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 added, "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".
It's a "global inflation crisis", is it? Not according to Harvard Prof, former Chair of the US President's Council of Economic Advisers and author of the world's best selling economics text, Greg Mankiw. He points out inflation in Japan is 2%. 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 & 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 & 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: