The NZ Initiative's Jason Krupp says Wellington needs to be cured of its Living Wage fever - because the 'fever' might spread

By Jason Krupp*

Later this month the Wellington City Council is expected to require all council-owned businesses and contractors to pay their employees a living wage if they don’t already as part of the long term planning process.

To some, it may seem like a sensible measure to pay people on the bottom rung of the employment scale a minimum $18.40 an hour as a means helping low-income families in our society (the exact level is yet to be quantified). Certainly, the council bought into that logic in December 2013 when it voted to adopt the living wage for staff, giving 450 employees a significant boost in salary.

At the time, the council was applauded by Living Wage Aotearoa for adopting the measure, but the anti-poverty group was disappointed that it did not apply to contractors. That gripe now appears to have now been addressed, with eight councillors voting in favour of the proposal and five against in a preliminary vote.

This is problematic and concerning for three reasons. First, it ignored the economic reality of what happens when you boost pay levels in a way that is not linked to productivity. Second, the motion was passed with very little public consultation. And third, there is a very real prospect that Living Wage fever may spread to other government bodies.

Let us tackle each in turn.

It is well-established in economics that when you raise the price of a good, demand for it will fall. The same applies to labour, which is just another input into a business, and firms are likely to pass on these additional costs to customers where they are able, or reduce how much labour they use in their operations. It also distorts the labour market, particularly weighing on those marginal employees, such as young people entering the workforce with few skills or experience, who would be employable at $15 an hour but not $18.40.

Of course there will be some winners, namely those who receive the higher wage, but on a net basis it may do more harm than good when factoring in job losses.

But because Wellington City Council is not a business, it neatly sidesteps this tricky issue because it sells a product that the city’s residents are compelled to consume. But that does not mean it is a free lunch. It is the city’s businesses and residents who ultimately bear the costs of the Living Wage in the form of higher rates bills. They have to make tough decisions about what to cut back on to pay for the council’s wage bill largesse.

Now Wellington City Council is having another crack, this time by dictating what private businesses will pay their staff. Of course, those businesses that want to maintain their contracts with the council will either reduce their total labour costs or pass them onto the city. Either way, the net effect is broadly the same: fewer jobs or hours worked for those on the lowest pay scale even if the pay is higher for some.

Treasury has previously officially rubbished the Living Wage, saying it is an ineffective way of helping families on low incomes for all the reasons discussed above, and because the benefits of the scheme accrue to single people without children, not to the targeted group.

And that is what makes the council’s lack of public discussion on the topic so galling. The council has already chosen to ignore official advice and the mountains of economic evidence on the topic, and is instead doubling down on their ideology by not allowing those who are negatively affected by the measure to have their say.

But perhaps the biggest threat of all is that the ideological thinking that has gripped Wellington’s local politicians spreads. Auckland Council, for example, employs upwards of 11,000 people, including council-controlled organisations. How much would a Living Wage cost residents there, who have already had to swallow a double-digit increase to their rates bill?

Even worse, it could spread to central government, which employs over 36,000 people in core government services, never mind the private firms contracted to do work for the state. It is was only applied to the ministries of social justice, health, education and the Accident Compensation Corporation at a rate of $18.80 an hour, it would cost $541 million a year.

Extending the idea out to its fullest, if local councils and central government adopted the living wage across the board it would require a massive increase in taxes to pay for it. It would decrease the number of people able to pay tax while increasing the state’s welfare burden due to rising benefit costs. It would also severely distort pay levels in the private sector.

This is just one scenario, it may not play out this way exactly, but it would push up the costs of government services, which the Initiative’s head of research Eric Crampton has expounded on in more detail here.

Wellington City Council needs to unblock its ears on this issue and listen to the evidence at hand as to why the Living Wage is a bad idea.

In the end, there are no shortcuts, and if workers want to earn higher pay they have to lift their productivity. Of course, it is overly glib to simply say “increase your productivity” to the genuine working poor. But these groups are better serviced by targeted transfers, such as wage subsidy schemes like Working for Families, rather than the Living Wage, which may be well-meaning but may do more harm than good in the real world.

If there is a legitimate concern about why we have so many workers taking home an “unlivable wage” then our focus is better directed on the core of the problem: why is it that people going through the education system are not being equipped with marketable skills in the first place?

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*Jason Krupp is a research fellow at the New Zealand Initiative. This is this week's NZ Initiative weekly column for interest.co.nz.

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88 Comments

In the end, there are no shortcuts, and if workers want to earn higher pay they have to lift their productivity. Of course, it is overly glib to simply say “increase your productivity” to the genuine working poor. But these groups are better serviced by targeted transfers, such as wage subsidy schemes like Working for Families, rather than the Living Wage, which may be well-meaning but may do more harm than good in the real world.

It is an interesting point - WFF is a targeted wage subsidy (a government intervention in the labour market). But is that central government intervention better for NZ society as a whole (given the subsidy is funded via tax foregone from low income workers) than a potential increase in property taxes/rates for a local population?

In the latter case (i.e., low income is not subsidised nationally, but instead a local living wage is paid) the costs of that are disproportionately borne by accumulated capital wealth (i.e., rates/tax on property holdings) - whereas if the costs instead fall where they do now (on central government) these costs are met (in no small part) via consumption taxes, and via income taxes (which although a progressive taxation system, tax income as opposed to capital).

From a taxation (where should the money come from) point of view - it seems better to me to tax already earned/accumulated capital (i.e., property) - although of course, as the author points out the alternative is that employers absorb the cost either through increased productivity or through lower profit margins. They could also put the price up (hence we have both wage and price inflation - not a bad thing necessarily, as we have seen that monetary policy has more potential to fight inflation, than deflation).

Keen to know others thoughts on what is better - targeted labour market subsidies via central government or a non-targeted lift in wages paid via a local labour market. Interesting.

It is dangerous arguing for a tax on capital (property) unless it is on investment property. An average family home in AK will be worth in the vicinity of $1 mill, while in the regions may vary from $100k to $350K(?), while incomes may not vary a great deal. How do you set the tax rates? Also why should an older individual or couple living in their own home pay tax on some arbitrary capital value that may never be realised? Why should individuals be penalised because they choose not to pay rent?

What do rising rates bills along side the ever increasing numbers of obviously otherwise unemployable council consultants constitute?

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I agree with your point, and am aware you've made it before. However i believe that the CGT brigade are not talking about rates, but a separate tax levied by central government identifying any percieved capital gain as a form of income and therefore liable for a tax to be paid to the said central government. Also note that there are already a significant number of older residents (not property investors) identifying that their rates bills are becoming largely unaffordable on a basic income.

it is dangerous arguing for tax or capital (property) because there is already a tax on income provided by property.
either you could just increase the tax on that income (and de-incentive to making income on property)
or
you're double taxing (capital used to buy property has already been taxed at income source) and possibly into a situation where there isn't funds to support it. (which is unreasonable and the question would need to be asked just why anyone would do such a thing)

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"it ignored the economic reality of what happens when you boost pay levels in a way that is not linked to productivity"
Like the higher salaries commission you mean?
Jason, can you please explain why we should continue to tolerate millions of adult Kiwis receiving less than a living wage - the median adult income is about $30,000 per year, so half of us are getting less than that. We then have to turn around and support these people with accommodation and living grants via central government. Why not just pay them properly in the first place.
It's not about education, work ethic or intelligence, can't be, unless you regard half your fellow citizens as near useless. There is a momentum coming from the top to marginalise vast swaths of hard working and struggling Kiwis. Somehow your "rules of economics" don't apply to the big end of town.

Somehow your "rules of economics" don't apply to the big end of town.

As I pointed out, his discussion focuses on the economics of a labour market - as opposed to the economics of taxation. And that's the analysis that should be done. If we accept as a society that we don't want a bunch of individuals and families living on the streets due to a depressed/dysfunctional labour market (well not sure it is dysfunctional per se given a Marxian analysis), what form of taxation is best to address this labour market problem?

Especially while some ppl get salary increases and tax cuts they dont need.

think CEOs and MPs to start with.

I think that every time A taxpaid MP or government department worker bemoans that beneficiaries included pensioners, are a excessive drain on the countries tax base....

Not sure NZ has an Econ profile that allows a welfare system that Scandinavian countries are operating on.

NZ may need to figure out how to be rich sustainably first before worrying about pushing up one's income without increasing labour productivity.

I disagree - there is substantial accumulated capital in NZs economy as a whole. Plenty to go around.

Sounds like a wealth transfer to me.

From whose pockets to whose pockets? Have NZ not had such system already?

Have longer beneficiary issues been addressed by such transfer?

I am afraid if one wants earn more, one has to work hard and/or smart. Relying on hand-outs is not the way to go.

Absolutely a wealth transfer - that's the premise on which Western/Enlightenment philosophy was built and is the basis of all welfare/taxation systems the Western world over. It is only a recent phenomena whereby accumulated capital is largely ignored in the taxation side of that equation - hence the massive and growing government deficits the world over.

Exactly. Hence the growing, but nonetheless unsustainable social divide. Fix it or tumultuous outcomes are guaranteed.

Indeed, let them eat cake isnt the desired outcome but one we'll get if we let this continue IMHO.

I am afraid if one wants earn more, one has to work hard and/or smart. Relying on hand-outs is not the way to go.

Wrong again. If you study Marx and apply a Marxian analysis to capitalism as an economic system - wages/labour will continually go down, as employers seek to retain/improve on profits. It isn't a matter of working harder or smarter (even those working harder or smarter under a wages payment will eventually be subsumed - meaning will also become unable to earn a living wage - as a result of capitalism's need for a constantly decreasing labour value).

Hence the reason that we have seen the global movement of jobs (labour) to lower wage economies. And hence the reason that speculation (the use of accumulated capital) has become more wealth-generating than employing labour as a means to make profit under capitalism.

While its true that employers will seek advantage - hey that's what they pay managers for isn't it? to get get maximum productivity for the budget they're permitted?

But please consider that businesses have markedly change since Marx (and smiths) time.

The business owner (shareholder) is frequently not the executive staff, not is it the hiring or wage setting management.

Frequently we are seeing wages go down _without_ additional (ie outlandish) profits going to the business owner. In those businesses that do make outlandish profits (eg Facebook, Google) the staff are frequently very well remunerated and certainly little downward pressure in wages.

Also many modern owners, especially small business owners who work alongside their staff often -want- to pay their staff better, and in many cases the staff get better wages than the business owner gets in wage+return !!

So why do we have constantly rising prices, yet business owners AREN'T making the big profits a la' Marx/Smith. just where is it going then?

Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of “Wall Street greed” but because of the inexorable mathematics of our private banking system.

http://www.globalresearch.ca/its-the-interest-stupid-why-bankers-rule-th...

Yes I read that (or similar).

On top of that the so called class war of employers v employees is simply wrong. We have a 3rd group that are not in the 'war" but are the ones winning, its "capital/finance" So employees and employers better join forces fast or they/we are done for. I even sometimes think that the societies that banned interest had it right.

Well, that quality, I understand, is part of sharia law. And indeed, religious fundamentalism is one of the key ideological challengers to globalization (the dominant political ideology of today). See the .pdf I linked to in another posting.

Pretty sure in the middle ages in Europe they had a similar law? besides which you dont need religion in the equation.

Sharia law, as usual, applies generally to those less powerful - many a contango metals trade has been undertaken which reflects an implicit, but not explicitly declared libor based return element.

And of course the big business end of town has stopped paying taxes in local jurisdictions as well.

Hence, rates rises, more user-pays, higher consumption taxes, tolling of roadways etc. etc.

Cowboy, the small business owners and the small agri-producers of this world are victims, not beneficiaries, of capitalism. The big end of town intends to accumulate every last bit of capital and profit from the small end of town. The small business owner is not a capitalist in the Marxian sense - he/she is a subsistence worker - the one which the capitalist needs to push off the land (figuratively speaking) and into the wage/labour market.

agree, see my above comment.

I'm with Kate on that one. My limited knowledge of Marx's analysis was that the benefit always goes to the owner. I agree that small business is pushed to the edge just as workers are. Now we are hearing of the destruction of the middle class - same thing. We had it worked out better 40 and 50 years ago but it is rapidly being ripped away from us.
Large enterprises are not as efficient as small ones. Nor as productive. But they do grow and survive by achieving control. Which they certainly have in New Zealand in the last 40 years.
I don't see any conflict in having a right wing view and also acknowledging the Importance of Marx's analysis.
My view has been not about redistribution but using Marx's principle of ownership. Personally I have sought ownership (via Micawber) I advocate ownership is more important than turnover. (eg GDP)
We need to use political influence to maintain control. I have advocated that our land should only be owned by citizens. (and our companies) Small enterprises are preferable to large ones - because the operators are more likely to be owners.
But the political awareness has been dumbed down. We forgot, and fell asleep at the wheel. We are now seeing the demise of the homeowner. Farmers, notably dairy, are the next on the chopping block.

being an ex-small business owner I'm well aware of this. However the term "capitalism" you're using isn't appropriate. What you're referring to is Corporate Feudalism - And as you you say the corporate barons have written themselves above the law, and it is the small traders and people who are wearing the cost. That *IS* the mark of Feudalism - the barons are above the law and taxes, the people (aka the Third Estate) wear the yoke of their oppressors. What modern "leaders" forget is what happens with Feudalism. As a historic re-enactor and ex-member of several NZ historical re-enactment groups, what happens is the baronies fight over territory (market share) and constantly fued and war with each other in a jostle for power, resources, position, dominance, and security.
They systematically strip the population to fuel their image, and enter into risker deals and battles - literally destroying their own power base in the fight (as they are effectively consumers not producers)..

What cured the feudalism in the past was invention of private rights (East India Company, Matchstick girl revolution, and so forth). IF people knew their economics like they claim to, these things are obvious, as it's a symptom of the models structure, not of political philosophy. It's comes from when the "barons" in the system become top heavy (with regard to resource compensation). They draw on more resources that the system can produce, to deal with the problems that causes the barons and king (law/government) try to force the third estate to produce more (through force or gifts) but that makes the problem -worse- because the resources required for the Second Estate to make that happen...come from the Third Estate. this is _how_ you can tell the difference between the top led (4 Estate) system, and capitalism of individual capital ownership (bottom end growth). When the top two Estates (and the fourth) consume more than the third can efficiently Produce, the system is feudal - this is because why, how, are the consumers getting the bulk of the production without paying for it?

Sounds about right, that's the price of leverage.

When you throw in the losses to taxation (especially where the taxes end up in pockets with above median incomes), it's very clear why things are going the way they are.

What? You have to be joking us Kate!

What are the hallmarks of a Capitalist system for YOU? Are you not confusing Crony Capitalism with Capitalism and I think the former needs a rename.......the problems the world over are from Socialists who are so blinkered in their thinking and so damn pushy and bullying in their tactics that they have now forced millions upon millions in the Western world from middle class into lower class....
.Business costs and goods and services can fluctuate up and down and labour should be allowed the same natural cycle....but the Socialists don't want to accept that is how the markets work.....so they implement interfering devices called rules and regulation because these Socialists cannot handle the fact that prices go up and down.....they pretend to want save everyone from hardship but ultimately they are saving their own butts from the reality of a dip or loss.....If the natural market cycles of capitalism were allowed to take place then both labour costs and taxation would be affected but that natural phenomena does not fit the Socialists agenda.

The difference between a Capitalist and a Socialist is that the Capitalist plans for the longer term while the Socialist lives for today......how many Socialists would even bother to do a personal 5, 10 or even a 20 year plan? How many Socialists when budgeting their personal incomes and expenses would use cost variations from say a 10 year period? Reality is they don't and reality is the Capitalists pick up the tax bill for them.....so it is the Socialists who are actually capitalising off a true capitalist !! The accumulated capital is the only money the greedy Socialists haven't got their hands on and they don't care who they rob or how dishonest they have to be......The Capitalist speculator is by far a better person in all moral leanings than a Socialist speculator.....the former is using the hideous system set up by the latter to try and preserve and grow his/her wealth that he latter is always trying to destroy.

The fact is Socialists have been over-consuming for way to long and their output so insufficient that they stuffed the real value of labour up and all asset prices to boot......the living wage is another snake-oil product and there will be consequences.

"there will be consequences" I hope so and good ones me thinks.

Then, of course, the Capitalist has something to start a plan with while the Socialist (your definition, I presume) cannot even see blue sky today , let alone tomorrow.

The problem is not capitalism versus socialism - all (what you might call) 'socialist' countries partake in the capitalist economy of the world. So, the issue is not capitalism versus socialism as a political ideology. The dominant political ideology of today is globalization;

http://mams.rmit.edu.au/es4cefpg6ifj1.pdf

The welfare state (i.e., the notion of redistributive taxation methods) has always operated under a capitalist economy, ever since the period of the Enlightenment, when the means of production and exchange in the world moved from mercantilism to capitalism - and political power (that is power over the people/society) moved from feudalism to republicanism.

When you get up to speed with history and economics (a science rooted in Enlightenment philosophy) come back to me with your questions.

India used to have a welfare state before the English turned up with armies. It was operated through the monks. It's still in use today but they failed to put in population controls or environmental initiatives.

XD

You failed to provide your interpretation of Capitalism....your preference to ignoring such a relevant starting point has been noted! I take it that you dump everything you don't like into the Capitalist quadrant so as to divert attention from the real issues pervading our society.....if you fill up a jar with stones, then sand and then water we finally have all the space taken.......at first the Socialists thought they would just take some water, then they wanted some more and then they started dredging the sand, but they kept looking in the jar and seeing there was more there, so they took more of the sand until there was none left but they still had the stones...so how many stones are you really prepared to leave in that jar? If you take them all - we become a destitute nation....Socialism should be known as the illusion perpetuated to fix poverty!

You can dress up the politics as much as you like, the underlying philosophies of each ideology are still the same......regardless of where they occur or how wide-spread they happen to be.....and... ....when that ideology has the principles are that it is OK by law to steal from anyone that you want, do you honestly believe that that stealing is somehow superior to that of common theft??

You are attempting to write your version of political/economic history!! I am thankfully up to speed on history and know how others manipulate the system for personal gain at the expense of those who are weaker and more vulnerable. Promising people by promoting the benefits of what they are missing/lacking is not Enlightenment...it is keeping them in darkness.........Enlightenment comes from individuals understanding how, who where, why when people were being manipulated.

As you have a preference to refuse to answer questions I will ask and answer my own!

Q:Redistribution does not work so what do you get out of perpetuating this lie?
A:You get to keep your job in the public services while someone on a low income pays taxes to keep you in the way you have become accustomed.

It is Socialism that needs Capitalism just like a flee needs a dog.....

My definition/interpretation of capitalism is that conceived/documented by Adam Smith during the Enlightenment. I am unfamiliar with the jar of stones economic theory - sounds a bit more like physics than economics to me. In reference to political ideology, and the ideology of globalization (which by the way is that ideology which both your old left/right distinctions are following) - read the link provided. Don't worry, properly peer reviewed academic works are not going to bite you. I only refer to "enlightenment" in the historical context - and in that reference it is a capital "E". I think the enlightenment you are referring to is the Oxford type definition of the word, as opposed to the period in history.

The problem with your question: Redistribution does not work so what do you get out of perpetuating this lie? - is that it is based on a flawed premise. I don't know where you get the purported analysis/fact that redistribution does not work - I can only surmise that you might be referring to 'trickle down theory' as that which "works" in a capitalist economy? Although really I leave this to you to enlighten (with a small "e") me.

The above erudite reply surely earns Comment of the Day, .... Regardless of which side of the fence you are on!

We are lucky to have her commenting here - her sense of reality is welcome from where I sit.

Aw thanks you two.

If I have seen further, it is by standing on the shoulders of giants.

http://en.wikipedia.org/wiki/Standing_on_the_shoulders_of_giants

Really....The poster refuses to acknowledge the differences between Capitalism and Crony Capitalism.....

Well Kate I will enlighten you and you can join Steven holding on to the broken bucket handle.

And while you are looking down the end of your nose at your hands just remember the many people who face poverty ended up there from the flawed premise that you could stand in that bucket and lift yourself up by the handle....

Are you referring to the Enlightenment that started from science or from the Renaissance which flowed from the Medici family and their brilliant system that catered to the people of Florence, Italy instead of the norm of the time and only dealing with the members of the First Estate (Barons, Kings, Governments (local and central).

the reason the Renaissance worked is from a small family bank was pushed to the point that it opened it's doors to the little people. Servants in the castles, journeymen and apprentices, and even field-hands (who often paid in goods, later resold for considerable monetary gain. some borrowers even received a small debt forgiveness just for critical or importance news gathered in their daily activities (known today as insider trading). The Medici were the first to open up capitalism to the small holder, and the Family Medici also tended not to lose money to bad contracts, and often had insight in customers businesses and upcoming contracts (also most as if they were magic or psychic).
Such process plus an excellent head for the banks one operation led to low losses, excellent strategic investment, and habits which involved spending large.

Adm Smith was writing in a time when very little was known about economic theory, and in the wake of massive wars and famines. Hence the commission to study how a Nation created it's wealth and the factors influencing it. Sadly his definition of capitalism is rudimentary but it is understandable as he was a rough cast pioneer in poorly observed field of study - previously such things were considered the mandate of gods and kings but it is interesting how the faith wavers in some people after wars, pestilence, and famine stalk the land.
another area Mr Smith comes up short is his consideration of rentiers. In his assessment a rentier adds very little to the value of a product but our modern society stands as stark testament to the folly of that statement . The food in supermarket online deliver is less quality than hand mande product, yet it is the manufactory, the pre-packaging, the market analysis of preferred sizing, efficiency of inventory and delivery, which has the potential to render the open market (and it's waste) and killed the High Street Edwardian style supplier. And if the world ever had a golden age, the Edwardian was the closest (allowing for it's technological level).

Redistribution does work because it does not address the faults in the model.
Redistribution is stealing from the middle and working class to repay to the middle and working class for the resources you've taken from the working and middle class. While deducting their own cut from the takings in the process.
to translate; It removes resources from the producers in the form of high end consumption while restricting the ability to improve production. That's why Redistribution is a lie. Simply put you can not tax a country into wealth (or out of poverty), as it costs resources to run the taxation system. The result will always create a position of diminishing return. Iniital steps tend to be favourable because it deals with the worst cases and where a small input can make huge differences but later in the system the overhead cost is so high that it causes damage to the production ability, which is where we are/have been for a while now. A the point we are, giving more money to poor, without solving the underlying capital/resource/model issue will only create more poor and will actually make little difference to majority of the poor already needing assistance. Having so many poor, vs the individual cost of the governance/redistribution burden means that the wealth of the distributors is in itself a cause of the inequality that you hope to fight.

I'm referring to the one you refer to as 'the science' one;

http://plato.stanford.edu/entries/enlightenment/

Actually there is growing proof that re-distribution works on many levels, right up to a Nation's economy performing better, certainly trickle down as an opposite example is an absolute con.

The rest of your comments is libertarian drivel on "tax is theft" simple if you dont like it go live somewhere you wont get taxed. In fact consider this, if Libertarian ism was so effective and efficient how come it isnt the dominant system? maybe because it simply doesnt work, at all.

So where is this growing proof Steven? It doesn't exist does it? You wonder why the country has so much debt yet you are keep advocating policies that make more debts....You do realise that all Government debt is a tax on future earnings?

You know that tax is theft so stop encouraging it and show some moral fibre!! We have thrashed the Libertarian comments to death and there is nothing new so not worthy to have any further discussion.

Actually the proof is that it does not. the GFC showed that.

Do the Scandanavian countries use a re-distribution policy? No. Because of their levelling system built into the culture that they should not be tall poppies nor claim any sort of recognition or advantage, few people actually get ahead so the inequality issue tends not to exist. and where the poverty is bad you just don't get to hear about it because no-one speaks of such things in their culture.

Through out Europe we see the result of redistribution efforts, just as we saw it in France (post bread-comment). the great redistribution... followed by massive failure and poverty. and the collapse of Nations.

The only time redistribution works is when the root cause is identified- Such as the Matchgirl riots, where the profits from the companies WERE obscene and the safety and wages to staff truly unacceptable.

Libertarian isn't dominant because corruption is the norm for governments and many old style corporations. The "leaders" sooner or later sell out and start lining their pockets, as a sociopath finally, eventually, gets himself or herself into the seat of power and has the powerbase behind them. Libertarianism empowers individuals but if the individuals don't keep the power, the corporation will take it away, often for favours of the government. Fonterra co-op has been perfect proof of this process since it's form from the smaller co-ops. It went big, sold out to the corporates, now doesn't listen to the needs of it's supplier owners. This is because city hall wouldn't rest until it got corporate influence over the dairy co-op. It's just pure corruption, in it's rorted finest.

One re-distribution that also works, is when the corporate or government gets influence over the information dissemination network. As it has today, by putting all that extra money into controlling the press, the reports will tell you that everything is working.

NZ current is said to have an upbeat economy, that the velocity of money resulting from two tranches, (1) The dairy $8.40 payout going into the private and banking sector which is going to be losing it's effect in about 8 months, and (2) fresh cash from the power company sell off which refilled the government coffers for the next year.
In about 8 months if no fresh "inheritances" are discovered, NZ will start to feel the pinch from the current dairy year. The result will not be pretty.

And. Technically speaking I'm not a Libertarian. I dislike their "Every thing is possible, just pay us for the privilege" model. And frequent requirement for constant (expensive) monitoring, often done to see that all people are forced to be fair (for their defined value of fair).

I'm an Intelligent Anarchist. and it's not the dominant system because we can't find enough Intelligent people to lead themselves.

Everyone would like to be an anarchist in reality, but to work human nature needs to be taken out of the equation, for as long as we've existed on this earth, we have sought to gain power over each other. Unchecked it just leads to chaos. Maybe we could have a lobotomy at birth to remove that part of our nature, but then we would just wander aimlessly, literally and figuratively. It is our chaotic nature that in reality, makes us the interesting beasts we are.
We create laws and regulations to control ourselves, even in our days in caves we had customs and "laws" or superstitions that kept "harmony" within our group, they probably came out of the trees with us. Even in the animal kingdom where groups are formed, rudimentary and sometimes complex "laws" apply - don't go staring a gorilla or a wolf in the eye.
It simply stands to reason that as our lives have become more complex so too have our laws. We will probably never, ever be able to do without them and we will, in a society that allows it, never, ever be able to agree 100% on what they should be, so even if your or my ideal balance suddenly be struck, the only that is sure, is that it will not last.
At least people have something to talk about

Then, of course, the Capitalist has something to start a plan with while the Socialist (your definition, I presume) cannot even see blue sky today , let alone tomorrow.

The government Socialist has plenty of what they call "social capital". I call it slave labour, but if they'e the bosses you aren't allowed to disagree.

Business costs and goods and services can fluctuate up and down and labour should be allowed the same natural cycle

Tell that story to those funding capitalist escapades who always have central banks dictating which rate of interest they can charge. Zero bound and if not, tending towards that comes to mind. Hardly the cost/price vicissitudes normally associated with the realm of free market price discovery.

Mr Hulmes.......do the escapades that you write of...come from Crony Capitalism or Capitalism or Socialism???

Distortions are such repugnant things when it comes to real Capitalism.

Socialism for the entitled, so I guess it's crony capitalism. Not that I haven't enjoyed the ill-gotten, dragged forward financial gains in terms of higher net present value bond pricing over recent decades - but this particular monetary policy initiative has not proven to be the panacea such practice was touted to deliver.

dp due to 503 error

dp due to 503 error

the capitalist plans for tomorrow? gimme a break. The capitalist thinks of today's profits or at most 6 weeks out.

In terms of renaming Crony Capitalism, why not start by calling it corporatism as it is a merger of state and corporate power.

Excerpted from a famous quote.

You're probably correct Colin......In the US they frequently use Corporatocracy but this word has not caught on in NZ for some reason......

it's more corruptism.

Maybe that is because the quote was from Mussolini:

Fascism should rightly be called corporatism as it is a merger of state and corporate power.

Yes I thought of Mussolini straight away......maybe I need to stop beating around the bush and just write fascism.... that word gives me the creeps!!

TPPA

But the productivity has increased Xing, the benefits of that just haven't gone to the median worker. All captured by the top 10% I guess.
Often overlooked, I suspect deliberately by Jason and his ilk, is that low wages tend to reduce productivity. Take a trip to the third world and you will see roads being built and crops raised with manual labour - an abysmal level of productivity - all due to the fact that they are far cheaper than modern machinery.
Big business doesn't want informed, intelligent, educated and well paid staff for most of their jobs; they want a pool of desperate, indebted wage serfs willing to do whatever and whenever for the least they can get away with paying.
Make the minimum wage (for adults and those not in training) the minimum living wage.

but those people working on crops are producing It's the huge non productive sector that is destroying our productive sector by pricing it out of markets.

What we need is investment in production not speculation and a cost structure that reflects the globalised world we live in and i'm not talking wages, as I look at my rates, up %10 this year.

You are so right Andrew. I often wonder how our economy does as well as it does when you consider the numbers in fluff-non jobs or actively engaged in stopping others achieving anything.
Funny thing is, the lower paid are often the most genuinely productive - farm workers etc. - How does that work Jason?

it changes your risk profile for a start.

This is a simplistic, ie economics 101 taught to under-graduates it does not reflect the real world

"it is well-established in economics that when you raise the price of a good, demand for it will fall."

if this is your best argument, oh dear.

As an example many CEO's demanded and got far better pay, often 10x. but they are still employed....and often shown as barely competent.

MPs? still have 120 odd

etc etc.

We are in a society, we choose how to re-distribute and with a now poor record in equality its about time we addressed some of it.

Exactly - and you either address it through taxation (on accumulated capital) or through profit (wages/labour). His analysis ignores the potential to address it through capital means.

I agree, need a gareth morgan style tax on capital. If the govt. was selected on a similar basis to how the all blacks are selected, i.e only the opinions of experts, or at least those who follow the game, are taken into account, we wouldn't have these sorts of distortions throughout democratic countries. Unfortunately, being popular to the masses means govt's stick with poor policy, even to the long term detriment of everyone involved.

Unfortunately, being popular to the masses means govt's stick with poor policy, even to the long term detriment of everyone involved.

Yes, but I feel that conservative governments do seem to appeal to the 'masses' because the 'masses' don't actually realize they are the 'masses' - rather they look around the neighbourhood; see themselves as better off than some of those in their community - and think they somehow belong to an 'elite' class.

If it weren't so serious, it would actually be laughable.

The problem with via taxation is do you really catch the top few %? I suspect that unless we get a fundamental change on our present tax system those who can afford to pay the likes of PWC to evade tax will still do so successfully.

but we only have a few CEO's so the demand/supply case still holds.

The government is driven by hard outside forces, their power is related to influence and legal might/manipulation, not by the market. which is why it's so dangerous when they try to force the environment to do what their experiences are telling them works.

What needs to be addressed is what is causing such high living cost. without high living cost, the poor would have adequate funding, with adequate funding they are poor anymore.

I agree. This article was hilarious.

I thought you were an Engineer Steven.....why do you have such a poor understanding on Physics and maths???

On the CEO and MP points you have raised.........I grimace!!!

Rubbish, more than a little rich coming from someone like you that appears to have never completed school.

Don't take it out on me because you were left standing holding the handle!!

Come back when you can explain how maths shows you can have exponential growth fitting on a finite planet.

Maybe someone should show the effects of increasing all these costs on the ratepayer....You tube little old Gran huddles in bed on the cold days because she cannot afford to pay for heating as she has a higher rates bill to pay.......or there are others who will not eat properly as they lower their personal consumption costs to afford bureaucratic costs like increased rates....Images of children going to school without food because their parents have to afford the rates to keep the shelter over their heads would be a reverse of the BS we get served upon us now. Poverty and bureaucracy love holding hands!!

Then how about some footage with someone from a small business, sitting in their office working as a slave doing all the slave like activities that bureaucratic compliance requires.....Unpaid doing the PAYE, GST, OSH manuals and training, etc....somewhere along the line business is going to have to generate the income to pay the wages that pay the rates!!!

These stupid idiots who want to save people from hardship put more people into hardship than what they will ever save!!!

I guess what one doesn't see they cannot grieve so maybe it is time for some You Tube footage showing the real harm that comes from their actions. The complete lack of intelligence and common sense within our bureaucracies is astounding......the cause of poverty is bureaucracy!!

Does anyone know the average IQ of the bureaucrats and public servants??? They don't think logically, they don't think multidimensionally, individuals have no real expertise and no discipline, bureaucrats and public services rely on mediocre personal coming from different backgrounds to fulfill the multidisciplinary requirements but no consideration is given to whether those backgrounds provision them as individuals with the necessary expertise of the role/s they are filling ......Did I mention that the cause of poverty is bureaucracy!!

We have a case of whole bunch of so-called experts running around practicing but not even knowing how their actions affect the next action down the chain......so really the experts are amateurs.....talk about wolves and sheep clothing!!! Did I say that the cause of poverty is bureaucracy!!!

Whatever happened to treating all people equally......Wellington City Council is protecting the few at the expense of the many....where is the equality in that?? This decision is controversial to say the least.....those who voted in favour need to be seen for their poor thinking skills.....and/or perhaps they have a different agenda as the decision is not beneficial equality to all residents!! In fact I'd liken this decision to one of those NIgerian scams where they make a promise that there is betterment while actually screwing you over!! No Sh*t...the cause of poverty is bureaucracy!!

"We have a case of whole bunch of so-called experts running around practicing but not even knowing how their actions affect the next action down the chain......so really the experts are amateurs.....talk about wolves and sheep clothing!!! Did I say that the cause of poverty is bureaucracy!!!"

That's where much of the current cultural problems are arising. The bureaucratic culture is one of Encapsulation and Data Abstraction. The average people are not expected to make great decisions. That's why they purport to higher "the best leaders and consultants" (or in many cases just pay them like they're the best and pretend).

the model is that overpaying all these consultants and experts (many who don't have hands on, and are specialists) will product a report or committee that creates "the best solution". that solution is then mangled at committee level and put into law.

the average people are just expected to be process line operators and make it happen with nice smiles as per their own KPI.

The problem part is that _because_ they're average people they aren't expected, or often disincentived (or even not allowed eg Police) to question or deviate from the Master Plan.

The master plan that was made with a hotch potch of reports from people outside the area concerned or with vested interests, mangled in committee, then forced on us all.

... it ignored the economic reality of what happens when you boost pay levels in a way that is not linked to productivity. Hahahaha.

WATCH OUT FOR THE UNINTENDED CONSQUENCES IN THE FURTHER CASUALISATION OF LABOUR !.

Many of the hardship cases get the income supplement , so why shift the cost from Central Govt to the Ratepayer?

The associated costs also go up ACC , Kiwisaver , etc , so the burden smacks he wage payer , the person who has risked all to get the business going

Quite simply if the contractor carrying your refuse has to pay the boys almost $20/hr , you can be sure that he will only employ them the bare minimum number of hours to keep his costs down

The problem is Wellington is run by Chardonnay Socialists, people who clueless as to where money actually comes from

Please tell me where money comes from. I'm interested to see if you really know.

Jason Krupp, please do join in .. after all, we are talking political economy here and I assume you have specialist knowledge.

Or ideology?

"The New Zealand Initiative is a public policy think tank based in Wellington. It is supported by chief executives and chairmen of New Zealand companies."

I bet they are not supporting them out of their personal pockets!

You seem to have ignored the issue that employees are not paid enough to live on and therefore need assistance from the state in terms of various top up benefits that we (taxpayers) all have to pay. This is a tax payer subsidy to business and reflects a society happy for people to work and then live in poverty. And BTW 86% tax is PAYE, 14% from business last time I checked.

The best lies sound like the truth, your article sounds plausible but is more half truth's and blaming the victim (poverty wage recipients). -Why just you don't state what you really want - poverty wages& govt. subsidies for Corporates to maximise profit. The real question here is what should the minimum wage be so staff (lets not forget their kids) aren't exploited. .some give and take required on this by all parties.

Have a look in the mirror Jason - black is white, 1+1=3.

Redistribution only addresses the surface issue and is a dumb lefty idea. To fix it you need to ensure broad ownership. Read Marx.
People need to own their own houses, businesses and farms.

Gee, one of the most commented on threads of recent, but still no sign of the author joining in the discussion.

Given it states this is a weekly column by this think tank written specifically for the interest.co.nz community - it really would be useful for the authors to take part in that community by answering some of the rebuttals.

Otherwise, they look either lacking in knowledge about other perspectives or uninterested in other perspectives. If the former, interest.co.nz does its community a disservice, if the latter the think tank does itself a disservice.