Comments

David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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1/5/12

Gareth Morgan: House prices a cancer for the economy


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Gareth Morgan explains the reasons for, and consequences of, New Zealand's housing obsession in an article for the New Zealand Herald:

The over-investment in housing that we've sponsored has come at a high price: diversion of capital away from deployment in industry and income and employment and instead into an asset class where the predominant objective of investment has been capital gain.

Of course capital gain is not guaranteed but if there exist sufficient incentives for people to invest here rather than elsewhere, then it will materialise, in time.

The reasons have historically been twofold:

* A directive to banks from our Reserve Bank to favour lending on mortgage to other forms of lending - this is effected by the lower risk weightings it deems residential mortgages deserve compared to other lending types.

* A tax break on housing to the extent that capital gains ensue and are not taxed.

Of course these two conspire to comprise a self-fulfilling outcome of capital gains.

The lending distortion sponsored by the Reserve Bank ensures there's more credit available for this form of investment than others, so people can get into this activity more easily than, say, funding a business.

And the tax break increases the effective return so of course compared to other investments this will make housing a more attractive alternative.

So lubricated with the credit availability we all pile into the asset in unison and drive up its price. Hardly rocket science.

The point is of course though that this is not a demand that's driven in any way by economic fundamentals such as the demand for shelter - it's purely speculative and totally contrived by the regulatory and taxation framework.

It would be fine if there weren't an opportunity cost - a decided lack of investment in businesses that generate most income and employment.

This is the legacy of the last 30 years. And it has become so entrenched in our psyche that our ability to build businesses and create wealth and employment has been numbed.

A bit like growing your own veges or preserving the summer harvest, it's a lost craft. The cost to incomes is high, the consequence being our GDP per capita continues to slip down the OECD charts.

As we contemplate economic recovery some thought at least should be given to the quality of the recovery we'd prefer - do we want it to be a housing-led one again where we all seek riches through a speculative race for property; do we want it to be a business-led type where jobs and incomes take priority; or do we really not care? Is it all too much to think about?
 



tags: gareth morgan, capital gains, reserve bank, business investment

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