A high $NZ means the dairy farmers get less, but as prices were high at the time, they didn’t need the $NZ to go down to get a very good income. However, some other sectors needed support if they were to export to depressed markets and a high $NZ meant they could sell overseas at lower prices. I explained that part of the argument very badly above. Dairy incomes have a big effect on the wealth of many parts of rural NZ and big fluctuations are dangerous too. A big rise in dairy incomes when prices were already on an upswing could lead to people making bad business decisions based on expectations of future high incomes that are unrealistic. too. A lot of people came close to, or did, go under because they had borrowed too much in good times.

We used to want the exchange rate low because most of our exports were primary products and most of the inputs that went into making them were from here. Now our economy is much more diverse, and it needs to be even more diverse. So a lot of the inputs needed to make our exports come from overseas and obviously a low NZ $ makes them more expensive. Most are still primary products, so we don’t want it too high, but we need it higher than before.

It’s also about keeping people happy. When we were kids, most people only had one car. Only really rich people had two TVs. My first microwave cost me $1200, and my first video player was even more. Home appliances were really expensive. Poor people missed out on lots of things, including phones. The higher dollar makes all those imports more affordable. The first place a lower dollar will get noticed is Noel Leeming and Harvey Norman. When people stop spending, even on things some elitists may consider unnecessary, it gums up the rest of the economy. There’s a flow on effect in multiple ways. There are, for example, demands for higher wages to pay the new prices that employers genuinely can’t afford because there’s less money flowing around the economy, and it’s flowing more slowly. Quite apart from anything else, it makes people dissatisfied. If the All Blacks lose at the same time, National will be back in charge in 3 years.

Thanks for that. I hope things come right soon. It reminds me of some conversation or other about free will (quite possibly on WEIT) where someone commented that we’re just the sum of our chemicals at any given time 🙂

I actually agree this National govt was the best in a while, I just think that’s more a comment on how bad the others were. As Jacinda said today “There is no point gloating about the economic growth of a nation if you have some of the highest rates of homelessness in the developed world.” I also worry about Winston, but I’m so glad to have change that I’ll give even him the benefit of the doubt until he proves otherwise. You seem to suggest that him thinking about his legacy will be a bad thing, but I think (and hope) it will be a positive factor.

Thanks for the additional comments on QE. I take your point about existing debt in 2008, though I’ve no idea how large the effect would have been. I’ve never heard that used as an argument for keeping the exchange rate high though. There used to be much more consensus about the best exchange rate range for the NZD, about 55-70 I think, but this doesn’t seem to be the case any longer and I don’t know why. And re dairy income, I don’t see why it would go down with the exchange rate. As Fonterra is probably doing most of it’s business in USD, it should go up.

I’m sorry about how I’m coming across Ken. It’s not personal. I’ve been getting progressively grumpier for a several weeks due to a change in medication by a locum, and in the last couple of weeks I’ve noticed it’s coming out in my writing. It’s not just with you. A couple of days ago I decided f*** the doctor, I’m going back to how it was before, and I’m starting to feel better. Hopefully my mood will improve. I think it is improving.

However, I’ve been pissed off since the election that we’re going to have Winston playing a major part in our government. I’m also really worried about it. And I think no matter how well Jacinda does, she could be out at the next election because of Winston. If Bill was PM again, there’s no way the Nats would win a fifth term anyway – that doesn’t happen in NZ, and Jacinda could have a proper run at the job. At the moment I think there’s going to be a policy disaster over the next three years.

I acknowledge that you know the players and I don’t. None of the MPs I know personally are currently in government and I never had an inside track anyway. Your experience is, of course, very different. I won’t say any more about that because I don’t what to say the wrong thing that might expose who you are or anything.

I can only judge by what the government actually does, and while I certainly don’t agree with everything they do, the National government we’ve seen since 2008 has been a vast improvement on any we’ve seen before. I think they’ve mostly done a good job. I also think they would have controlled Winston better than Labour will be able to. That’s not due to any lack on Jacinda’s part, because I think she’s incredibly capable. It’s just that the Nats are politically in a stronger position.

I don’t know whether the Nats think they should have power no matter what – you could well be right on that one. I do think they currently have the habit of being in power and for any government that’s hard to give up. Labour acted like that in their third term. The Nats played it up with their “nanny state” rhetoric, and there was enough truth there for it to work. I actually also think they had a right to think they should be leading the next government because more people voted for them than any other party.

I think the Greens aren’t in cabinet because Winston refused to have them there, whatever is said about that publicly. I think NZ First has too much power in the next government. I don’t blame Winston for getting the best deal he could, and I don’t blame Jacinda for compromising to get to be government, but that doesn’t mean I have to like it.

I think Winston is worried about his legacy, whatever he pretends, and he will get more with Labour than National. But who he goes with shouldn’t be about his legacy. Winston’s legacy is a big part of why I’m worried and have been since I saw the election results.

I don’t think QE would have worked because we’re not big enough to influence international markets, which is why it worked for the US. Also their debt was at lower rates because at the time they had a better international credit rating. We were in a different position.

Unlike most countries, NZ was already in debt when the GFC hit, and we were paying high interest on that debt. QE for us would have meant that servicing that debt cost us more. However, we could borrow at extremely low interest rates. Also the amount we would need to create with QE was too much, especially once we had to pay for the recovery following the Christchurch earthquake and some smaller natural disasters. However, the Chch rebuild was such a big part of our economy that it was going to create significant economic growth. We also got popular and immigration was creating a lot of economic growth as well. That gave us slightly higher inflation than most in the OECD (though still low of course) and QE on top of that would have been a problem. The economic growth meant an increased tax take enabling us to pay off the debt. Dairy prices were also doing really well at the time and QE would have reduced what the country got from that. As we all know, a small $age decrease in dairy income can make a big hole in the economy.

I apologize again for how I’m coming across at the moment. It’s not you, it’s me! 🙂

Heather, I’m not sure what I said that got under your skin, but that wasn’t my intention at all, so I’m sorry. I have to say that the things you accuse me of are not true, neither regarding National and Labour’s motivations always being all bad and all good (what did I ever say to make you think I’m a fan of Labour?), nor about any glee at the current drop in the exchange rate (it’s a different story when we’re at 85 US cents and rising). But I know in several cases, and the increase in the benefit is one, that National were acting cynically, because they said so themselves. Specifically that the inoculation didn’t cost them much and they were surprised at how cheaply they were able to buy Maori Party support. That’s how they talked about it; it’s how they talk in private about many things. Labour would never be so open and I’ve often wondered why the Nats are. The best I’ve come up with is that the born-to-rule arrogance the Nats are said to have may be real, and so they are more confident and therefore more free with their opinions, in private at least. The worst thing I ever heard was regarding the asset sales, which polls had just shown a majority of their own supporters were against. When Waikato Maori then also threatened to sue the govt over the sale of Mighty River Power, I had the temerity to tease that things weren’t going so well. The response was that they hoped Maori did sue, and the govt would make sure it went to court rather than negotiate, because it would help shore up their base; that National supporters may hate asset sales, but they hated Maori even more. This is a near quote and I can’t think of anything much more cynical. So when you claim that National do something that you and I support for the same reasons that motivate us, I can’t help but think back to the lessons in realpolitik I’ve received from them, and worry that you’re unknowingly wearing blueberry coloured glasses. Maybe English really did see the light and just hid it well. It’s true he wasn’t PM for very long, but there wasn’t another benefit increase planned that I’m aware of and the minimum wage increase this year was no greater than it’s been since he became Finance Minister in 2008, which of course amounts to a decreasing percentage each year. This despite that it was election year when you might think he would have wanted to make a point about any change of heart.

As for QE, of course drop it if you insist, but I genuinely would like to understand why you think it would work differently in NZ than in other countries. So far as I know, QE is meant to do two things, lower one’s exchange rate and as an alternative to new debt as a way to increase the money supply in economic downturns. The main potential downside is inflation, which certainly wasn’t an issue after the GFC. Like it or not as a tool, I don’t know why it should work differently in different countries (that have their own currency, of course).

I agree with almost everything you say about Winston, but if he went with Labour and the Greens because he thinks he’ll be able to control them, he’s a bigger fool than I thought. If that really was his plan, he should have sought to have the Greens in coalition, so that they were bound by Cabinet collective responsibility. Winston depends on the Greens (or the Nats) to pass every single piece of legislation he sponsors in the next Parliament regardless of what Labour agree to, yet he has agreed to give them the ability to easily remain independent from any Cabinet decision they wish. I think we may need to consider whether old Winston is actually worried about his legacy after all, and feels that while he won’t achieve his more radical goals (e.g. he admitted that removal of the Maori seats is simply off the agenda), he will still achieve more policy with Labour and the Greens than he could with the Nats. Of course, I’m not claiming the next three years will run smoothly; it’s Winston after all and that means unpredictability.

It’s just your opinion that everything good that National does is for cynical reasons, and Labour does good things for the right reason.

I’ll bet anything you like that the NZ dollar has gone down significantly overnight on the news of Winston going with Labour.

We’re never going to agree on QE by NZ, so I’m not sure there’s much point arguing about it.

I do remember English saying something about the benefits of increasing low incomes, but I don’t remember when or where and it would be almost impossible to find because it’s not something he trumpeted obviously.

National has moved significantly to the centre following the disaster of having a leader like Don Brash. They’ve also been doing a lot in the background that are more what you’d expect from Labour, but not touting those things. They’ve been effective though. English would have carried on Whanau Ora, which was good, but Winston hates it.

Whether Winston went with Labour or National I would have been worried. Just having him in government is a problem imo. It was a master stroke by Helen Clark to make him foreign minister as it kept him busy and out of the way and suited his talents. He won’t want the job now. He could barely breathe through last night’s speech. I would be less worried about him if he went with National simply because they’re in a stronger position electorally and therefore could control him better. I think that was actually a major reason for him choosing Labour – it’s about power.

I bet he also thinks that as the “elder statesman” he can dominate the “little woman”.

It’s very concerning that he starts with a speech that things are going to get worse in the next three years but not to blame him! That’s great for confidence! It’s also completely irresponsible as it will make the fall in the dollar even bigger.

I could go on of course, but I won’t. Good on Jacinda, but she’s got a tough road ahead.

I have never seen where National has admitted that increasing benefits and the minimum wage have a positive effect on the economy. Certainly at the time they did it, it was to inoculate them against issues Labour planned to campaign on, i.e. entirely cynical. If English subsequently saw the light, great and perhaps you could show me where that was.

The purpose of Norman’s QE was to lower the exchange rate that was astronomical at the time and hurting exports. The only real criticism of it, besides the Nats screaming again about becoming North Korea, was that the proposal to refill the empty earthquake fund would not be enough to make a big enough exchange rate difference. QE isn’t a radical idea and certainly made more sense than the Nats borrowing $1b per year for tax cuts, which we are still doing.

I actually don’t know the details of Winston’s monetary policy. He says he wants to follow the Singapore model and I’m unsure what would be terrible about that. He also doesn’t want to be a slave to the current inflation target, which doesn’t seem so radical either. Labour’s approach is not the same as the Nats and they want monetary policy changes too. And as Winston has just chosen them to lead the next govt, we’ll be finding out soon enough now what the plan is.

I can’t wait to see the Ancient Rome one! Sounds very cool! 🙂

Hey, thanks Heather for your kind words! Yeah, that be me 🙂 I love building in 1/12 scale. I just finished a diorama set in ancient Rome that is 1/12. It should be published soon…a friend of mine does the website, but he has a full-time job too, so it takes a while.

Knowing about your back problem, I understand…I have a good back, but staying hunched over for the amount of time it takes to build a model has me stretching and adjusting too. I bet those Persian carpets were cool…what a great idea using cross-stitch.

Well, as you say, Mike Hosking is an idiot. Getting rid of MMP because Winston didn’t meet his self-imposed deadline is one if the stupidest of all the stupid reasons for getting rid of MMP. I think you’re right about why there’s no agreement re rules too. Neither National nor Labour wants to be the one giving way to the other.

And of course I don’t blame Winston for trying to get the best deal for his party, just like I wouldn’t blame any other party in their position. That doesn’t make it right.

I thought you might like Winston’s monetary policy. We’re going to have to agree to disagree on that one. To me the idea that NZ can have any effect on world markets is a joke. I remember Russell Norman advocating for us to print money as if it would make a difference. Even if it’s a good idea, which I don’t think it is in our case, it wouldn’t work for us. Our economy is too small.

As it is, we came out of the GFC stronger than most economies. National did stuff for the poorest NZers they never have before and discovered that those of us who advocate policies like increasing benefits and the minimum wage are right about the positive effect they have on the economy. Bill English of all people is converted and likely to continue in the same vein.