At least it’s somewhat comforting that the Savings Working Group doesn’t just assume compulsory saving will help “address New Zealand’s dismal savings record.” Although, it’s possible that mandatory saving requirements would improve the rate of savings, that doesn’t mean the overall economy would be better for it. In fact, the inevitable unintended consequences of all government interference in the market points to the opposite being true. That is, a government mandate for individuals to under-consume and save would almost certainly be detrimental to the overall economy.

Of course, all things being equal, under-consumption leads to investment which leads to prosperity. But all things are not equal. This is just another example of the endless tinkering that planners engage in to undo the problems they caused with their last round of tinkering.

So how about savings? Me being the simple-minded fool that I am imagine that the best way to encourage savings is to raise interest rates (or more specifically, releasing the central bank’s strangle hold on rates and allow the market to determine them). This will make it more attractive for individuals to under-consume and realize some legitimate gains on their savings. Surely, Savings Working Group will find some merit to this solution:

“The group estimates interest rates are 1.5 to 2.5 percentage points more than they should be.” Interest rates are too high? …Not exactly what I had in mind.

Looking at the entire passage we can see how they arrived at this conclusion.

The group has met twice so far and has taken a wide macro-economic look at the issues facing New Zealand, putting much of the blame on the poor performance of the tradeable export sector over the past decade, he said.

This has encouraged foreign investment and local reliance offshore debt, which in turn lifted interest rates and the strength of the kiwi dollar, which fed the imbalance further, he said. The group estimates interest rates are 1.5 to 2.5 percentage points more than they should be.

Ok, so basically what this group has concluded is that New Zealand’s export sector is struggling due to a strengthening currency. This implies a reduction in income, which of course makes it difficult to save.

First of all, the numbers on household income do not support this. Income has significantly and consistently been on the rise in New Zealand over the last decade–the same time frame where savings has been in an apparent free-fall.

It’s true that this rise in household income is purely nominal. Don’t be confused by the claim that “the Kiwi dollar has increased in value.” It hasn’t. What has happened is that New Zealand’s currency is losing (or winning, depending on how you look at it) the global race towards currency debasement. Relative to other currencies, the Kiwi dollar has generally been strengthening, but it still buys less goods and services than it did a decade ago due to the Reserve bank’s inflationary policy. That is, against other inflated currencies it has strengthened, but against commodities and actual goods it has weakened. Governments and central banks all over the world are addicted to currency debasement, and New Zealand is no different, except that we are slightly more intelligent by engaging in debasement slightly more conservatively.

This brings us right to the second problem with the group’s findings which has to do with an overarching fallacy that is so pervasive in this world of Keynesian nonsense. I hear all the time how New Zealand monetary policy needs to be geared towards a weak currency in order to support the export market, and that that would be great for the overall economy. This is absurd.

Why would any nation desire a weak currency? Why would any nation choose to diminish the purchasing power of their money? Admittedly, there are certainly a few special interests who would benefit, or think they would benefit, from such an arrangement–namely, some exporters and their supportive industries who are too lazy, unwilling or incapable of adjusting to new market conditions by improving their products, moving into different spaces, or finding new customers. But what about importers? What about retailers? What about households? Why are we supposed to automatically assume that high incomes can only be achieved by propping up the export industry? And I don’t want to hear this garbage about how “New Zealand is an export country.” That doesn’t even mean anything. All countries are “export countries.” All economies, all markets are in search of buyers. Nobody, save for the hermit hiding away in the mountains, produces a good or service solely for their own consumption.

So the question for New Zealand to answer is, “what goods and what services does New Zealand produce that others may want?” Cheap labor seems to be the immediate answer spewed by the supporter of the aforementioned export-friendly monetary policy. It is wrong. It is a cop-out. It is unimaginative. It is completely devoid of any real economic comprehension. It is just regurgitation of Keynesian nonsense. Besides, if cheap labor really were a competitive advantage to pursue then why don’t we devalue our labor completely by abandoning our factories and discarding all our tools and capital equipment. Then our labor will be so cheap that prosperity will be endless!

Taken to this extreme we can see how nonsensical our ideas about the economy have become. But these are the very fundamentals that neo-Keynesianists want you to take as gospel! They are insane!

A strong currency means that that currency is desirable. Plain and simple. Why would New Zealand not want their dollar to be desirable? A desirable Kiwi dollar means that foreigners want to hold that Kiwi dollar. How do they get their hands on it, then? Answer: they sell New Zealanders goods and services. New Zealanders, equipped with ample purchasing power, will experience a standard of living that no weak currency could provide. What do foreigners do with the Kiwi dollar once they get their hands on it? What can they do with it? Answer: they invest it in New Zealand! Sweet! This investment leads to capital expansion, better products manufactured in New Zealand, better services offered, and ultimately a higher income.

This is starting to sound much better than propping up an inflexible export industry with a weak currency policy. And all it took was some reasonable economic understanding, and the impetus to challenge the half-truths shat out by Keynesians.

Stop talking about the desirability for a weak Kiwi dollar. I am sick of hearing it.

The fact that the Government runs the schools is the one overarching problem with the entire education system. Government run schools do three things.

1. Most estimates for the cost PER STUDENT-PER YEAR are around $13,000 nationwide. Some studies have a much higher figure but we’ll be “conservative” with that number for now. In order to pay for this “education” the Government drains families of their money through property taxes and other forms of legal plunder. This overpriced and unjustified expense is one of the reasons both heads of house are forced to work full time jobs. In turn, there is less time for parents to spend teaching and nurturing their children.

2. “Perception equals reality.” Since the parents are not writing a check directly to the school there is a perception that the Government run school is free. The idea that parents are not paying for this service detaches them from taking responsibility and truly owning the results.

3. Government run schools essentially have what amounts to a monopoly on the education industry in the United States. Private education does exist but it is faced with unfair competitive advantages held by Gov. run schools. Government run schools don’t pay taxes which reduces their costs. They also have the Government printing press at their disposal. Also, the perception of being “free” attracts more suckers to put up with their miserable results. One RULE that ALWAYS applies when a monopoly has taken hold applies here: “Lack of competition will lead to a reduction in quality of service while increasing the cost.” It’s that simple. This monopoly must end so the free market can facilitate a level playing field which would drive down the prices for alternative forms of education.

The Solution: Let families keep the $13,000 which they’ve been flushing down the toilet of Government education. Here’s why:

1. Parents will have the financial means to choose the education they want: home school, private school, boarding school, GOVERNMENT SCHOOL (if they want).

2. This education families choose will yield better results and cost less. To paraphrase Milton Friedman, “When you spend your own money on yourself you will get the best value while maximizing results.” As I’ve discussed Government schools are a colossal waste of money and have yielded shameful results. If these families are writing a check to an educator of their choice they will make sure the child is getting a proper education for their money.

3. Parents would work less and be home more. The positive results of this will be immediate. In the current climate the window for families to spent time together is between 7-8 am and 6-10 pm. Parents and kids don’t become strangers. Parents will have a better opportunity to keep their kids out of trouble. Last but not least: Less expense ($13,000) = less work = less stress = happier family.

4. The social climate around the country will improve. There is way too much fighting over what is taught in public schools. Should our kids learn creationism? Is health class too graphic? Should we focus on alternative life styles? What bull shit fable are we going to learn in “history” class? It’s ridiculous! If people are choosing who educates their children these would not be issues. This has become more troublesome with the introduction of Federal standards and Federal curriculum. Basically a suit in Washington decides what EVERY CHILD IN AMERICA can and can’t learn. **See Ref. Below**

5. The “exceptional” will excel and the average will get what they paid for. This is related to #3 and #4. Government run schools are a place where MOST (not all) great brains go to die. They are dragged down by the monotony and “neutrality” of public schools. They are not challenged they are “drugged.” The exceptional are the ones who will one day drive forward civilization with their ability to solve problems, innovate, invent and produce greatness. By holding them back we are hurting the future.

The average will maximize their ability: see #3.

6. We will save hundreds of billions of dollars. The government is broke!!!!! It has gone broke with failed attempt after failed attempt to adequately replace what the free market could provide. This point ALONE should end all arguments. If you have NO MONEY stop SPENDING MONEY.

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**Ref#4:**

“…a suit in Washington decides what EVERY CHILD IN AMERICA can and can’t learn.”

There is a reason people don’t know what the Federal Reserve is when they graduate: They don’t want you to know that money is literally created out of thin air.

There is a reason people don’t learn to manage their money when they graduate: Debt, Borrowing and Spending drive this house-of-cards economy so the more people in debt the better.

There’s a reason States Rights are not brought up in MOST civs/government classes: They want the President to userp unconstitutional powers, control industry, and dispense favors to their political allies.

There’s a reason books by Freidric Bastiat, Henry Hazlitt, and Murray Rothbard are never discussed: They want to shut out alternative thought. They want to produce obedient lemmings with homo-genus ideologies who do not question the All Mighty State.

Not PC has covered the many occurrences of the broken window fallacy since the earthquake in Christchurch. For an entertaining twenty minutes of laughing at mainstream, Keynesian-regurgitating idiots check out the updates along the bottom at Not PC.

The prize so far goes has to go to the Treasury–in conjunction with ANZ bank–in trying to predict the impact the earthquake would have on GDP.

The Treasury and ANZ Bank had a stab yesterday at quantifying the impact of the Canterbury earthquake on gross domestic product.

Both concluded that while the near-term impact is unambiguously negative, the recovery work needed would boost GDP over a longer time frame.

I admit, it can be difficult to see this preposterous notion for what it is. I mean, the clean up effort does take care of employment, and it does produce something. But remember, what is being produced was once standing, it is merely being replaced. And the employment that goes into the reconstruction is employment that is now not working towards producing something else.

The explication made by government and bank officials that the earthquake will improve GDP is utter nonsense. If it weren’t, then we would cheer an even bigger quake that levels all of Christchurch, Auckland, Wellington and Nelson. Think of all the cleanup required! What a great boost to the economy that would provide!

The following post is about a year old. I found it in my drafts.

I pull it up because it’s important that as many people as possible are equipped to denounce and refute the slander against the free market that will inevitably come as a result of the inevitable second–and much worse–leg in this ongoing collapse of western economies.
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If I were a professional thief concerned with job security, I would probably denounce any measures or theory aimed at promoting the defense of personal property.*

And so, nobody should be surprised to find French President Nicolas Sarkozy blaming the free market for our current troubles.

Sarkozy is convinced that “Laissez-faire is over.” He is implying that this current economic crises has discredited the economic system that brought it about. With all due respect to this complete moron, he is a complete moron. Pure, unfettered Laissez-faire in the western economies has been dead for over a hundred years.

Either Sarkozy is intentionally deceptive (which works very well on the economically ignorant) or is simply naive and has no idea what laissez faire actually entails. But really, I am not bothered by his motivations as much as I am just sick of a part of me dying inside when I hear the market reprimanded for what has clearly been brought about by anti-market policies.

Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled….Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government. This last is accomplished by such means as a written constitution, a system of division of powers and checks and balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry with the right to keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police force, law courts, and a national defense establishment, which deter and combat those who initiate the use of physical force. And nothing more.

The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire and then considers the following facts about the present-day United States:

1. Government spending in the United States currently equals more than forty percent of national income, i.e., the sum of all wages and salaries and profits and interest earned in the country. This is without counting any of the massive off-budget spending such as that on account of the government enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent spending on assorted “bailouts.” What this means is that substantially more than forty dollars of every one hundred dollars of output are appropriated by the government against the will of the individual citizens who produce that output. The money and the goods involved are turned over to the government only because the individual citizens wish to stay out of jail. Their freedom to dispose of their own incomes and output is thus violated on a colossal scale. In contrast, under laissez-faire capitalism, government spending would be on such a modest scale that a mere revenue tariff might be sufficient to support it. The corporate and individual income taxes, inheritance and capital gains taxes, and social security and Medicare taxes would not exist.

2. There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce, and virtually all of which nowadays routinely ride roughshod over one or more important aspects of the economic freedom of the individual. Under laissez-faire capitalism, eleven of the fifteen cabinet departments would cease to exist and only the departments of justice, defense, state, and treasury would remain. Within those departments, moreover, further reductions would be made, such as the abolition of the IRS in the Treasury Department and the Antitrust Division in the Department of Justice.

3. The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-faire capitalism, all such agencies and commissions would be done away with, with the exception of the FBI, which would be reduced to the legitimate functions of counterespionage and combating crimes against person or property that take place across state lines.

4. To complete this catalog of government interference and its trampling of any vestige of laissez faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978, the very years during which our system, according to one of The New York Times articles quoted above, has been “tilted in favor of business deregulation and against new rules.” Under laissez-faire capitalism, there would be no Federal Register. The activities of the remaining government departments and their subdivisions would be controlled exclusively by duly enacted legislation, not the rule-making of unelected government officials.

5. And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level. Under laissez-faire capitalism, these too for the most part would be completely abolished and what remained would reflect the same kind of radical reductions in the size and scope of government activity as those carried out on the federal level.

What this brief account has shown is that the politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.

* Being part of the group that “enacts measures” also helps.

There are two kinds of credit: that which would be offered in a market economy with sound money and banking (good credit); and that which is made possible only through a system of central banking, artificially low interest rates, and fractional reserves (bad credit).

Banks cannot expand good credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (lenders) to borrowers. To understand why, we must first understand how good credit comes to be and the function it serves.

Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight. He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one week’s time. Note that credit here is the transfer of “real stuff,” i.e., eight saved loaves of bread from the baker to the shoemaker in exchange for a future pair of shoes.

Also, observe that the amount of real savings determines the amount of available credit. If the baker had saved only four loaves of bread, the amount of credit would have only been four loaves instead of eight.

Note that the saved loaves of bread provide support to the shoemaker, i.e., they sustain him while he is busy making shoes. This means that credit, by sustaining the shoemaker, gives rise to the production of shoes and therefore to the formation of more real wealth. This is a path to real economic growth.

Read the rest of this Mises.org article

I think the most fundamental error I encounter when dealing with the economically ignorant has to do with the basics of money. This is exemplified by all the crazy talk surrounding these stimulus measures (even Nobel Laurette’s in economics ignorantly clamor on about the need for ever more stimulus).

I once heard fiscal stimulus being compared to shifting water around in a swimming pool:

Our society has only a given amount of wealth–the total amount of water in the pool. Remember, this has nothing to do with the total number of units of currency, those amounts merely help facilitate calculation of goods and services relative to one another; it is not the total number of dollars or francs in circulation which defines wealth, it is the total amount of goods, services and capital which defines wealth.

Fiscal stimulus is the printing of extra units of currency with the intention of creating more wealth in society. This is like taking water from the deep end of the pool, dumping it into the shallow end and expecting there to be more water in the shallow end. Creating more units of currency does not make society wealthier.