By Bernard Hickey
Reserve Bank Assistant Governor John McDermott gave a perfectly reasonable and otherwise unremarkable speech in Hong Kong this week in which he concluded New Zealand's inflation targeting regime had been very effective at achieving its inflation target.
This is true, but is not very meaningful anymore.
In fact, it's downright misleading.
That's because inflation targeting, which was a monetary policy framework pioneered in New Zealand and adopted around the world, is now a widely discredited regime for running economies.
Central banks that targeted inflation did achieve their inflation targets over the last 20 years, but they ignored the asset price bubbles and build-ups of household debt and bank leverage that eventually burst with such devastating force on the global economy in 2008.
New Zealand was little different. House prices doubled between 2002 and 2007 and households added around NZ$100 billion of foreign debt. This was virtually ignored by the Reserve Bank of New Zealand, which stuck to its knitting of keeping consumer price inflation between 1% and 3% per year over the medium term.
As Dr McDermott said in his speech, the Reserve Bank has broadly achieved that aim since inflation targeting was introduced in March 1990. He then went on to make some broader claims, which should be challenged.
He said inflation targeting reduced volatility in prices. "That is helpful for resource allocation, affecting longer term performance, and for macroeconomic stability over the medium term," he said.
Really?
Try telling that to young New Zealanders who can't afford to buy their own home without crushingly high debts because of an explosion in prices. Or those poorer families who are now paying much higher rents because of the massive inflation in asset prices. Or those exporters driven out of business because the New Zealand dollar is over-valued by 15%, as measured by the IMF. Or those 50,000 plus New Zealanders who emigrated to Australia last year because they can't make ends meet here and see much more opportunity overseas. Or those creditors looking at New Zealand's current account deficit trending back over 8% of GDP, despite nearly 6 years of slow to low economic growth. Or those looking at New Zealand's per capita GDP still being lower in 2012 than it was in 2003.
The Reserve Bank has drunk its own Kool Aid about the perfectness of inflation targeting and remains stuck fighting the battles of the 1970s and 1980s.
It's perhaps unfair to criticise a financial bureaucrat for toeing his government's line, but Dr McDermott's speech came across as self congratulatory and smug. It was a giant pat on the Reserve Bank's back by a Reserve Banker. His conclusion was that the inflation targeting regime worked fine and just needed a few tweaks here and there.
Yet in many overseas countries central bankers and think tankers are seriously questioning such inflation targeting regimes and proposing alternatives.
Last month Harvard Economics Professor Jeffrey Frankel wrote an obituary for inflation targeting and pointed to a live debate in America and Europe about moving to targeting nominal GDP or his own suggestion for a target for Producer Prices that excludes import prices.
These different approaches are less vulnerable to the sort of asset bubble and supply side shocks that distort inflation targeting regimes.
A good example is the current supply side shocks now driving up house prices and rents in Christchurch and central Auckland, which could unnecessarily trigger interest rate hikes, or the terms of trade shock New Zealand has received that is arguably keeping our rates higher than they should be.
The sooner we shift our monetary policy goal posts the better.
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This piece was first published in The Herald on Sunday.
46 Comments
inflation targeting is not a bad approach, but it assumes you are measuring inflation corrrectly.The CPI does not include the cost of land. Replace the CPI with a simple measure ie the increase in supply of money (both govt and bank debt) v the increase in the size of the economy (GDP). If money supply outstrips economic growth then you have have inflation - thatts exactly what happened in NA/AUS/US/Uk etc, its just that the inflation occurred in assets, especially housiing.
You dont target CPI, with the OCR you target core inflation....CPI is a measure to show short term consumer pain and you dont use it to set the OCR....core inflation takes out the volitility....and gives you trend.
"If money supply outstrips economic growth then you have have inflation" only if its spent...and we are ina liquidity trap, so the best we can do now with printing is stop dis-inflation which in turn leds to deflation.
regards.
Well Done. Great stuff.
Re inflation. The Reserve Bank as we know it is the child of Don Brash. When Don needed to he effectively took house price inflation out of the CPI measure. This was a blatant act.
He also ignored the fact that as a result of other changes NZ was importing stuff that came from China and was getting cheaper and cheaper to buy.
So he was being praised for controling inflation on stuff he actually had no control over- imported stuff from semi slave wage economies and he ignored the stuff that he could have had an impact on- domestic house prices, farm land prices, user charges, rates etc all of which he allowed to go completely out of control.
What a brilliant clever man.
"among the most significant works in criminology in decades"
Now, all we need to do, is have the same research effort put into explaining why politicians are liars and hopeless at governing.
Good points all. A few years ago i looked closely at the CPI and it was clearly understating real inflation (including land etc).
And taking credit for globalisation and technology driving prices down is more nonsense.
The real story though is that, finally, the high priests of central banking are being challenged. In the end, it will be a story of incompetence, negligence, arrogance and corruption.
The story has a very long way to run.
An important point to note in NZ, is that the RB is a government department, accountable to Parliament. I mentioned this issue in my submission to the Parliamentary Inquiry into Monetary Policy backn in 2007. Did anything happen? Nope.
http://www.parliament.nz/NR/rdonlyres/6B291011-47E6-4576-BCF2-A46E890A7…
The problem is that the same people are always involved, so how can we ever expect any change?
Interest.co.nz is doing its own basket of produce to see what CPI they get, it will be interesting to see.
Really though it depends on what you want to measure...really you want to see the cost of what you spend over a year and not week by week....to judge say what pay rise to ask for.
As an example tomatoes until last month were $4 now they are $8, are you saying you should get a 100% pay increase? to cover that?
For instance a 32inch lcd TV is now $500, a 29inch CRT cost me 1200 in 1997...if you said a tv is good for 10 years then thats 4120 a year then, now its $50 a year, thats -ve inflation.
I tend to agree with the tech "deflation" its better so thats -ve as a rule of thumb which is fidddling....if you need a car you need a car...
Land, well for 10 years at least thats a bubble and thats the core of why looking at CPI is a problem....its volitile. Funny thing is of course you complain the CPI is really higher but when we see a huge house prices collapse that would send CPI back to "normal"
So it depends on what you want to look at....to set the OCR you want a inflaltion rate trend that removes the volitile, seasonal and multi-year items that are in bubbles.......they are just skewing the figures.
"the high priests of central banking are being challenged. In the end, it will be a story of incompetence, negligence, arrogance and corruption."
Arnt you lucky no one is named otherwise slander and libel start to come into play..... at least on corruption.....something you should have to be able to prove.
In terms of incompetence and negligence, mostly wrong targets, blame who you elected as the root cause. Now showing them wearing neo-con / monetary blinkers is possible, however I in-evitably find that those such as yourself who complain actually want far more right wing policies enacted that a) there is no mandate for b) are voodoo economics, so even worse.
regards
Steven,,... I find your views a little bit myopic.
Playing with ..and tweaking the CPI to adjust volatility ... does nothing.
In the old paradigm ... Increasing money supply generally lead to increase in prices... partly because wage rates went up and also because the economy was pretty much a closed system... ( cost push kind of inflation )
In todays global world.... wages rate increases are limited because of Global deflationary pressures of labour rates in the developing countries.
In todays Global economy increases in money supply can just as easily result in an increase in the QUANTITY of goods imported... rather than increases in prices.
My view, is that one has to go back to first principles and actually define what inflation is... and then work out how to properly measure it ....and discern how the effects of it might manifest in todays Global... borderless economic reality.
I have always held the view that Inflation is a Monetary phenomena....and have accepted the simple logic that an increase in the money supply leads to a general increase in prices.... That said.... it is another matter to know how the effects of money supply growth might manifest in an economy.... BUT with that premise ...if money supply went up by 30% and the CPI only went up by 5%.... then one would be looking for the reasons why, rather than saying that we have low inflation and that the quantity theory of money is irrelevent... ( in the same way that the law of supply and demand is fundamental.. if the quantity of bananas double but the price stays the same we would be looking for the reasons why rather than throwing the 'law of supply and demand" in the rubbish bin )
Also.. I tend to agree with Arnt... "the high priests of central banking are being challenged. In the end, it will be a story of incompetence, negligence, arrogance and corruption."
You say I am myopic and then say "Increasing money supply generally lead to increase in prices"?
wow.......
To start with we are in a liquidity trap so "generally" does not apply, ie I have stepped outside a "general" view, you have faield to do so....its not me being myopic. Sure im following kenesian economics, that and minsky because they have the only models to follow worth anything.....so myopic is a case of there is nothing else....either that or blind guessing and since thats what many govns are going right now we can see that result, a depression.
You dont tweak CPI to adjust volitility, CPI is volitile due to what it measures short term, if tomatoes double in a month up goes the CPI, if theyhalve, down goes the CPI....net result over 2 months is no change. Also tomatoes used to be seasonal, now if you are prepared to pay you can have them....this makes the CPI more volitile.
NB wage rates have not gone up and in fact in some areas are decreasing....though maybe better to measure household income as losing a job is a huge household cut but no wage isnt a cut...as you odnt have a job to report...(not sure I'd like to see something on that either way).
Quanity of goods implies more ppl buying things....this clearly isnt happening either...so Im not sure where this comes from....its not inflation though....in fact inflation is defined as mor emoney chasing not enough goods so in fact more goods and more money cancel out...Right now sure there are more goods as there is over-capacity hence prices are dropping....deflationary.......right now TVs are a classic price argument for that. 60inch LEds are now $2500 down from over $3k a few months back, 55inch are now $2k down from $2500 a few montsh back....Last Year 40inch $1800, now $800....thats some deflation....and the likes of DSE is losing money....that isnt inflationary.
by all means look for why, liquidity trap explains why and what to do to get out....I already have.....so myopic, no...I hav elooked and come to my conclusions, I am prefectly happy to look at robust alternatives, but not silly " I want it to be that way outlooks" that's how to get burned....
Your choice.
Meanwhile, everything points to dis-inflation over the last 4 years and that is what we have had....core is still at or below 2%.....look at CPI, up and down like a yooyoo....Minksy's and Keynes's models all say this is expected......
Sure agree with Arnt, I dont totally disagree....but there are more players in this game than just the RBs.
There is a difference to "first principles" and economics 101....you appear to be in danger of thinking on economics 101. Simply the world is way more complex and minsky demonstrates that......
regards
Steven...
I was resonding to your comment ...within the context of the thread discussion...
Bernards story was about the evolution of Monetary policy and inflation targeting over the last 20 to 30 yrs.
Nothing to do with liquidity traps or answers to our present problems.
I did not mean to say that all your views were myopoic.... just the idea that the volitility in the the CPI is meaningful , or an issue... or that "micro managing the cpi "... is going to be useful in any way.
My view is that the CPI is a very ....very poor proxy for measuring inflation ... And has been ever since the beginning of Globalization.
Sounds like we have different definitions of inflation anyway...
Cheers Roelof
uh....I must have mis-read then.....What does worry me about this discusion is we could be talking about "tweaking" something that really needs throwing out....
Yes CPI isnt a good measure, hence I rarely look at it, its not of interest in the context of OCR controls or state of the economy. The volitility isnt meaningful for me, I dont count it....its the noise reduced trends longer term...and those look to dis-inflation.......
regards
Low wages,rising unemployment,rising rents,unaffordable housing,rich getting richer,poor getting poorer and the dumbing down of educational qaulifications.
So tell me again why kiwis want to live across the ditch.
The fact is that most kiwis don't give a ratz about the economic future of nz because somewhere in nz as i write there is a game of rugby between two teams of fleas on a dog and whats more important than that.
If Australia finally ends up signing that Super agreement then when those "5th Gen Kiwis" come home (for good), well, they will be bringing back a nice Superannuation nest egg. But only if Aussie signs up to the agreement (maybe this is why they have not so far...).
For the sake of a phone call you could/can ring WINZ and they will tell you the rules.
In AU the AOP is means tested and super and assets are taken into account in working out the amount of AOP you can get. If you have been in AU for say 30 years of your working life and retire to NZ, then, if you are entitled to the full AU AOP, you will receive in NZ the lower of (a) the NZ AOP or (b) the AU AOP. If you retire with a substantial nest egg and can't get the AU AOP then that's what you get in NZ. Zero. Otherwise you have to wait 5 years to get the NZ Super.
The fact is that most kiwis don't give a ratz about the economic future of nz because somewhere in nz as i write there is a game of rugby between two teams of fleas on a dog and whats more important than that.
You also forgot to add that too many of them like to vote for Labour and the Greens.
Well done Bernard. I had thought just Bollard had to go, but it looks like the whole management team at the Reserve Bank need to go, if this guy's speech is indicative of their collective delusion. Apart from the asset bubble, do they believe the current account is just a random result that has nothing to do with their monetary management. Frankel of Harvard pointed out just one of the flaws of our system, as follows:
"An economy is healthier if monetary policy responds to an increase in the world prices of its exported commodities by tightening enough to cause the currency to appreciate. But CPI targeting instead tells the central bank to tighten policy in response to an increase in the world price of imported commodities – exactly the opposite of accommodating the adverse shift in the terms of trade."
It is this effect that has caused a guaranteed current account deficit- so costing us now $15 Billion a year- a very expensive Reserve Bank indeed.
My starter for ten as an alternative RB target, would be a Current Account of a surplus of 0-2% of GDP. That would keep us living within our means; would boost local production and manufacturing over imports; would favour production over asset price inflation. They could be, would in fact need to be, a little more creative and less lazy in applying a few more tools like credit growth, money supply, money printing even, as well as the OCR. And the result, given greater economic activity here, albeit more expensive imports, would not actually be as difficult for people to manage as it may seem. What hit there was would hurt the wealthy more than the poor.
Bollard allowed the asset inflation up to 2007 (see the RB online graph), a period when interest rates should have been in double digits.
Yep, and I told them so. They said "you would say that".
They implied there were so few people with savings of any significance, why hurt the majority.
Intregrity of action never comes into it, just the common good. I have given up chronicling the damage done in the name of the common good. I just wish people would find it in themselves to do their duty.
What makes you so confident that Bollard can control asset inflation (or yourself in his place)? I have two points here,
1) It seems very clear to me that OCR hikes can slow, but not prevent borrowing. Obviously when some people profit from inflation (even only on paper) then the incentive becomes very strong to jump on the band wagon at what ever interest rate is going. Even when OCR rates were around 16% it was the crash that marked a change in behaviour, not the cash rate.
2) Once the inflation has happened, Bollard would have to risk triggering a housing market crash. Its pretty obvious what would be written here about him if he managed to do this. Housing market crashes do erode peoples savings and are not something you want to be associated with as a result.
@Nic the NZer, I am hardly suited to be the Governor - I have an aversion to working.
First - the financialisation of the the world's economy since 1982 is predicated upon borrowing short and lending long for the privileged banking cartel - you, me and Bollard are expected to take the opposite side.
This fact of life requires a positive yield curve, ususally sought by central bank action to lower the short dated interest rates, thus holding up the longer end rates more than they might otherwise, due to inflation premium.
Eighty percent of the banking world's USD 700 trillion OTC derivatives found their way into being predicated on the former premises. Namely interest rate swaps.
Inverting the yield curve immediately brings this house of cards crashing down, including houses prices.
Second, if Bob Jones is correct, in his long held view that 60-65% of property owner households are mortgage free, are we not talking about the habitual gamblers who are beholden to the the 1.2 million mortgages outstanding and anybody who believes gearing is not a risky business needs to sent to business school prior to undertaking this optional exposure.
I cant see how you can control inflating house prices with a higher OCR its a sledge hammer approach...ie general inflation only. In fact a higher OCR also impacts business lending, so if ppl think house prices are going to be rising and its too risky to invest in a business because of the cost of finance to grow then you could actually see an acceleration in house speculation and desertion of business expansion, exactly what you dont want.
There are other tools that stopped bubbles for instance Texas has a 80% LVR law...and as Steve Keen points out the first buyers handout in OZ effectively drove up the OZ housing market everytime it was injected....this indicates that having a nomimal 80% LVR that the RB can vary as it needs would be far more directed.
Then we should look at why Interest rates dropped, ie to try and prevent recessions, so while housing may have been going great guns the rest of the economy was not, so raising it would have driven us into rough waters.
regards
Re Plan B, your chronology is bent, Don Brash left the RB in 2002. Bollard allowed the asset inflation up to 2007 (see the RB online graph), a period when interest rates should have been in double digits.
Ergophobia
Thank you Ergophobia for completely missing the point. My comment was actually about where the ideas and methodology of the RB came from which was via Brash. He was also the one who was in charge when the RB changed the rules to effectively remove house price inflation from the CPI at the very start of the house price run up you itemised. Bollard was and still is essentially a spectator.
Thank you Bernard , well written and thought out opinion, it may be disturbing for you that we are on the same page with this...........but I think you have covered a number of the RBNZ shortcomings in a concise but accurate manner.
The RBNZ preoccupation with inflation has been to the detriment of the wider economy, the build up of private debt yet to become debt enslavement to the interests of foreign banks, the minimising of the role of N.Z. export Manufacturing in favour of Corporate hedging interests.
I'll include a response I put to Wolly last week...............
The RBNZ rightly hide behind the successful dischage of their charter (focus) to contain inflation...but have wittingly (I believe) allowed other parts of the economy to become exposed in the process.
As it is too hard for me to imagine they (the RBNZ) were not "aware" the continuance of cheap credit would fuel the hot bed of debt enslavment in the property industry , I can only guess they were a willing party to, or accepting of private debt growth of dangerous proportions when interest rate trends begin a reversal.
In that trade off I would imagine they would have factored in Banking Industry profits to be a positive on the ledger.
But that leads us to judgements made for the greater good and it would appear , (outside of meeting the charter,which in itself is open to debate) ,it has not been for the greater good , or will not have been for the greater good as trends reverse.
I think however we all need to appreciate that Bollard an Co have inadvertently locked themselves in to a holding pattern, because the exposure they have caused in other areas would shift dramatically with a policy change......a case of ,we would rather be recorded as having been seen to do the right thing, rather than ,we got so far in we couldn't get out....
While this has been an incredibly painful period for exporters ( outside of the big F hedgers), with, I've got to say, no end in clear sight , two things will happen when trends begin reversal.....You will get your cure for debt appitie.......Bollard will get an F historically with a great.......big....fat.......pension.......and maybe a little Bonus from the Banking Industry .
Im not convinced it was ignored as it was what helped keep us out of recession(s), just look at Greenspan dropping it time and time again. I suppose initially maybe they though that housing appreciation also helped until we got back to "normal" We never did of course.....Also I think Govn's can shoulder a lot of the blame....they could have put policies in place that would have targeted housing leaving businesses alone.....they chose not to....
The Q for me is how to we get a political system that rewards long term stewardship of the economy and not pork barrel politics in order to get [re-]elected..........its laughable that both Goff and Shearer I think have said they want to be remembered for talking the hard decisions yet while in power and in opposition they made no such calls.
I think the best option now is a depression to drive out the easy but stupid options....
regards
I think the RBNZ are almost irrelevant in the process. Once you go down the track of introducing a fiat currency bearing interest then the outcome is predetermined. All the RBNZ can do is manipulate the interest rate within a narrow range and perhaps have some input into the time until the final outcome.
I attended a presentation by McDermott in mid 2008.
When asked what he thought about the OCR being 8.25% when the economy was already in recession, he answered (complete with smugness and arrogance) that the economy needed the medicine and that it would not fall more than slowly in the medium term.
He then went on to jokingly ask if there was anyone from the media, when assured there wasn't he then proceeded to state the reason why he didn't see the high interest rates leading to high unemployment was because of Australia - that unemployed NZers would move to get jobs in Australian mines hence our unemployment rate would remain low.
How does that help our economy Mr McDermott?
Bernard feel free to ask him if he actually said that. The date was in June (I believe) 2008 at a BNZ presentation at the (now demolished) Latimer Hotel, Christchurch.
If that is the attitude of the bureaucrats guiding NZ then we have little hope...
House prices might have doubled however interest rates have come down. See the link on interest rates below, there is also a link to get historic data on interest rates before 1990 if you click on the data download.
http://www.rbnz.govt.nz/keygraphs/fig3.html
To be accurate in accessing home affordability we need to consider the historic costs of housing. While the median house prices were obviously considerably lower the debt servicing costs of the interest component were considerably higher. In the 1980's interest ranged from 12.9% the low through to 20.5%. While these are the official figures many had mortgages (maybe commercial) that were higher than the 20.5%) If someone can find median house prices through the 1980's then it is quite simple to formulate an actual total annual cost of the house i.e.the purchase price plus annual interest payments.
For example if the median price of a house was $100k in the 1980's at the peak of interest rates it would have cost $20k per annum in interest approximately. Wages were a lot lower in the 1980's as well so servicing the interest payments wasn't an easy task. It doesn't take many years of high interest rates to add a $100k to the price of a home.
The 1990's will give a different picture to that of the 1980's and the 2000 to 2010.
In the 1980's there was a large number of people who immigrated to Australia for the same reason as the young ones who are leaving now. They couldn't afford housing and the interest in the 1980's and the wages were low and unemployment was high. It's just a different game plan by the bankers and the politicians and the people never learn.
Bernard. Your view doesn't stack up. Inflation was held and good. And there was a price bubble in property etc. The two are not neccessarily connected.
You would be better off getting back to basic business Bernard. Enough of fiddling with the policy settings. I listened to you on the radio saying what the world needs is a perceived alien threat. Jeeeez . I do realise you were probably only being provocative - well maybe.
If writing about ordinary business is too boring. Try something else. Don't move off into the world of mumbl jumbo. interest.co.nz was a breath of fresh air originally. Try to get back there.
Inflation ws not actually held at all. Our money is worth a hell of a lot less - that is inflation the money in our pocket buys less and less.
THe RB used the sesmic shift of product to low/slave wage China and changes to what it was including in the CPI- including effectively removing House prices- to pretend that it was actually controlling inflation when really NZ domstic inflation was allowed to get completely out of hand.
The idea of an independent Central Bank has been shown to be completely flawed. The people of NZ through government have to take back control of our money supply. Leaving it to the RB and their OZ banking mates is not an answer.
Bernard. Your view doesn't stack up. Inflation was held and good. And there was a price bubble in property etc. The two are not neccessarily connected.
You would be better off getting back to basic business Bernard. Enough of fiddling with the policy settings. I listened to you on the radio saying what the world needs is a perceived alien threat. Jeeeez . I do realise you were probably only being provocative - well maybe.
If writing about ordinary business is too boring. Try something else. Don't move off into the world of mumbl jumbo. interest.co.nz was a breath of fresh air originally. Try to get back there.
Great article Bernie...inflation was a huge problem as late as early 90's...but there are new issues in our financial system such as the huge asset bubble we have....and Bollard won't do anything about it besides a vague statement saying he may use LVR controls...
How about a different tack on OCR completely, let the market decide the price of money not a so called expert. Would interest rates be where they are today if there was a free market in the value of money, on QE keeping interest rates down. That would put a curb on governments promises.
How about another view about deflation and fear it strikes in modern economists! Deflation need not be feared, in fact it is the friend of the saver. We have deflation already in many industries especially when considered over long periods. Look at the cost of much technology, TV's, mobile phones, air travel especially long haul. Demand is not created it exists naturally, what satisifes it is production. Production comes from savings invested in entrepreneurs to improve production efficiencies making products priced to seel. Did Henry Ford care about deflation of car prices when in introduced the Model T?
Failed Kenysian economics has created the mess we are in, it won't get us out. Did the RBNZ predict the financial crises. Why do we put our trust in those that created the mess to fix it? http://j.mp/L32BnJ
I think if the price of money was set by the market then the implications are pretty clear. First money is quite valuable at the moment, bank margins are quite large and make a much larger component of mortgage rates than the OCR rate is. I think this indicates that the interest rate would increase.
Also since the OCR is the rate at which the RBNZ lends reserves to the banking system, you would find there were more frequently inter bank funding problems. Probably a lot of credit would dry up as the banks now have to keep more reserves (than they do presently) in order to avoid going bankrupt. This last part is not actually very friendly for 'savers' who can through no real fault of their own find that their 'deposits' have vanished.
The deflation is only friendly to the savers who are lucky enough not to be deposited in an insolvent bank.
You obviously characterise the solution as a Keynesian failure from a point of total ignorance. It was actually the arch Monetarist Milton Friedman who's main thesis was that the Fed never did enough to bail out the banking system, and that this was one of the reasons the great depression was so great. Keynes on the other hand suggested fiscal rather than monetary policy was a way out of the depression. This was certainly the right idea at the right time. Also the Keynesian policy you criticise was not based on Keynes theories. IS/LM models were actually created by a guy called Hicks, not by Keynes himself, and before he actually read Keynes General Theory.
http://en.wikipedia.org/wiki/IS/LM_model
Hicks later agreed that the model missed important points of Keynesian theory, criticizing it as having very limited use beyond "a classroom gadget",
Obviously Henry Ford did in fact care about deflation.
http://en.wikipedia.org/wiki/Henry_Ford
"He is credited with 'Fordism': mass production of inexpensive goods coupled with high wages for workers."
This suggests he did in fact know where demand comes from, and probably that it doesn't have to always be there. Unfortunately this is not a take-home lesson for the future any more.
Lets get this mis-nomer out of the way. Deflation is not the friend of the saver, but the already saved...Im a saver but a depression could cost me my job or result in a wage reduction, in which case its really really bad, I wouldnt be a "saver" anymore...
"another view" shows you have a mypoic view IMHO...there is a good reason economists and Govns fear a depression, historians do as well I suspect, we have a great example in the 1930s Great Depression.
This isnt Keynesian, this is monertist or objectivist....ie Greenspan and other voodoo right wing / libertarian economists and "theories" are responsible...
Funny thing but I see many right whingers as yourself complain about personal responsibility yet try and pass the responsibility on to the innocent...instead of accepting the pass and getting on with it.
Henry ford and deflation, yes I would think he did care about it, it was a bad time for Ford....though with easy credit given out to buy his cars he can be held up as a significant contributor to the credit event that was the great depression.
RBNZ doesnt follow Keynes...at bestthey lurch that way in the US say with the obama plan, but that was at least 50% too small and mis-allocated....that can be laid at the feet of the GOP.
regards
It's a pity that this type of discussion turns into a right and left debate. I support neither National or Labour or ACT for that matter. I my mind they are all responsible for the situation in NZ. I would respectfully suggest you listen to this http://j.mp/MAcdmz.
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