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Thursday's Top 10 with NZ Mint: How NZ's rich got richer and both the poor and the middle got poorer; Chinese property tax talk spooks markets; US farmers feed lollied to cattle; Dilbert

Thursday's Top 10 with NZ Mint: How NZ's rich got richer and both the poor and the middle got poorer; Chinese property tax talk spooks markets; US farmers feed lollied to cattle; Dilbert

Here's my Top 10 links from around the Internet at 7.30 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #1. This is a problem for everyone eventually.

1. The rich got richer and the poor (and middle) got poorer - The Ministry of Social Development has released its report on Household Incomes in New Zealand from 1982 to 2011.

It shows the rich got much richer and the poor got quite a bit poorer, firstly in the late 1980s, and then again dramatically in the last couple of years.

The 'Gini' coefficient is the interntionally accepted measure of equality.

Only one other country's Gini has worsened more than ours in the last 20 years or so: the United States.

But this trend is evident across the Western World and many say it is one of the reasons we have now for the slump in investor confidence and the struggle to get the global economy going again.

Unless the middle is getting richer and spending more, it's hard to get your economy humming again.

Here's the MSD in its full report attached here:

The share of the total New Zealand income received by the top 1% roughly doubled from the mid 1980s to 2009, a similar trend to that reported in the US, the UK and Australia.

  • Another way of looking at inequality is to track the share of a country’s total income that is received by the top 1%.  Such information is not reliably available in sample surveys like the HES, but data based mainly on tax returns has recently been published for many OECD countries by a consortium of academics from France, the UK and the US.
  • From the 1920s through to around 2010, English-speaking countries have shown a U-shaped curve for the income share of the top 1% with a lower flattish period from 1950 to the mid 1980s. The proportions have roughly doubled since the mid 1980s, from 5% to 9% for New Zealand and Australia, and to higher levels for the UK (15%) and the US (18%).  

2. US vs China tensions - Harvard's Graham Allison has written in the FT of the growing military tensions between China and America.

If it came to it, who would New Zealand choose to side with? China is now much more important to us in trade and migration terms than America, both directly and via Australia.

China’s increasingly aggressive posture towards the South China Sea and the Senkaku Islands in the East China Sea is less important in itself than as a sign of things to come. For six decades after the second world war, an American “Pax Pacifica” has provided the security and economic framework within which Asian countries have produced the most rapid economic growth in history. However, having emerged as a great power that will overtake the US in the next decade to become the largest economy in the world, it is not surprising that China will demand revisions to the rules established by others.

The defining question about global order in the decades ahead will be: can China and the US escape Thucydides’s trap? The historian’s metaphor reminds us of the dangers two parties face when a rising power rivals a ruling power – as Athens did in 5th century BC and Germany did at the end of the 19th century. Most such challenges have ended in war. Peaceful cases required huge adjustments in the attitudes and actions of the governments and the societies of both countries involved.

3. China's biggest new export - Millionaires. The BBC reports on a growing number of wealthy Chinese people emigrating to keep their money and themselves safe.

Porsche-driving Louie Huang lives in Shanghai, having made his money - a lot of money - in property. He is having a 200-room villa built here and owns properties in at least five other cities around the world.

But he admits that for many of his wealthy friends it is a sense of insecurity which is leading them to ponder a life outside China. "Most of them think I've got so much money here but one day maybe the government will change the policies and take it all back," he says.

Entrepreneurial, well-connected or just plain corrupt, it does not matter how they made their fortunes, there is mounting evidence to show that China's super-rich are heading for the exit.

A survey last year of almost 1,000 Chinese dollar millionaires found 60% considering moving overseas. China is now one of Australia's biggest sources of migrants with figures released for 2011 showing that it had overtaken the UK for the first time.

4. Hubei's property taxes - Bloomberg reports Chinese stocks fell today after rumours that Hubei province was planning a new property tax. That battle is on and it may stop China from aggressively easing policy, which is what Australia and New Zealand needs it to do.

The nation’s two-year effort to curb a real-estate bubble included imposing a property tax for the first time in Shanghai and Chongqing, raising down-payment and mortgage requirements, increasing building of low-cost social housing and placing home purchase restrictions in about 40 cities.

China’s prices of new homes rose in the largest number of cities in 14 months in July. Prices climbed from a month earlier in 49 of the 70 cities tracked by the government, the National Bureau of Statistics said last weekend. That was the most since May last year and compared with 25 cities in June.

Rising property prices are constraining aggressive policy action from the central bank, Zhang Zhiwei, China economist at Nomura Holdings Inc., said Aug. 20.

5. Chinese iron ore stockpiles building - Caixin reports growing stockpiles of iron ore in China as demand for steel slumps. This is a problem for Australia.

"Inventories are high because ore can't be sold," said Umetal analyst Zhang Jiabin. "Steelmakers aren't willing to accept shipments. They're not willing at all. Everyone is still digesting inventory."

Ore averaged US$ 60 per ton in 2006, then shot up to US$ 160 a ton two years later with soaring global demand for steel products, particularly those made in China. Another high of US$ 200 a ton was reached in 2010.

"If you had iron ore, you could hold it for a couple months and then sell it and earn US$ 20 to US$ 30 per ton easily," said Wang Lei, who heads a Shandong ore trading company.

Wang said his company now finds itself stuck with large quantities bought during the heyday of high prices. "We bought ore for about US$ 135 per ton," he said. But today "no one will take it, even if we try to sell at a loss." Indeed, the price of iron ore has declined since last October. In August, the price dropped to less than US$ 120 a ton. Wang predicted it is likely to go lower, probably to less than US$ 100.

6. America the under-taxed - Here's Foreign Affairs with a useful piece on America's tax take, plus a useful chart showing New Zealand at the wrong end of the table -- depending of course on your views about the size of government...

Compared with other developed countries, the United States has very low taxes, little redistribution of income, and an extraordinarily complex tax code. If it wanted to, the government could raise taxes without crippling growth or productivity. Tax reform is ultimately a political choice -- not an economic one -- a statement about what sort of society America wants.

 

7. The Fiscal Cliff - Reuters reports the Congressional Budget Office has warned of economic grief if America's government goes over the Fiscal Cliff at the end of the year.

Massive U.S. government spending cuts and tax hikes due next year will cause even worse economic damage than previously thought if Washington fails to come up with a solution, the Congressional Budget Office warned on Wednesday.

Without action by Congress to avoid a "fiscal cliff," Americans should expect a "significant recession" and the loss of some 2 million jobs, CBO director Doug Elmendorf said in his gloomiest assessment yet.

He said the economy is already being "held back" by the mere anticipation of the fiscal cliff and the uncertainty surrounding it, causing businesses to put off investment and hiring decisions.

8. Responsive housing supply is a good thing - Leith van Onselen makes this good point at Macrobusiness.com.au, rebutting some unusual comments from an RBA official. Hughey P will love this.

The cities with more responsive land-use regulations (planning systems) have achieved both more affordable housing and lower levels of house price volatility than those with more onerous requirements (tighter planning).

Why? Because when supply is unable to respond quickly to changes in demand, the housing market becomes overly sensitive to demand shocks, resulting in greater price volatility and boom/bust cycles as demand rises/falls. During an upswing, the extra demand will automatically feed into higher home prices rather than new construction.  In turn, the price rises and perceived scarcity will encourage speculative demand and ‘panic buying’ from first-time buyers, which helps to drive prices up even further. The opposite holds during a downturn, where unresponsive supply will help to accentuate price falls as new housing planned years ago continues to hit the market.

9.' I just give them lollies instead' - The LA Times reports on a Kentucky cattle farmer giving candy to his stock instead of high-priced grain. I wonder what that beef tastes like.

"It’s so hard to make any money when corn is eight or nine dollars a bushel," said Nick Smith, co-owner of United Livestock Commodities in Mayfield, Ky.

The candy, which has been rejected from retail sale, makes up from 5% to 8% of the  cattle's feed ration, Smith said. The rest is a mixture of roughage and distillers grain, an ethanol byproduct.

And so far the candy's high caloric content is fattening up the cows quite nicely, he said in a phone interview.

10. Totally Jon Stewart on Joe Biden and Wall St Unchained.

 

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16 Comments

MoM, a US analyst I follow, has some sobering China thoughts as well.

 

But as Mark Steyn noted quite some time ago,

"By midcentury, when today’s millions of surplus boys will be entering middle age, India and China are expected to account for a combined 50 percent of global GDP. On present trends, they will be the most male-heavy societies that have ever existed. As I wrote in my book America Alone, unless China’s planning on becoming the first gay superpower since Sparta, what’s going to happen to all those excess men? As a general rule, large numbers of excitable lads who can’t get any action are not a recipe for societal stability."

 

And Spengler (David P Goldman) has long argued for a cooperative US/China stance as being the best way through the morass....see his long back catalogue at Asia Times.

 

So your binary-choice (US or China) question is, I'm afraid, BH, quite simply the wrong one to ask.

 

Even if we were a playa....which we ain't.

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True mist, especially if your the mouse that roared, if Greece won't invade Germany , I'm thinking we should......oh the ignominy of being conquered by a German....!

 Or it could go badly , we could win, and have to build them a new bycycle track or something.

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#6.  I've never really thought of the middle as the "wrong end of the table" before, but I will remember it for next time I see one.

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Re #6

It would be interesting to see the same graph with Govt Expenditure as a % of GDP. A govt deficit will lower the %.

The USA spends about $3 for each $2 of tax so I assume that the expenduture is 36% of GDP. The Economist shows the deficit at 7.6%, which makes expenditure 31.7%. (24.1 +7.6)

Norway has a surplus of 15.4% so their expenditure is 27.5%

Japan 9.3 deficit, expenditure 36.2

UK 8.3 deficit, expenditure 42.9

NZ deficit 6.6, expenditure 38.1

http://www.economist.com/node/21560581

 

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You beat me to it Neville.  You have to wonder at the thinking behind Japans multi decade fiscal deficits. Why borrow the money when the Government can just take it from the people? It's not as if they can repay it so why bother with the charade?

With the US you need to add State income to Federal to compare with countries like ours with just central and local government. You are correct with your estimate of 36% total government spending to GDP, similar to ours but they don't have the free health care etc that we have. Guess they just waste more - big military etc. 

From the link, just look at the current accounts deficits. Treasury are expecting ours to climb to 6.8%. next year - that would make us second worst in the OECD! Cripes! And the only way to fund it is by borrowing (Government and/or private) or selling physical assets abroad. We have to be going into debt to pay the current account deficit. In effect - borrowing to pay the interest bill. Nice!

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An answer to part of our problem is obvious, inexpensive, entertaining and exciting IMO. The NZ Patent Office is hidden in Lower Hutt. A smart gubernment would also place branch offices of the Patent Office in Auckland and Christchurch. They would also fund a traveling Patent Office road show that would continuously and repeatedly visit every other town, village and city in New Zealand- explaining teaching helping. It would be like a perpetual NZs Got Talent Quest, only we would be looking for and encouraging good ideas, not the next Boy/Girl Band.  We have wonderful ideas here, except they mostly wither on the vine, never Harvested. The “genius” idea of equating fancy buildings with “innovation” is pig sh*t stupid, to be polite.  Have a look at Google Campus? Apple Campus? Plain as.  If anyone wants to attract smart people, invest in Art, Fashion, bike paths, parks, public transport and cheap, blindingly fast internet. (Dunedin could have funded the second North American internet cable for what it has spent on the Stadium!! oh well)
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That Dunedin Council employees accessed Trade me 500,000 times in a month on work computers (ODT 24.08) is wonderful news.  It's a logical reponse to the Stadium disaster.  Look at the success of the new car buying policy.  Departing German backpackers are happy to take only $800 for their unwanted 1990 Corolla.  Finance department magic.

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NZ has a patent office ! ...... knock me down with a feather , first I've heard of it ....... they've been rather quiet these past 50 years or so .....

 

....... someone care to go down there and investigate that all is well with them ...... if there's a zillion blowflies swarming around the back door , don't go in ........ the patent may have expired ....

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"Ripping orf the western civilisations..."

too funny - you dont think western civilisations ripped off anything and plundered other nations. geeze talk about lack of knowledge. 

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Do you know about the fella that invented the disposable syringe Gummy, he went to the government to look for assistance to get it protected and manufactured but they said it wasn't a goer. Probably more than our GDP in that single invention.

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The guy from Timaru ! ..... that's right . He invented quite alot of stuff . Good memory  Mr scarfie .

 

... Yup , we lost millions ( if not billions ) on patent rights from the disposable syringe , over the years .

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Regarding #1, I suspect the only response to the problem from the usual suspects is to haul up the razor wires and concrete walls and reinforce their denial.

Like or hate him, Michael Moore had a point when he said, "The smart rich know they can only build the gate so high. And, and, sooner or later history proves that people when they’ve had enough aren’t going to take it anymore. And much better to deal with it nonviolently now, through the political system, than what could possibly happen in the future, which nobody wants to see."

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Agreed and therein lies one of the great flaws of neo liberalism. A society with low taxes might seem like a great free place for a while but once the trickle down myth inevitably proves to be false and inequality leads to violence and fear then all freedom is lost

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Already, Minister Bennett is passing the buck and polishing turds.

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Re #8, according to that theory, then auckland with its unresponsive housing could go really bad if it drops away. I am not totally convinced by the theory. Both Sydney and Auckland, places of high demand and unresponsive supply, have not been particularly volatile. At least to date

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Curious about that list of industrialised countries : The top 17 taxed countries are all located in greater Europe ....

 

....... the 7 lowest taxed countries are all outside of Europe .

 

Coincidence ? ...... I think not ........

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