Wednesday, April 30, 2014

All about distribution

Distribution - who pays, who gets what - is one of (or perhaps the) key question in politics. And as the Herald points out this morning, its the big problem with Labour's new monetary policy:

Households struggling to keep on top of their mortgages would be the winners under Labour's proposed interest rate shake-up, but at the expense of those who can't afford to get a foot on the property ladder, a budgeting service warns.


But New Zealand Federation of Family Budgeting Services chief executive Raewyn Fox said the policy to keep interest rates low while forcing everyone to save more raised issues of fairness.

"The people who don't have mortgages will be in effect subsidising the economy for the people who are obtaining an asset by buying a house."

To be fair, the policy document addresses this (@5.21), saying that "Distributional and hardship effects for the lower paid would need to be considered", and raising the possibility of a low-income exemption. But we've all seen how the theoretical ability to compensate the losers of policies which produce net gains tends to be forgotten in practice. Which means that the acceptability of the policy is going to depend crucially on whether Labour follows through on this promise. Because otherwise what they're proposing is lowering mortgages for the middle classes (and of course themselves) on the backs of the poor - something which is against everything they're supposed to stand for.

(Meanwhile over on Twitter we have Labour apparatchiks talking of the need for government to "set policy conditions that create jobs & lift wages", while airily ignoring any distributional effects. Exactly the same rhetoric is used by National to justify lowering wages and employment conditions. But the whole point of Labour is that it supposed to care about the effects of government policy on ordinary people - not just steamroller them in pursuit of growth for the few).