New Zealand in Denial: a review of Jane Kelsey`s ‘The FIRE Economy’



In 1987 Bruce Jesson`s `Behind the Mirror Glass` provided a multi-level analysis of the neo-liberal takeover as it was occurring. The New Zealand stockmarket was transformed by corporate predators and speculators. The likes of Brierley’s, Chase and Judgecorp arquired target companies and commercial properties purely for short term profit. No goods were produced or  traded, money was manipulated to make yet more money (until the October 1987 stockmarket crash). Meanwhile elite figures within the Reserve Bank and Treasury abandoned Keynesianism for Friedmanite monetarism and other forms of Chicago School Economics.

A similar conversion happened at the top of the Labour party after David Lange toppled Bill Rowling as leader. In the wake of Thatcherism and  Reaganism Roger Douglas, Richard Prebble and David Caygill embraced neoliberal policies at the expense of social democracy.

All of these factors came together during and after Muldoon`s snap election of July 1984.

Under David Lange Labour`s election manifesto was ditched in favour of Treasury`s economic blueprint, Economic Management. A bureaucratic coup had occurred. In  `Fragments of Labour` (1989) Jesson explained how these developments fractured the Labour party itself. The far right Backbone Club (precursors of Act),future members of the New Labour party and all those in between flew apart in acrimony.  In `Only Their Purpose is Mad` (1999) Jesson argued that the neoliberal policies of National and Labour governments favoured finance over production.

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Globally and nationally, capitalism was being shaped by rentiers and speculators independently of production for use. Jane Kelsey`s `The FIRE Economy` explicitly updates Jesson`s analysis and confirms her place as New Zealand`s foremost defender of economic sovereignty.

To summarise her argument adequately requires a short digression on economics.

For capitalism in general to reproduce itself, money capital has to be realised through production, productive capital must be realised in commodity form and  commodities must be realised as money in market exchange. Money surpluses accruing to capitalists then become the raw material for money capital to be reinvested in production. This general sequence is based upon the the extraction of surplus value from labour during the production process. Independently of production, merchant capitalists may purchase commodities cheaply and sell them at a profit (M-C-M).

Just think Walmart and Bunings Warehouse.

Alternatively, money lenders and speculators employ money to create monetary profit (M-M), a strategy which may expand to destabilise the capital realisation process.

Broadly, M-M profit circuits can be generated out of Finance, Insurance and Real Estate, hence the acronym FIRE.

The crucial point is that these profit circuits have become endemic to a system which critics term `financialised capitalism’. As the 2008 global financial collapse demonstrated, this kind of capitalism is volatile, prone to crisis and economically polarising.

Global capitalism really is run by the 1% and within this tiny grouping a financial oligarchy prevails. Kelsey`s comprehensive account addresses both the global and national aspects of financialised capitalism. My discussion here will focus upon the latter in regard to the local repercussions of the financial crisis and the dangers of Auckland`s housing bubble.

On the face of it New Zealand survived the crisis `pretty much unscathed`.

The large Australian banks were prudentially sound compared to those in North America and Europe. Australian and New Zealand governments provided fiscal stimulus and `staved off  a  more serious recession`.

Dairy exports to China and other markets were booming. Behind the scenes, however, Kelsey points to major economic problems. Domestic growth was fuelled by cheap credit (and growing debt ) for households, farmers and other businesses. When cheap international credit dried up after September 2008, a wave of finance company collapses exposed small and medium sized investors. They could not recoup their money and had little legal recourse in a weak regulatory environment.

After the Christchurch earthquakes central and local governments could not speed up the glacial response of foreign based insurance and reinsurance companies; beyond the Earthquake Commission there was no insurer of last resort.

Meanwhile, currency volatility adversely affected agricultural and manufacturing  exporters. Billions of dollars of daily, speculative trading  was, and is, driven  by hedge funds, mutual funds and insurance companies  with no connection to  commodity trade transactions.

Finally, a growing real estate bubble especially in Auckland, is damaging for the whole economy. Here, Kelsey`s analysis is especially incisive; domestic and offshore speculators are not the only villians of the piece. The major banks also fuel the bubble and base their business models around it (at the same time as bank economists give `objective` commentary to the media).

Kelsey`s cites  evidence to show that mortgage lending became the major source of the banks profit since the 2008 financial crash. She notes that `from 2012 they began aggressively peddling poor quality mortgages by offering low interest rates,minimal or no deposits,and free gifts or legal fees.` In this environment, notwithstanding interventions from the Reserve Bank, household debt increases and growing numbers of renters are forced into precarity.

When the bubble bursts, perhaps in response to another major global financial event, the socio-economic consequences could be disastrous.

There is much else to commend in Kelsey`s book. She identifies the fiscal and monetary `pillars` of financialised capitalism in New Zealand, outlines the central features of global finance and suggests international policy alternatives beyond the austerity regimes of England, Ireland south and eastern Europe. Domestically, the prescience of Kelsey`s analysis makes her book a must read for Andrew Little, Grant Robertson, James Shaw, Julienne Genter and Winston Peters.

The Key government and its cheerleaders are, of course, the beneficiaries and representatives of financialised capitalism itself. That they will ignore or dismiss this book attests to its prescience and importance for the people of New Zealand.


  1. Great to see this book coming out.

    One idea thought I do not agree with, which is the ‘blame’ culture against local’s borrowing to buy property.

    At present locals on low wages have to compete against borrowers not only with more money, well paid overseas jobs and overseas borrowers who may be paying 1% interest against a local who the bank looks at the mortgages going to 8%. Who do you think will be successful at auction?

    Are Kiwis surpassed to give up the dream to own their own property so that in this ‘global’ economy (in which many other countries protect their local housing stock from this very issue), but our government refuses too and is actually encouraging off shore investment in it?

    In fact migration is being used as a tool to keep wages down in this country while also increasing the cost of living in areas like housing and transport infrastructure.

    Many of the ‘controls’ being cited on housing are actually going to harm the locals ability to own property, while the overseas investors or investors independent of the low wages in NZ or high interest rates or taxes in this country, are going to benefit.

    Increasingly locals can’t afford the cost of living, power, rent or mortgages and food.

    There is a middle ground of having overseas investment but not in areas where the locals are unfairly disadvantaged while those not paying taxes in this country are benefiting.

    Personally I think you should at least be both resident and be paying taxes in this country to be able to invest here in property or farms.

    • “There is a middle ground of having overseas investment”
      I have thought about the difference between investment and selling assets and have come to the following conclusion.
      Overseas Investment is when something is being created, such as a company coming to NZ and creating lots of jobs, building alternative power generation to help our country etc.
      If we sell a house, farm, or existing business to any overseas person, company or government they are not investing in our country but we are selling them our assets.

  2. Yes, thank you both.

    Now let’s get the real backbone of New Zealand – its people – up to speed and in the know. A better front page for the Herald this morning would have been:
    “New Zealanders: We Want You ….. we can fill our regional gaps by re-educating and up-skilling You, says John Key”.

    Insult was added to injury by the Herald on A3 “Teenagers have it good in NZ:report. If you’re a fifteen-year-old in New Zealand, life is pretty good, a survey shows. A high level of car-ownership, heaps of bedrooms and bathrooms in our homes and our ownership of computers cellphones and dishwashers mean New Zealand has the THIRD-HIGHEST MATERIAL LIVING STANDARD IN THE WORLD for households with a teenager.”
    One big tick by the Herald for materialism.

    Now who was it who coined the phrase: You’ve never had it so good. Oh yes, Harold Macmillan, British PM. 1957. Followed by recessions some greater than others.

    We deserve better!

  3. well done Wayne, a great exposition in everyday speak, look forward to reading Jane’s book

    the guts of the marxist explanation of “finance capital” appears truer daily, kicked along by “the tendency for the rate of profit to fall” over time, which drives the madness that the rest of us endure and ultimately will do something about

  4. Thank you Wayne. Finally I now know what FIRE stands for!

    It is actually quite easy to see the consequences of the bubble burst in your appraisal.

    And Mathew Hooton on this morning’s RNZ Politics section refering to her as “Kelsey” and being so far off the truth etc.

    To me, that sort of reaction from the neolibs suggests that she’s actually on the right track. Truth is something they work hard at hiding.

    • Hooton was claiming that Jane Kelsey and “the left” loved going on about the negatives of FTAs, and ignoring the gains. He said, if they were unhappy, they could simply (when in government) quit the FTA and move on.

      But he fails to mention, that quitting an agreed FTA is not as simple as that. Investors and especially businesses that have set up under FTA conditions, feeling lured here, for whatever reason, they may claim compensation for commercial losses, if trusted and agreed contracts are terminated or not maintained.

      Trade participants, like importers and exporters, may have ongoing contracts for delivery of goods and services, based on terms of the FTA, and relying on long term contracts. So if the government opts out of an existing FTA, it may under certain circumstances be able to be held responsible for some losses.

      It is not always as simple and easy as Mr Hooton tries to pretend, he spins the stories, to suit his and his clients’ interests.

      He is one of the most cunning political advocates this country has.

  5. “Kelsey`s cites evidence to show that mortgage lending became the major source of the banks profit since the 2008 financial crash. She notes that `from 2012 they began aggressively peddling poor quality mortgages by offering low interest rates,minimal or no deposits,and free gifts or legal fees.` In this environment, notwithstanding interventions from the Reserve Bank, household debt increases and growing numbers of renters are forced into precarity.

    When the bubble bursts, perhaps in response to another major global financial event, the socio-economic consequences could be disastrous.”

    Yes, absolutely true, and the problem is, John Key knows all this, but he does not care. He has years ago acquired a luxurious home on the remote Hawaiian islands, has stashed away some wealth invested here and there, in a portfolio of sorts, and he is safe.

    He knows it is going to burst, but to avoid this to happen in his time in government, he is the typical va-banque gambler, or worse than that, and simply plays for time.

    That is why he is not restricting immigration and off-shore residential home buying. That seems to be what the economy is now still based on, that is economic growth on the Christchurch rebuild, some home building in Auckland, immigration, foreign money flowing in, and nothing else.

    If his government would pull the brakes, or even stop off-shore investment in residential homes, this may send signals that will scare people away, lead to a drop in the dollar, lead to slowing immigration, lead to home buying stopping, and the bubble bursting, causing banks to lose money, and a vicious cycle down the gurgler.

    It would implicate him and his government. So he rather does little, plays for time, prepares for his retirement in the tropical sun away from all trouble spots, and his departure from government in 2017 or soon after, with a private plane waiting to take him out.

    Screw New Zealand and those left behind, they can pick up the pieces. He has NOTHING to lose, will instead always be able to get another bankster job with his mates overseas, or hold speeches to like minded speculators and opportunists, or write his biography.

    His son will also be well prepared, to go about, becoming the aspiring billionaire.

    One day the people here will realise they were conned in a big way, and consider Key a traitor of his own nation, his birth place.

    • That swindler could easily live off not only the interests of his investments and acquired fortune but also dividends in his future ventures.

      Not only that – but please recall New Zealand that John Key was the right hand man in the biggest Forex exchange heists in history against any sovereign state.

      And that country was the place of his birth .

      New Zealand.

      The country that gave him a state house , free education and welfare during the 1960’s.

      The same country that he is now selling off or trying to sell off state houses and even prisons to private – usually offshore – company’s.

      And please bear in mind also that he has a finance minister in Bill English – also known as the Double Dipper from Dipton – who famously stated a few years ago that :

      ” We should be GLAD we have a LOW WAGE ECONOMY because that encourages foreign investment ” .

      New Zealanders…you have not woken up to whom you are dealing with in this man Key. You have not researched his credentials . Nor have you adequately researched the true motives of his closest lieutenants.

      And soon the TTPA will be ratified and agreed on by this same man and his govt.

      And when that happens….there will be no turning back . And you will have slept right through this whole process without any so much as a whimper.

      And you will have no one else to blame but yourselves.

  6. What ever happened to David Caygill. He’s been able to get away in almost complete anonymity when people like Prebble and Douglas are disparaged yet he was one of the major players in Rogernomics.

    I was thinking last night that the crucial moment won and lost was the Labour government of 1973. If New Zealanders hadn’t tossed them out for Muldoon in 1976 this country could have trod a completely different, or at least much better path. Muldoon gave Rogernomics the justification to go overboard in freeing up the economy.

    • I most certainly haven’t forgotten David “Mothman” Caygill. (The “moth” was attached to his face under his nose.)

      That slimy sod was my MP here in Christchurch for many years. I remember attending a meeting in the Shirley Community Centre (the former old Shirley School before it collapsed in the quake) where a member of the audience (not Jim Bolger) asked how Mr Caygill was going to keep the Unions under control.

      “Don’t you worry about the Unions,” he replied “we’ve got plans for them.”

      That was the first time I had an inkling that he was wearing two overcoats.

      Experience proved me right.

      Notice how he has disappeared from the lime light?

      • Search for a residence called ‘Caygill ‘ next to residence called ‘ Key ‘ on the letterboxes in Hawaii.

        These types love being in the sun with obscene wealth and the last place on earth they would want to endure not only cold winters but the public’s disdain would be the country they actively destroyed.

        New Zealand.

  7. Great article and work here.

    How could they (captains of commerce” make a fictitious word such as “derivatives” up with no actual asset value or even imagined but based on some smoke screen of a belief that something will exist when there is no evidence of it?

    We are truly deep in shit if this is what we are all betting on now, as it is a slippery slope as the “Rock star economy” as we see today for the second week the global stock markets are again a sea of red crumbling markets..

    “Market participants know the full extent of their own payment obligations and their exposure to the other party to a trade throughout the life of the contract,” she said. “This is not the case with other derivatives which have payment obligations that fluctuate with changing market conditions.”

    • Derivatives are an excellent mechanism for fixing costs and benefits.
      For example when in the UK I worked for a large commercial financing company, everything from panes to manufacturing equipment to vehicles. Most of the business we wrote was fixed yet much of our borrowing was floating rate. Therefore I used interest rate and currency swaps to protect us against market fluctuations. Even the much maligned CDO’s are excellent instruments where used appropriately.
      Where derivatives fall down is when the are used for speculation, are poorly risk assessed , over weighted in a portfolio, poorly regulated or spruiked – i.e dishonesty sold as to risk etcetera! There is a very strong argument that on the underwriting side that the company and person writing the business should be liable, final recourse, for bad deals.
      Of course the bankers / lenders / sellers do not like at idea.

  8. Is it time for us to realize that the conspiracy theorists pointing to a One World Order were right and that the little boy, in the Hans Christian Andersen fairy tale, who cried out The King is Naked symbolises the whistle blowers?

    Once we all realize this the next step is how to defeat them. We know who the “them” are.
    Does the answer lay with Quantum Physics – Consciousness. Probably. Because we sure as hell don’t have any gold to buy our freedom back.

  9. A reasonable analysis however care should be taken to not ignore unpleasant truths and thus give the rapacious ammunition.
    Namely many of the reforms of the Lange government were absolutely necessary. The continued subsidies, import licencing, inefficient public corporations and irresponsible unionism had to be discarded / dismantled.
    However the necessary measures were used as a “Stalking / Trojan horse” for a rabid neoliberal agenda and the pillaging of the public by way of privatisations.
    Not only is the neoliberal agenda based on fragile economic theories (e.g. most of the demand, supply, investment models only apply under very constrained / bounded conditions, as Kahneman has demonstrated the rational consumer is a rare creature, it places too little emphasis on demand and distribution) the philosophy ignores the social aspect of human nature, even the narrow reciprocal altruism model, thus leading to a bleak mean spirited society.
    Mr Bond is being far too generous towards this governments economic competence. Contrary to Key and his coteries blaming of the GFC the truth is that its impact on NZ was very small and in fact they inherited an economy coming out of a classical short run recession and beginning to grow, i.e. GDP had resumed growing by the March 2009 quarter (see RB / treasury national Accounts data), far too early for anything the Nats had done to have an effect. Subsequently until 2014 they have enjoyed the BEST run of trading conditions since the Korean War. Yet they have run up government debt, flogged off efficient revenue generating assets and pump primed asset bubbles.
    Outside of the social havoc they have wrought even from a conservative fiscal view this administration has been totally incompetent.

  10. Oliver Stone produced a mini series on the UNTOLD HISTORY OF THE USA. One of the shows focused on the Reagan years and how and why things happened as they did. Much of what he offers in this series was not in the news and is the truth about what really happened then. Worth checking out.

    Most US presidents / politicians were controlled puppets and dictated to and Bush senior (and Cheney and Rumsfeld) were the most powerful and evil of the bunch.
    Seems the early Russian leaders were not the horrific threat that we were misled to believe. Perpetual war and profiteering from war has been the name of the game for a very long time and Bush senior was at the helm of these lies and propaganda.

    • Strangely …Vladimir Putin is hugely popular with his people…and frankly…I’ve got a respect for that guy and his hardline manner…he takes no shit from the west and its wimp ass lying leaders and is a straight talker and deadly serious.

      And if any garbage goes down it will be a direct result of the devious subterfuge emanating form the west. You can count on that.

      • Often we speak from similar points of view but to be blunt that is drivel.
        Putin as with the Communists and Romanovs have cynicaly used nationalism, newspeak and populism to maintain a parasitic existence.
        One does tire of the shallow thinking / angst of qasai animal farm type contributors who consistently blame the west for the ills if human culture.
        I suggest that similar freedom expression would not be welcome under Putins tender ministrations.,

    • Its unfortunate that you are unable to repeat this drivel to the 10’s of millions who were the victims of these kind Russian leaders. The great tragedy of the Russian people is that they rid themselves of the Romanov tyrants and oppressive boyars, to replace them with the dictators Lenin and Stalin with there apparatchik blood suckers, now finally yet another populist Dictator Putin and another parasitic oligarchy. I have no love for the neo cons but if that is Stones comparative its facile.

      • Yes but you are talking about TWO separate eras.

        You are talking about a historic period of Russian communism . Putin is not of that era and to the best of my knowledge there has been no salt mine exiling to Siberia under Putin.

        In fact…he had those oligarchs tried in court and imprisoned after the fall of ‘communism ‘ for doing the same sort of rorting that happened here during the Rogernomics era.

        So it is simply wrong to assert what you say and make such a sweeping generalization calling things drivel.

        And the fact is…the man IS hugely popular…and I dont think he would be that way if he had people starving, salt mines and death camps , secret police coming at midnight etc etc…

        I think you are focusing on a bygone era and…to be blunt …are prejudiced because of a mental image you have of a stereotypical communist tyrant such as Stalin.

        • I suggest you are out of touch. Opposition members are frequently harassed and locked up. The media has been emasculated, other countries have been invaded. Oh I agree it is not as overt and as crude as in the past but the reality is much the same.
          Putins popularity is largely based on nationalism and thought control and bitterness.
          As a class the oligarchs are still in control but the faces have changed many now being ex KGB and various sycophants.
          While I agree that Douglas allowed the NZ public to be pillaged for the enrichment of a few, e.g. Gibbs, Richwhite, Fay, Hart, it was not on the scale of Yetsins privatisation scam.
          The vast majority of the communist leadership, not just The Man of Steel, including Lenin and Trotsky were parasitic murdering bastards whose behaviour is in part the reason for the neoliberal ascendency and the decline of a inclusive culture in the west.

  11. John Key says NZ is a good country to buy if anyone wanted to, well he already has and he is the rotten agent who sold for a high commission reward.

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