No Bill, it is not the environmentalists who push up price of land

This week we had the extraordinary spectacle of the Prime Minister of New Zealand addressing his party Blue-Greens, claim that environmentalists push up the price of land.

OK he is getting at the over-bureuacratic interference in the planning process and cites examples of councils wanting to know about furniture layouts and positioning of plants before they grant a permit.

Pull the other leg Bill. We are not going to accept that one. Sure they are intrusive, but that can be solved. Probably councils are desperate for revenue and central government gets far too much of the public revenue.

No Bill, land only has value because of community activity. You don't put a factory out in the wop-wops where there is no electricity, no internet, no sewerage or water supply, let alone the transport to get the goods out. You put it where it is near to all the infrastructure, suppliers and markets. You site it near rail, near ports. It is all the government expenditure on infrastructure, and all the businesses and community that makes a certain site desirable. Land which is well serviced has more value than land which is isolated and poorly served.

The value of land is increased by five things:

1. Infrastructure provided by government – rail, roads, schools, hospitals
2. Infrastructure provided by local government – water, storm water, sewerage, streets, lighting, parks, community halls, street enhancement.
3. Businesses and industry – manufacturers, maintenance, retail, warehousing, commercial centres
4. Community organisations and individual housing – clubs, organisations, neighbours.
5. Nature – proximity to rivers, seas, views, good soil, good weather

Given that Auckland has all these, and you have seen immigration as a way of increasing the GDP, making government look good, it is no wonder Auckland prices have been rising for so long. Then again, the international trend to very low interest rates has been a huge factor (not something you can take credit for Bill though you try I know).

And all this before the big one – the fact that the tax system favours buying houses for investment as those who own 2, 5, 20 houses have much to gain and precious little tax to pay. That is on your plate Bill, don't dodge it. The Green Party tries to recoup a small proportion of the capital gains for the public purse and the Opportunities Party collects it all, but you only collect a miniscule amount of this unearned income. Shame on you. And double shame for then turning round and blaming environmentalists. Get real.

So Bill, if you want to blame bureaucracy or environmentalists demanding good tree planting, please see it in the full context of what actually raises the price of land.

We write to the Minister of Finance about the IMF paper The Chicago Plan Revisited

This week we wrote a letter to the Minister of Finance and look forward to the response Dear Mr English Re The IMF Paper ‘The Chicago Plan Revisited’ Our attention has been drawn to a working paper published on the website of the International Monetary Fund entitled The Chicago Plan Revisited by Jaromir Benes and Michael Kumhof and dated August 2012. Its abstract reads as follows:- At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve banking for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1)           Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2)           Complete elimination of bank runs. (3)           Dramatic reduction of the (net) public debt. (4)           Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy. (There has also been a recent paper from the Bank of International Settlements site by the economist Borio, which calls for a rethink of the business cycle model and for significant adjustments to macroeconomic policies, and to an article in the Economist Dec 14, 2012, discussing that paper at We therefore ask you, as Minister of Finance:- a) Are you aware of the existence of the IMF paper, the Chicago Plan Revisited? b) Does your government agree that the four results outlined in this paper are desirable? c) Does your government support the method used to achieve these four goals? d) If you differ from the method outlined in the paper to achieve these four goals or argue with it in any way, could you outline your disagreement and how would you achieve these goals differently? Yours sincerely Deirdre Kent and Phil Stevens New Economics Party  

NZ borrowing to lend to IMF, the latest absurdity

It’s a strange world this world of money. In the melee of the Greek elections and the frantic ramming through of the asset sales legislation came a strange announcement, but it was lost. It wasn’t even reported in the Dominion Post. The Government would be lending $1.26 billion to the IMF’s new bailout fund for the debt-wrecked Eurozone, but it would have to borrow this first. In addition to earlier billions for the stabiility fund, the total cost to NZ would now be over $4 billion, according to Bill English. Ponder on that one! We borrow in order to lend in order to save Europe. Whew. The child in us will ask how money is created in the first place. Can only banks create money? Of course not. We the people can create our own money without the burden of interest. But we stupidly use banks. These days we don’t even use our own banks. So to add insult to injury, when we want to borrow, we go to overseas banks for loans because their rates are cheaper. So let’s get this again. We borrow $1.26 billion at interest and then lend it to the IMF. What? At interest? They don’t say. And they will give it back, the part they don't use apparently. The Minister of Finance says it is our insurance policy. And it is the banks who are in trouble.  So we pay interest to the overseas banks so we can protect them from future bad debts. This is Alice in Blunderland stuff.  Where is the cartoonist? Reuters has just reported “Ireland's High Court began hearing a challenge to the European Union's new bailout fund on Tuesday, launched by a politician who said the European Stability Mechanism (ESM) was not compatible with the Irish constitution.” The Guardian reports: “This, for certain, is a high stakes game. Part of Europe's fighting fund has already been spent on bailing out Greece, Portugal and Ireland. Spain has also pledged funds to the EFSF and ESM, and these clearly cannot be spent buying up the country's own debt…. If the gamble fails, Spain will still need a bailout and Europe will have nothing left in the kitty for Italy.” So let's go back to the Pre-election Fiscal Update and see what it assumed about Europe. I seem to remember ...yes here it is: The PREFU's main forecasts critically assume the reasonably orderly resolution of sovereign debt problems in the euro area. Wow they were so wrong. And these our best economists and financial experts? An ordinary person listening to the news can do better. They could see that if you are solving debt by lending ever more money to a country, the problem won't be solved. And here is another thought. If Greece is too big to fail, and Spain is too big to fail and Europe is too big to fail, then it is going to apply to UK, US and China too.  Who knows where it will stop? The size of the global economy is about $63 trillion. According to Bernard Lietaer et al in Money and Sustainability, the Missing Link, "one day's currency speculation represents more than the annual economic output of Germany or China changing hands. The notional amount of currency derivatives are now more than $700 trillion today. Currency derivatives by themselves represent therefore almost nine times the entire global annual GDP". And that is only one type of derivative. No, the IMF's bailout fund is going to fail and it must fail because it can never match the power of the investment banks.