Last Updated: Nov 19th, 2009 - 11:07:39 Newsletters : 2005 Newsletters : 24 June 2005 Thought for the Day The great virtue of a free market system is that it does not care what colour people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another. Milton Friedman Jun 24, 2005, 13:18 Newsletters : 2005 Newsletters : 24 June 2005 Working Around Leviathan I have always been optimistic about the future of mankind and for our society, not because of what our governments can do for us but because they so obviously are incapable of completely ruining our way of life despite very determined efforts. Socialism and fascism survive today in only islated places - North Korea and Cuba, for instance - and the worlds biggest country is well on the way to becoming a normal capitalist society. This is not to say that China will not have difficulties because a one party state is not going to survive the longer term effects of a free market economy. The clash of party bosses and the market economy will probably be very messy but in the long run the market economy will prevail because that is what "the people" have and if they see it being destroyed they will move to retain it. If we look at the modern world we see that Nation States, despite their best efforts to control their citizens, are slowly becoming less and less relevant. More and more people are doing what they want to do and succeeding despite the dead weight of government taxes, rules and regulation on their lives. We can help this along a bit by continuing our pressure on politicians and by improving the education of our population. Our socialist government is determined to completely own and control education in New Zealand but their own stupidities and lack of coherent and logical philosphy is starting to demonstrate to people that they are going to have to do it for themselves - and they will. The more the government insists on imposing itself on our lives the more that people will see its deadening and worsening effects. It takes time but it is happening. Our current lot of "throw-back socialists" are just a temporary hitch on they way to more individual freedom and a comprehensive market economy. I have discovered this article which discusses these thoughts wonderfully well and although the context is the American Nation State the concepts apply equally well to any Nation State. As New Zealand governments are forced to compete in a market led world they will have no choice but to provide conditions which favour the entrepreneur and business developer. As we all know too well these people are extremely valuable and politicians are all aware that Australia beckons. Who wants to live in a socialist state when freedom beckons so enticingly across the Tasman? So we should always remain optimistic but also determined to give socialism and the Nanny State the final push and open up the future fully for our children and their children. This article expresses this very much better than I can so have a happy read! Jun 24, 2005, 12:18 Newsletters : 2005 Newsletters : 24 June 2005 Are New Zealanders Poor Savers - or Just Rational? The best-selling author Michael Crichton recently wrote: "The greatest challenge facing mankind is the challenge of distinguishing reality from fantasy, truth from propaganda." He was talking about environmental doom-mongering but the same comment applies to the New Zealand debate about saving. Finance minister Michael Cullen has claimed that New Zealand's household savings rate is too low and that the country is too dependent on foreign capital. The New Zealand Institute has claimed that home ownership rates have fallen and that "New Zealand is facing a serious ownership challenge." In last month's budget the government announced an additional subsidy for home ownership and a 'compulsory opt-out' workplace savings scheme. But where is the evidence that New Zealanders are not making rational savings decisions, and that a wise and all-seeing government should try to change their ways? According to Statistics New Zealand, net national saving as a percentage of national disposable income has risen strongly since the early 1990s. In 2003/04 it stood at 6.8% compared with -2.6% in 1991/92. It is a statistical convention that government and corporate saving is not counted as household saving. But if households do not collectively own or control Crown assets and many corporate assets, who does? Rational behaviour implies that lower 'household' savings should go hand in hand with higher government savings. This is what seems to have happened as large government deficits turned into large surpluses since the early 1990s. If the government wants New Zealanders to save more, perhaps it should stop over-taxing them to fund wasteful spending. Treasury research has also found that people in retirement generally enjoy comparable or higher levels of consumption than prior to retirement. Those who say household savings are too low should explain why it would be rational for people to be even better off in retirement than during their working lives. The claim that New Zealanders have consistently been living beyond their means over the past decade implies that their net worth has been declining. For persons other than those in retirement, this is unlikely during a period of strong economic growth, and is inconsistent with Reserve Bank data which show that the net wealth of New Zealand households has grown from around 2.8 times net disposable income in 1979 to about 5.4 times in 2004. The New Zealand Institute has claimed that the proportion of households with negative net wealth is much higher in New Zealand (16%) than in Australia (4%). However, this is an 'apples and oranges' comparison as the data for New Zealand are collected from individuals whereas the Australian data refer to households. The true gap is much narrower. In any case, New Zealand is less wealthy than Australia, thanks to decades of poorer policies. Asset ownership is ultimately about a stronger growth performance and higher average incomes. The Institute's claim that home ownership has fallen is based on data which are not robust and are likely to be revised. In any case, what is the 'right' rate of home ownership? It seems that around 70% of homes in New Zealand are owner-occupied. This is much the same rate as in the United States, and well above Germany at around 40%. If New Zealand has a "serious" ownership challenge, where is it? The use of foreign capital is not obviously a bad thing either. New Zealand was developed on foreign capital. In broad terms, a balance of payments deficit when the government is running a fiscal surplus signals that private investment exceeds private savings. As long as the investment is profitable it makes sense for foreigners or New Zealanders to borrow from global capital markets to fund those investments. Furthermore, higher savings are not necessarily a good thing. They come at a cost of lower levels of current consumption, and there is no strong link between savings and economic growth. In the final analysis, what business is it of the government to try to influence savings decisions - the choice individuals make between present and future consumption? And there is little evidence that governments can influence aggregate savings rates much anyway. If more widespread asset ownership is the goal, an easily available option is to shift assets from state ownership to private ownership. It is hardly credible for the government to invoke an asset ownership goal and then rule out an option for achieving it which does not require households to cut current consumption. Arguably the government's best 'savings policy' should be to promote economic growth (by and large, growth generates savings, not the other way round), to reduce distortions to saving, in particular by income tax reductions, and to make access to welfare benefits less open-ended. Puzzlingly, the government seems to have turned its back on a credible pro-growth, tax reduction and welfare reform strategy. This article was written by Roger Kerr who is the executive director of the New Zealand Business Roundtable. For more information, contact: Roger Kerr Executive Director Ph: 04 499 0790 Email: rkerr@nzbr.org.nz Web: www.nzbr.org.nz Jun 20, 2005, 11:14