Show Me the Monetary Policy! [updated]

“I STAND UNASHAMEDLY FOR raising people’s wages,” said Labour’s David Parker this morning, as he announced a policy to lower real wages.

Go figure.

Like all New Labour’s policies in this New Age Under Cunliffe (somewhat like the Age of Aquarius in that they’re all mostly dripping wet), their new “monetary policy” – i.e., giving the Reserve Bank more power to control the exchange rate by controlling people’s savings rate – seems to have been thought up on the hoof and issued in haste, without any pause for reflection along the rushed road to release.

Let’s be clear. It’s not wrong to talk about changing what the Reserve Bank does, because by their very existence they are already doing far from what would occur in an unhampered market.

But the specific and stated aim of The Davids’ policy is to further loosen monetary policy and command the Reserve Bank to  lower the NZ dollar, made high by being considered a commodity currency, by having interest rates marginally higher than elsewhere, and by having a government still borrowing hundreds of millions of foreign currency every week assorted welfare and election bribes.  (An avalanche of inflow not expected to fall under Messrs Parker and Cunliffe.)

The net effect of  all that, for better or worse an with no intent to do so, has been to raise the purchasing power of our dollar.

Which means, yes, that the prices exporters get are not translated back into as many local dollars, but it does raise sky-high the ability of businesses here to buy capital goods and supplies needed for production, thus lowering their costs; and it does, when you think about  it further, mean that every worker’s wage goes that little bit further when buying any of the thousands of goods and services whose production is priced in a foreign currency.

In other words, the worker’s real wage has been going up as the exchange rate does.

Which means that the pleas by Labour and Green politicians to lower our exchange rate amounts to a plea to lower real wages.

EVEN WORSE, THEY WANT TO lower real wages at the same time as making workers’ saving compulsory.

And not just make it compulsory: to tell workers every six weeks exactly how much they will be saving. By order.

And not just to lower workers’ living standards and to take this money out of his pocket by force, but to give it (via the Kiwisaver scheme that is little more than Welfare for Bankers) to essentially the top ten or twenty crony companies in New Zealand.

This is not just delusional, it’s fucking sick.

Haven’t New Zealand voters already told politicians they’re utterly opposed to compulsory saving? Oh yes, so they have, in that 1997 referendum in which 91.8% utterly rejected Winston’s self-serving scheme to suck NZers dry. But with Winston now making it a bottom line in coalition negotiations, The Davids have dreamed up a scheme to load more on the backs of their supporters poorer while scratching that of Winston.

And this is on top of the conventional policy giving power to the Reserve Bank to meddle with our money, the result of which has been to make every dollar worth about one-ninetyfifth what it did when the Reserve Bank was first invented.

AND EVEN IF THIS latest ruse did work as they hoped it will, the so-called “improved competitiveness” resulting from purposeful currency depreciation is a delusion in any case, as Australian economist Frank Shostak explains:

The so-called improved competitiveness resulting from currency depreciation in fact amounts to economic impoverishment. The "improved competitiveness" means that the citizens of a country are now getting fewer real imports for a given amount of real exports. While the country is getting rich in terms of foreign currency, it is getting poor in terms of real wealth — i.e., in terms of the goods and services required for maintaining people's lives and well-being.
    As time goes by, the effects of loose monetary policy filter through a broad spectrum of prices of goods and services and ultimately undermine exporters' profits. A rise in prices puts to an end the illusory attempt to create economic prosperity out of thin air. According to Ludwig von Mises,

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption. This effect may appear as a boon in the opinion of those for whom the balance of trade is the yardstick of a nation's welfare. In plain language it is to be described in this way: The British citizen must export more British goods in order to buy that quantity of tea which he received before the devaluation for a smaller quantity of exported British goods.

    Contrast the policy of currency depreciation with a conservative policy where money is not expanding. Under these conditions, when the pool of real wealth is expanding the purchasing power of money will follow suit. This, all other things being equal, leads to currency appreciation. With the expansion in the production of goods and services and the consequent falling prices and declining production costs, local producers can improve their profitability and their competitiveness in overseas markets while the currency is actually appreciating. Note that while within the framework of loose monetary policy exporters' temporary gains are at the expense of other activities in the economy, within the framework of a tight monetary stance gains come not at any one's expense but are just the outcome of the overall real-wealth expansion.
It must be appreciated that, contrary to popular thinking, both tight fiscal and monetary policies provide support to wealth generators while undermining non-wealth-generating activities. [The Davids, and their assorted advisers], by pleading for looser policies, are in fact asking to strengthen wealth-destructive activities and thereby recommending a prolonged economic slump.

That conclusion won’t surprise you, even if it does The Davids.

THE FACT IS, WE we have two basic choices regarding exchange rates. We can either work to the exchange rate we have. Or we can tell this irresponsible government –and whatever next government anyone can cobble together -- to stop borrowing $300 million of foreign currency a week, to stop spending money they don’t have,  to start living within its means, and to leave money in the pockets of New Zealanders instead of taking it from them with every new scheme they dream up.

UPDATE: Other commentary around the traps (whose thoughts are not necessarily my own):

• “A compulsory Kiwisaver works against prosperity for all of us, because it leads to a less innovative, less vigourous and less diverse economy.
  Parker’s Plan is Anti-Innovation & Prosperity: Why There Must Be No Compulsory Kiwisaver. – Mark Hubbard, LIFE BEHIND THE IRON DRAPE
• “The variable Kiwisaver idea, controlled by the RBNZ, is horrible. … [T]hey are looking for counter-cyclical tools that are used by an independent body.  But as I’ve explained, this is a particularly bad one…”
  Labour and monetary policy – Matt Nolan, T.V.H.E.
• “Imagine how many people would be impoverished if importers had to pay $9 billion more for goods and services for imports. 15% extra on  petrol, healthcare products, clothes and on and on.
  ”It’s called a zero sum game. There are still no such free lunches Mr Parker, even with the latest upgrade.”
  “No Parking”–Don't Trade Forex with David – Brent Wheeler, EYE 2 THE TRUTH
• “The ANZ Bank is having none of David Parker’s posturing and mistruths.  In their latest Market Focus of 28 April 2014 they basically call out Parker as a snake oil salesman. … ‘We concluded that none of the options would have materially eased the cyclical imbalances, and in many cases any such gains would have come at the cost of significant ongoing costs..’”
  The New Bog Tool is Likely to Be Little Better than Polticians' Snake Oil – WHALE OIL
• “Economically … loosening monetary policy to improve the current account deficit directly contradicts the goal of tightening it to control inflation…  Politically, the Reserve Bank would be asking the government of the day to effectively raise taxes…
  ”Meddling with the money supply is not only a distraction from the real goal, it will add instability."
  Parker in Wonderland wishes impossible things at breakfast – Jamie Whyte, ACT
• “The Labour Party’s attempts to talk down New Zealand’s economic performance have hit a new low this weekend with David Parker making at least nine factually incorrect statements in one short interview, Associate Finance Minister Steven Joyce says.”
  Is this a record? – KIWIBLOG

UPDATE 2: Even the suits don’t fancy it:

• “Labour's proposals to allow the Reserve Bank to adjust KiwiSaver contributions rather than interest rates to control inflation could hurt savers and see debt repayment delayed until retirement, KiwiSaver experts warn.”
  Labour KiwiSaver plan could hit savers, warn experts – NZ HERALD