New Zealand: Second-Wealthiest Country in the World?

By   /   October 31, 2015  /   22 Comments

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Money from both miserly New Zealanders and from foreign savers comes into certain parts of New Zealand – especially the property market and banks that feed it – but does not cycle through New Zealand’s economic highways and byways.

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I heard this on Radio New Zealand on Sunday (25 Oct): Greg Fleming – The Global Wealth Report. Apparently New Zealand’s average and median wealth is second only to Switzerland, despite falling this year. The information comes from Credit Suisse’s Global Wealth Report 2015.

This is reminiscent of an article by Wolfgang Münchau in the Financial Times on 14 April 2013: The Riddle of Europe’s Single Currency with Many Values. (I mentioned this in Scoop on 31 July 2013; Auckland House Prices — The Ongoing Saga.) Münchau noted a European Central Bank survey claiming that average personal wealth in Spain was 50 percent higher than in Germany, and that the good people of Cyprus were on average over three times richer than Germans. Indeed, allegedly, Germans, the poorest people in the Eurozone, were bailing out super-rich Cypriots.

In 2013, Spain and Cyprus were at the depths of their financial crises. The unemployment rate in in Spain was 27%, compared to just over 5% in Germany. Some people’s concepts of wealth are seriously askew.

Münchau gave a somewhat Germanic explanation. He noted, quite correctly, that past higher inflation rates in Spain than in Germany mean that the Euro is undervalued in Germany and overvalued in Spain. But that can only be a small part of the story. Cyprus for example had asset prices bloated by huge amounts of Russian money, some of it possibly less than legit.

These surveys are an attempt to measure grossly inflated financial and real estate assets as if they were actual economic wealth. And they assume that a society’s wealth is the sum of the prevailing market values of the financial assets of its individual people, rather than treating wealth as a form of synergy.

Applying common sense instead, we know that a wealthy community is one through which money flows and reflows. Such communities have an air of prosperity about them; not boarded-up derelict buildings.

From a societal point of view, money is wealth – and a harbinger of wealth – only when it is moving. Yet ‘rich’ individuals see wealth as, for them, money that stops in their possession rather than money that moves through the community. This is the central tension of money; while it works by moving, we too easily want it not to move. A healthy person has blood flowing through their bodies in a consistent and comprehensive manner, at varying intensities of physical activity. If people are bleeding or have blocked arteries then they are not healthy; the blood is not flowing and reflowing. Yet, in the case of blocked arteries, there is a build-up of stationary blood at the sites of the blockages. That accumulation of blood is neither health nor wealth. Those sites in the body abnormally rich in blood represent the poverty of the whole, not the wealth of the parts.

Money from both miserly New Zealanders and from foreign savers comes into certain parts of New Zealand – especially the property market and banks that feed it – but does not cycle through New Zealand’s economic highways and byways. It is ‘spent’ largely on assets that already exist. So these asset prices climb to absurd levels that do not relate in any meaningful way to New Zealanders’ lives. Aucklanders, like Spaniards before them, seem wealthy if they compare their bloated and economically meaningless house prices with those of houses in Düsseldorf or Fukuoka.

Further, Auckland has been subject to a number of previous housing bubbles (in the 1980s, 1990s and mid-2000s). Market values never really fell during the pauses between the bubbles. Instead of owners accepting that their houses were worth less than they wanted to believe they were, they just didn’t sell them, maintaining the pretence that these assets were both their wealth and a reflection of their cleverness. As in Spain and Cyprus, people with overpriced assets dared not sell once the supply of the panicked showed signs of outstripping the demand of the gullible. Better to pretend to be rich – not putting your asset values to the test – than to accept the truth. Financial bubbles happen when fools sell promises to bigger fools. Such foolishness verges on cleverness only when there is a ready supply of bigger fools than oneself. Auckland has had more than its share of bigger fools. Hence New Zealand’s apparent wealth in Credit Suisse’s statistical database. Rich clots.

Inequality is a problem for many reasons. Probably the most important reason is that inequality impedes the flows of money – the buying and selling of goods and services by ordinary people doing ordinary and extraordinary things – that underpin healthy and wealthy communities.

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22 Comments

  1. Rae says:

    To sum up – made round to go round.
    Still as true as it ever was

  2. countryboy says:

    Excellent analysis. ” Rich clots ‘ . Brilliant. But do you get to address the Majority you speak of, to pump common sense into the dead zones ? No, you do not. Does bill english get to build bigger blockages in our arteries ? Yes, yes he does.
    We need, say, 500 stout and erstwhile fellows to find bill and explain the error of his wily ways. Like those same stout and erstwhile fellows who shake the hand of a criminal then run madly about with a pointy ball for millions and shits and giggles while we gape on at them like shrimps rising to the shiny hook. Fiddling while Rome burns etc?

    All the while, I have this tiny stone in my shoe. Every step I take it annoys me and makes me focus on its presence there.

    It’s the annoying, Farmer-earns-our-foreign-currency, Stone of Unfortunate Truths.
    While a scant few ( 53 thousand individuals according to NZ Dept of Stat’s ) and their associate service industry people and businesses earns our economy, the even less scant few swindle that money off via producer boards etc and up into the sun lit back passages of those few crony English-ites who slither around below us shrimp as we dangle helplessly now that the Lynx smelling heroes have gone home with a tin cup ( or not ) and millions of our $ re’s.
    I guess the conundrum is your Post makes too much sense for the common man but no matter. Thanks to a corrupt MSM they’ll never know anyway.

    Seriously. Great Post @ Keith Rankin.

  3. Sam Sam says:

    I find people get so emotional about money

    • wild katipo says:

      Hehehehe….yes they do… including me…..my last security job paid $15.00 /hour …flat rate for night shift of which I was the night owl guy…..that’s when I shine.

      The current job pays $14.75 …. and is that of hospital orderly.

      So I move from 25 cents above the minimum wage to the minimum wage…

      And all in the service of people….including those rich pricks who locked in minimum wages for services such as the above…

      Here’s a message….

      The next time you answer a call from your security company at 03:00 that an alarm has gone off in your factory…have some appreciation for the guy on low wages that patrols your business premises to protect YOUR INTERESTS . He’s usually the guy that calls back up and police assistance as he’s usually first on the scene .

      On a minimum wage. And unlike police – travelling alone. Unarmed. At 03:00 while your sound asleep. On the mean streets.

      And the next time you see that orderly doing the donkey work ,- spare a thought for the grunt work he/she does – on their feet all shift and doing some pretty challenging things – like ferrying young urchins who died in a car smash to the morgue. On a minimum wage. No counselling.

      Maybe Roger Douglas should have spent some time working security in a dangerous out of control drunken situation or attending an assault or a break in.

      Neo liberals …what a pack of pricks.

      • Sam Sam says:

        I use to call out my parents for giving me mixed messages about money – Money doesn’t grow on trees, greed and all that.

        They worked so hard and could barley afford to go on holiday. Let alone found there own retirement. They borrowed to purchase everything. Now that my mom is older she is free to pursue her own interests.

        Work is over rated. Start buying your own infrastructure for cash. If you start now instead of when your sixty – like the saying goes, it takes 20 years to create an over night success.

        The system will work just fine with out us.

        • wild katipo says:

          Difference is… back in the 1960’s and 1970’s a man could support and feed a family , pay off a mortgage , run a car or two , – hell- you could even afford a dog or three like we did.

          You don’t have that now on a single wage- let alone a minimum wage – youd be lucky if you got some shitty , damp mouldy little shithole you wouldnt put your dogs in let alone consider having a family in.

          • Sam Sam says:

            Seriously. Wage life is dead. Over, kaput. Every one should get back into growing our own food to supplement our wages.

          • Wild Katipo – “back in the 1960’s and 1970’s a man could support and feed a family , pay off a mortgage , run a car or two , – hell- you could even afford a dog or three like we did.”

            Ditto.

            That is precisely how my family; parents and siblings, were raised; dad went out to work; mum stayed home to work; we lived on one wage and the family benefit.

            We had money to do all the usual middle class things, with few of the economic pressures we face now.

            More interestingly, mortgage-money was scarce, which in turn suppressed the price of housing. Vendor’s finance was the norm, which meant any gain made by vendor’s was deferred. (So no instant financial gratification.)

            When the banking system was opening up, post-1984, mortgage money became easier to obtain (it was almost limitless) and housing prices took of, as vendor’s expectations rose.

            (Previously, housing prices spiked in 1979, when inflationary influences caused by the second Oil Shock hit New Zealand.)

            Graph: http://images.businessday.com.au/2011/11/10/2763160/nz1.jpg

      • wild katipo says:

        Here’s how it works… a district health board determines that cheap immigrant student labour contracted out by an employment agency can get people working for the lowest common denominator ( wages )over the Christmas holiday period…

        So lo and behold… 20 applicants for the same job apply…all student age and all on casual basis…

        And ‘compassionately ‘ they will be told to stand their ground and state their working hours..ie : that the roster doesn’t take into account if they worked 80 hours…which has happened…

        All on the ‘caring ‘ aspect of not being ‘ burnt out’ …yet it its ok over the Christmas break period when permanent staff are on leave…

        Also it’ll take around a month to be contacted…by the hospital…all care no responsibility by the hiring agency that gets a healthy bonus on behalf of the health board…

        Favoritism will be given to those with a medical background or study… if their lucky…

        Unions wont be given a look in because that would upset the admins plans to cover for the permanent staff over the Christmas break…

        If you cant see how this is not a racket ,… scratching each others backs to avoid a union involvement …then your a true blue neo liberal bitch.

        There’s guys there from India who are business students… what the hell have they got in common long term with anything to do with health ???

        Start asking yourselves , New Zealanders…

        Are you that naive you cannot see whats going on right before your very own eyes???

        Neo liberals… what a pack of pricks.

        • Sam Sam says:

          It is impossible to see hospitals being sold out from under us because the price at the door doesn’t change. Further OIA’s are such that if you ask questions plutocrats don’t want to answer there are no enforceable penalties. Except losing your job next elections, to district health boards ect ect.

          The health sector is New Zealand’s largest employer. Neo cons have spent the last 30 years getting unions out of hospitals.

          We can not strengthen the health sector with out first strengthening OIA rules and enforcing the rules.

  4. Aaron says:

    If you have a 3 bedroom house that is worth $400,000 one year and then $500,000 the next does it mean your house is worth more, or does it mean money is worth less?

    I mean, the house hasn’t changed and you can’t fit anymore people into it so it’s pretty clear it’s usefulness hasn’t increased. It’s still the same house, and if you want to move to a new one the money you get for the old one will only be enough to buy another 3-bedroom house in a similar neighbourhood.

    Certainly the people trying to buy their first home have found the money they saved to be worth less than they thought.

    The weird thing is that inflation hasn’t deviated far from the 2% mark for a long time – presumably the official inflation figures are a rort too. Do we have shadow stats for NZ?

    • Sam Sam says:

      If you pay cash for property – it doesn’t matter what price you pay, you have had zero liabilities in between.

      If how ever you buy a mortgage with the hope of one day owning your own home. Then your an idiot.

    • Well spotted Aaron. Inflation is the one aspect of the economy that the NZ government has been allowed, nay demanded, to regulate since the 1980s. They use all sorts of cunning methods too. Allowing unemployment to rise when inflation is threatening to rise, combined with keeping benefit levels well below a livable level, limits the spending power of the majority, making prices comparatively high, and keeping inflation artificially low. Keeping the unions hobbled with ridiculous anti-strike legislation makes it easy for large employers to slash jobs when required, especially when that employer is the state.

      • Sam Sam says:

        I thought it would have been obvious. If interest rates go up, that’s deflation.

        If interest rates go down, that’s deflation.

        What ever is being said about money, the opposite is true.

        Sucks to be the person who bought a mortgage after 1999.

  5. wild katipo says:

    Complaint to the Daily blog…misclicked that and full of spelling mistakes.

    We would appreciate having time to proof check – else you will have us looking all like dunderheads . Which is really a great advertisement for this blogsite.

    Not impressed.

  6. Donna Miles-Mojab says:

    Well done Keith! Thank you for so brilliantly and intelligently explaining why the reporting of the Credit Suiss’ findings on NZ’s average wealth per capita was nothing but a blatant insult to our intelligence.

  7. Jack Ramaka says:

    A society should be measured by how well the lower socio-economic sectors of the community are faring, NZ in the 1970’s was supposedly one of the wealthiest countries in the OECD, since the 1980’s and the neo-liberal economic program our State Assets have been plundered by the 1% percenters many of who reside on the Rich List here in NZ.

  8. J S Bark J S Bark says:

    Is this Kraut related to Munchausen as in Baron Munchausen?

    His methods are just as fanciful…

  9. Ovicula says:

    A small country like Niue could pass a law saying every house costs a million dollars and leap to the top of the list. These rankings are garbage. A just country is one where neither the rich nor the poor are allowed to sleep under bridges, and neither needs to. We may be wealthy, but we are not just.

  10. mpledger says:

    Peter Ellis said, over on statschat, that the claim that New Zealand was second wealthiest country in the world has been found to be a basic arithmetic mistake – probably dividing instead of multiplying by the exchange rate
    http://www.statschat.org.nz/2015/10/26/wealth-inequality-not-so-simple/#comment-167602
    (worth reading the whole thing)