Friday, June 09, 2006



Warnings

Yesterday, Reserve Bank Governor Allan Bollard warned workers not to make "extravagent" wage demands, or else he would raise interest rates. But while this may make sense from a top-down, economic perspective, or from a business one, it makes no sense at all for many individuals beset by rising fuel and living costs. What Bollard is saying is that those who do not have mortgages should sacrifice their standard of living for the benefit of those who do. And I really don't see why anyone who is not going to be hit directly by higher interest rates should pay him any attention at all.

But what's most disturbing is that Michael Cullen has backed Bollard's warning. So we have an ostensibly "labour" government telling workers to knuckle under and make sacrifices for the benefit of business, while the business sector take shome fat profits to boot. Harry Holland would be rolling in his grave...

4 comments:

Yes, well, "Labour" has been a grossly misnamed party for longer than I've been alive, so it isn't in any way surprising. If you're on the left, don't vote for the schmucks.

Posted by Psycho Milt : 6/10/2006 10:46:00 AM

"What Bollard is saying is that those who do not have mortgages should sacrifice their standard of living for the benefit of those who do."

Not a fair description of what Bollard said. He didn't utter an ultimatum or threat. All he's saying if you RTFL is that if wages go up quickly or if businesses raise prices a lot, then then his job will be to raise interest rates. Well, duh.

Bollard's job is to keep inflation within a certain range. Pretty much the only tool he has is the ability to raise the overnight interest rate (which affects all NZD short-term interest rates and so reduces borrowing, and hence reduces the amount of money around, and hence increases the value of money, ie prevents inflation).

Cullen, OTOH, is only talking wages not both wages and prices. That's very odd of him.

"Harry Holland would be rolling in his grave..."

I hope not. I walk past it on the way to work, and I wouldn't want it to give way because the hill's a bit steep below that bit.

Posted by Icehawk : 6/10/2006 12:28:00 PM

But then this Government demands sacrifices (under the form of no tax cuts) from those without children to subsidise the rising cost of living of those with children. Interest rate rises may hit those with (variable rate) loans (not just mortgages but business loans too) harder than those without - and reward savers (mainly the elderly without mortgages) - but it also has flow on effects on the productive sector: less access to working capital borrowings and a higher exchange rate affecting exports. The RB thus demands sacrifices from more sectors than glib headlines indicate, to dampen down inflation, which is currently actually caused by higher import and fuel prices rather than any excessive wage demands by minimum wage workers.
I'm curious to whether the RB will allow employers to offer workers higher salaries to keep them here or because there is a shortage of them, and then be able to close the wage gap with Australia. Or will it be policy-as-usual (as it was under Brash) of clobbering the productive sector to cause labour surplus and unemployment with which to beat down any wage pull on inflation.

Posted by Uroskin : 6/10/2006 12:30:00 PM

There's a real probelm with the standard measures of inflation. Oil based price rises aren't due to the devaluation of money, they're a genuine world shortage of supply.

If the bulk of earners get wage rises to absorb such real price increases they will devalue the dollar proportionately, which ultimately means the rises can't be absorbed.
The world of cheap oil is forever gone, and people do need to tighten their belts a little.

Unfortunately, the only tool government allows itself to reign in such destructive behaviour is 90 day bills. Get thyself a long-term loan before asking for a wage rise, eh.

Posted by tussock : 6/11/2006 02:21:00 AM