Hooton on the lunacy of printing money willy nilly

Matthew Hooton examines the lunacy of Labour and the Greens:

Labour, the Greens and their cheerleaders are delirious about work by staffers at the International Monetary Fund.

Rethinking Macroeconomic Policy was written in 2010 by French and Italian nationals Olivier Blanchard, Giovanni De’Ariccia and Paolo Mauro. Professor Blanchard has followed it up with Monetary Policy in the Wake of the Crisis.

The work is being cited by Labour’s David Parker and the Green’s Russel Norman as justifying all sorts of nonsense, including Dr Norman’s loony idea of printing money despite the official cash rate being above zero.

Left-wing cheerleaders Selwyn Pallett [sic], John Walley and Rod Oram have picked up the theme at events like the EPMU’s “crisis” summit.

Profound changes, we’re told, are needed to New Zealand’s monetary and wider economic policy. Funnily enough, their proposals would transfer wealth to Mr Pallett [sic] and Mr Walley from savers, consumers, taxpayers and the EPMU’s lower-paid workers.

Selwyn Pellett just absolutely loves corporate welfare.

On the role of government, Professor Blanchard argues for much tighter fiscal policy in good times, saying that when economic growth returns, as it has in New Zealand, countries must reduce their debt-to-GDP ratios rather than increase spending or cut tax.

The left has been strangely silent about that.

He also thinks legislators should consider giving central banks additional monetary tools, a debate which is not new. Even Don Brash has floated ideas such as the Reserve Bank being able to impose a mortgage rate levy, or vary GST or petrol taxes at the margins.

Professor Blanchard is particularly keen to debate how monetary and regulatory policy could be better combined. In leading that debate, he acknowledges the risk that too many tools and too many interventions could be distortionary and harmful.

He worries that, if central banks started being in charge of too many instruments, they would then be responsible for picking favourites among different sectors of the economy (say, Mr Pallett [sic] and Mr Walley over savers and consumers).

That, in turn, would raise questions of whether or not they could or should continue to be independent from politicians.

Labour politicians are even signalling that they want control over even private companies like Fisher & Paykel and a say over their own affairs when seeking capital or even to sell.

  • Mediaan

    The most essential thing to remember is that all tinkering with finance or business by government is an experiment, and judging from history will usually not work.

    The second most essential thing to remember is that quick genius solutions to perceived finance or business problems, promulgated by inexperienced young men with zero track record, (like Russel Norman, Rod Oram, or the average financial journalist), judging from history, will not only not work but will be seen in a decade’s time as a terrible mistake that set us back.

    In my opinion.

  • cows4me

    If Liarbore and the Melons want to bring the economy right they have to introduce a flat tax rate. Of course a policy like this would be a stake through the heart for all current NZ political parties especially those on the left. Hooten is right, printing money is madness of the highest order but still the fucktards will try. Until government stops picking favorites, playing one section of society against the other and stops feathering their own nests the bullshit we have will continue, printing money is just a side show.
    You also have to love the optimism of professor Blanchard waiting for the good times to return, wish him luck on that one.

  • TEO

    Separation of business/economy and state should be as fundamental as separation of mosque and state.

  • Sir Cullen’s Sidekick

    If economic experts like Selwyn Pallett, John Walley and Rod Oram support some idea, it has to be really good for Kiwis. I would like to see the comments from other left wing economic experts like Bernard Hickey, Peter Conway and Matt McCartern. NZ is fortunate to have experts who know how to spend other people’s money. Get ready for rich pricks’ levy folks!!!! It is coming whether you like it or not in 2014!!!

  • blazer

    The housing/mortgage scenario needs urgent attention.A disproportionate emphasis on bank lending in this sector is killing investment ,and skimming off too much profit to be sent overseas.Make a family home sacrosanct,and nobble spruiking and speculation by imposing lending limits and deterring LAQC ‘s and any tax incentives.The proportion of wage earners salary required to pay an average mortgage is just a form of enslavement.Capital ratios need to be looked at and more audits done regarding banks lending practices ,fees and bonus’.

    • CJA

      To a certain extent that has already happened Blazer. LAQC’s no longer exist (they’re called LTC’s now which is a different entity more like apartnership). Tax incentives have been removed with depreciation on buildings now no longer being tax deductible. Interest on mortgages of course is a different story as they would have to rewrite our tax laws for this to be no longer deductible.

  • Seems to me

    Seems to me that main stream media have lost the opportunity to put some “facts” around this QE stuff. This from an analysis by some independant investors.
    “The CPI rose significantly in QE1 and QE2 (Chart 1). These price increases had a devastating effect on worker’s incomes (Chart 2). Wages did not immediately respond to commodity price changes; therefore, there was an approximate 3% decline in real average hourly earnings in both instances. It is true that commodity prices rose 24%, in QE1 and QE2). .”

    The result was calculated as a 3% pay cut to the majority of American workers.

  • Selwyn Pellett

    Guess Mr Hooton doesn’t know that printing money is a standard part of Monetary policy and always has been, all be it when interest rates approach zero.

    The book I am promoting around NZ (In the Wake of the Crisis) by Noble Prize winner in economics Joesph Stiglitz and Head Economist of the IMF, Olivier Blanchard (among others) looks at the issues we are all facing post GFC and comments on what they see. I will send Mathew Hooton a copy as he seems to have problems understanding the second and third order issues that come from our policies. People in the real economy like Hugh Fletcher in this interview here http://www.radionz.co.nz/national/programmes/ninetonoon understand it well. Perhaps he is a Labour Party Cheer Leader as well, but I don’t think so.

    Far be it from me to be disrespectful but perhaps people who do international business, invest real dollars, create significant exports and jobs for New Zealand by competing with the best in the world understand these issues better than those that put there money in the bank or property. Just saying!

    The debate that many would have us swallow is the argument is about taking wealth from one sector of society and giving to another. The actual debate is about retaining wealth as a country. Our current account deficit is our countries overdraft and its been increasing for 40 years. That’s why I bother to write this stuff, because I want my grand kids to live in this country with affordable tax’s, meaningful jobs and the ability to buy a home. If you extrapolate our current position none of these will happen.

    The vote to reform the Reserve Bank Act was lost by 61/60 so now its just a matter of time till it gets past. Best we start thinking about the changes that will best address the distortions our current Fiscal and Monetary policy have caused.

    Readers if you want a copy of the book e-mail me. You’ll find an email address on the web

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