MUST READ: The Government’s new ‘Employment’ Contract Existential Crisis

By   /   March 28, 2018  /   10 Comments

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The government has got it badly wrong with the new Policy Targets Agreement, its contract with the Reserve Bank about monetary policy. Perhaps inadvertently, the emphasis is now on maximising employment, not living standards. Maximising employment is not the same as minimising unemployment.

The government has got it badly wrong with the new Policy Targets Agreement, its contract with the Reserve Bank about monetary policy. Perhaps inadvertently, the emphasis is now on maximising employment, not living standards. Maximising employment is not the same as minimising unemployment.

The Reserve Bank’s main role is to maintain the stability of the monetary system, essentially to ensure that there is enough money circulating (and sometimes to ensure there’s not too much money circulating) to ensure that full employment GDP (gross domestic product) can be purchased. The Reserve Bank’s role is to facilitate the circulation of money. Indeed, the cycling and recycling of money is the role of the banking system as a whole; to ensure that money in circulation grows in tandem with market output.

In the years from the mid-1970s to 2008, the world’s Reserve Banks came to see their role as essentially constraining the growth of the money supply. Since 2008 their role has been mainly to expand the amount of money in circulation. The (generally) two percent inflation target indicated to bureaucrat bankers whether the growth of circulating money should be constrained (seen as necessary if actual and/or expected inflation was above the 2% target) or should be stimulated (seen as necessary if actual and/or expected inflation was below the 2% target).

In reality, the indicator that guided monetary policy had been the ‘natural rate of unemployment’, which has consistently been regarded, in New Zealand, as between three and four percent of the workforce. For public consumption, an inflation target was always better than an unemployment target. Imagine a government supporting a Reserve Bank which was actively trying to raise the unemployment rate. (Indeed there are many people who cannot quite get their heads around the idea that central banks do – and are now mandated to – raise the inflation rate; they have been doing that since the 2008 global financial crisis. We were brought up with the idea that inflation was bad, period.)

So far so good, and the new government contract means that the Reserve Bank will in practice be doing much as it has already been doing, albeit with a change of style reflecting a new man (Adrian Orr) at the helm.

The big new problem is that, rather than seeking to maintain full employment (which is widely understood to mean three to four percent unemployment), the government wants the Reserve Bank to support “maximum sustainable employment”. This is not at all the same thing as maintaining full employment, by any definition of ‘full employment’. Rather the new language of ‘maximum employment’, if taken literally, indicates a supercharged growth agenda. Does “sustainable” mean a willingness to sustain three percent unemployed? Or is it meant to relate to a sustainable natural environment? It’s probably little more than a buzz‑word to placate the Green Party.

The working age population is conventionally divided into three groups: the employed, the unemployed, and the non-workforce. The new language of ’employment maximisation’ says it is bad to be either unemployed or in the non‑workforce. The language of ‘full employment’ says it is good to be either employed or in the non‑workforce. The status of the non-workforce has been further undermined through the use of the phrase ‘maximum employment’ in high-level contractual language.

Until today, the accepted economic mantra is that we work to live. The new mantra is that we live to work. Under the new refrain, paid toil (ie labour) is good, productivity dividends that increase our free time are bad.

In the developed world, from 1840 to 1970, we understood improved living standards primarily as achieving reductions in necessary work; as creating leisure. Samuel Parnell, in Wellington in 1840, persuaded citizens that at least 8 hours of each day should be devoted to activities other than labouring and sleeping. That enlightened view – equating rising living standards with increased leisure and the capacity to enjoy it – changed from the late 1970s with the advent of neoliberalism. While the cultural transition from ‘work to live’ to ‘live to work’ took place in New Zealand in the 1980s and 1990s, it was actually advanced by Roger Douglas in the early 1970s with a superannuation scheme that elevated work – and the rewards from work – way above all other contributions to our social, whanau and individual wellbeing. Indeed, today’s mental health crisis springs from the mix of constantly cajoling people to labour, while making it in practice extraordinarily difficult for our most vulnerable to meet that expectation. Further, many who do meet that expectation – people toil for a living – are not exempted from poverty.

The Reserve Bank’s contract with the government could target ‘full employment’ in the context of a society where rising productivity would be steadily reducing (not raising) the number of hours in our lifetimes that we commit to performing and preparing for paid work. In 1972 – when equal pay was introduced – 40 hours of labour in a week, plus universal social benefits, could support a whanau of five people. A labour maximisation policy cannot, by definition, achieve anything like that.

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10 Comments

  1. Sam Sam says:

    I believe price stability is a myth. This generation should expect to have 10 jobs in there life time. That’s not very secure at all. It’s inherently unstable, it’s precarious, it’s unnecessary, we have plenty of idle hands and idle resources yet we insist every one works harder than there parents just to survive. Education is so so important to achieving our economic goals. We have to expect to retrain the work force multiple times in a generation and up skill them as well. Even a job at McDonalds now requires quite a bit of computational knowledge just to work the tills. Ports of Auckland is probably 40 years away from full automation. If you want to control the money supply I th No it’s a good idea central bankers have a grasp of these dynamics.

  2. Afewknowthetruth says:

    ‘Inflation’ is just another of the huge number of deceptions that characterise western ‘democracies’ which are actually debt-slave states.

    What central bankers and politicians call inflation is actually deliberate devaluation of the money already in the system (in the pockets and bank accounts of ordinary folk), and is a result of central banks creating money out of thin air and charging interest on that money created out of thin air.

    Hence, a house that typically cost $30,000 in the 1970s cost $300,000 in the early 2000s and now costs anything between $500,000 and a million -depending on location.

    It is a cleverly designed treadmill, except that the whole system is supported by natural resources that are now in severe terminal decline.

    Just now much longer the industrial looting system can keep looting and polluting the commons to keep the financial system functioning (dysfunctioning) is anyone’s guess but there is plenty of evidence the answer is a lot less than 10 years.

    • Sam Sam says:

      Inflation is normal and its effects on society should be controlled via interest rates. Companies that refuse to raise wages should be forced to do so by increases in the minimum wage. Otherwise, the government absorbs the costs by having to provide benefits, ACC and rent assistance to minimum-wage workers.

      Deflation is very bad news because it encourages money hoarding instead of money using. The best way to attack it seems to be with massive countercyclical government spending and structuring your monetary policy so that it is very difficult for it to deflate.

      If he’s not doing it already Grant Robertson could tie minimum wage and tax deductions/credits to inflation rate, encourage investment methods to have interest tied to inflation rate (and do so directly for bond set ups), and then just use economic and monetary policy to make sure things don’t change too fast.

      Or something.

    • gormlessfoolformerlyknownasoleolebiscuitbarrell says:

      “there is plenty of evidence the answer is a lot less than 10 years.”

      You told me it was 2015 at the latest.

  3. countryboy says:

    This is what must happen.
    I know. Bold statement, right? What? Did I hear you say ” Will be a stupid statement more like” ? There’s one way to find out. Enact my idea. If it proves stupid? Then? I’ve been called worse.
    Foreign banks? Out. Now. Not later today, but now. Immediately. They’ve done their dash. Oh? And before you go? Leave our cash behind.
    Conning people into enjoying working for the foreign Banksters is torture, and an insult. Because those ‘ pro employment’ disciples are simply handing the time you have on this planet to try and glean what pleasure and enjoyment you can, on to the Banksters.
    Free transport to, then housing in, the rural towns of NZ which, as we all know are all but empty but for a few bogans and P houses.
    We need to seriously think about how we’re going to supply staple foods to a soon to be starving human population.
    Get rid of the Dick above for an algorithm that doesn’t place its little hand on its chin in that, look at me, I’m terribly thoughtful, contemplative and mindful look. He looks quite chubby? He’s not living in the streets, clearly.
    National? Wankers
    Labour? Wankers
    Greens? Wankers
    NZ First? They’re ok. No! Wait? Wankers
    They’re all fucking wankers.
    They need to spend less time Shane Jonesing it and just fuck off.

  4. savenz says:

    I think the last few decades of government desire has been this right wing discourse that people are just economic units serving business whose value is around their outputs.

    Hence the “live to work” and “work and money is the most important thing” in society.

    Business is at the top of the hierarchy with extra benefits because they are somehow seen as vitally important with little distinction between a morally run business against one that is not, one that pays taxes to the government within the country and one that does not . A harmful business to society and one that is not.

    You would think the environment would sit at the top of a hierarchy as the loss of this would lead to massive disruption and loss of life, but it’s not even in the running.

    Loss of life does not really seem to be an economic measure, in fact disasters can be beneficial such as CHCH because you then get ‘free’ money to rebuild from the insurance. Not many people hope for a natural disaster, but our economic system does!

    Our bizarre government priorities are showing up in our poor productivity, high mental illness, reducing international rankings in anything good aka education while being increased in things that are bad such as housing unaffordability and increasing obesity.

    We are even importing in migrants who have less skills than 5 years ago for Bill’s dream of a low wage economy, and celebrating the ‘growth’ while leaving those annoying little social things such as building more hospitals, (lucky they didn’t forget about the prisons though, can’t have social disorder, government is certainly not going to ignore that as criminals effect business profits), and now expecting the Auckland ratepayers to stump up 26 billion to have a working public transport system as well as who knows what to try to stem the pollution.

    The main ideas around this seem to be if you can afford to live close to the centre you will get cycle ways, buses, trains and so forth and if you are poorer and live further away you will probably have to somehow find your way to some main yet to be built public transport system, somehow find somewhere to leave your car, (even the most ambitious plans do not allow for a public transport system that completely covers all of Auckland) or be taxed to stay out unless you have enough money to enter. All this while the average wage is $20 p/h. For those that think that high rises are the go, again calculate what the body corporate fees are, the costs of the wastewater systems that need to be built and where are all the schools and hospitals coming from. It’s hard to afford that type of malarky when you have a low wage economy focus.

    Pollution is pretty much a given in a large city, so we might be the last generation to be able to swim in our oceans. (It’s already happening that we can’t).

    Our councils laws are like something out of the industrial revolution as seen when Auckland Council just gave consent for 60 trucks to drive across Auckland per week from Kaukapakapa to Penrose for about 30 years to help Asbesto’s linked and offshore held, James Hardie destroy the local communities lives. Who cares about pollution, and loss of economic benefits to neighbours is not even allowed in the district plan when looking at effects, while the economic benefits to the applicants are counted.

    Its hard to understand the point of this type of thinking when put against fairness, public good and long term consequences – but is typical of how short sighted our laws and those that administer them have become.

    Many of us hoped for a change with the new government who promised a change. Yes they are better than National was as it will take a bit longer for their decisions to destroy most people’s quality of life in this country but they are not really a change in ideas and fundamental questions about the type of country we want to be and what measures are the most important for everyones well being and quality of life.

    Most of us are thankful we live in a country that is not third world, it is hard to see why the government is so focused on policy (or lack of it) in making us one.

  5. Andrea says:

    “We were brought up with the idea that inflation was bad, period.”

    No. Not an ‘idea’.

    Older generations living in this country knew it as an awful fact – when prices outran income.

    Zimbabwe in this century knew it and knows it as an awful fact. When money blows about the streets because it is worthless and there’s barely enough space on a note for the number of noughts.

    We who live on the edge of the precipice would love to know WHY, if inflation is so very low, the price of borrowing is ‘cheaper than it’s been for ages’ there are price hikes every year on the most basic items?

    Today’s news – electricity prices will be rising by around five dollars a month from some time in the middle of winter because the incompetent greedies who ‘manage’ lines and distribution kicked the maintenance and replacement can down the road year on year to look ‘good’ as managers and performers. Oh yay.

    And if the Coalition is packing an instruction with gobbledegook weasel words as they have ever done, who can be surprised?

    No one will be surprised when it goes snoot up. The infrastructure that would support such an ambition is in total tatters, cannot respond within a minimum of five years, and is dependent on a neutral to hostile set of players.

    There’s no huge likelihood of a buy-in and cooperation. Why would they? What is the government offering as a partnership? Who has the will, humility and skill to patiently work through the diplomacy and trading required? Not one name comes to mind. Not one from any party at all in government or opposition. It’s beyond them.

    We’ll hope Adrian Orr is sufficiently pragmatic and can offset the dewy-eyed visionaries who dwell in the ivory tower across the road.

    If he can’t – there’ll be tears before vote time.

    • Sam Sam says:

      Pretty much current monetary policy is made by people who are overly terrified of inflation and one of the costs of that has been high unemployment.

  6. SC says:

    The new PTA pretends that unemployment is a target for monetary policy, when we all know it is being used as a tool.

    • Sam Sam says:

      Umm idk about that. Automation puts a wee dent in the whole labour share a value theory. Don’t you think?

      In my opinion high wages combined with low energy prices makes it economically viable to substitute labour for machines as away of lowering production costs.

      To quote the historian Robert Allen: “Wages were high and energy was cheap. These prices lead directly to Britons industrial revolution. By giving firms strong incentives to invent technology that substituted capital and coal for labour.”

      Primary industry under Fortress New Zealand policy increased productivity but it’s older brother rogernomics impoverished many. For all purposes capitalism kiwi style is a cultural system rooted in the need for foreign investors to turn a profit. So the real change needed here is a change of mind. Kiwis have to once again develop capitalist values of taking risks and appreciating innovation and we have to come to believe in making the upfront investments in something like renewable energy and electrification of the transport system paying for itself and then some.