“… By Bernard Hickey
“..I feel like a priest who has been wrestling with his belief in god and has now decided god does not exist.
It’s time for me to recant and to say what I’ve been thinking for months: …
… the economic god of completely free markets and capital flows is not worth believing in anymore …
… and we must look for other things to believe in and do.
I think New Zealand needs to have a debate about capital controls, about foreign ownership of assets, about measures to control our currency …
… and about being openly nationalistic rather than internationalistic about our economic policy.
I think the Global Financial Crisis and the preceding decade of debt-driven instability in global capital markets and trade flows have demonstrated the failure of the economic model most New Zealand policymakers have adhered to for nearly 3 decades.
I think we need to rethink the way we run monetary policy, the way we allow foreign ownership of assets, the way we encourage savings, the way our financial institutions are regulated …
… and change the things we are aiming for.
We should debate more specific controls on who owns what assets, whether monetary policy should still use the Official Cash Rate to focus on inflation alone …
… and whether banks should still be free to lend however much they want to whomever they want.
But first some background because this is not something that has come out of the blue.
I’ve been thinking about this for a while.
I used to believe in the primacy of markets and economic freedom.
I used to believe that New Zealand’s interests, and the world’s, were best served by completely free movement of capital and trade.
I railed against the tariffs and the exchange rate controls of the mercantilests and protectionists.
I argued in favour of unfettered free trade with China.
I despised the ‘Think Big’ policies of the Muldoon era and all the import licenses and exchange rate controls that went with them.
I believed the reforms of the late 1980s were ultimately good for New Zealand and if only we had gone a little bit further and a little bit faster we would have been OK.
I believed a free-floating exchange rate and the removal of tariffs and other trade barriers was a good idea.
I believed in the law of comparative advantage and how encouraging companies to specialise the means of production in different countries ultimately made everyone wealthier.
I pointed to the amazing reduction in the number of people living in poverty in China as proof of what free trade can do.
I thought the ‘Great Moderation’ between 2002 and 2007, where interest rates and inflation was low while growth was high, was real.
But I think many of those beliefs are now wrong.
The Great Moderation was a Great Fraud
It’s clear now that the explosion of global capital flows and low interest rate debt over the last decade was a direct result of those unfettered capital flows.
The ‘Great Moderation’ was actually a Great Fraud perpetuated by financial engineers in Manhattan and London …
… who targetted massive short term bonuses by creating financial instruments that gave the appearance of reducing risk …
… but actually massively increased risk.
These investment bankers exploited all sorts of holes in financial regulations and in the way pension funds are allocated to enrich themselves at the expenses of middle and under classes in developed countries.
The created a long term mess for short term gain.
They privatised profits for themselves … and socialised the losses for us all…” (cont..)