Tuesday, 24 October 2017

PM Elect: Capitalism is a "blatant failure”

Capitalism is a "blatant failure" when it comes to housing the poor, says Prime Minister-Elect Jacinda Ardern. Her comment has been much reported. This is what the stories say she said:

"When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. How can you claim you've been successful when you have growth roughly 3 percent, but you've got the worst homelessness in the developed world?"

Capitalism has failed? Really? Is Ms Ardern, or the reporter, aware that capitalism, the market economy, has been shackled here in recent years like a straw man in a sellotape cape?

How can you possibly claim capitalism has failed when the spread of even the growing amount of shackled capitalism around the world — what Ludwig Von Mises called “hampered markets” — have delivered more people out of poverty than at any time ever in history!

  • In 1820, for example, only 60 million people lived lives free of extreme poverty. Today, more than 6.5 billion people do. That’s not from redistributing wealth, that’s from beeing free to grow it.
  • Further: in 1990, 34.8% of people worldwide lived in extreme poverty. In 2015, this number declined by over 72%, to only 9.6%.
  • And as the world is becoming richer, infant mortality is plummeting.
  • And in the places, like Hong Kong, where economic freedom was able to flourish most (thank you Mr Cowperthwaite) … right after WWII, Hong Kong's per capita income was one third of that in Britain. Today, it's over 30 percent higher. And as late as 1960, lives in Hong Kong were four years shorter than those in Britain. Today, they're four years longer.

This should be the biggest story around — not this whimpering about failure. And it’s happened because freer markets have made the world a much better place. And who have been modern capitalism's chief beneficiaries? Answer: the poor. It is an irrefutable historical finding, says Deirdre McCloskey, who is one of many who researches these things.

Is Ms Ardern or those who have spread this report aware of any of this great and historically-uprecedented news?

Do they even care?

But, but ... what about high prices and homelessness here at home, you say? Hasn’t capitalism failed here? Well, how can you possibly claim the local housing market has failed when that market is at the intersection of possibly the three most heavily regulated sectors of life in New Zealand today - those three being land-use, banking and building.

Heavy regulation of all three is the product of both Labour and National Governments over the last many cramptonyears — as this blog among others has been pointing out for much of that time. (Read the archives if you have time. There’s plenty there.)

So, to make things very simple: 
Q: Why is there a housing crisis?

A: Because we’re adding houses less quickly than 

we are adding new buyers with newly-minted money.

It’s clear that housing prices have been responding to all the new monetary demand (induced in large part by the way governments have insisted new money comes into markets) so we know that part of the market is working well enough, i.e., the part that adjusts prices.

That part almost always works well, even when you wish it would’t.

But why isn’t housing supply responding to this resounding price signal? Answer: becuase they grey ones haven’t allowed it to.

As Eric Crampton so cogently pointed out (and we understand at least one Labour Housing Spokesman took the lesson aboard at the time):

Auckland doesn’t have a barber crisis induced by the tens of thousands more people who need haircuts every month as compared to the same time last year.   

But it does have a housing crisis because the regulations on land-use and building have seriously constrained supply. Or to paraphrase it using Eric’s very simple summation:

Pro-density activists made it too hard to expand at the outskirts of town; Not In My Back Yard activists made it too hard to build apartment towers or terraced housing close to downtown. And pro-regulation politicians gave both these activists large amounts of power. And when a city can’t go out or up, prices can only go one way when monetary demand increases.

Capitalism has’t failed New Zealanders, Jacinda. Instead, those like you who’ve shackled it have.

You have three years to correct that, if you’d really like things here to progress.


  1. Recognise what it is reallly. A blatant piece of disinformation disigned to confuse.

    The more people confused about issues the easier they are to control. That means all people including Labo supporters and voters.

    It isn’t really an attack against capitalism as there are no capitalists in parliament. National are the opposition. To accuse somehow the Key and English government as capitalist is a huge contradiction

    It make have a fluke to soar confusion by Ardern however it has become an increasingly common way for the political class to control issues.

  2. Great Article Peter,

    I was thinking about retiring in NewZealand (outside of Queenstown), building a home and bringing a substantial amount of money into NewZealand , but now with what has just happened with what seems to me (this Adern girl) . She's seems to be a communist , I am waiting until I fully understand & have more information on taxes regulations regarding ,property taxes, carbon taxes, general taxes etc on what is now unfolding in New Zealand.
    Peter you seem, to be the only well informed and extremely well educated thinker that I have come across from NewZealand that is very well informed on economics and what is happening in NewZealand.
    Could you please write a blog on how you think this new Govt will affect housing prices across New Zealand , the farming industry (especially the dairy industry) , investment capital entering, exiting and the off shore capital that already is in NewZealand.
    How do you think this will affect NewZealands central bank interest rates and most importantly taxes .
    I have done quite well in life and have my own retirement investments here in the US so don't need or want any "social security". I don't understand how the NewZealand "pension scheme" works .Here in the US it seems from all I have read most of our Social security schemes (some already have gone bankrupt) will go under due to the low OTC rates (which need to be at @ 8% to even break even for social security withdrawals . Many of these very large Soc Sec ponzy schemes world wide are "invested" in 3rd world debt to try and make up for the short fall (which imo will be a disaster).

  3. ...cont...
    However you have far greater knowledge than me especially in regard to NewZealands economy . With The EU failing & what seems as the first dominos beginning with Catalonia , and Italian elections next year , french break away movements rising, Br-exit it seems the Euro will be in crisis maybe next year or in 2019.If interest rates on Euro bonds rise and the Bundersburg bank fails it seems obvious that forex and monetry flows will at least short term seek the US possibly pushing up the USD artificially (that is another subject) but all forex flows are connected ( in that western Govts low interest rate policies of "currency wars" try and keep their own currencies low to drive exports and also to reduce debt repayments on welfare schemes etc) how do you think this may or may not affect NewZealand?
    A 20 dollar minimum wage seems a disaster to me as no foot in the door employer wants to take risks with such employees (his will also drive the tech on machines to replace low wage workers imo) & part time work .
    With NewZealands low interest rates on bonds, i would think that is why your "national Govt"(which was scaliest as well but may be not as socialist as this Govt ?)opened to door to foreign investment to offset low and investment capital and also to keep the NZD as low as possible for exports.
    If off shore capital flow decreases , where will they NZ Govt seek capital? with low bond rates?..
    How does NZ pay for its pension schemes?
    How will this affect property prices in different counties across NZ?
    How will this affect the NZCB rates?
    How will this affect the NZD and what if any affect do you think what is unfolding possibly in the EU and USA do you think this have on NZ
    What is the relationship NZ has with the USA especially economically going to have if any?
    As a side note: Do you think Cannibis will be legalized in NewZealand ? with this Govt. If so when.(I read in a wall street paper this "Ardern" is thinking of this?

    Thank you Peter (I started reading you blog about a year ago when I was beginning to prepare to retire in NZ). I Love the people (especially the rural areas in NewZealand and only just realized you are an Architect & design beautiful Frank Lloyd wright homes.That is what is even more interesting !! You are a very talented and a very well educated man .

    Thank you . I would very much appreciate and I am sure many others, your observations and opinions etc on this very important subject as many people are in limbo now with this news of what is happening regarding this new Govt regarding ramifications for foreign investors with substantial amounts of investment capital .
    I am only a small fish with @ 5- 10 million I am/was contemplating building a retirement home in the South Island. I am sure there are far far bigger players


  4. I will answer the question I posed above, just incase Peter does not decide to go into the subject in detail . As far as I am concerned after researching the New Zealand Prime Ministers background and other indicators , NZ pension funds, OTC NZCB rates, National and offshore debt, demographics, currency flows ,& CB currency swaps regarding in particular the derivative market exposure of NZ banks , average income to leveraged housing mortgage ratios,disposable Govt revenues & taxation targets to welfare programs,. & lining it all up with the fact that "kiwis" took have taken their country back into fully fledged Marxism. I see "Ms Ardern" (who I have researched was/is a member of the fabian society in NZ she has fired its first shot across the bow.
    This Labour party "have formally signed a coalition agreement, introducing all new policies focusing on climate change (Carbon taxes !), regional development, and poverty which translates into hunting the hated rich. (that would be me & my family, with @ ten million I was going to spend in NZ).
    "Thirty-seven"-year-old Jacinda Ardern, a member of the New Zealand Labour Party, became the world’s youngest female leader. The Marxist Hillary over here in the US must be crying in her martini.
    Nevertheless, PM Ardern has just fired the first shot across the bow and this is a serious warning that foreign investment (people like me ) better cross New Zealand off the list of places that will be up-and-coming. She has banned foreigners from buying property in New Zealand. The first proposal was to ban any migration to New Zealand as well. That they had to back off of given the refugee impression and that would have agreed with Trump – OMG! (after researching this "Winston Peters" I would guarantee that is coming back .
    This "child" & she is a child , thinks banning foreign property ownership will "cool" off the property market. The problem will be, a property CRASH. When home values decline, people feel they lost money and they spend less. With rising property values, people feel they are better-off and spend more assuming they have equity even if they do not borrow against it.
    She may be the youngest female leader in the world, but she also is clueless about economics. If I hired an Architect (like Peter) to design my family a ten million USD dollar retirement home (according to this little girl) I may get NZ Govt approval, BUT if I want to ever sell it , my market is ONLY to residents !!
    Well, I certainly am no fool & don't like my hands ties behind my back with investments & market exposure . I also don't spend my money in marxist nations as they go bankrupt.
    I am out . I can guarantee this : "kiwis" as far as I am concerned you are extremely uneducated on how economics actually work. I will short NZ.

    I love your rural NewZealanders but my experience with "Aucklanders" was not pleasant .

    My capital will be going elsewhere .

    I know this many many "kiwis" are going to be experiencing a property crash & when that happens Banks go under. Is your Govt prepared to raise OTC bond rates which will also destroy your dairy industry as they cannot use QE like the States . (NZ has a tonne of competition on currency exchange in the dairy industry with Chile and nations with far cheaper freight.

    I could go into detail, but I think Peter can take it up. I have respect for the man being an Architect and scholar. I am merely a business man who understands the basics of economics and currency flows in regard to bond rates and a nations(like any business's) income to debt ratios. There is no problem with quality leveraged Debt is any business has income and equity , but NZ does not have a balanced economy and massive debts.
    Raising OTC rates will destroy many areas o the NZ economy.

    Many may disagree, but I will stick with my fundamental understandings of how economics works today .

    Good luck kiwis



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. Links to bogus news sites (and worse) will be deleted.
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, it's important enough to put a name to it.
5. Above all: Act with honour. Say what you mean, and mean what you say.