Bryan Gould To Labour: This Is No Time For “Conventional Answers”

By   /   October 5, 2017  /   46 Comments

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BIG UPS TO BRYAN GOULD. Perhaps anticipating a disappointing choice from NZ First on 12 October, the former Vice-Chancellor of Waikato University has put the rhetorical boot into Labour’s fiscal and monetary caution.

BIG UPS TO BRYAN GOULD. Perhaps anticipating a disappointing choice from NZ First on 12 October, the former Vice-Chancellor of Waikato University has put the rhetorical boot into Labour’s fiscal and monetary caution.

Holding up the example of the First Labour Government’s radical solution to the problem of how to fund its ambitious state housing programme (Mickey Savage’s government hit upon the novel idea of simply borrowing the money from itself!) Gould is demanding an equal display of courage and innovation from Labour’s current crop of leaders. Politically, 2020 looms as a year of new departures. Gould wants the Centre-Left to be ready.

Even if NZ First turns left, Gould’s critique remains timely. Grant Robertson, guided by his patron, Sir Michael Cullen, will attempt to put the kibosh on Winston Peters’ expansive (and expensive!) economic programme. Waving the bright red flag of a NZ First-friendly alternative monetary and fiscal strategy in advance of coalition talks strikes me as a damn good idea. Gould just might convince the “Three-Headed-Beast” to do a little more thinking before binding itself in the chains of Robertson’s reactionary “Budget Responsibility Rules”.

In the simplest terms, Gould’s argument boils down to this. If the private banks are allowed to create money (by crediting us with the money to buy our houses and then charging us interest on our mortgages) then why shouldn’t the state? He then argues that not only isn’t there a good reason why the state shouldn’t do this, but that it already has. “Quantitative Easing”, says Gould, was all about northern hemisphere states crediting their private banks with the money they needed to remain solvent. What, then, stops our own state from funding crucial infrastructure projects: railway and port expansion; new state houses; fully-funded training for thousands of new doctors and teachers; with similar financial instruments?

In his own words:

“Our leaders, however, including luminaries of both right and left, some with experience of senior roles in managing our economy – and in case it is thought impolite to name them I leave it to you to guess who they are – prefer to remain in their fearful self-imposed shackles, ignoring not only the views of experts and the experience of braver leaders in other countries and earlier times, but – surprisingly enough – denying even our own home-grown New Zealand experience.”

Gould’s gentlemanly reticence is all very well, but sometimes a spade should be called a bloody Grant Robertson! Thousands of New Zealanders are pinning their hopes on Winston veering left – as if that’s all that needs to happen. These same people do not appear to have the slightest idea that Labour’s current economic policies would render a Labour-NZ First-Green government next-to-useless. Yes, there might be just enough money to keep health and education stumbling along for the next three years – but there’ll be bugger-all for anything, or anybody, else.

Gould may be too polite to state the matter so bluntly, but I’m not interested in politeness. The awful political truth that we all need to get our heads around, is that “orthodox economics” is how otherwise “decent” politicians deliver pain and suffering to the most vulnerable people in our society; and that, at the moment, just about all of the most senior figures in both the Labour Party and the Labour caucus are irrevocably wedded to orthodox economics.

If Winston is of a mind to veer left, therefore, he will first need to persuade Jacinda to abandon her opposition to any person other than Labour’s finance spokesperson taking on the role of Finance Minister. Labour’s intransigence on this matter is a strong indication of the party’s unwillingness to step away from economic orthodoxy. But the economic orthodoxy of neoliberalism is precisely what Winston has set his own, and his party’s, face against. He cannot possibly enter into a coalition with Labour and the Greens while they remain committed to their ultra-orthodox Budget Responsibility Rules.

Jacinda should interpret Gould’s latest blogpost as a last-minute appeal for her to think outside the conceptual box in which Labour has imprisoned itself. If life is to be made better for those New Zealanders on the receiving end of neoliberalism, then Labour must reach back into its collective memory and summon forth the courage and creativity which made this country the “social laboratory of the world”.

In this regard, Gould deserves the last word:

“Many of today’s generation will have forgotten or be unaware of the brave and successful initiative taken by our Prime Minister in the 1930s – the great Michael Joseph Savage.  He created new money with which he built thousands of state houses, thereby bringing an end to the Great Depression in New Zealand and providing decent houses for young families (my own included) who needed them.

“Who among our current leaders would disown that hugely valuable legacy?”

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  • Published: 12 months ago on October 5, 2017
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  • Last Modified: October 5, 2017 @ 7:52 am
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46 Comments

  1. The Masked Moa says:

    So long as banks are allowed to create the money supply and governments are not we are (and will remain) slaves to the banks and their masters the 000.1%. This is how the Oligarchs and Plutocrats control governments via the Bank of International Settlements (BIS) in Switzerland. It is the new feudalism whereby us serfs pay to our masters in their banking castles a sizeable chunk of our income in our blood, sweat and tears for their blessings of allow us to carry on being alive. Their biggest tax of all being the endless wars they create to suck humanity dry of blood and treasure and don’t get me started on their next biggest scam of the pharmaceutical industry as their pills are a tax on being alive despite it being their toxic industries and food that make us sick in the first place.

    Once upon a time Labour and Social Credit understood that governments need to control the creation of money particularly for social investment. The Greens with an HSBC banker at their head will never get it and refused to discuss it when I was a member many moons ago. There is no solution to the social and environmental ills that beset us without the government taking back the power to create the money it needs free of charge to deal with the many social and environmental issues that need solving.

  2. WILD KATIPO says:

    Fireworks ! , … fireworks on the horizon if what Mr Gould and Mr Trotter says is correct. But ,… NZ First does go with Labour , and Labour does go the orthodox way ,.. sooner or later the public that put them there will start demanding change.

    They have been out of govt a very long time ,… would they remain pig headed and risk being a one term wonder?

    There will be figurative ‘riots in the streets’ if some noticeable change does not occur. At worst there will be no change the the final neo liberal element in Labour will be discredited. At best ? … perhaps small changes , perhaps some ‘slightly’ significant …

    It still seems the correct way to go and the Left thing has got to start somewheres , – even if its not with the most desirable and auspicious start.It may be the kickarse reality check they need if thrown into power. And while mass criticism isn’t the most honored way to start , … they better soon get up to scratch.

    They get just one shot at this.

    Maybe.

    • Nick Morris says:

      Neo-liberalism is not the same as monetarism. And monetarism is not the same as prudence.

      The reason, according to the orthodoxy, why small countries do not resort to quantitative easing-style initiatives, is because the world financial system will pick them off.

      Large economies, needed by the world financial order are given a little more latitude.

      It isn’t fair, but who ever claimed it was?

      However, New Zealand, thanks to the herein-maligned last Labour government, is still in good financial shape. So, much can be achieved without having recourse to risky innovations.

      Personally, to be honest, I have absolutely no idea if Bryan Gould’s plan would work out well or not. But, then, I defy any of you to put his or her hand on his or her heart and assert that you do.

      It is a contribution to the debate, but I await a somewhat heavier-hitter to weigh in before I commit.

      • David Stone says:

        It didn’t come out in what Chris quotes from Brian’s article, but QE as it is admitted to, i.e. buying govt. bonds with newly issued fiat money ,is not unusual in itself , only in it’s extent. Central banks have always managed the money supply by a range of means . One of which , when it needs to be increased is to do just that . it is a day to day activity for all central banks, not just those in large economies. At other times when there is deemed to be too much in circulation the central bank will sell those bonds on the open market , and cancel the money paid for them so it is no longer in circulation.
        QE was unusual in it’s unprecedented volume, and the application not to manage the money supply but to prevent it’s complete collapse , and with it the collapse of the banks, the banking system and all commerce.
        It was(is) also unusual in what isn’t talked about any more , that it also involved buying shaky mortgage-backed securities , and talked about less, the purchase of bonds of failing major companies such as general motors to rescue them from collapse. This is kept as quiet as possible for the obvious reason that ” why the hell can’t this be done for some humanitarian and social purposes ?” An d the only answer is that it would not advance the interests of bankers, and furthermore would erode their stranglehold on the nations and the people of the world.
        The reason that QE wasn’t used here is that we are too small a player to have any effect on the world’s finances, but are we sure that the bailout of South Canterbury Finance did not involve just that. It is unlikely that it would have been explained if that was how it was dealt with.
        Bank issued loans/ mortgages etc. multiply the money supply up from fiat money so created by the central bank. The multiplication factor was once restricted by the deposit reserve ratio which the reserve bank could alter as another tool in managing the total money supply. Allan Greenspan decided that bankers were responsible enough to limit their lending (debt money creation) to a safe level and removed that control, and central banks around the world followed suit. He seems to have failed to recognise that with no outside authority controlling them all simultaneously, they would all be in competition with each other to retain market share. So they were pretty much forced to create more and more shaky loans, which led to the 2008 situation.
        D J S

        • Marc says:

          “At other times when there is deemed to be too much in circulation the central bank will sell those bonds on the open market , and cancel the money paid for them so it is no longer in circulation.”

          What? The very purpose of selling bonds (government backed paper money) is to raise the very extra funds needed by governments to finance themselves, and to also repay debt that is aged and due.

          If there is too much around, that means, then inflation will hit. Only paper money and coins in circulation, that need replacement, as they may have become ‘worn off’ or cannot be deciphered for their values, get taken out and get destroyed, upon newly issued ones released.

          How can they ‘cancel’ it? Strange fiscal management there.

          • David Stone says:

            “What? The very purpose of selling bonds (government backed paper money) is to raise the very extra funds needed by governments to finance themselves, and to also repay debt that is aged and due.”
            Exactly. These bonds are then traded daily like shares on the stock exchange, traded between banks who are the usual buyers, but institutions like social security funds invest some of their money in them too. The reserve banks enter that market like any other investor. The government’s borrowing is unaffected as the bonds bought by the reserve bank have moved on. they aren’t bought direct from the government.
            The money supply is made up of a little fiat money created in this bond purchase process , and the debt money created by the banks in issuing loans which appear in other banks as deposits as your loan to buy a car is spent by you to the car sales yard who then deposits it in their bank. So the loan from one bank soon becomes a deposit in another. thus the money supply is multiplied by transactions between the banking system and the public. Wikipedia explains it clearly under “Money Multiplier”.
            This multiplied up debt money , in times of deflation like 2008 and continuing now , de-multiplies when businesses can’t repay loans and people sit on their savings , and the banks won’t lend to new projects for lack of confidence , and the public don’t want to borrow anyway for the same reason. So the debt aligned bank money shrinks like candy floss in your mouth. The QE has replaced it to a large extent to arrest the collapsing process , so now QE fiat money represents a much larger proportion of the overall money supply than it did pre 2008.
            D J S

            • Marc says:

              Sorry, you really lost it, your understanding is just more fake news and make-belief.

              Fiat money is of course created, in the anticipation of a consideration in return, e.g. people working and thus creating value that then fulfills whatever is created or loaned for that sake.

              The interest is the price of the risk, but as the risk is kept relatively low for major banks, they can lean back and simply hear the interest trickle into their cash box, so to say.

              The true risk is the wrong assessment of future growth potential, and whether that meets the credit created and handed out, hence when the economic output does not match what was forecast and expected, the house of cards starts to crumble.

              As for merchant banking and much else, that is the higher level of street trading rip off artists, or hawkers, and pawn shops.

              One man’s death is another man’s bread, so to say. It gets ugly when it happens on the scale of nations going bust, and needing bail outs, it is like having a personal bad credit rating, you end up getting NO credit, not even a bank account in the end, and no employment, as nobody wants to deal with a person who does not even have a bank account.

              And there the cycle starts again.

              The old gold standard was thrown over board, as it was deemed too inflexible, unsuitable for future financial management.

              The GFC was due to debt being traded on futures markets and so forth, in the form also of new instruments, that were totally detached from where the original debt came from, and what prospect there was to ever recover it.

              Hence the bad banks, now sitting with accounts that were considered a write off, hence the monetary easing, to rescue banks and big business considered to big to fail, and so that cash was pumped in there, and in part went also into wider circulation.

              Of course that has accrued to staggering amounts of debt now, sitting on the ledgers in the US, and also in many other nations, all hoping, in future some economic activity will enable enough earnings to pay off the interest and the principle of the total debt.

              After all, we are screwed one way or another.

              The alternative may be, and I do not say it lightly, maybe something a bit akin to former Cuba (before opening up) and North Korea, but try making that palatable to a consumerist, consumption addicted population, that has learned that living on debt is totally ok, just rely on real estate values to go up, hence more immigration, which will stress out finite resources.

              • David Stone says:

                Hi again Marc
                I would urge you to identify for yourself where you don’t accept my explanations , and google . Wikipedia has pretty good explanations , and you’ll get some from “investopedia “.
                A thought from a little book by J K Galbraith entitled “Money, Whence it came and where it went” ; “The process by which money is created is so simple that the mind is repelled”, it’s very true and effects a lot of minds.
                Cheers D J S

            • Marc says:

              I mean you somewhere lost it towards the end of your comment, but I presume you meant this, when referring to Wikipedia:
              https://en.wikipedia.org/wiki/Money_multiplier

              There is no fool proof system, and if we had the gold standard, we would have other issues. And if we leave the money creating solely to the government, and restrict what trading or savings banks can do, we will also still reach times, where the system will go under stress and needs to adjust, the result being inflation, high interest rates, shortage of credit, low growth, or what else it may be.

              Bartering will hardly be an option, the challenge is to limit risks, and to have more stability, also to achieve some more immunity from the global financial system, and to switch the system from exploiting resources, to a more sustainable management.

              The Greens go on about green growth and so, but much is myth too, as what they propose is replace old ways with new ways of doing things, you do not magically create more growth by replacing fossil and finite resources with sustainable and environmentally friendlier resources. There would be growth in some areas, and decline in others, the end result may at best be the same, or maybe even less in living standards for people, in material terms that is.

  3. Shona says:

    Robertson needs the boot. To be punted to the back benches and made Minister for Song Revues and Tutus.He is useless as a Finance Minister and Gould is so right. Labour have to abandon economic orthodoxy (aka cruelty or Dickensian times reborn)

    • WILD KATIPO says:

      Gotta admit, you’ve hit the nail on the head , Shona,… just as I was starting to warm to Robertson ,… meh,… he’s still far too neo liberal.

    • Marc says:

      But he is the ‘friend’ of Jacinda, close to her, and the one who nominated her as candidate to become Leader of Labour, after Andrew Little suggested he step down.

      To assign Grant to the back rows, that may then perhaps also necessitate finding yet another new leader for Labour, as without Grant, it seems at least, Jacinda is not having the ‘advice’ she relies on.

      • Liberal Realist says:

        Robertson is one of the knives that’s been in every Labour leaders back since Phil Goff. He was part of the ABC crowd that white-anted Cunliffe and ensured Labour’s vote tanked in the 2014 election. Not a person to be trusted IMO, and certainly not appropriate for MoF (albeit better than dildo baggins).

    • lloyd jordan says:

      just plain useless in actual fact

  4. Observer Tokoroa says:

    Chris Trotter

    New Zealand is a Conservative country. It already has, in world terms, a low value Dollar. Also, we have recently seen the absolute scaremongering undertaken by three magnificent Liars – English, Joyce and Bennett.

    If shafting Grant Robertson and the current Labour Party is the best you and Bryan Gould can do in this context then why not slope off.

    You are vacuous. And you know it.

    The 60% of New Zealanders who have been sliced, diced,degraded and despised by National and the Media (especially the NZ Herald) will support and support this Labour Government. Whether in power or in opposition.

    The 60% now knows that National fawn and flatter the Wealthy. National abuse anyone else. Ask John Key and Billy the Liar.

    Teachers, Nurses, even Doctors – are deserting the mess we call Auckland. Why? Because they cannot afford to live alongside National’s wealthy.

    The Millionaires of the same sick city, will have no one to clean their houses soon. Or paint them. Or keep the sewage systems going.

    The many have lost faith in the wealthy few.

    • PB says:

      I agree, but not reflected in the election result, and Gould and Trotter are encouraging Labour to go with your feelings and fix things.

      That starts with everything they suggest. Bye Grant.

    • Louis says:

      Couldnt agree with you more Observer T, well said.

  5. Frank says:

    I wonder if when Jacinda became leader sh