Let's agree on a minimum income every adult should have for a dignified life and then see what flows from that, says Gareth Morgan. Your view?

Let's agree on a minimum income every adult should have for a dignified life and then see what flows from that, says Gareth Morgan. Your view?

Gareth Morgan and Susan Guthrie have authored a book called The Big Kahuna that proposes a single tax rate on all income, including from capital, and a Universal Basic Income for all.

By Gareth Morgan

The minimum wage comes with a whole range of added costs.

Let's agree on what is a minimum income every adult should have in order to live a dignified life and then see what flows from that.

One of the topics of debate during this election campaign has been whether the minimum wage should be NZ$13 or NZ$15 an hour.

That number is both arbitrary and irrelevant to the well-being of those paid the rate.

One political reality of the minimum wage is that it is deemed inadequate for folk to live on. Hence it is topped up with all manner of special payments - the accommodation supplement, subsidies for childcare, special needs grants for those deemed in hardship and the sizeable top-ups available from Working for Families.

Looking at the extent of the top-ups now paid, even $15 an hour would be inadequate in isolation.

Welcome to the reality of 21st century wages.

Apparently people cannot live on the minimum wage so taxpayers have to transfer to them increasingly larger top-ups. You may well ask whether we have an exaggerated opinion of what should be a minimal level of income, but certainly the market cannot support a wage rate that covers all the top-ups, otherwise it already would be paying it.

The dilemma

Even at NZ$13 the supply of labour exceeds the demand.

If we raised the wage rate to make such top-ups unnecessary, jobs would go and taxpayers would have to fork out for those who could no longer find work. This is our dilemma - we have a minimum acceptable income in mind but it is higher than what the market can pay to support full employment. So we either legislate a minimum wage that needs no top-ups and put a whole lot more people out of work or we decree a somewhat lower minimum wage and pay top-ups to those working at that rate.

Or, heaven forbid, we change our mind and say full employment is the most important goal so we're going to allow the market to set whatever wage it likes. Now that would be a revolution.

But for now just accept that the debate about a NZ$13 or NZ$15 minimum wage reduces to one about how much taxpayers should transfer to these folk versus how much of their requirements should be funded by employers through payment of a higher legislated minimum wage (with the consequence that we would have to accept greater numbers of unemployed requiring a full taxpayer provision).

Surely not many would argue that we can set the minimum wage at whatever level we like without employment levels being affected. Believe me, such thinking does exist.

Let's turn the whole puzzle around.

A new approach

Rather than decreeing a minimum wage and discovering the consequences for jobs and top-up payments, let's agree on what is a minimum income every adult should have in order to live a dignified life and then see what flows from that.

We begin by specifying the income level below which we are not prepared to see anyone having to live.

From there we must design a tax regime that doesn't penalise people who work part time or in low-paid work - that means an end to the steep abatement rates of our current regime of targeted welfare, a feature which traps people in benefit dependency.

We must finally admit that with all the paternalistic will in the world there is no chance that public servants can adequately identify and monitor eligibility for a needs-based benefit regime.

We should save ourselves the torture of continuously getting it wrong and designing an endless stream of discriminatory 'fixes' to cover our mistakes in finding targeted perfection.

The reality is that people's circumstances are dynamic and that they will change their behaviour to suit the design of the benefit regime making the chicken and egg nature of determining 'needs' an exercise in futility.

The important thing is to be fair and to have a consensus on the level of income that we all have an unconditional entitlement to in order to live a dignified life.

In the book The Big Kahuna it was suggested that an unconditional basic income at $11,000 after tax would be a level that could be maintained in a fiscally neutral scenario.

If you think that's too stingy then be prepared to have a higher level of tax than 30 cents in every dollar earned. But at least if we decide on that as a human right we can then discuss what the role of the minimum wage might be. Let's do that.

Critics of the unconditional basic income suggest it will encourage legions of layabouts who will not work (either paid or unpaid) and just live an idle life, making no contribution to society whatsoever.

The logic of this argument goes that many of those who live on $23,000-plus now from their minimum wage full-time jobs will give up work altogether if they get a wage of half that. Yeah right. Ironically if they did we'd reduce unemployment. If the basic payment eradicated unemployment by destroying enough people's will to earn then of course you'd expect labour shortages to drive up wage rates. I'm not holding my breath.

With the NZ$11,000 basic income in place, the rationale for needing a legislated minimum wage at all needs to be revisited.

While we would still want legislation about working conditions (sick and annual leave, safety, rights of redress and so on) with the burden of ensuring an adequate income for all resolved there is no need to rely on a legislated wage rate for paid work to deliver income adequacy.

As it happens the arithmetic tells us that a wage rate of $8 an hour would, in a world of a flat income tax rate of 30 per cent and an $11,000 basic income, deliver the same post-tax income as the $15 an hour minimum wage proposed by Labour.

There should be a lot more jobs if wage rates of $8 were kosher.

We do shoot ourselves in the foot trying to ensure income adequacy by dictating what wage rates in the market should be.

What you win on the per hour payment you can easily lose on the lack of jobs. We needn't fear a lower wage economy under a basic income regime, the money is already guaranteed.

And imagine if we became more competitive, what that might do to overall incomes and the ability to pay an even higher basic income? Oh it's all too much.

Rather than making paternalistic judgments on people's needs, the unconditional basic income frees us as a society to set one income for all and then allow the market to set wage rates consistent with full employment beyond that.

The Kahuna revolution is not all bad is it?

-------------------

Gareth Morgan is a Director of Gareth Morgan Investments
This article was first published in the NZ Herald.

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Gareth – the problems are far bigger and complex and cannot be solved with adding some new patchwork elements. As a small, remote and under- populated country we need a fundamental culture change and a different approach how we do economics – adapting to the worldwide difficult circumstances.

 Some interesting comments:

The brief story is that, despite its reputation for austerity, Germany has been far more willing than the United States to use the power of government to help its economy. Yet it has also been more ruthless about cutting wasteful parts of government

 http://www.creditwritedowns.com/2011/06/why-is-germany-doing-so-well.html

Which ironically Gareth's plan looks like it might achieve...

Lets face it WINZ isnt doing a good job.....so if we assume we want to support those at the bottom we really need to look at a better system....

My biggest problem is with any system there will be free-loaders....a better system has to address and remove these or at least have a method to minimlaise them....

For me there has to be a difference in wages and the benefit to make it worthwhile to get off it, hence the minimum wage has to be better than the WINZ/DPB handout.

regards

Germany v USA.....in both cases the Govn is "helping" its economy.......just the latter clearly "helps" the parts that need support depending on how much those parts pay them to get re-elected.  I dont know if that's similar in Germany but even if thats the case their economy the method is effective....

regards

The argument about what minimum wage is actually a red herring. The actual productive parts of the economy are so productive that they would have effectively idle significant numbers of people if it wasn't for the relatively unproductive service sector. If you have low enough wages then you can pay more people to be unproductive. However even this has limits like for instance a farmer would probably still be better off putting gas in his tractor than paying people only breakfast and lunch to do work for him. It doesn't make much difference to pay people to do nothing or next to nothing.

Even the service sector is starting to have problems with its own success at raising productivity. If you were to compare the productivity with say workers at a retail store versus the productivity of workers at a warehouse plus courier drivers at an online store with a location far outside of the CBD one completely outstrips the other, hence the lower prices. At the heart of the matter is the fact that people are being paid to do things which by all accounts could have been done by the customers themselves.

The only reason why concepts such as pensions and unemployment benefits exist is because we have the luxury of an unprecedented quantity of energy available. The human labour component is a mere fraction of the total effort exerted by other energy sources, 100:1 is probably grossly overexagerating the human labour component. The dillema here is that if you shorten the work week it would destroy much of the service industry labour demand because it is simply duplication of what people can do for themselves but lack the time to do, a real catch 22.

Why is a higher minimum wage better than a low minimum wage? In a few words it is because it encourages investment in productivity and it encourages people to be employed doing productive things. Pretty much all of human achievement thus far can be summed up as innovation making up for human stupidity with the dumb luck that energy resources just seemed to fall in our laps at the right times between wood, coal, oil and natural gas. The minimum wage is stupid and increasing it is stupid as well, but we'll probably make up for it in the end and be better for it.

Edit: Maybe this is why I'm voting for the Greens, they represent the best kinds of human rationality and human stupidity.

 

"The minimum wage is stupid and increasing it is stupid as well..."

This claim is usually made by the people who are most in favour of things such as the outsourcing of jobs to India.

Well, if employers don't want a robust local market with the income to buy their products and services, and would rather struggle on with an ever-decreasing pool of customers, who are we to stand in their way.

I don't favour the outsourcing of anything to India. Infact long term they are pretty much screwed. All of the other major powers are going to suffer the same basic problem, having to invest too much energy into declining homeostasis of their systems against falling energy production. If I could put a short position on the entire financial system I would do that, unfortunately you'd need a working financial system to reap the rewards there, a catch 22.

Stupid requires context, in the context of little energy smart rules the day. We have the luxury of doing 'stupid' because we have the luxury of abundant energy.

The only smart thing to do long term is to invest in the sustainability and robustness of our systems, only the Green party can do this. If we make these key investments then we have the luxury of doing stupid things like providing care for the disabled. We don't ever want to have to be smart about these things.

Yet increasing it makes the case for sending to india better?.  From my experience though the jobs in india are moving up the food chain......logically if that continues why have US / NZ CEOs on millions and use indian labour....go the whole hog, get a Indian CEO as well as the workers on say $100k....share holders/ owners should really just outsource the entire business....

regards

I don't understand how you'd outsource a dairy farm or hydro plant without actually importing the workforce and paying them peanuts, Saudi style. In any case given the troubles mounting over there between water and energy I don't know if I could make a good business case to outsource anything if I was considering a 5-10 year perspective. I suspect if the global recession goes on we'll find out just how fragile this global house of cards actually is.

It is clearly obvious that Gareth Morgan is a leftie Labour commie pinko socialist lover of goofy, cunny and Aunty Helen, and a hater of rich people, who is out to cause anarchy in the streets.

[I'm filling in for Wolly.]

This is the most ironic thing about the Kahuna model - those who proclaim to be the most "against" the present welfare system are the most vocally against the Kahuna - which abolishes the welfare system altogether.  No more WINZ, no more minimum wage, no more government determining "need". 

That's because the end-game is the whingeing itself, rather than solving problems.   There's a cohort who would just shrivel up and die if they couldn't have a daily mouth-foaming rant about beneficiaries/women/Maori/environmentalists/local government/police/other obsessions.

You are a poor substitute malarkey....Gareth at least is thinking about a solution to a problem that is Human and that will never ever go away.

Trouble is he is looking only at one end of the problem. In the media yesterday we discovered just how greedy bank bosses are. The same goes for the entire filthy system where fatcat directors determine bloated salaries for greedy managers while walking off with bags of fees for doing Effall.

If the culture of corporate greed cannot be burned from this society, how the heck can anyone expect the youth to put any real effort into boosting their skills level and into gaining qualifications.

It is a better qualified people that we need to be...we need to see education and learning as worthwhile...rewarding....and you don't get that when slobs at the top suck out enough every year to equal a lifetimes income for a peasant at the bottom.

the unconditional basic income frees us as a society to set one income for all and then allow the market to set wage rates consistent with full employment beyond that. 

Exactly!  The reality is that there are many tasks that need doing - such as planting out the margins of our waterways, scrub cutting, pest eradication, household budget advice, after school care etc. - that are presently done on a voluntary basis simply because the paying of a minimum wage rate for these activities is unsustainable/unprofitable - and even if the rate were affordable, many on benefits cannot afford to do them due to the abatement regime. 

If there were a UBI, no "means" testing of it and no minimum wage rate, many of these largely voluntary jobs would be done more quickly and in greater number.

The reality is that there are many tasks that need doing - such as planting out the margins of our waterways, scrub cutting, pest eradication, household budget advice, after school care etc. - that are presently done on a voluntary basis simply because the paying of a minimum wage rate for these activities is unsustainable/unprofitable 

How many hours of volunteer work a week do you do Kate? A society where everything has to be paid for and helping others/volunteering is not valued is not a society I want to be part of.

There are many volunteers out there like me, who volunteer because that is what we want to do, and if it became paid work, we wouldn't do it.

Regards planting riparian plantings-most of this is done on private land.  We have had the benefit of the DoC/Fonterra Catchment Care programme on our farm a few times now. A frequent comment from these folks is how it benefits their attitudes to the rural/urban divide.  The majority of the DoC volunteers are taken from backpacker lodges so are foreign visitors.  Again there is value in these young folks actually getting out on to farms to see what is and isn't happening. It also gives them a chance to meet and talk to kiwis over a bbq lunch. An experience they seem to value. Schools also take part in children planting out on DoC land.  Again there is a benefit to society in having youngsters develop attitudes whereby they value the environment.  Much easier to teach them young. :-) If as private landowners we had to pay for both the plants and people to come and plant, I know we wouldn't have acheived as much as we have as we simply would have only planted what we could manage on our own.

Pest eradication is often an income source for some of our young and/or disadvantaged members in society.  Their 'pay' for this work comes from the value of the fur etc that they obtain on selling it.

Your elitist attutude is showing through Kate. Not everything in life has to be paid for - sometimes it is the experiences we have when providing services for free is that are most rewarding.

 If as private landowners we had to pay for both the plants and people to come and plant, I know we wouldn't have acheived as much as we have as we simply would have only planted what we could manage on our own. 

CO - why do you do riparian planting?  Likely;

- to limit the amount of pollutants/nutrients that enter the waterway - pollutants that arise as a result of your land-use - that land use being undertaken to derive private profits

- to limit erosion to adjacent land - i.e. your private landholdings

- to prevent/contain the adverse effects of flooding to adjacent land - i.e. as above.

So, for you to think it right/fair to have someone else pay for the damage you do to a public waterway and right/fair for you to gain private benefit through voluntary labour is far more the "elitist" attitude here - especially if you oppose the idea of a universal basic income which itself recognises that unpaid work is as valuable to society as paid work.

The Kahuna doesn't mean people will stop volunteering their time - quite the opposite - there would likely be even more people putting their hand up to work in society for the 'common good' through voluntary labour - as the UBI gives them a basic means of survival.

One of our sons has a freshwater ecology degree.  He approached DOC for employment.  They suggested the likely only way he would get a job with them in the future would be to volunteer his labour over a number of years in their 'cadet' (or some such named) programme.  Not surprised at all that they recruit foreign travellers in youth hostels to swell their ranks.  But do not be mistaken - the labour from these folks does not come free-of-charge to the NZ taxpayer.  DOC has to pay salaries to staff to coordinate the whole thing - and as their budgets get further and further stretched, they will put more and more money into backoffice functions associated with recruiting volunteer labour, as opposed to just hiring casuals at say $5.00 an hour (I could guarantee them hundreds of able bodied young NZ university students every weekend if such a rate were paid) and just getting on with the massive amount of necessary work that needs urgent doing in our environment.

 

 

 

yeh C O. We don't all have the means to give up a position where we're able to generate an income and to commit time to projects to voluntary projects. We all have to eat and pay the rent you know. And those young folks who come to New Zealand to travel and volunteer, originate in countries where their politicians don't consider low wages a competitive advantage, so they have adequate savings to stay here without having to  be contantly working. People from places like Chile, come here to work. Like young people from New Zealand go to Australia, Europe, and the United States.

Actually  Kate in a roundabout way I do pay for these volunteers-Fonterra meets the cost of the DoC volunteers in this particular programme so there is no cost to DoC in getting them. Therefore I have no problems accepting DoC's offer when they phone. DoC posts a notice up in the backpackers with a number to call if they are interested and picks the kids up. Given that it is an ad hoc service the young foreign travellers are a reliable source. Times are usually set around when Fonterra factory staff can be freed from the factory for a morning (it is still a work day for them) to go out on the farms.  As to the riparian planting - we have covenanted it to DoC and they were most keen to have it.

Just for the record, our riparian planting wasn't set up for either flood or erosion control, and our significant wetland (of which the riparian planting is not part of) filters nutrients.  We originally set the riparian planting up as a screen from the neighbours and because the MOTH is passionate about native trees and for him there can never be enough on the farm.:-)

DoC is a difficult place to get work - I know of heaps of uni grads who have tried to get work there, some have been successful due to them showing a 'passion' for the work by starting out in the Conservation Corps prior to going to Uni.  There are many resource management type grads coming out of Uni these days but only a limited number of places for them to work. I have a niece who is a new resource management grad, started work this week. 200 kids applied for the job.

On my understanding of the UBI (and I am happy to be corrected) there will be no incentive to work under UBI - a family of 6 (4kids) would receive $66,000pa.  You could live off that, so why work?

If your Uni students who are willing to work for $5 an hour now, why have they not got the word out there?  There will be many people willing to take them on for that sort of pay rate. Farmers struggle to get relief milkers at $20hour.  There are conservation type groups out there who do pay for holiday work.  The fact that you have 'guaranteed hundreds' makes me question the commitment of those young people to work for less than minimum wage. Recently we 'employed' a group of Uni students to do planting work.  They were fundraising for a good cause and said that as it was a fundraiser they were willing to work for less than minimum wage.  Because of their attitude we paid them above minimum wage. They were a pleasure to have and worked a solid 8hour day. Get in contact with Fed Farmers to spread the message out to farmers and you may find that your students will have work. I look forward to seeing the offer via Feds.

Anarkist - many volunteers are retirees, stay at home parents, or folks like myself -working part time with some spare time during the day. Your comments re the young travellers that work with this programme shows that you are speaking from  a point of ignorance about them.  You are generalising and this time you are way off the mark.

They were fundraising for a good cause and said that as it was a fundraiser they were willing to work for less than the minimum wage

 

However that demonstrates one of the big issues with the current system - despite it being a fundraiser and despite them being willing it would still be illegal for them to do so.

 

Agree though that paying a full UBI to an infant may not be quite right :D

I agree that it would be illegal - technically it was a donation. It can be a problem with the current system - not that Labour or the unions would ever admit as much.

Technically a donation cannot be in return for anything (or an expectation for anything) - so still illegal.

A point which as the founder of an ecological registered charity p*ss*s me off no end!

Just for the record, our riparian planting wasn't set up for either flood or erosion control... We originally set the riparian planting up as a screen from the neighbours and because the MOTH is passionate about native trees and for him there can never be enough on the farm. 

So Fonterra shareholders pay for all costs associated with the "free" labour and DoC pays for the cost of the "free" plants - and you get the benefit of "free" privacy screening and a more asthetically pleasing native plant outlook? 

It sounds as if there was no more "public good" associated with your riperian planting than there would have been to similarly plant natives in a residential section - and nobody provides these folks with "free" labour and materials.

There are many resource management type grads coming out of Uni these days but only a limited number of places for them to work. 

Exactly!  Because the neo-liberal prescription has suckered folks like you into the idea that labour associated with environmental guardianship and protection should be done by volunteers.  One must prove ones "passion" through debasing the value of their labour to zero. 

If your Uni students who are willing to work for $5 an hour now, why have they not got the word out there? 

I am assuming that if I was to pay students to come onto my farm for $5.00 an hour - I would have to pay them "cash" (otherwise I would be in breach of the minimum wages laws) and if I chose to pay 'under the table', so to speak, and they injured themselves while on the job then they'd have to lie to ACC (to protect me) about their being injured while undertaking paid work. 

If students, or others, are fundraising for a non-profit organisation/charity, I understand the "rules" are different.  Again, how ridiculous - people can legally accept below award rates of pay, providing they are volunteering their time!!!! 

Once again, that's where the perverse neoliberal prescription has got us. 

On my understanding of the UBI (and I am happy to be corrected) there will be no incentive to work under UBI - a family of 6 (4kids) would receive $66,000pa.  You could live off that, so why work? 

The standard option for the Kahuna would see a family of 6 with 4 kids under the age of 18 receive $22,000 ($11,000 x 2 adults) as either a tax free basic income (if no adutls are in paid work) or if working, the equivalent of their first $60,000 of combined income tax free (based on a flat tax on income of 30%).  You are calculating $11.000 UBI per person - that's never been proposed by Gareth and Susan.  The idea being, adults need to be accountable for the decisions they make regarding family size.

Umm... no where did I say that we get free plants Kate.  We pay for those as we have been planting/maintaining this area up for over 10 years.  DoC only came on board 12mths ago. So for 9 years we have been planting this on our own, conservation corps came once, landcare trust have also helped on occassion, and occassionally paying someone to help. DoC does however provide a bbq lunch - not sure who pays for the ingredients. :-)

In that planting we have put in over $15k.

It sounds as if there was no more "public good" associated with your riperian planting than there would have been to similarly plant natives in a residential section - and nobody provides these folks with "free" labour and materials.

  If you believe that then why do you exhort the wholesale planting of riparian strips? The perception among the general public is that riparian strips must be planted up.  Perhaps that goes to show the fundamental ignorance of people who exhort it without realising that in all cases there may not be an advantage to the environment. 

There are some special features of our strip - otherwise DoC would not have taken up our offer of covenanting it over to them. Not all riparian strips are about erosion or flood protection. It isn't that simple.

You don't have to prove your passion to DoC - there are heaps of kids out there who have a genuine commitment to environmental causes and get out there and walk the walk.

Thanks for the correction on UBI.

That Fonterra programme has partnered with Conservation Volunteers - and here's the nub - in many cases the volunteers get to pay for their participation!  I kid you not;

http://cvops.cva.org.au/project/pricing?projectId=45001 

Bring us your free labour and we'll charge you for the experience!

I understand it's big in Aussie and I know of parents 'under pressure' to fund their kids into these away adventures - sometimes local, sometimes overseas... and it's "sold" on the basis of "but I was selected to go on this trip... not all the kids get selected".

And of course to get selected to pay for the "opportunity" - you got it ... you're encouraged to build up a good history of labouring free-of-charge on the one-day "free participation" projects.

It's like they've created a market for competition between youth peers to obtain the opportunity to provide their labour free-of-charge whilst also part-funding the costs of travel/accommodation etc.

Sure, it's a not-for-profit model, but there really are no free lunches.

 

 

I guess they have a different philosophical base than you Kate. :-)

We always had a policy of if the kids wanted to travel overseas, they could - so long as they funded it themselves.  All our kids have funded their own overseas travel - including school sports trips. Parents need to learn that they do not have to fund every little whim 'their darlings' may have. If they want it bad enough they will find a way to make it happen.  If they don't make it happen, then they didn't want it bad enough.

The problem with a minimum wage is that the corner dairy is expected to be able to afford the same minimum wage as say Telecom.

Maybe the minimum wage should be variable. Say if you employ

 0 to 10 people = no minimum wage

11 to 20 people = $15 per hour

and so on

Further the minimum wage should be linked to the maximum wage

so

Telecom can aford to pay a top income of $6million so its minimum wage can be, say, a percent of that because they can clearly afford it. Maybe their minimum wage could be 100th of that, say $60,000 for the cleaner.

MikeB said: "The problem with a minimum wage is that the corner dairy is expected to be able to afford the same minimum wage as say Telecom."

The problem with simplistic arguments such as yours is that it wrongly assumes Telecom's employees are worth more than those of the corner dairy.

If you make smart choices, a full-time minimum wage job provides easily enough income to live comfortably, assuming you haven't already tied yourself up with expensive responsibilies during a period of higher earning.

Smart choices....hahaaaahaaahahahaa....who worries about that when we have winz to go to for cash when we need it...and pollies who promise us the loot if we vote for them.....smart choices...what a joke.

What I find funniest about this debate is that no one seems to realise this is actually ACT policy - and has been since the party was founded.  (You could actually argue since before it was founded since it was an end goal of the original Rogernomics that wasn't able to be implemented...)

I do!  Well, not exactly ACT policy - as the Kahuna also involves more than just a flat tax on income (i.e. to fund the UBI in a fiscally neutral way, a comprehensive capital tax is proposed).  But it is indeed in the philosopic/ethical camp of minimal state intervention (e.g. no "means" testing of transfer payments, no cost-of-living supplements/subsidies based on individual circumstances) and market-based approaches (e.g. no minimum wage) - in other words it has alot in common with Enlightenment philosophy.

Yeh, it was also a policy of Rogernomics when the Labour Party implemented their reform programme, until David Lange decided to boot Douglas out of the party just at the moment he was about to implement a reform package that was grounded in the tenets of social justice that the Labour claim to profess.

The difficulties began when Mr. Douglas announced his plan for a single income tax rate, which he later said would be about 23 percent, along with a guaranteed minimum income.

Mr. Lange waited until Mr. Douglas was outside the country at the end of January to announce that the plan would be shelved. Mr. Douglas cut short his trip to defend his policy, in what commentators here called the first major rift in the Labor Party. Compromise Reached .

http://www.nytimes.com/1988/02/24/business/new-zealand-is-jolted-by-a-speedy-decontrol.html?pagewanted=2&src=pm

Just showcases what a fuckwit David Lange was.

Great historical link, anarkist! And how is this different to Italy and Greece today, I ask....

"The introduction of politics into the highest levels of the economic debate is perhaps itself a lesson in New Zealand's laboratory experiment with economic theory, the Western diplomat said. ''I think the lesson has been brought home to Mr. Douglas,'' he said. ''It is impossible to proceed with economic theory free of politics.'' This is pure textbook economics Mr. Douglas has been doing....By the start of this year, inflation had dropped.... According to the economic theory Mr. Douglas has followed, interest rates should come down and the economy should get stronger."

Nicholas

You can't disentangle economics from politics, which is why the classical economists called their discipline political-economy. Yeh and interest rates didn't change as dramatically as the economics textbooks predicted. And even that came at the cost of high unemployment and vastly increased costs of government social security.   

DAVID CAYGILL (Minister of Finance): Since I met representatives of the Bankers Association on 25 January there have been reductions in the lending rates of several financial institutions, reflecting the decline in wholesale interest rates that has occurred from the end of 1988. For example, the ANZ Banking Group (New Zealand) Ltd lowered its base lending rate from 16.25 percent to 15.75 percent from 20 February; the National Australia Bank reduced its base lending rate from 16 percent to 15.5 percent from 1 March; and the National Bank of New Zealand base lending rate was lowered from 16.5 percent to 15.75 percent, effective from 13 February. Even lower interest rates have been announced since 13 February---for example, the Southland Building and Investment Society rate was lowered to 14.5 percent. http://www.vdig.net/hansard/archive.jsp?y=1989&m=03&d=09&o=11&p=11                                                                                                                            

I think your opinion of Lange is wrong, badly so. Its these policies which Roger Douglas foistered onto the economy which have been shown completely devoid of sense by the global financial crisis. These are the same policies which Russia implemented after the collapse of their communist economy, with disasterous results.

I think that Lange was smart enough to realise that if you didn't have a functional economy with half of the reforms then the rest were not going to make the situation any better. It's not a good plan if every detail needs to be there for it to work, and in fact the reason for this is because this entire branch of free-market economics is a fantasy.

In fact the state of this is so bad that it does not even form a consistent mathematical fantasy world, and that is if the assumptions were reasonable. Unfortunately I can see from his article Gareth Morgan is not aware of this.

Free-market is not freedom, and for a simple reason. Money is a claim on value in the real economy. This means that freedom of opportunity must mean a reasonable level of economic equality.

 

When the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.

An economics professor at a local college made a statement that he had never failed a single student before, but had recently failed an entire class. That class had insisted that Obama's socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on Obama's plan". All grades will be averaged and everyone will receive the same grade so no one will fail and no one will receive an A.... (substituting grades for dollars - something closer to home and more readily understood by all).

After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy. As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little.

The second test average was a D! No one was happy.

When the 3rd test rolled around, the average was an F.

As the tests proceeded, the scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

To their great surprise, ALL FAILED and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great, but when government takes all the reward away, no one will try or want to succeed.
It could not be any simpler than that. (Please pass this on)
 
Remember, there IS a test coming up. The 2012 elections..
 
These are possibly the 5 best sentences you'll ever read and all applicable to this experiment:

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it!

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

Yep, fake. One for Snopes.

Not even Snopes-worthy.  It's just a spam email that keeps going round.

Actually 5 better sentences are:

1. The risk to investment long term approaches 100% for most standard investment vehicles.

2. The quantity people are paid correlates with but isn't caused by how hard they work.

3. The wealthy disproportionately benefit from government services, even more so than the poor.

4. Fractional reserve banking multiplies wealth by dividing it.

5. In intellectual pursuits the more you pay someone the less well they perform.

http://www.youtube.com/watch?v=u6XAPnuFjJc

 

So, I think we have heard enough to realise this is a fake story. To point out however, how do you average the results and then end up with an average of F? You can normalize to whatever you want, the process depends on entirely on what you normalize to. If this story was real it means that the professor decided to fail his whole class for having socialist values.

The only cases of averaging I saw were when nearly everybody failed the test according to normal grading ranges and the averaging brought most peoples results back towards this standard. People at the top are still at the top of the class of course. Lots of students stuggled with this course.

If this professor does exist he is a moron, and does not understand basic mathematics. I expect that is why he sounds like a professor of economics in fact.

 

"......we must design a tax regime that doesn't penalise people who work part time or in low-paid work - that means an end to the steep abatement rates of our current regime of targeted welfare, a feature which traps people in benefit dependency.

We must finally admit that with all the paternalistic will in the world there is no chance that public servants can adequately identify and monitor eligibility for a needs-based benefit regime....."

Gareth, did you know about Charles Murray's work on all this?

Check out Charles Murray: "In Our Hands: A Plan to Replace the Welfare State".

There is a book, numerous internet articles, and presentations with that title.

Murray's point is that the current system is actually far more expensive than just utilising the tax department to "pay out" as well as "take in", without bothering to make any costly assessments of "need" etc. If someone is not "paying" tax, then they get "paid", end of story, no questions asked.

Roger Douglas made similar suggestions 30 years ago.

 

 

Roger Douglas made similar suggestions 30 years ago.

And as such it continues to be ACT policy for a Universal Minimum Wage paid to everyone; the question that beggers belief is why doesn't either ACT or Gareth point this out?

Nic - try reading the story again and hopefully your reading comprehension will grow with time. 

Anecdotally - the professor is not scaling to a bell curve etc; he is taking the average grade (admittidly we don't know mean / median / etc - most likely mean) and applying it to everyone.  And not all schools follow the NZ model of scaling results to compensate for what is often genuinely bad or good results - Universities certainly don't.

Oh dear a spammer.....I dont see why, the minimum wage is there to protect against exploitation.  IT is skilled and as such I find it hard to believe any truely skilled ppl need that sort of protection....and the complexities of setting it is mind boggling....what about maximum wages? wouldnt it also by the same token be fair that there are limits on what ppl can charge? say $150 an hour?