I talked in my previous article about National deliberately working to create a low wage economy in New Zealand. A commentator was quick with the neo-liberal mantra:
‘Obviously the reason National intend to do this is to get inflation down so we can all afford to live again.’
And this is the vicious cycle that neo-liberal economics puts us all into. It will never be possible to raise wages because that will always cause inflation. Neo-liberal economics can never lift people out of poverty or even into the middle class because rises in wages will cause demand and demand will cause inflation so Government has to reign in the wage growth and govt spending while the inflation erodes the purchasing power, until people are poor and it hurts demand.
Neo-liberal economics is stuck and broken because it holds people in perpetual recession. In classic economic theory demand by consumers could lead to an alternative reaction. Producers seeing extra demand could increase their production of the good or service and using economy of scales producers may reduce price, and more volume means more demand met so less demand exists so a slower turnover of the higher volume will see producers bring the price down to keep turnover up. That isn’t happening now. Why?
There are two primary reasons why customer demand will now always lead to inflation:
Firstly:
Large businesses have learnt it’s hard work to increase production and market share. It involves risk taking and entrepreneurs are risk minimisers. Too much production from a producer can cause competitors to drop their prices to keep their sales up, which can cause other competitors to drop their price further. Falling prices are not good for profits. Large businesses have learnt not to compete with each other on price because it is risky and will reduce their profits.
It is far better for large businesses to place their prices near to their competitors prices so each can maximise their profit through an approximate stabilisation of prices. They customer compete with each other on the margins: over imagery (e.g. coke and surfing), competitions, advertising imagery (DMAX tough vehicles for tough rugby playing good bastards – they do this because it works – oh my god how sad), loyalty programmes, through facilitating debt financing to make the product appear cheaper as weekly monthly payments. etc.
Large businesses have given up on consumer competition on price as the way to grow their business. It is easier to maximise their profits by exploitation of their existing customer base. Constantly bringing out variations and versions of essentially the same product. Creating add on services or features for almost no extra cost but massively charging for it. E.g. phone storage capacity. Using gimmicks, e.g. a folding phone.
For large business it’s all about screwing the customer. To maximise profit you maximise extraction out of each customer. Gone are the days when firms would compete on quality and price for customers. It’s easier to make the customer pay extra for quality features. Businesses do compete on price but through inferior versions of their premium products so they can maximise their profits on premium quality products. They only stand by their product to the extent the consumer will pay for it.
The neo-liberal economy has taught large businesses that ‘demand’ is simply a signal to raise prices because they can. There is no mechanism in a neo-liberal private market economy to tell a large business to think about ‘demand’ as an invitation to production and competition on price. Our current economy proves this.
The theory that business growth and dominance can be achieved by producing a quality good and services and selling that to a customer at a lower and lower price so your competitors are pushed to one side or out of business; does NOT exist anymore. Customer competition based on quality and price has been replaced by corporate takeovers as the path to growth. The economic benefits of successful goods and services are simply passed from one company to another in the share sale prices and the customer prices remain the same or goes up. There is no societal sharing of the benefits of innovation unless you pay dearly for it. The large businesses have reshaped the economic forces in our economy to maximise their profits.
The whole neo-liberal market led economic theory, about it leading to the supply of goods and services to satisfy everyones needs and some of their wants, is an intellectual fraud.
Every National/Act voter needs to simply open their minds think about it and grow up. (This was my experience on making apologies for religion, I was simply invited to think and to grow up. I did).
Secondly:
Demand currently always leads to inflation and therefore recession, because there is no honest actor in the economy who can supply goods or services at prices to keep other suppliers prices low.
In a social welfare economy the previous honest actor was the government when it was a supplier of goods and services. In early New Zealand critical infrastructure was failing so government had to take over, some banks, insurance companies, railways, housing, etc. Then it set prices reasonably for the community it served and that set a price benchmark that private firms had to compete with to stay relevant. This process helped keep inflation low. The whole economy benefited with more discretionary spending. And that demand did not lead to excessive inflation, it simply expanded the number of choices in the economy and grew new activities. Think of the growth of music, the arts, design and fashion in the 60’s.
Currently this economic growth simply can’t happen because the neo-liberal economic model constantly interprets demand as an invitation for large businesses to raise prices. This is not about thousands of transactions setting an equilibrium price. It’s about a small number of price decision processes being set up by a small number of managers/directors in large businesses to maximise their profits. That is the true nature of inflation (I’m not denying cost push inflation but Greedflation shows this is not the main process).
The government is clearly not doing enough to inject the government as a supplier of goods and services into the economy to help keep prices low. We have done this before and it worked.
I’ve run out of space (and time) here to repeat all the actions we need to take to create an economic environment which will help keep inflation down. But it is obvious that too many with a short term self-interest are influencing the running of our economy, and it’s going to get 100% worse under National.
The Winnie Prime Minister bet is the best bet in a one horse town. In politics you have a duty to play to win. Real people are damaged if you don’t.
Sound logic although I would include that consumers are their own worst enemy when it comes to getting value for money. Cellphones for instance, you can get an Oppo for about half the price as a Samsung yet people pay more, own brand at supermarkets is often much better value yet people pay extra for the branded products even though in many cases the own brand stuff is made by the big brands as well.
It would be interesting to see a road construction price from MOW days to now (adjusted for inflation), we can see that electricity prices have gotten much more expensive with less state control so I suspect the same will apply with roads.
I don’t agree with your thoughts about religion though although the more ‘saints’ you meet the easier it can be to doubt their sincerity so it is an understandable conclusion.
The neo-liberal economic model is a tool created by (US) corporate interests to further their (all corporate) interests at the expense of everyone else. Rejigging the economic pie from the many to the few, aka redirecting riches upwards leading to crumbs trickling down on everyone else was, and still is, its goal.
This model is not paralyzed, when we look at it the right way .i.e from whom it is designed to serve. Economic inequality is still rising, hence it is still doing its job.
The fact that there has been zero political push back to neoliberalism highlights, starkly, for whom our politicians truly serve. The Powell Memo, the forerunner to neoliberalism breaks this all down
The Lewis Powell Memo: A Corporate Blueprint to Dominate Democracy – https://www.greenpeace.org/usa/democracy/the-lewis-powell-memo-a-corporate-blueprint-to-dominate-democracy/
The Powell Memo: A Call-to-Arms for Corporations – https://billmoyers.com/content/the-powell-memo-a-call-to-arms-for-corporations/
The economy that we, and the world has today, is not by accident. And we, our govt, can’t do anything about it because they serve them – the same corporate interests whom have shaped today’s economic environment – over us. Again, the Powell Memo spells this all out.
Only we, the people, can do something about the purposeful state of today’s affairs, in this case, the economy, by holding our politicians to account. Time to put democracy into action. Democracy means a lot more than just voting every now and then. Time we pressured our pollies, time we stopped easily believing most things they say.
And as for National and Labour, in my view, National relishes serving corporate interests, it is what they live for. Labour, it is anyone’s guess as to why they serve corporate interests also, but at least, they do work at mitigating a lot of the damage that serving corporate interests inflicts upon us all. Hardly something to crow about, but if Kiwis truly new the reality of politics today, then National would never see power again….and that, would just be the starter for ten.
Excellent Post @ Stephen Minto. You’ve just qualified what I’ve been thinking, seeing and experiencing. Thank you, you’re fucking brilliant. As is John Minto.
roger douglas gleefully committed treason. He enabled private individuals to help themselves to *our assets and resources and that was back in the day when homelessness was the reserve of the mentally eccentric and societal dysfunction was born of alcoholism and madness. Today, homeless people are so common they seem to be part of the urban furniture.
I would love to read your views on how our agrarian primary industry played a role in the neo-liberal false economy you describe.
*Our farmers supply us with our revenue which then goes into a death-spiral into the pockets of billionaires, millionaires and now foreign owned, once-were Kiwi banks. Can I ask you, with the utmost respect, how?
How does billions of dollars worth of agrarian export produce mystically vanish off the farm leaving the farmer having to borrow to bounce over the hardship foisted upon them by rising costs, as you point out above, to Auckland’s luxury and abundance for the 0.01%
Let’s welcome in the concept of [reality]. What is our AO/NZ’s [reality]
5.2 million people. 3 million of whom are of voting age. Our economy is derived primarily from land-farming then there’s fishes, pine trees and tourism. How then 14 multi-billionaires, 3118 multi-millionaires, four foreign owned banks making $180.00 a second in NETT profits 24/7/365 and homelessness, poverty, desperation and despair?
Could it be that our politicians have less interest in our well being and more interest in their own well being? Surely not!
And since we clearly can’t vote them out, thanks to pan-political neo-liberalism, and we never voted them in and yet here they are then don’t you think we could try for some kind of intervention?
Do we need independent journalistic investigations? Do we need forensic accountants to look up and into how a few sociopathic narcissists became multi-billionaires and multi-millionaires. If they worked for it in the conventional sense then they must be on quite the hourly rate. How can graeme hart donate hundreds of thousands of dollars to the natzo’s and their neo-liberal hangers on while in the same heart beat exhausted and unloved and unlovely homeless people shelter under decorative shrubbery along K Road as Bentleys cruise by looking for cheap young hookers while the stale, smelly, synthetic, middle-class vote for the continuation of that shit. I feel a fuck word saturated rant coming on so I’m going off to hug my dog and sweep the path.
Great stuff @ S.M.
Stephen, Me being the commenter in question I’ll try and respond. I agree that more government control of some of our services would be a good thing. Controlling the fuel distribution would be one, and having a bigger input into infrastructure as in the old MOW would be another. Half this countries problem is that there seems a lack of expertise in many areas and government running some of these services means we would accumulate expertise. However we all know what happens over time when the government grows into a huge machine that becomes bloated and inefficient, and we only have to look at this Labour government who couldn’t run their own cabinet let alone the countries services. Now in NZ we also have the complication of Maori involvement with many issues our water supply being one. I take your point Stephen but what you are suggesting has it’s own fish hooks imo. Getting back to my original comment I’m still wondering how a re elected labour government would have handled the inflation we have now( that they are partly responsible for). Would they just carry on mindlessly as they have done so that imbedded inflation goes on for years. I guess so. We haven’t got your system of government in place even though the last government had six years to lay those foundations. Luxon is just a right wing fool to many here, but he has been a successful company CEO several times, he’s energetic and may get that trickle down you all hate working a lot better than in the past. He deserves a chance.
@I talked in my previous article about National deliberately working to create a low wage economy in New Zealand.”
Mr Minto, has Labour not being doing exactly the same to low wage workers by MASS importing of foreign workers?
Over 100,000 new immigration work visas this year alone without addressing housing shortages, cost of living or infrastructure for actual NZ citizens.
Victoria state which is the same size as NZ expect to invite 120000 immigrants in the next year and they also have a dramatic shortage of places to rent.Unfortunately there are too many people not wanting to work so ŵe need these workers to grow the pot
I do not know what the answer is as threats do not work as we cannot have people being made destitute by cutting all support
You’ll find that this is common place throughout the West. This is a system issue/objective, not a servant issue (servant being whichever political party happens to be serving the system masters, aka their corporate-financial backers).
This system is designed for you/me/us to concentrate on the servants primarily, as this then allows the system masters to forge ahead with whatever plans they’ve concocted with minimal, if any, push back from us.
Don’t be fooled, the system, aka corrupted politics, is the real problem here, not one or whichever side of the political illusion.
Don’t dispute the 100000 + work visas but isn’t this all on the advice of Treasury. But do dispute the claim that Labour did not address housing and infrastructure. As for the cost of living? Well documented that huge amounts pumped into the economy has resulted in inflation (or is that greedflation). Yes, under Labours watch. But it’s happened globaly where governments tried to save the day. So dont try to pin the ills on the Labour government. There’s countless other, more plausible reasons why they’re outsky.
Stephen
The economic environment we need to create to keep inflation down and make NZ pay its own way in the world is simple: We need to get off our Green Party driven woke high horse and start making some real serious money by exploring and selling ‘in demand’ commodities like oil, gas, coal, minerals, increased food, meat, dairy and timber production. We also need to get serious about installing (no emissions!) nuclear power to support bigger industry and ensure power supply. Little old Switzerland has five nuclear plants – nothing wrong with Switzerland! Our entire economic model is based in three things: stealing money from each other via taxes left right and centre, and selling houses to each other at perceived values and hoping for a tourist or two. That is fucked. But until someone tells the Greens to fuck off so we can act like Norway, Italy and many many many other 1st world countries, we will forever be looking for ways to tax each other to death. And hope for some tourists. We have all this wealth sitting there, but we can’t touch it because of…some lizard. Or a snail? Or some dolphin that hasn’t been seen for years. Or some Taniwha. Christ, there we shut down our only (well functioning) refinery in favour of importing shit fuel that pisses off the airlines and substandard road materials. We are fucking amateurs. Woke socialist amateurs to be precise!
Moron!
That’s not a reply – that’s a fart! When we are in trouble we need to think Rutherford style, and anything put forward should contain reason so exactly why a moron – because… in ten words say.
It’s the system stoopid.
The Westminster system had one job ; to regulate capitalism…It failed!!!
If taking the brakes off and letting the market careen towards its natural demise unfettered is what it’ll take to replace it, then let’s go…full steam ahead.
Austerity, apathy, accelerationism. It ain’t pretty and it ain’t gonna end well. The more you have to lose, the more you will lose.
Money, guns and more prisons won’t insulate anyone from the collapse.
Buy popcorn and enjoy the show!
Since the Alliance morphed into the Greens (now irredeemably woke and no longer interested in the structure of the economy), NZ First has been the only party which has long opposed a neoliberal economic strategy. You may not like its nationalist approach much, but — face it — it is the only available alternative right now.
Neo lib economics are faced with massive contradictions. One is the belief in the value of money and the idea that it can remain stable when you create debt out of thin air and print money.
Even that money and notional debt are absurd entities when you consider every transaction for real tangible goods requires energy and contains embedded energy. The real value / cost ascribed is the energy involved. Bit abstract I know but consider that in terms of grain prices which embed energy in fertilisers, ploughing, sowing, harvesting, transporting etc.
Now take the next jump. How available is energy? In a fossil fueled economy that’s crucial. Neolib and traditional economics assume price and availability are self balancing. Now let’s watch what happens if shipping from the Gulf gets closed off.
neo libs have failed everywhere and have no answers
A large part of the problem is the capture of business freedoms by the corportatocracy. Most employment contracts now have anti-competition clauses written in them, so if there was any inkling for anyone who saw a gap in the market to open up shop and therefore competition, they cannot. Recently there was a members bill about regulating these clauses out of contracts but was shot down by all the bigger parties. Legislating that any/all non-competition clauses (including those used by the bigger supermarkets to restrict local competition) would be a huge boost for NZ’s economy – also a great way to boost production.