It so happens that the NZ places a great deal of weight on what I think. In fact every day before the Prime Minister eats his Sultana Bran he calls me up and asks me "Andrew Andrew, what should I do, I can't live without your insights". Anyway, I thought I'd share some of the advice I gave him today.....
First of all, I am no Keynesian advocate. I deplore the idea of stimulating the economy simply because I deplore the economic policies that leave the economy in a situation where there is excess capacity, whether because of over-investment or over-consumption. Over-investment is of course the result of bad planning, over-consumption the result of excess debt creation. In the case of the later, this occurs because of government. The US government is key because:
1. Its the largest economy in the world
2. It is the largest financial centre in the world, and London is just as bad
3. It is the world's reserve currency, which means that most debt is denominated in USD, so they don't have to worry about repaying foreign currencies, since they just print their own cruddy currency to repay the world. This of course tells you to expect a fall in the USD. Which makes me think the Japanese have more to worry about then the USA. China will be ok as well because they are the centre of future growth. Poor Japan though. Those innocent souls investing in postal savings bonds at 1% return on investment.. he he. No wonder the governments wanted to sell the scheme. hehe. Nope, very sad. I keep telling people you cannot trust government. They are evil people. Why do you vote for them.
Ok, I've fallen off topic here. So back to stimulus. Given that the US and other Western governments have created this slump in demand, and they did that by stimulating household debt/demand. Surely the only justification for now going out and stimulating government demand/debt is by increasing the productive capacity of the economy. So how might the government do that. I can suggest the following ideas:
1. Investments that use as much local content as possible
2. Investments that provide stimulus to every aspect of the economy, eg. rural and city, white collar and labourers.
3. Investments that increase the domestic productive capacity, reduce costs, or increase efficiency, prefereably in those areas that need it.
4. Investments that will provide work to small business as opposed to big contractors sending most of the profits abroad
So lets look at some possible projects:
1. A very fast rail service from Auckland to Wellington: Such a service will go through mountains (like Japan), or alternatively around the coast via New Plymouth if that saves on capital costs. The attraction is the jobs created, local railway making, local raw materials (iron sands). The trains could be made in Australia, the technology imported from Germany, France or Japan. This is one of my favourites because it would be more energy efficient, reduce emissions, replace old train services, stimulate regional economies before & after. The argument could be made that NZ'ers could not afford to buy the tickets. True. Next!
2. Energy projects would make a lot of sense but NZ already uses renewable and domestic energy supplies, so there is no point in investing in them, unless it was a proposal which would reduce imported oil used as a transport fuel. This makes a lot of sense. The question is how? The railway idea helps, but its probably not viable. NZ has no car industry, so it does not make sense to start one given the small size of the economy. It would not be feasible to convert cars to electric engines, or to replace them. An attractive option however is to produce biodiesel from wye and bio-ethanol from timber. This would take time mind you, but why not start the problem with annual crops like maize and sugarbeet. Within a decade NZ would no longer need imported oil. Another compelling program would be a search for coal seam gas. I actually know a lot about this having just prepared an energy report on the subject. The intent or hope is that by government kickstarting coal seam gas expenditure through Solid Energy, it will be able to establish a competitive gas supply to the conventional suppliers, and it will also kickstart investments in gas reticulation pipelines on both islands. The consequence will be cheap gas, which will attract more industrial activity as well given the weakish NZD.
3. Communications projects make a lot of sense as well. The future is very much going to be technology driven, and I think by offering cheaper, high speed internet NZ has the potential to rejoin the technology race. It is lagging in this respect. I think the key to improving things is to make NZ a more attractive place to live. Over-investing in property did not help as now we are going to witness a lot of job losses. High speed data therefore makes a lot of sense, as well as getting computers into schools.
4. Education makes a lot of sense too, but what is the point if people just go overseas. Unless NZ can appeal to people, attract higher income jobs, it has little hope of doing that. I think most people have a bad perception of education frankly. There is this obsession with formal education. I consider myself a pretty smart guy, and truth be told, I learned most of it by reading books, analysing issues, breaking down arguments. Any education needs to be critical and systematic, it does not need to be formal, and it does not need the sanction of government. There are better ways to convey credibility to prospective employers than getting a certificate from a government.
I can't think of any other investments that people should make, but there are probably more. Tell me what you think!
First of all, I am no Keynesian advocate. I deplore the idea of stimulating the economy simply because I deplore the economic policies that leave the economy in a situation where there is excess capacity, whether because of over-investment or over-consumption. Over-investment is of course the result of bad planning, over-consumption the result of excess debt creation. In the case of the later, this occurs because of government. The US government is key because:
1. Its the largest economy in the world
2. It is the largest financial centre in the world, and London is just as bad
3. It is the world's reserve currency, which means that most debt is denominated in USD, so they don't have to worry about repaying foreign currencies, since they just print their own cruddy currency to repay the world. This of course tells you to expect a fall in the USD. Which makes me think the Japanese have more to worry about then the USA. China will be ok as well because they are the centre of future growth. Poor Japan though. Those innocent souls investing in postal savings bonds at 1% return on investment.. he he. No wonder the governments wanted to sell the scheme. hehe. Nope, very sad. I keep telling people you cannot trust government. They are evil people. Why do you vote for them.
Ok, I've fallen off topic here. So back to stimulus. Given that the US and other Western governments have created this slump in demand, and they did that by stimulating household debt/demand. Surely the only justification for now going out and stimulating government demand/debt is by increasing the productive capacity of the economy. So how might the government do that. I can suggest the following ideas:
1. Investments that use as much local content as possible
2. Investments that provide stimulus to every aspect of the economy, eg. rural and city, white collar and labourers.
3. Investments that increase the domestic productive capacity, reduce costs, or increase efficiency, prefereably in those areas that need it.
4. Investments that will provide work to small business as opposed to big contractors sending most of the profits abroad
So lets look at some possible projects:
1. A very fast rail service from Auckland to Wellington: Such a service will go through mountains (like Japan), or alternatively around the coast via New Plymouth if that saves on capital costs. The attraction is the jobs created, local railway making, local raw materials (iron sands). The trains could be made in Australia, the technology imported from Germany, France or Japan. This is one of my favourites because it would be more energy efficient, reduce emissions, replace old train services, stimulate regional economies before & after. The argument could be made that NZ'ers could not afford to buy the tickets. True. Next!
2. Energy projects would make a lot of sense but NZ already uses renewable and domestic energy supplies, so there is no point in investing in them, unless it was a proposal which would reduce imported oil used as a transport fuel. This makes a lot of sense. The question is how? The railway idea helps, but its probably not viable. NZ has no car industry, so it does not make sense to start one given the small size of the economy. It would not be feasible to convert cars to electric engines, or to replace them. An attractive option however is to produce biodiesel from wye and bio-ethanol from timber. This would take time mind you, but why not start the problem with annual crops like maize and sugarbeet. Within a decade NZ would no longer need imported oil. Another compelling program would be a search for coal seam gas. I actually know a lot about this having just prepared an energy report on the subject. The intent or hope is that by government kickstarting coal seam gas expenditure through Solid Energy, it will be able to establish a competitive gas supply to the conventional suppliers, and it will also kickstart investments in gas reticulation pipelines on both islands. The consequence will be cheap gas, which will attract more industrial activity as well given the weakish NZD.
3. Communications projects make a lot of sense as well. The future is very much going to be technology driven, and I think by offering cheaper, high speed internet NZ has the potential to rejoin the technology race. It is lagging in this respect. I think the key to improving things is to make NZ a more attractive place to live. Over-investing in property did not help as now we are going to witness a lot of job losses. High speed data therefore makes a lot of sense, as well as getting computers into schools.
4. Education makes a lot of sense too, but what is the point if people just go overseas. Unless NZ can appeal to people, attract higher income jobs, it has little hope of doing that. I think most people have a bad perception of education frankly. There is this obsession with formal education. I consider myself a pretty smart guy, and truth be told, I learned most of it by reading books, analysing issues, breaking down arguments. Any education needs to be critical and systematic, it does not need to be formal, and it does not need the sanction of government. There are better ways to convey credibility to prospective employers than getting a certificate from a government.
I can't think of any other investments that people should make, but there are probably more. Tell me what you think!
