TVNZ's Breakfast Show and the Politics of Envy

Our national broadcaster today has provided the public with an inaccurate characterization of quantitative easing. They report that "it's fresh cash being handed over to people who already have lots of money .. the money goes into financial markets for people who already have bonds, shares and assets .. those people who already have assets are rescued .. and get richer because all that money has to flow into the system".

Not so fast. To boost growth and help the unemployed, our central bank is able to cut short term interest rates, via its policy tool, known as the official cash rate (or "OCR"). In especially bad times, particularly when deflation is a risk, the central bank can also cut long term interest rates. It does so by purchasing long dated assets, typically government bonds, which pushes up their price and lowers their yield, a process known as quantitative easing (or QE). Cuts in the OCR and QE both make debt cheaper and stimulate investment, leading to job creation. Deflation, which QE seeks to avoid, hurts borrowers, which includes many of those on low incomes.

Arguing that QE is about rescuing the rich, whilst ignoring the poor, promotes the politics of envy. And if it really was about rescuing the wealthy, why would our central bank and Labour government be so keen to pursue this policy, whereas pro-business think tanks like the NZ Initiative are against it?

See the TVNZ website:

https://www.tvnz.co.nz/one-news/new-zealand/actually-means-government-starts-printing-free-money

A Simple Plan to bring NZ back

National and Labour are struggling to find credible plans to rebuild our economy. Both parties are currently engaged in a bidding war to bribe voters in the run-up to the election. Temporary additional public spending to provide relief to the unemployed and liquidity to small businesses is good. But expectations are building that taxes will rise in the future, depressing investment and job creation in the present. To avoid this trap, cuts to ongoing wasteful government schemes that promote privilege should be enacted. These include:

- subsidies to Kiwi Saver contributions

- free tuition fees and interest free loans to students from wealthy families

- winter heating payments to high income earners

- corporate welfare to businesses

- accelerated depreciation tax allowances to the forestry, farming and bloodstock industries

- the provincial growth (i.e., slush) fund

Cutting these transfers alone adds up to more than $30 billion in savings over ten years. That forms the backbone of a plan to greatly reduce our exploding public debt, without increasing taxes. Inequality would also fall as the wealthy receive less public support.