I argued in this column last week that New Zealand should look at printing money again to build houses and infrastructure in Auckland and Christchurch.
We did it in 1936, and we could again as long as it didn't create inflation.
It sparked a firestorm of commentary and criticism, which is fair enough, given money printing sounds like an appallingly irresponsible and dangerous thing to do.
It's true there are plenty of good reasons not to print money, but they can be addressed. Money printing or quantitative easing would have to happen in association with a range of responses.
Inflation ?
Firstly, there is a risk it will generate inflation, but only if resources are fully employed. Building houses and infrastructure such as houses, bridges, motorways, broadband, water treatment and electricity networks takes all sorts of resources, some of which are imported and some of which are available locally.
One claim is that a burst of extra spending would simply boost wages and construction material prices. That is true if there are shortages of skilled tradespeople and a lack of production capacity for the likes of timber, insulation, concrete and roofing tiles.
Skill shortages have to be addressed anyway, but there is something wrong with the powers-that-be if New Zealand cannot train the tens of thousands of unemployed youth. Any surge in spending would have to be linked to a major skills training programme. Another response is an increase in immigration, which would also boost the economy.
Construction materials inflation is another issue. The Productivity Commission said in its report on housing affordability in December that the concentration of ownership of construction material companies (in the hands of Carter Holt and Fletcher Building) may be a factor in materials costing more in New Zealand than Australia. But it said it unclear extra competition would cut costs, noting a lack of scale. The report shows materials inflation has been marginally ahead of consumer price inflation in the last 15 years, but not massively so. There is plenty of capacity around the moment, with Fletcher Building even talking about layoffs across its Laminex and Pink Batts businesses.
The real problem with house building costs in New Zealand has been an esclation of building consent costs, driven largely by councils, not by a lack of competition or the market. Therefore, any move to print and build would require central government to more closely monitor and reform the way local government charges for its consents.
Wage inflation is also a risk, but again there are few signs in recent years that wage inflation is out of control. New Zealand has something of safety inlet and outlet valve in the form of migration to -- and from -- Australia. Perhaps a building boom here at the same time as a slump in Australia would tempt home thousands of the tradespeople who have migrated in recent years.
Seduction ?
Secondly, there is a risk money printing empowers politicians to go on a giant lolly scramble, or even worse, funnel money to 'friends' in the large companies that dominate our construction and infratstructure industries. This is a very valid criticism and would have to be addressed with some sort of independent fiscal responsibility commission. This has already been mooted as a way to ensure the Reserve Bank's monetary policy has 'mates' in the government's fiscal policy.
This would mean any surge in spending with printed money was directed to useful infrastructure that generated economic returns over the long run, rather than casual spending on consumption or tax cuts.
Kill savings ?
The final criticism is that a surge of money printing would cause a balance of payments crisis as imports jumped, just as happened in 1938 after New Zealand's first round of money printing in 1936.
However, this time it's different.
We have a floating currency.
A bout of money printing would drive the New Zealand dollar lower, making imports more expensive and generating extra export revenues. Some say it would also drive up interest rates. That hasn't happened in America, Japan and Europe.
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