off?

That is, two billion dollars of new paper money on the back of the current base of nearly four billion.

Imagine, as David Hume did years ago, that we all woke up in the morning to find an act of magic had somehow increased the quantity the number of notes and coins in our pockets, in our wage packets, in our piggy banks, and under the couch and chairs.  Everyone of us now goes about our business feeling richer. And so does everybody else—and we all of us would know it.

But have we all become richer? Has anyone? Because as even a moron would know (from which classification Norman is clearly excluded) since we all have the same increase and everyone knows about it—including salesmen—in this fantastical scenario all that increased money is just going to increase all our prices. And nothing will have changed fundamentally*.

And no-one will be better off.

This magic injection of new money [explains Detlev Schlicter in his book Paper Money Collapse] has no impact on the production of goods and services, on resource allocation, or on income distribution…

But that is only true in this magical, unrealistic situation.

Because of course, money never comes into existence in this way.

In reality, it’s very different. In our modern floating-currency paper-money economies, money is borrowed into existence on the back of “securities” like government bonds and assets like the contents of the housing bubble.  Which means when new money comes into existence, the first users of those dollars are borrowers and governments.  So what happens to prices? Well, they still go up, but since  these folk get first use they get to spend the new money before prices rise.

But can you see who misses out? Can you see who’s paying for these new riches?  No new paper notes have been put into your pocket, or into your savings accounts. The pool of real savings has not increased one iota. And no new resources have been brought into existence by the creation of this counterfeit capital.  Which means the new assets now enjoyed by borrowers and the resources distributed on the back of government bonds are simply transferred from savers and non-borrowers to governments and other big borrowers.

Oh, and also transferred to the pockets of those bankers who clip the ticket all along the way.

This is what Russel Norman wants more of.

This is what Russel Norman dreams about today.

Issuing $2 billion of “Earthquake Bonds” to be bought with printed money which will then bid up the prices of building materials and supplies, raid the pool of real savings, and make instantly poorer every wage-earner and every holder of existing dollars (which is almost all of us), making it instantly more impossible for anyone struggling to afford our already unaffordable houses (which is many of us), and transferring to Christchurch resources created by savers and non-borrowers—by means of what can only be called a stealth tax. 

At least his idea of an Earthquake Levy was up front—and would not have helped to wreck the whole price and structure and make you and I and every wage earner so much poorer (and every banker involved so much richer).

Oh, but he says this will help bring the exchange rate down! Which as I pointed out last week, will simply make fuel food and imports more expensive and all wage earners even poorer!

But, says Norman: “They’re doing it everywhere else.”

Yes, and everywhere they’re doing it, it isn’t working.  It was used by Japan for the last two decades—the two decades they call Lost. It was used by Weimar Germany and Zimbabwe. I trust even Russel knows what happened there.

Oh yes, and it’s been used over the last six years in the US, UK and Europe to produce figures showing economic growth when there’s been none.  I trust you’ve noticed with what (lack of) success. And you should perhaps have noticed it has reached a dead end.

It is not a crime not to know anything about economics. But it is to talk as if you do.

Frankly, this is the sort of fantastical pie-in-the-sky kind of monetary quackery that used to be the province of Social Credit.

Perhaps Russel should go out today and join them.

* * * * 

* Except of course for the overnight damage to the price structure and the longer run damage to the structure of bond prices and interest rates. But that’s a longer story not fully relevant to this one.

UPDATE: Liberty Scott: “It is a fundamental attack on the poor, and on those with savings on average incomes.”


  1. Could not expect much less from a former member of the Socialist Workers Party.
    Reading the online feedback to his 'proposal', Im staggered by the amount of economic illiteracy his flock of devout sheep show.
    Don't forget he also wants to sandbag everyone with a capital gains tax which opens its own can of worms.

  2. @PC:

    If I was a successful 'economist' maybe I would have a different perspective on this... but it seems to me that in order for both an economy and an individual is concerned, the key to success is to do some productive work. Productive work to either make something to sell (export) or a skill which people want.

    In our society the idea of productive work has been all but destroyed by a series of attacks from multiple sides. If you are a company you can't produce things because the petty bureaucratic regulations, environmental constraints, RMA bullshit etc all but prevents businesses from operating profitably. As for employing people - forget this, as you are likely to be sued or taken to the employment court at the drop of a hat.

    At the other end of the scale, as an individual, you are being told to 'keep safe', not to take risks, and that in the final analysis it is up to the taxpayer to pay you to do nothing if you don't want to work, so why make any effort? Even if you DO have a job, the government will pay you a WFF subsidy with other people's money, so WTF!

    OK, I know this sounds simplistic.... but honestly, I don't know how we are going to turn this country and its economy around without massive changes in our collective attitudes, and possibly a revolution to change the fundamentals of our society.

    Isn't the key to economic success for ANY country the ability to sell stuff (or skills) to other countries and the ability and willingness to work to produce it?

    Have I got this wrong? Comments?

    Dave Mann

  3. @RC: I think the can the CGT would be one of maggots rather than worms.

    @Dave Mann: If you were a "successful economist" you would probably be arguing that wars, earthquakes even pyramid building creates wealth, and that new paper money will turn stones into bread. That was after all what Keynes said would happen.

    Nothing of what you say is nonsense, and most of is quite right. Just remember however that we produce and sell stuff to other people (and other countries) in order to get stuff back ourselves. This idea that giving more away to get less back is simply mercantilism recycled; i.e., the idea that getting back more paper for our goods is a good thing--even when that paper can now buy much less. In other words, it is nothing less than the notion that by making ourselves poorer we somehow somehow make ourselves richer.

  4. Unbelievable.
    As you say - printing money worked "really well" for the Weimar Republic and Zimbabwe.

    For a guy this ignorant to be the leader of a political party is stunning. For people to actually *support* him is also stunning.

  5. Geez give Wussel a break the Reserve Bank never stops printing money. Does anyone know how much money has been printed in the last 5 yrs and into the system?

    M2 up (from that link) up from 74,226 millon (Aug 2010) to 93,026 million now. That’s $20 billion in the last 2 yrs. Wussel with his girly $2 billion is a blouse.

    Someone is 10 times worse than Wussel but hasn’t been called on it. That someone nobody voted on or with proper disclosure. Poor Wussel.

  6. @Not PC, While I understand some of your thoughts you also seem to get a bit carried away with it. You say "Issuing $2 billion of “Earthquake Bonds” to be bought with printed money which will then bid up the prices of building materials and supplies". This purchase is going to happen with or without QE. Their suggestion was that instead of using foreign debt to produce the money ourselves. This would seem to help the foreign debt levels as well.

    Overall we need a sensible debate about the different options. Whether you like the ideas or not it is good that we are hearing options and getting debate on any merits or not.

  7. Horace the Grump8 Oct 2012, 20:16:00

    One of Norman's justifications is that 'everyone is doing it'... so we should just 'join the party?

    Hmmm what was it that Aristotle said?

    "argumentum ad populum ..." or the Headcount Fallacy...

    And as we know... A fallacy is a deceptive argument that appears to be logically valid but is in fact invalid. Its conclusion will be unreliable at best, downright false at worst.

    And that is Russel down to a T...

  8. Yes to be fair, the Reserve Bank is always printing money, the issue is a matter of degree. The slow expansion of the money supply creates credit bubbles which end up popping from time to time. What RN wants is a massive infusion.

    Simon Gough: There is a big difference between debt and printing money. The inflationary impact of the state borrowing should be offset by repayment with interest over time. This simply does not happen with a permanent expansion of the money supply.

    It would help if Russel identified the problem and then there was a sensible debate of solutions.

    Of course, the fact Labour was looking to promote the same seems to indicate why Russel suddenly announced this.

    Meanwhile, the left is in a feeding frenzy that this is some sort of socialist bullwark against neo-liberalism. Silly kiddies.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.