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In extraordinary comments this week, Shamubeel Eaqub called ACT Leader David Seymour "economically illiterate". It was said in response to Seymour arguing that government spending was helping to drive inflation. Eaqub stated, "It is not Government spending that is driving inflation. We had the UK hit 9 percent inflation yesterday because there is a global inflation crisis ... Yes, we should talk about inflation, yes, we should talk about Government spending but you can't just tell lies about what is going on in the economy".


So we have a "global inflation crisis", do we? Not according to Harvard Professor, former Chair of the US President's Council of Economic Advisers and author of the best selling economics textbook in the world, Greg Mankiw. He points out that inflation is running at 2% in Japan. Mankiw says, "A common story about the recent inflation surge in the US ... is that the surge is largely due to global supply shocks, such as rising energy prices, chip shortages, and various bottlenecks in the wake of the worldwide pandemic. Why then do we not see a similar inflation surge in Japan?"


Second, Eaqub described as "lies" the link Seymour is making between government spending and inflation. Well, a galaxy of the world's most famous economists are making the same link as Seymour. Here is what Stanford University economist John Cochrane has to say, "Inflation’s return marks a tipping point. Demand has hit the brick wall of supply. Our economies are now producing all that they can. Moreover, this inflation is clearly rooted in excessively expansive fiscal policies. While supply shocks can raise the price of one thing relative to others, they do not raise all prices and wages together". Cochrane and many others are also blaming excessive money printing. How much did our Reserve Bank (and Finance Minister by implicit agreement) print? FIFTY TWO BILLION KIWI DOLLARS.


Third, Eaqub references UK inflation. So what is driving it? According to Bank of England Chief Economist, Huw Pill, who I know, “The UK is a net importer of food, energy, goods, and all have gone up in price”. Yes, a big chunk of UK inflation is caused by food, for which it is a net importer. New Zealand, by contrast, produces enough food to feed 40 MILLION PEOPLE. We are a massive net exporter. Housing costs have also been driving Kiwi inflation.


Fourth, a huge part of inflation in Europe is due to increases in the price of Russian gas, which has been much steeper than the increase in oil prices. How much Russian gas does NZ import? ZERO. In fact, the majority of all our energy needs are met by hydro.


Yes, the causes of inflation in the UK, US, Europe, NZ and Japan (where there is almost none) are all very different. Newshub should be ashamed of itself for airing insults like "illiterate" and "lies" to describe the opinions of the leader of a major political party in NZ. Especially when one can find a huge swathe of support for Seymour's views from a who's who of eminent economists. In fact, linking higher government spending & borrowing to higher demand and thereby higher inflation is the bread & butter of 101 economics.


Sources:

https://www.newshub.co.nz/home/politics/2022/05/shamubeel-eaqub-slams-david-seymour-s-post-budget-comments-calling-them-economically-illiterate.html


http://gregmankiw.blogspot.com/


https://johnhcochrane.blogspot.com/2022/04/inflation-and-end-of-illusions.html


https://www.bloomberg.com/news/articles/2022-05-20/uk-inflationary-shock-may-be-worse-than-feared-boe-s-pill-says



It's a shame that our Deputy Prime Minister, Grant Robertson, has an ambition, come what may, to achieve a Zero Carbon target, yet no plan to achieve Zero Poverty. "Monday is the most significant day in NZ's journey to combat climate change", Robertson said today. When was our "most significant day" in the journey to eliminate poverty?


So how about the following plan to achieve Zero Poverty (you be the judge about priorities):


Overturn Labour's ban on new oil & gas exploration. Had that ban not been implemented, then who knows - NZ may have discovered significant reserves. Under that scenario, we could've copied chunks of Norway's natural resource strategy. That is, put the oil & gas revenues into a Sovereign Wealth Fund and used the income to achieve intergenerational fairness, fund health-care & pensions, eliminate poverty & reduce inequality.


Yet due to his idealistic pursuit of the oil & gas ban, when NZ already prices carbon emissions, Robertson has thrown us into a cost-of-living crisis by his own admission. After all, he's the one blaming high oil prices for high inflation, not us. What's more, he has even backtracked on his commitment to chase lower emissions by cutting taxes on gasoline.


When the founder of well-being economics, Richard Easterlin, visited us in NZ several years ago, I hosted an event with him to which we invited Grant Robertson, who pulled out of a few days before. At that event, Easterlin made the point that the exploration ban had NOTHING to do with well-being economics, for the above kinds of reasons.


Sources:

https://www.newshub.co.nz/home/politics/2022/05/emissions-reduction-plan-released-the-key-actions-numbers-behind-nz-s-climate-action.html


 

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