The free (from responsibility) market – Dennis Dorney
New and views from New Zealand
Our present government claims that a balanced budget (which it has barely achieved) is evidence of its financial acumen. That would have more credibility if the balance were not achieved by its refusal to pay for anything, insisting instead that the market picks up the tab.
I have mentioned elsewhere that the resurgence of a housing boom has been caused by an acute shortage of houses, due largely to the government not building any, choosing instead to let ‘the market’ respond to demand.
Naturally the market builds only as many houses as necessary to maintain high prices – to build enough to reduce prices would be sheer folly.
There is no incentive to build houses that first-home buyers can afford because, by definition, there is no profit in it. On the other hand there is boom in 4-6 bedroom houses, which can only be trophy houses of the rich because families in New Zealand are no bigger than those in Australia. Finally houses are built where the land is cheapest, not where housing is really needed, and the government and city councils are left, a decade later, with massive infrastructure costs – roads that cannot be economically serviced by public transport and new schools, while the inner city schools atrophy. In the Brave New World of the free market, planning is a dirty word.
The prime example of this is Auckland where rampant population growth is costing a fortune in infrastructure costs, largely funded by tax payers living elsewhere. While I was writing a letter on the subject for my local paper, I found the following data comparing Auckland with Paris:- Paris (population
2.2 million) covers only 105km2 at a density of 21,000 citizens/km2. Auckland (population 1.5 million) covers 637 km2 at a density of 2400 Kiwis/km2. Is it any wonder that Auckland is one of the least affordable cities in the world? Some Aucklanders are sleeping in the parks. I am sure they would love the chance to sleep in Paris.
Another embarrassing failure of the unregulated market is the leaky homes crisis. Changes to the building code in 1994, resulted in a self-regulated regime, and the apprentice training system for builders and the related building trades was dropped. As a result, some developers and builders knowingly or carelessly constructed buildings with numerous faults and short-cuts. Some local authorities were later found to have issued Building Consents based on insufficient documentation and failed to carry out inspection and completion certificates for buildings, which were later found to have leaking problems. The repairs and replacement costs were estimated in 2009 to be approximately $11.3 billion.
Ironically what little life remains in the New Zealand economy is to be found in Christchurch, where the Government, against its will, must be involved and the rebuild is naturally generating work. However, once again the Government is trying its best to avoid any financial commitment and is leaving it to ‘the market’ (the insurers) to foot the bill. In the short term there are financial benefits – the insurance settlements are coming from premiums sourced from overseas – but there is a long term cost.
The first is that AMI, the only substantial NZ home insurer, collapsed under the financial stress and was sold to Australian insurer IAG, when a more sympathetic government might have saved it. Secondly, property insurance premiums have doubled as a result of the earthquake. That may seem to be reasonable now but if there happens to be no significant earthquake in NZ within the next century the insurers will make substantial unearned profits, all of which will go overseas. Some councils (Dunedin for one) are self insuring and churches are now uninsur- able. The last major problem has been that policy holders, already emotionally stressed, have had ongoing battles with insurers who are stringing out their payments for as long as possible.
The government has involved itself only where it can see potential votes. It is keen that Christchurch should have stadiums and conference centres because it sees these as being vote- buying toys, but the Christchurch City Council is expected to equally share the cost, even though it is lukewarm about ‘assets’ that don’t generate profits.
If it is not the duty of the government to assume the responsibility for what is a national disaster, then whose is it? How much easier it would have been if we had a government that could generate the funds for national infrastructure as ERA would propose, rather than having to borrow from banks. Given that the new money would produce new labour, there would be no inflation.
In the past, as most ERA members are well aware, the suggestion that the government could create the money supply has always been treated with ridicule because it was hard to persuade the public that the banks create money from nothing. Such a claim was always met with shocked disbelief.
However those days are past. You will probably have heard the following already because, although New Zealand is the first nation to catch the morning rays it is certainly the last to hear news of any consequence, thanks largely to a right-wing press. In its Spring Bulletin, the Bank of England has finally admitted that “whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating money.” That should create a little global warming that no- one can object to!
Dennis Dorney is an ERA member living in New Zealand, who makes a regular contribution to ERA Review.
