Note the following from An Economic Model for Securing Hormuz, 30 April 2026 for Project Syndicate, by three British-based emeritus professors of economics. Or see The Strait of Hormuz, Towards a Long-Lasting Solution 18 April 2026, CESifo Working Papers.

The authors say: “The need for solutions that rely less on coercion and more on aligning economic incentives with America and Iran’s shared interest in keeping the Strait open. That may mean institutionalizing today’s emerging arrangement, by which Iran, in coordination with the Gulf states, guarantees safe transit for a fee. Such a system would resemble the agreement under the Montreux Convention that governs passage through the Turkish-controlled Bosphorus and Dardanelles Straits. An Iranian toll based on Turkey’s current transit fee of $5.83 per net ton would be about $0.58 per oil barrel—small enough, relative to the value of the goods, that shipping firms would not balk at the expense or seek alternative routes. … such a toll would generate $4.3 billion annually, an amount large enough to create significant incentives for Iran to facilitate and ensure safe passage.”

Such an arrangement is described as a “service-based toll system”, and is arguably more efficient and stable than any alternative arrangements.

Clearly such ‘service-based’ systems are used in the Panama and Suez Canals. The service component of canal maintenance is obvious, and of course in the Panama case there is a substantial resource cost in terms of water required to run the locks. Yet in both cases the fees charged include substantial ‘rent’ or ‘royalty’ components. And for the Strait of Hormuz – along with the other examples – a significant service would be that of ‘protection’ or ‘security’.

Such a protection-fee may have the look of ‘extortion’ about it; but it also has the look of a regular ‘property right’; noting that property rights – and fees arising – form the centrepiece of liberal economics. Indeed, as it was, the world economy – and ecology – has been blighted by ‘cheap oil’. Every little bit to raise the price of oil – and oil-based products – towards their long-run opportunity costs can only be a good thing.

Under such a commercial regime, we could call the Iranians and Omanis (and whoever else becomes part of the service-consortium) Strait Lords or straitlords (like landlords). Indeed Egypt and Panama are – among other things – Canal Lords.

What would happen if the Strait of Hormuz was blocked by a giant earthquake? Then a pipe, tunnel, road or canal would have to be built. There would be no argument then about a portage fee being charged.

Indeed, there are many landlocked countries in the world. They expect to have to pay something to foreign authorities to access the international marketplace for goods. Ethiopia, with well over 100 million people, depends substantially on the port of Djibouti. Kazakhstan depends on China and Russia. Paraguay depends on access to the Paraná River. Switzerland depends on the Rhine and Rhone. Austria depends on the Danube. These passages all have associated commercial costs.

War and Sport

In the event of wars, Straits are typically the first passages to be blocked. Just think of the Strait of Dover, which connects the English Channel to the North Sea, in World War One and World War Two. The British used mines and submarine nets and guns to keep unauthorised traffic out. The best solution to wartime privations is to not start wars in the first place; and – if they happen anyway – to quickly find a pragmatic economic solution to end the war without creating ‘losers’; to end the war through negotiations rather than belligerent ‘demands’.

There is only one unreasonably belligerent nation-state in Southwest Asia, and it doesn’t have a coastline on the Persian Gulf. The rest of the states in a region – or in the world, especially when a Strait or a Gulf has global significance – can corral such a rogue state, if they choose to do so.

It is to the dismay of the vast majority of the world’s population that the rogue state of Israel has been allowed to operate uncorralled, and for so long; Israel with the thoughtless support – the uncritical loyalty – of its distant champion, its Goliath. Principles-based economic pragmatism can rule when rogues are constrained or reformed.

Iran is a proud nation that will play a fair game; it will, if allowed to, play fair and play hard. That’s the sporting mantra which reflects, for example, the New Zealand All Blacks.

Conclusion

The emeritus economists conclude: “The Strait of Hormuz is a cornerstone of the global energy system. For many years, the United States effectively managed its security; but this arrangement has become economically inefficient and politically asymmetrical in terms of responsibilities and burden-sharing. A cooperative regional security regime funded by transit charges [my emphasis] offers a promising alternative that would benefit oil exporters, shippers, and consumers.”

Yes, such a regime could contain a royalty component as well as a service component; ‘clipping the ticket’. Capitalism runs best with rents, but not excess rents, not Goliath rents.

About the writer:

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

7 May 2026 – In Aotearoa New Zealand, citizenship functions as an exit permit. An adult New Zealand citizen is free to choose to become a foreign denizen.

A denizen (of New Zealand) is a person living and working in New Zealand, but who doesn’t qualify for a New Zealand passport. New Zealand has three tiers of denizenship, although the first tier are actually citizens who are perceived as immigrants. Too many New Zealanders – probably increasing numbers of New Zealanders – tend to regard all New Zealand residents who don’t look or sound Pakeha, Māori, Pasifika, white South African, or Australian as non-citizens; as not real New Zealanders.

New Zealand is increasingly becoming a country with a high denizen-to-citizen ratio. New rules intended to make it more difficult for New Zealand permanent residents to become citizens of Aotearoa New Zealand can be expected to keep more immigrants here. That may be the intention.

Probably the countries with the world’s highest denizen to citizen ratios are the United Arab Emirates and Qatar.

First-tier denizens don’t count as denizens, because they are actually citizens; they are just casually perceived by many to be denizens. Citizens of Indian or Chinese heritage whose presence in New Zealand dates back to the nineteenth century may be perceived as denizens now, whereas they were once perceived as citizens.

Second-tier denizens are those people living in New Zealand with ‘permanent residence’ status. Except that we would regard New Zealand resident Australians as citizens, even if most of them are not, technically.

Third-tier denizens are any ‘visa-holders’ living in New Zealand with some ‘right to paid work’ provision in their permits. This does include many international backpackers and many international students.

The denizen to citizen ratio is the number of resident adult second- and third-tier denizens divided by the number of resident adult citizens. I don’t know what it is, but am guessing that it is about one-to-three, and growing. (In the United Arab Emirates the denizen to citizen ratio is about nine-to-one.)

Is the new policy essentially an immigrant-retention scheme? We need our immigrants to stay, so in that sense it may be good policy. And, as the financial literati keep telling us, we are going to need many workers in the 2030s and 2040s to sell or otherwise provide services to our seniors. It’s just a shame that New Zealand has so many jobless young people, including many NEETs – over 20% of women aged 20 to 24 counted as NEETs in early 2026 – who have finished their tertiary education yet are not able to secure employment.

Young and Old

Just a note, if a decision is ever made to income-test New Zealand Superannuation, then many New Zealanders aged over 65 will choose retirement over employment, aggravating the pensioner to worker ratio. New Zealand has one of the world’s highest pensioner employment rates, thanks to its universal system of retirement income which enables people to delay retirement. Statistics New Zealand should keep more granular data about the employment attributes of people aged over 65.

And they should keep statistics of the numbers of qualifying people aged over 65 who choose to not opt-in to New Zealand Superannuation. The fiscal cost of qualifying older cash millionaires signing up for a superannuation income which they don’t need – all citizens and denizens with permanent residence – may be smaller than is widely presumed. We should find out.

The cost of income-testing seniors may be less than the actual savings. Further, given that the universal model works best for seniors, it most likely works best for juniors, too. Too many NEETs are trapped into the targeted benefit system. New Zealand is too poor to sideline its young citizens; too many respond by using their citizenship as an exit certificate; exit from Aotearoa New Zealand.

About the writer:

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

6 May 2026 – While I have been aware for some time about Sweden’s difficulty in adjusting to its large inflow of refugees in the 2010s – especially African and Muslim refugees – I was nevertheless shocked by what I saw in the 2025 alternative travel documentary series Scandinavia with Simon Reeve, broadcast in New Zealand by SkyGo. The particular episode which compares and contrasts refugee ‘integration’ in Sweden and Denmark is here on DailyMotion, with a full transcript.

Before mentioning crime, cocaine and apartheid, we should note that Sweden is a large-scale military systems exporter. For Sweden, the ‘big gun’ industry is equivalent to the dairy industry in New Zealand as a source of foreign exchange revenue. Reeve notes: “There is really no other country of comparable size, of comparable population that can produce its own fighter jets and submarines. … The Swedes make some of the most advanced weapon systems in the world.”

In still-mainly-white and privileged central Stockholm, a quasi-progressive economist who appears to have a Jesus-complex notes among other things that Sweden’s much vaunted (though targeted) tax-subsidy system is “ensuring that women not just continue to provide economically for the family, but also for the state as well.” He notes “they contribute so much to our economy and welfare”. Sweden is the archetypal liberal mercantilist state that insists on running huge current account surpluses, and interprets national success as making vast amounts of money; it’s a corporate society which engineers people into making choices which reflect the ‘rainy day’ values of its state system.

In six out of seven years, Sweden ran current account surpluses in excess of five percent of GDP. Sweden has always run such surpluses for more than thirty years; as a country, it keeps putting ‘money in the bank’ and not spending it. It could be said that its foreign ‘investments’ support New Zealand’s inflated standard of living. New Zealand hasn’t had a current account surplus since 1973, and typically has a current account balance of minus five percent of GDP; mirror image of Sweden.

Despite (or because of) its liberal and mercantilist credentials, Sweden is a failing state. Reeve visits the police bomb squad. We learn that: “Deadly shootings among drug gangs, largely run by people from immigrant backgrounds, have more than tripled. The gun murder rate in Stockholm is now roughly 30 times that of London. Sweden has the highest gun crime death rate in Europe, after Montenegro and Albania. And it’s not just guns. … Somewhere around 2018, [Sweden] experienced rapidly increasing numbers of homemade bombs, hand grenades and so on. … Most of the hand grenades being thrown are being thrown by very young boys and girls. … Bomb units can get four callouts a day.”

He goes on to note: “Gang warfare has exploded here, fuelled by the rise in cocaine use in Sweden and across Europe. Gangs have taken advantage of liberal policies that children shouldn’t be arrested and actively recruited them. … Most of the perpetrators, as well as the victims, come from immigrant communities. … In recent decades, Swedes welcomed refugees from world conflicts, more than 100,000 from the wars in the Balkans, and hundreds of thousands from Syria, Iraq, Afghanistan. … Housing’s been provided, but often far from city centres, in estates where up to 90% of residents are now from immigrant backgrounds. … Two areas of suburban Stockholm … estates are cut off, hemmed in by motorways.”

The main problem growing up in those estates, mentioned by a Swedish-born woman of Somali descent, is “poverty”. “When I was 15 years old, I lost my best friend at this gang war that has been happening for 10 years, for decades. … The first thing is they need to see us as humans.” Yes, in Sweden, with its much-vaunted welfare state. (The Somali refugees came in the early 1990s, as a result of one of the United States’s failed foreign adventures.)

Reeve concludes: “We can debate whether there’s been a failure to integrate, but there has definitely been a failure of integration. The consequences are now being felt.”

The present government – in office since 2022 – is, more than most governments in Sweden’s history, heavily into New Zealand’s Luxon/Willis style of fiscal consolidation. Albeit with higher taxes and targeted subsidies.

We may note the following recent stories hosted by Al Jazeera: ‘Ready to murder?’ How criminal networks in Sweden are recruiting children to kill (15 Dec 2025), and Gangland wars killing dozens of bystanders, report Swedish police (4 May 2026). The former states that “What began as a utopian welfare project [of public housing in the 1960s and 1970s] gradually evolved into the physical framework of today’s segregated suburbs.” (Is this a portent of the fate which will befall the Unitec housing project, Te Kukūnga Waka, still very much in its early days? See my Carrington Precinct, Aka Unitec, 5 February 2026, Scoop) The latter story notes that “the minority right-wing government, propped up by the far-right Sweden Democrats, has been pushing through proposals to crack down on crime and immigration ahead of a general election on September 13.”

Sweden, reflecting its exceptionalist image as a warmly welcoming country, rejected any attempts to ‘assimilate’ its refugee immigrants; supposedly leaving them to retain their cultures of origin while being supported in deep poverty traps, in a suffocating welfare state of targeted housing and tightly means-tested hand-outs.

Denmark

Denmark, in recent years has gone the other way, heavily restricting refugee immigration and forcibly removing people from their immigrant silos into ‘mixed communities’. They have done much as what ACT in New Zealand wants to do here; mix them up, and sign them up to traditional national values.

Simon Reeve notes: “It would be wrong to think there are no problems in Denmark. All this social cohesion means outsiders can sometimes feel unwelcome. If you don’t conform here, it can feel uncomfortable.”

“The government even introduced what was called a ghetto law, aimed at preventing neighbourhoods being dominated by so-called non-Western immigrants. … One designated ghetto was the multicultural neighbourhood Mjolnaparkin. … Some families were actually forced to relocate. … It’s been described as the social experiment of the century. It’s also being described as social policy with a bulldozer. … Non-western parents in ghetto areas are now required to send their one-year-olds to preschools to ensure they learn Danish and traditions and values, or they lose government welfare benefits. Ghettos have since been renamed parallel societies …  an attempt to enforce and impose fundamental Danish values.”

Current policies; and multiculturalism in Aotearoa New Zealand

“Sweden’s reduced overall net immigration to zero. Denmark has the same target … they’ll offer up to £26,000 for immigrants to return home.” And “even in liberal Sweden, I met indigenous people who feel forgotten and excluded.” Shame, shame, shame. Sweden functions now too much like an apartheid state. And Denmark too, in its own less violent and less overt way.

In my view, genuine multiculturalism – cultural fusion – works best. In Aotearoa New Zealand that’s an absolute requirement, given the extent of demographic turnover, losing so many New Zealand citizens as well as welcoming immigrants. New Zealand will progress best without particular immigrant cultures becoming too dominant in any suburbs.

The word I like is ‘fusion’. Certainly not ‘assimilation’! Think of it like a ‘fusion restaurant’. We like immigrants to become fully integrated New Zealanders. But, in that process, New Zealand and ‘New Zealand values’ change; they adapt in a progressive way. In New Zealand we are doing this so much better than in Scandinavia. Especially in my own community of West Auckland which is financially poor but culturally rich, and has no ethnic or cultural silos or ghettos.

New Zealand of course could do much better. But it’s so important that neither overt nor covert racism creep further into the mainstream political discourse here. In New Zealand, relatively recent immigrants and their descendants supply so many of the goods and services which sustain us. Thankyou.

About the writer:

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Inflation is a topic which has, for a long time now, been at the forefront of normative economics. Normative economics is the economics of mainstream ideology, not the economics informed by concept or science.

The latest New Zealand CPI-inflation data – released this week – have been called the ‘calm before the storm’. We know that the CPI is going to rise markedly in the June quarter. But will that be due to inflation? Or will it be due to the real costs of war; and in the context that the present war has all the elements of global cost, not just local or regional cost. If the latter, then the present ‘war of choice’ – a euphemism for a war of aggression waged by traditional allies – also becomes a ‘cost-of living crisis’ of choice.

Can we characterise other cost-of-living crises likewise, as crises of choice which have downside foreseeable consequences (though, like all crises, may have a mix of upside and downside unintended and unforeseeableconsequences)? Such choice-making would be clear instances of ‘functional stupidity’, as outlined in the 2016 book The Stupidity Paradox: the Power and Pitfalls of Functional Stupidity at Work (by Mats Alvesson and André Spicer). We may note that the stupidity paradox applies to academic workplaces as well as to corporate workplaces.

With regards to ‘unforeseeable consequences’, there is also a category of ‘underforseeable consequences’, meaning plausible consequences only imaginable by people capable of genuine critical reflection. Such people appear in all walks of life; certainly not only in academia. It was Cassandra, in Troy, who foresaw downside consequences which others could not.

Inflation as a Concept: Inflation versus CPI-Inflation

Inflation, as a concept, is defined as a depreciation of the purchasing power of money. (It means that a dollar will buy less in the present than in the past.) Deflation, thereby, is defined as an appreciation of the purchasing power of money. Thus, a symptom of inflation is rising prices. This does not mean, however, that all cases of rising prices can be categorised as inflation.

(There may be cases of inflation where prices are not rising; where falling costs – that is, rising productivity – are offset by monetary depreciation. Indeed, a comparison of the twentieth century with the nineteenth century suggests that inflation may have been more ubiquitous in the twentieth century than is commonly realised. And that much of the hidden inflation of the twentieth century, rather than being a problem, was actually an unrecognised solution to the very real nineteenth century problem of CPI-deflation.)

A depreciation of money – inflation – may be a problem, may be a solution to a problem, or it may be neutral. For inflation to be a significant problem, economists normally understand it to be an ongoing process – like an out-of-control train – rather than a one-off or two-off event.

CPI-inflation has a separate definition. It is defined as an increase in the general – that is, average – level of consumer prices. Consumer prices are prices incurred by households of people within a defined territory; typically, we think of a territorial nation-state, though we could be interested in a province, or we could be interested in a geopolitical region, or the world as a whole.

There are essentially four quite separate versions of CPI-inflation. Only three of these meet the definition of inflation as monetary depreciation. The other version is increases in the cost-of-living, and has been a substantial problem in the world this decade; this version is about real supply, not about money supply. Further, this can become a process of ongoing real-supply cost-of-living increases, not just getting through a limited cost event such as a pandemic or short war; such a process is a significant problem, but it is not inflation. An appropriate policy response is to address the real supply costs, and to stop pretending that it’s a depreciation-of-money problem.

A cost-of-living crisis of choice is a politically imposed real-supply crisis. Conceptually, such crises may be the result of ‘evil’, but more likely they are the result of ‘stupidity’ (refer Bonhoeffer, Cipolla, and Alvesson/Spicer). ‘Stupidity’ can be a technical word; indeed, even words like ‘evil’ can be given a technical meaning, just as the word ‘genocide’ has both technical and popular meanings.

Understanding these conceptual differences is very important, because different kinds of CPI-inflation problems require different kinds of policy remediation. Sometimes the best policy is a political or administrative choice to do nothing; to watch and wait. And certainly a very important part of the policy response to processes of CPI-inflation is to work out which kind – or which kinds – of CPI-inflation are taking place. Getting this analysis wrong can mean the implementation of a policy which is worse – possibly much worse – than doing nothing.

The four kinds of CPI-inflation are these:

·         increases in the aggregate demand for commodities and services; this is primary inflation

·         increases in the supply costs of commodities and/or services; this, in itself, is not inflation

·         a corrective process facilitated, by increases in the supply of or the circulation velocity of money, and that may under certain circumstances go awry; this process is known as secondary inflation

·         a process arising from the presence of different denominations of money – for example, American dollars and New Zealand dollars – and changes in the exchange prices (ie exchange rates) of one such money vis-à-vis others such monies; a process of localised inflation

One: Primary Inflation; exceptional increases in aggregate demand

This is the demand-pull inflation which dominates Economics 101 textbooks. It is commonly understood as ‘too much money chasing too few goods’; though that pithy maxim needs some unpacking.

The best way to understand demand-inflation is through the concept of a demand shock (an acute event) or a demand-stress (a chronic event). An example of a demand-shock is an unfunded increase in the demand, say, for medical services. By ‘unfunded’ we mean that it’s not offset by a decrease in demand for other goods or services. (Though there is an adjustment issue that arises from demand ‘switches’.) Demand ‘events’ or ‘boosts’ can be characterised as shocks, stresses, or switches.

An unfunded increase in spending means, essentially, a withdrawal of money from bank accounts; such withdrawals increase the circulation velocity of money. More generally, a reduction in savings is a sell-off of financial assets, noting that a bank deposit is a financial asset. Alternatively, an unfunded increase in spending means an increase in borrowing – especially borrowing from banks – that is not offset by someone else’s increase in saving; this is new money. This can be called an increase in credit. A demand shock can also arise externally, by money being sent to or brought into a country.

Demand shocks can, potentially, bid up the prices of goods and services. ‘Potentially’, because if there have been ongoing productivity increases, then more spending should be accompanied by more output, and not by higher prices. (If productivity is increasing and there are insufficient demand-boost events, then prices should be falling; that would result in CPI-deflation. Such deflation indeed was the norm in the capitalist world in the nineteenth century; including New Zealand.)

Going back to my example of increased spending on medical services, a demand shock is strictly an increase in demand because people have increased wants; that is, more purchases of ‘nice-to-have’ items. Or it could mean more people moving into older age groups, spending their savings. Or it could arise from more babies being born; as in the New Zealand ‘baby blip’ at the end of the 1980s. It does not mean more purchases of medical services arising from a general deterioration of the health of the population; this example is an increase in real costs, and comes under the label of ‘supply stress’, not ‘demand shock’.

Primary inflation is not a problem in itself. Rather, it’s a feature of the market economy working as it should do; in particular it’s a source of information that production systems are tight, and that new investment would be helpful to deal with the ‘too few goods’ part of the demand-inflation experience. In this last circumstance, higher interest rates are appropriate; they result from increased market demand for production capacity, not from policymakers raising interest rates to discourage the very productive investment that’s required.

There is a special case of demand-inflation, whereby the government sector outcompetes the private sector for new credit. This may or may not be capricious – ‘evil’ as Peter Thiel might say – on the part of government; more often it’s the government borrowing for more essential purposes than the purposes of private borrowers. The capricious case is called ‘crowding out’. In this special case, there is a role for interest rate increases; essentially to ration credit.

It is to the capricious version of this special case that monetary policy as we have come to know it may apply. But this policy – an engineered recession – arguably harms the private sector most. To achieve more private spending and less government spending, it is fiscal austerity rather than monetary austerity which is most pertinent. But even that budgetary policy of ‘fiscal consolidation’ tends to backfire, because so much private income arises from businesses supplying goods and services to government sector organisations; much private investment arises to satisfy governmental demands. Indeed, Air New Zealand always did well supplying air travel to government-connected personnel.

Primary inflation is a mix of rationing and incentive. The more rationing that is required when the economy is responding to increased demands, the more primary inflation there will be. Rising wages, at least in some production sectors, is a part of the resource reallocation process; and is also appropriate to an economy which is experiencing rising productivity.

An important coming example of primary inflation will be the increased spending of accumulated retirement savings; ie from KiwiSaver and other managed funds. Those spending from the biggest funds will be queue-jumpers at a time of inflation-facilitated rationing.

Demand-pull inflation is rationing goods and services by market price, rather than rationing by need or by equity. Most economists will say that ‘rationing by price’ is the most efficient method of rationing. So, the inflation is not really the problem; rather the problem is the unresponsiveness (strictly the ‘under-responsiveness’) of the economy that creates the requirement for rationing. The biggest potential problem is that of inequitable rationing.

Of course, unanticable demand-shocks and demand-stresses are a problem. But they are rare; most demand-events that are heading our way are fully visible, so long as we choose to look. Failure to anticipate the future market demands arising from an aging population (eg healthcare expenditures) and from maturing retirement-savings funds represents a primary-inflation crisis of choice.

Second Case: ‘Cost-plus’ CPI-inflation which is not actually inflation

It costs more to pick, from a tree, high-hanging fruit compared to low-hanging fruit. The process of moving from the easy-to-pick fruit to the hard-to-pick fruit is not a process of inflation. It is a ‘cost event’, however.

The most problematic form of CPI-inflation is the one known in the textbooks as ‘cost-plus inflation’. The only thing is that primary ‘cost-plus’ inflation is not inflation at all. Although cost-plus inflation can under certain circumstances facilitate a process of secondary inflation; secondary inflation definitely is inflation, and may or may not be an important economic threat.

Supply-cost price increases most certainly are a threat; they are a cost-of-living threat, but not an inflation threat. They relate to supply shocks (acute) and supply stresses (chronic). Supply switches may also occur; for example, as certain resources run out or become too scarce.

Examples of supply shocks are disruptions to supply chains arising from a pandemic. Such disruptions may arise from the disease process itself, or from measures taken to address the disease process; or from a mix of the disease and the prescribed cure.

Supply shocks are especially relevant today, because our globalised supply chains are technically efficient – at least in the short- and medium-term – yet vulnerable. They mean that a country like New Zealand can suffer severely if the boats stop coming; if those supply-ships are reprioritised. This century, New Zealand has become dependent on imported food.

Another form of supply shock is war. War can also be a supply stress; for example, some forever wars. The Ukraine-Russia forever war has proved so far to have been a supply-shock. Workarounds came into effect after a few months. The Israel-Iran War – which threatens to be another forever war – may prove to be more of a global supply stress. The stalemate over the Strait of Hormuz chokepoint may never return to its prewar state.

Climate change is another supply stress; as are many other environmental costs. The real costs arising from climate change keep outpacing the workarounds; and some of the workarounds – for example, air conditioning – aggravate the root causes of these costs.

Another possible supply stress is rising labour costs. Labour costs are ambiguous. Higher wages granted to keep up with supply-cost price increases are a feature that sustains secondary inflation. But higher wages arising from shortages of skilled labour – from structural labour supply issues, including demographics and impediments to migration – are supply shocks if easily remediated, or supply stresses if largely irremediable.

Supply stresses set off a process of ongoing CPI-increases; for example, as pickable or minable low-hanging-fruitgive way to ‘higher-hanging fruit’.

A fourth important supply cost – again a shock if acute, and a stress if chronic – is the use of interest rate intervention to raise capital costs; to raise the cost of borrowing and therefore of economic investment, and also to squeeze existing debtors.

Raised interest rates, as a policy measure, may generate primary deflation; the problem of falling aggregate demand. Policymakers may juxtapose a non-inflation cost-of-living crisis with a primary deflation; making it look (superficially) as if neither problem is taking place when in reality there are two separate and serious problems being brushed under the carpet.

With one ‘policy lever’, we both create a cost-of-living mess and sweep away the more obvious evidence. Hidden ooze is even more problematic than its visible form.

A fifth important supply stress is the use of restrictive fiscal policy to delay or forever postpone vital works of public infrastructure. Inadequate civilian infrastructure – and this includes education as well as engineering projects – represents one of the most potent chokepoints in the supply chain; indeed, that’s why such infrastructure is so often targeted in a war of aggression.

Restrictive fiscal policies – ironically often implemented in the name of intergenerational equity, not saddling younger generations with public debt – are a clear example of a cost-of-living crisis of choice, with the crisis being most imposed upon the very population generation for whom that public-austerity policy was claimed to benefit. The classic case here remains Ruthanasia. New Zealand’s current water-supply woes are a direct result of 1990s’ fiscal austerity. (See The $49 billion cost of fixing water infrastructure woes laid bare, RNZ, 23 April 2026.)

(A topical example – see Australian company plans $3b lignite-to-fertiliser plant in Southland, RNZ 22 April 2026 – is that if there had been public support [adequate funding, not just talk] for investment in urea-fertiliser production in Southland ten years ago, when New Zealand had been moving further in the direction of complete dependence on Persian Gulf supplies, then New Zealand’s present accelerating cost-of-living crisis might have been preempted. Investing is borrowing and spending money, not hoarding it in Sovereign Wealth Funds which play the global markets and facilitate the very wars which are a large part of the cost-of-living problem.)

Third CPI-Inflation Case: Secondary Inflation

This is the adjustment case; the situation where inflation is a natural and probably necessary part of any post-shock economic correction. (That is not to say that all secondary inflations are OK.)

This is the one that the theory of anti-inflation monetary policy focuses on; fixing a problem which is often (but not always) a part of the most efficient (and market-led) corrective solution.

Secondary inflation is one of two options for a restoration of normality once a demand-shock or a supply-shock event is over. The most obvious – though least likely – option is a simple restoration of the pre-shock status quo. Thus, in the case of a primary event connected to rising petrol prices, in this option petrol and other prices would return to what they were before the shock. A primary CPI-inflation would be followed by an equal-and-opposite primary CPI-deflation.

An in-between case would be that the higher shock-related price increases are not reversed but the CPI-inflation rate quickly returns to something like normal. (Noting that normal inflation of two percent per year is generally regarded by policymakers as better, as more efficient, than zero inflation. Normal inflation is forever providing a bit of readjustment and a bit of demand stimulus.)

Another case would be that general prices rise further, beyond the shock phase of inflation, as relative prices re-adjust, meaning that the adjustment process itself has an inflationary component; albeit a decelerating inflation as the new-normal arises. This is a process of market-led disinflation. It is not at all clear that this market solution could be regarded in any way as a problem.

The fourth variant of the post-shock economy is the extreme case. In this case, there is a surge in ‘inflation expectations’, and secondary inflation accelerates, taking on a ‘mind of its own’, supposedly leading, if unchecked by authoritarian power, to a state of hyperinflation. This is the hypothesis of accelerating secondary inflation, and real-world examples are extremely scarce. (There have been historical examples of hyperinflation in particular countries in particular circumstances; these generally come into the localised inflation case; see below.) I know of no examples of either global hyperinflation or of hyperinflation in an economically unweakened country.

Nevertheless, the Great Inflation of the 1970s has often been presented as such an example. A careful unpacking of the inflations of that era tell a different story; a story of multiple shocks of different types. The evidence is that, globally, those events represented overlapping cases of primary inflation, supply-cost CPI-inflation, and slowly decelerating secondary inflation; despite instances of many countries implementing policies that amounted to ‘cost-of-living crises of choice’. The slow pace of the decelerations were most probably due to ‘anti-inflation’ monetary policies which raised interest rates to cause stagflation. Stagflation is most-commonly a contrived mix of high-interest-rate cost-of-living crises and suppressed secondary inflation. Suppressed secondary inflation eventually leads to a primary deflation; the result is apparent CPI stabilisation, but in reality two serious problems with opposing consumer-price symptoms that cancel each other out.

As well as ‘cost-of-living crises of choice’, the adjustment process of secondary inflation is extended by misinterpretations between inflationary and non-inflationary price increases. An important example is wage-setting, whereby trade unions seek to negotiate inflation adjustments to hourly wage rates based on overall CPI-inflation and not just on the monetary depreciation. This process is called price-indexing; it is partly necessary and partly misguided, depending on the actual diagnosis of the cost-of-living event.

For countries mired in private debt denominated in local currency, the only way out, really, is secondary inflation – initially, double-digit inflation. (For small countries with a weak presence in the financial world, government debt looks to international creditors very much the same as private debt.) Mass bankruptcies (on generous terms) are another form of reset. Other options which help with private debt are expansionary fiscal policy (as in Japan in the 1990s), universal incomes, charity, and forgiveness. Fiscal accommodation (opposite of ‘fiscal consolidation’) and inflation are generally the most efficient market – or marketish – mechanisms for accomplishing a restorative reset.

For countries mired in foreign-denominated debt, then international inflation is required. (Or default and forgiveness.) Under these conditions, global interest rates should be generally lower than inflation rates. Interest rates can be negative; indeed should be, if money generally is being transmitted from many ‘have-nots’ to relatively few ‘haves’. From 2014 until the early 2020s, Denmark, Sweden, Switzerland and Japan all had negative wholesale interest rates; and it worked, low inflation and fewer other problems.

Türkiye in the 2010s has been an example of a country with high inflation and high but often lower interest rates. Türkiye is a significant global economic player; arguably unweakened, maybe even strengthened, by its inflation experience and its refusal to yield to the ‘slam-on-the-brakes’ narrative which constitutes western monetary-policy orthodoxy. Türkiye’s average annual economic growth in the last two decades has been five percent.

When necessary inflation is suppressed, capitalist economies just grind to a halt, which is a form of collapse. New warlords – eg druglord types – fill the vacuum. Capitalism as we know it cannot continue if the indebted many have to keep paying more and more interest to the privileged few.

Fourth Case: localised Exchange-Rate driven inflation

The previous three cases of CPI-inflation apply to the world as a whole, as well as to individual countries. In today’s world, each nation-state has a currency which is ‘legal tender’; for most countries it is their own national currency.

When one national currency depreciates against a ‘basket’ of other currencies, that cheaper money can be expected to buy less; hence inflation has occurred, money has depreciated. Likewise, many of the other currencies in the basket will have appreciated, on average, so they will experience monetary deflation.

Such inflation or deflation may or may not show up in CPI statistics; it all depends on what other CPI-inflationary events or processes are taking place at the same time.

Very high national rates of inflation – indeed most hyperinflations are of this type – driven by devaluations or depreciations of countries’ domestic currencies. They represent fundamental weaknesses of such countries’ economies; although such countries’ weaknesses may well be hidden from global market scrutiny for a long time (eg for several decades).

This kind of inflation is often presented as a kind of bogeyman; presented to naïve politicians as a possible consequence of not following ‘orthodox’ monetary policy. So, such politicians find themselves facing a binary choice: to have a cost-of-living crisis of choice (but to pretend its something else), or to risk an exchange-rate collapse leading to the kind of hyperinflation which Zimbabwe experienced in the 2000s. So the politicians devolve the policy to unelected central bankers; they can blame someone else while suggesting that the ‘fix-up’ will be next year, always next year.

War Inflation

Finally, a note on war inflation. Inflation has always been associated with war. War circumstances require fiscal and monetary policies that redirect resources from ‘guns’ to ‘butter’, as the postWW2 economics’ textbooks used to say. Inflation gets forever worse during a war, though the measurable symptoms of wartime inflation are typically suppressed through other forms of rationing and the deprioritisation of data collection. So, it’s commonly immediately after wars that countries’ inflation rates explode, though often that inflation subsides as debts are reset.

The USA can be different, because it alone has the privilege of printing money without consequence; generally, the rest of the world responds to an American demand-shock by producing more and exporting those surpluses to the United States. In most of our lifetimes, capitalist economies have been responsive to demand shocks and stresses. Wars, though, create supply shocks and stresses. Generally, though, it has been surprising to what extent countries at war have been able to overcome those deprivations.

War experiences show that the inflation bogey has been generally overstated; with the few cases of genuine postwar hyperinflation – like Hungary in 1946 – proving to be the exception rather than the rule.

Conclusion

Inflation is much less of a problem than it is commonly presented as. As often as it’s a problem, it’s a solution.

The biggest problem of inflation is the contrived fear of inflation. Fear of inflation – combined with popular ignorance about it – becomes an important reason why we have cost-of-living crises of choice.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

My first paragraphs here feature Steve Keen, Australian economist, who was a panellist on Al Jazeera’s Inside Story 12 April 2026 (Could the Iran war pose lasting risks to global food security?, or here on YouTube):

Interviewer: “You’ve warned that the world could face famine within months … an extraordinarily stark prediction.”

Keen: “Thirty percent of the world’s fertiliser passes through the Strait, which has now been disrupted for over a month. There’s no sign of this war stopping any time. … There’s not going to be enough fertiliser available. Without fertiliser the carrying capacity of the world is about two billion people. Six billion of us are alive because fertiliser flows freely. … This could have catastrophic effects in all sorts of countries which could not ever imagine that they might face a famine. … That could apply to places like England. … The usual bias we have is that it’s always going to be a problem for brown people; let’s be frank, we’ve got masses of racism in the way we think about the world, and the West doesn’t worry when brown people die; well, what will happen when white people start dying; people might pay more attention.”

While Keen overstates the case, given that seventy percent of the world’s fertiliser flows through other pathways or is used near to where it is produced (though high transport costs, more generally, impede fertiliser flows; not just the blockade of the Hormuz Strait). Thirty percent of six billion is potentially 1,800,000,000 people at risk. And of course there is much food wastage at present. And many people, indeed most people in ‘England’, could survive eating less than half of what they do eat; they may even be less malnourished, by eating better food. Keen later acknowledged the issue of first world food wastage.

Nevertheless, when there are food shortages, ‘rational’ market behaviour – as understood by ‘game theory’ – means that much food would be bought up by speculators and hoarded; profiteering, in other words, a not uncommon feature of famines. (This is similar to the issue of ‘ticket scalping’.) Keen is correct to point out the problem of Euro-supremacism. One feature of the new world food order, noted by the Indian panellist on the program – Avinash Kishore – will be export bans. India, for example, is an important exporter of wheat and rice.

Keen: “Because it has such a market-oriented non-government approach to virtually everything, the United Kingdom has insufficient stocks of fertiliser, diesel fuel, and it imports about forty percent or more of its food. It’s very vulnerable to being told ‘we cannot supply you’. And it doesn’t really have any bargaining ploy in the opposite direction [unlike Australia].”

People assume that, whatever happens, Aotearoa could always feed itself; after all it’s a ‘specialist’ food producer, isn’t it? I’ll come back to that. But we note that the United Kingdom could survive foodwise with a reduction of 40% of its food supply, given that its domestic food production is in better domestic-international balance than is New Zealand’s. The fertiliser question becomes the bigger issue for the United Kingdom, and I’m guessing that it has nearly enough fertiliser stocks for 2026 spring planting, and could redirect some food exports to the domestic market. 2027 though? Incidentally, in the later 1980s, under pressure from Rogernomics, New Zealand got by for a few years with substantially reduced fertiliser usage.

Interviewer: “Just how vulnerable are modern food systems to international shocks like this?’

Keen: “The Trump administration [ie regime] had no idea what it was blundering into when it started this war. … We have a mindset of ‘perfect competition’ which implies numerous different sources, if one supplier gets knocked out then others can [immediately] take its place [as in the case of the New Zealand apple crop after Cyclone Gabrielle in 2023]; there’s no sense of urgency for the physical imports to production. … [Most] economists are completely naïve about the production systems. … There is such a thing as a critical input, and four of them pass through the Strait of Hormuz. … Yes, it’s too late to fix it, you cannot make up for missing ships.”

Keen: “I’m not overstating the potential. It might not happen, we might be lucky, shipments might arrive just in time. … The other possibility is still there. Now what happens if you don’t talk about it. … I would rather have people be too alarmed than too ignorant.”

Keen: “We think we eat green stuff. Ever since we invented fertiliser, we’ve been eating brown stuff. The green wrapping on the outside is basically us turning fossil fuels into food. … We think we have enormous resilience, but in fact we have enormous fragility. This was going to be exposed by global warming, but Donald Trump is like a Force Six cyclone coming in before the natural ones start turning up. … Our production systems are very dependent on specific inputs from specific locations. They cannot be easily replaced once damaged, and at the moment the supply is shut down completely.

Avinash Kishore, from the Indian ‘Food Policy Research Institute’: “The worst outcome would be if production itself suffers and then trade also suffers; [for example] with export bans. … China is the largest producer of fertilisers. If it restricts exports of both urea and phosphate … that makes the situation [much] worse. If trade keeps flowing, we’ll have less vulnerability, as we saw after the Ukraine crisis.”

Interviewer: “If the Strait of Hormuz were somehow to open tomorrow, and calm somehow holds, does this crisis end quickly, or has lasting damage already been done?”

Keen: “Lasting damage. One of the urea plants has already been damaged, and is not producing urea. We have to replace that facility, and these things take time. … This is showing the danger of the ‘just in time’ efficiency versus robustness [business model].’

I would note that ‘just-in-time’ can be robust, given the prevalence of the specific conditions which Keen mentioned; the conditions that most economists presume to be almost always true.

But geography can be capricious, and so can concentration of production reflecting the giant international economies of scale we see in production and transport; economies which minimise cost when disruptive forces are not at play. I would also note that many components of supply chains come as complements; thus, air freight remains largely a complement of passenger movements, fertiliser is a complement of fuel, and shipping works best when ships can carry a return load or an onward load.

New Zealand’s food security depends on its exports continuing to justify high two-way shipping capacity. What if, due to consumer prioritisation, demand in say China for New Zealand’s exports falls away; the reverse of the recent booms? This is the capriciousness of ‘income elasticity of demand’.

Some sobering statistics about New Zealand’s food and fertiliser imports

These ‘harmonised trade’ data (from Statistics New Zealand’s soon-to-be discontinued Infoshare database) cover, for us, in particular the period from 2000 to 2025. Inflation for imported food has been low for that period, given that the exchange rate for the $NZ was at an all-time low in 2000, and that not-so-high New Zealand inflation has been consistently dominated by non-tradable items. We also note that New Zealand’s population has grown by 40% since 2000.

These data are ‘value-for-duty’, meaning for our purposes (and given that New Zealand is a free-trading nation) that they are exclusive of transport and insurance costs. Of course, we now know that transport and insurance costs are going to increase dramatically; especially for a geographically marooned population.

New Zealand’s spending on imported staples has increased from 3½-fold to five-fold since 2000. Annual increases in spending on food imports were even more dramatic in the 1990s, though tradable CPI-inflation will have been higher then. (New Zealand’s data on tradable inflation only commences in the late 1990s.)

New Zealand is dependent on Australian wheat. For other staple food items, the huge increases in food imports have come from other countries. Rice, the best staple food of all, soon will become much harder to get from the non-Australian sources we now prevail upon. Pasta, rice, and pre-prepared vegetables have become dinner-staples of student flats and other income-poor or time-poor households. Further, firms which process New Zealand grown vegetables – Watties and McCain – are planning to scale back their domestic operations. (See my Frozen Vegetables, Food Security, and the New Zealand Dollar, Scoop, 312 March 2026.)

Three other points are noteworthy.

First, spending on imported fodder – imported animal food – has increased dramatically, nearly fourteen-fold, since the three years centred on 2000.

Second, most imports of fertiliser, which have increased more than threefold since 2000, are not from our neighbour across the ditch. (They – the unassembled food matter which underpins the supermarket food we eat – are byproducts of the petroleum industry; hence they come to us from Singapore and South Korea.)

Third, total imported food is now 12% of all imports, up from 6% in 1990 and from 7% in 2001; and now less than 30% of it comes from Australia. ‘Total food’ includes a huge category of imported food simply labelled ‘miscellaneous’. (We also note that little more than ten percent of New Zealand’s total goods’ imports now come from Australia.)

New Zealand’s ‘Perfect Storm’ of food vulnerability

New Zealand’s worst – or at least most immediate – problem might not be fertiliser. Rather, it might be dependence on imports of both human food staples and animal feed. New Zealand’s food production system is now so specialised re the international marketplace, that the short-run and even medium-run supply costs of pivoting to a robust more domestically-oriented model are probably prohibitive.

New Zealand’s main source of staple food is still Australia, but to a much lesser extent than in the 1990s. (Before the 1980s, New Zealand produced most of its own starch-carbohydrates.) How well will we be able to persuade Australia to keep sending us food when there will be many more other mouths to feed in the Indo-Pacific region? And how much will Australia’s food production be curtailed by restricted fertiliser and other supplies?

In terms of the Indo-Pacific food and fuel supply chain, we already see most other (indeed much bigger) nations facing major impacts from the supply-chain crisis, and putting their domestic interests ahead of international considerations; they are effectively queue-jumping, undermining the rationing process by reducing fuel taxes and by increasing food subsidies and export barriers. (Note RNZ today about Asia.)

Not all governments are as complacent as New Zealand’s. The reduced fuel taxes do not only lead to queue-jumping; they also constitute a fiscal stimulus which may help in the process of a reorientation towards more secure staple food supplies. The New Zealand government is obsessively and irrationally opposed to any kind of fiscal stimulus.

Since 2000, New Zealand has enjoyed an export windfall and rising terms of trade, thanks to the high income elasticity of demand for dairy and other protein-rich foods. That’s due in particular to high per capita growth in East and South Asia. The problem for New Zealand is that when those economies stop growing – indeed when they recess – the fall in demand for luxury foods can be equally dramatic.

On RNZ’s Business News this morning, Corran Dann noted: “For a country like New Zealand, we’re a trading nation, we need to see growth in our trading partners because they buy our goods. That is how we make our way in the world. And likewise, for them.”

Reciprocal trade – ie multilateral exchange – is economics’ foremost example of a win-win ‘game’. But humans can be capricious, narcissist, supremacist. ‘Win-win’ competitive games can be disrupted by stupid players, or even by advocates of disruption as a greater good; giving way to rivalrous zero-sum, negative-sum, or ‘lose-lose’ games. (On ‘stupid players’, we may note, in passing, Carlo Cipolla’s 1976 essay – recently republished – The Basic Laws of Human Stupidity.)

New Zealand’s highly specialised export-oriented food production system can be expected to face sudden and simultaneous supply and demand shocks. Supply shock because New Zealand farming is now so dependent on imported fuel, fertiliser, and fodder. Demand shock because New Zealand specialises in the production of luxury foods, not staples, and faces a steep fall in the demand for luxury foods.

So, in terms of Steve Keen’s comments, New Zealand is arguably much more food-vulnerable than the United Kingdom, which Keen cites. And note Avinash Kishore’s comment about the food consequences of a general breakdown in international trade. (Unlike Keen, Kishore is an optimist!)

A crisis on top of a crisis

On present food insecurity in New Zealand, this from Google’s AI overview (search: ‘NZ food insecurity’): “Food insecurity is a widespread issue in New Zealand, affecting 1 in 3 households (33%) in 2025, with 18% facing severe insecurity.” See One in Three New Zealand Households Faced Food Insecurity in 2025, IPSOS, published by Scoop15 April 2026.

It can only be regarded as disgraceful that when, under the most favourable of circumstances in the food-supply system, a food-specialising country such as New Zealand has such record-high levels of food insecurity before the coming food crisis. This ‘insecurity despite abundance’ reality is not helped by Australia also having higher levels of food insecurity than most so-called developed nations. Continued access to Australian-produced staples is New Zealand’s main means to famine-avoidance.

Another part of the possible perfect storm is New Zealand’s lack of inclination and ability to queue-jump. When staples are scarce, ‘game theory’ comes into play. The staples of game theory are scarce-product-hoarding, joining queues to gain access to these staples, and a willingness to pay a bounty for such scarce essentials. New Zealand – marooned in the South Pacific – can expect to be at the end of the queues this country finds itself having to join.

(Other concepts of game theory include: ‘arms race’, ‘race to the bottom’, ‘prisoners dilemma’, ‘tragedy of the commons’, ‘survival of the fittest’, and Hobbes’ ‘war of all against all’. Game theory assumes that individuals and nations adopt ‘economic man’ postures of ‘rational self-interest’; meaning selfish strategies. Other thought perspectives suggest that such strategies are ‘stupid’ rather than ‘rational’, and that they miss out the widely-held concept of enlightened self-interest which incorporates visions of the public good and the public interest. Adherents of rationalism usually dismiss their academic adversaries as ‘altruist’; whereas they are really public-minded, not the same thing.)

Historical Points of Reference

New Zealand faced a similar trading and shipping crisis almost exactly 100 years ago. Though it was not a food crisis then; New Zealand was not then reliant on imported food staples, though it was reliant on other imports.

The issue was the 1926 British General Strike, which focussed minds in New Zealand then on how dependent New Zealand had become in its crucial trading relationship with the far-side if not the dark-side of the world. The New Zealand economy started to tank in late-1926. 1927 then became New Zealand’s own particular annus horribilus.

New Zealand already faced very high levels of private debt, falling export prices, and a tightwad government. With the shipping constraints tipping the country over the edge, farmers walked off their farms in greater numbers than during the later Great Depression, rural New Zealand depopulated, bank balances plummeted, and the country went into a sharp recession.

The Reform (think National) government had been elected in 1925 with 47% of the votes and 69% of the seats. In the 1928 election, that government was unceremoniously turfed out of power, falling to 34% of the vote and 34% of the seats. The faded Liberal Party – under the new name of United – formed a government with the support of the new Labour Party. The economy recovered. Though the new governing arrangements didn’t last; Reform came back into government as the junior coalition partner. Eventually – in 1936 – United and Reform joined forces to create the National Party.

Another historical story of relevance is about how Germany lost World War One, through hunger. That war, in full, lasted 4¼ years; an amount of time the present Russia-Ukraine War will soon surpass. Essentially, Germany – on the battlefield, and with its lethal submarines – won the first four years (including a comprehensive defeat of its main adversary, the Russian Empire) but lost the last three months.

The critical factors in the end were the British Royal Navy blockade on German shipping, a staunch French fightbackin July 1918, and an influenza pandemic arising from an existing battlefield flu strain combining with a new strain brought over by greenhorn the American latecomers. The shipping blockade induced severe famine in Germany. That famine was so severe that it was later used to justify carpet bombing (aka area bombing) in World War Two, on the basis that no amount of RAF bombing could be as bad for German civilians as that blockade-induced famine.

Finally

The supply chokepoints around the Arabian Peninsula – the southwest of Southwest Asia – might ease sooner rather than later. Though I, unlike New Zealand’s Prime Minister, wouldn’t bet on it. New Zealand has engaged in a slow game of Russian roulette; there is now an extra bullet in the revolver’s chambers, and the pace of the game has quickened.

Will New Zealand, having played its game of chance, become collateral damage? New Zealand almost certainly was not Binyamin Netanyahu’s target.

Steve Keen focussed on the fertiliser chokehold; the core of the world’s food supply which is in fact a byproduct of the petroleum industry (and of the discussion about refined oil supplies). New Zealand’s plight is actually significantly worse than that; it’s a potential and dramatic shortfall of imported human and animal feed – a shortfall that would precede a fertiliser shortage.

What happens if or when the food ships are redirected elsewhere? Those ships burn a lot of fuel coming to and going from New Zealand. Would the world prioritise five million whitish lives, marooned in the South Seas, over ten million brown lives more easily saved? Should it? I guess not. Will future historians refer to the Great Aotearoa Famine of 2027?

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

On 14 April 2026 I heard this on TV3 News (about 8 minutes in):

Sharon Zollner, ANZ Bank chief economist: “We were earlier picking that the Reserve Bank wouldn’t need to hike until December, but the news out of the Middle East has kept getting worse. It does seem clear that disruption is going to continue for quite some time. Oil prices are going to remain elevated. It is counterintuitive that you would raise interest rates when the economy is already struggling, but that’s why these people are appointed, they don’t need to worry about getting elected because they are basically paid to take the longer-term view; to accept the short-term pain for the long-term gain.”

What!!! We should have been thoroughly alarmed by such anti-democratic anti-liberal pro-bureaucratic sentiment, justifying reckless technocratic adventurism. And we note that the long-term gain never seems to come for the populace; only for the elites who inflict the pain. (Zollner, by the way, has had a past record of pressurising the Reserve Bank to go early, by making similar ‘predictions’, and has been willing to apologise later for inaccurate predictions.)

Towards the end of an earlier interview Zollner (RNZ, Morning Report, 14 April 2026) said: “How high inflation goes in the initial direct impact isn’t the key point for the Reserve Bank. The key point for the Reserve Bank is how quickly it comes down again.”

Let’s look at some facts, using Trading Economics’ 10-year charts for interest rates and inflation. Take United Kingdom, Australia, and Norway. Their interest rates stayed high after their 2024 peak, and their CPI-inflation rates stayed high too. Now consider New Zealand, Canada, Sweden, Denmark, and Finland. Their interest rates came down much more from their 2024 highs, and their CPI-inflation rates came down much more as well. This is simple comparative economics; economics that any schoolgirl could do. This directly contradicts what Zollner has been saying.

There’s more. On RNZ’s Business News this morning:

John Campbell: “Kiwibank is coming out swinging against interest rate hikes. They are essentially having a go at the ANZ, right, and Sharon Zollner in a way; the economists.”

Coran Dann: “Yes, sort of the hawks versus the doves, and Kiwibank would sit in that dove category. They are basically saying that it’s way too soon to be calling the potential interest rate hike in July, there’s not enough data, it runs the risk of throwing New Zealand back into a recession, it’s just too fragile to do that. The Kiwibank chief economist, he’s saying that it would heap pressure on already struggling households and businesses.”

Kiwibank chief economist [Jarrod Kerr]: “I think that, given the shock that we’re feeling, what we are hearing from our customers – businesses and households – is that this is just another cost that they [must] absorb; this is not a demand-push [sic; should have said ‘demand-pull’], this is a supply-shock, and its hurting … So, to increase interest rates at this time we think could be reckless [emphasis added], actually, and it’s definitely unwarranted.”

Two-and-a-half years of government idleness, following one very bad call

The worst thing the present NZ Government did was the first thing it did; ie after the 2023 election. The government changed the (monetary) Policy Targets Agreement to require the Reserve Bank to do what it believed it had to do to keep CPI-inflation between one and three percent, and to follow no other objective.

The government knew that the Reserve Bank (and most of the other banks’ economists) believed that – and as a matter of faith, not evidence – whatever the actual state of the economy was, CPI-inflation rates above three percent should trigger a policy intervention in the capital market to raise the cost of capital. So, it was the government’s intent that, in the event of a situation like we have at present, the Reserve Bank should override an otherwise efficient market to raise one of the most critical costs in any capitalist economy. As the common-sense ‘schoolgirl’ data mentioned above shows, this policy increases CPI-inflation (or keeps it high when it otherwise would fall) when we are fraudulently told that it will decrease inflation. It’s a wonderful game for the loud-squawking hawks within the economic-policy community; their policy generates the very inflation expectations that the policy is supposed to snuff out. It keeps them in work; at the centre of public attention as ‘experts paid [well] to inflict pain for long-term objectives which never seem to materialise.

The government does not know that such interest-raising policies raise CPI-inflation (above what it would otherwise have been) – not lower it. But it should know that; this is the ignorance of convenience. Like Donald Trump, on certain matters our governments just listen to a very close coterie of self-promoted advisers. A coterie whose advice would have been considered mad by most mid-twentieth-century economists. A coterie who waged a successful academic coup d’etat in the United States and United Kingdom in the 1970s, and in New Zealand in the 1980s.

This kind of monetary policy doublethink and groupthink is an example of orwellian tyranny. See my Binyamin, Adolf, and Benito, Scoop, 10 April 2026. War is peace. ‘Higher costs’ is ‘lower inflation’. Israel is conducting a defensive war.

Don’t believe the veracity of what Binyamin Netanyahu says. Don’t believe what Donald Trump says. And don’t believe Sharon Zollner either. All three talk the totalitarian talk, while pretending to be in some sense liberal or democratic.

PS: Heavy Lifting

Some other strange language came from that same TV3 story. This time it is the suggestion that increased ‘fuel costs’ have done ‘heavy lifting’! Zane Small: “The retail association … has looked at electronic card spending data … which showed a 0.5% increase in spending in March. Their analysis has found that it’s actually fuel costs that are doing the heavy lifting. After accounting for that rise in fuel costs, retail spending has actually dropped by 1.2%.”

At least Zane Small did not try to deceive TV3 viewers. But the framing here was quite confused.

The story is that, while retail purchases have decreased by 1.2% in March, higher prices have created the illusion of a spending increase. While more money may have been parted with, that’s entirely illusory and largely misses the point. Consumers spent more to buy less; inflation and recession in one hit. Stagflation.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Despite the mega-commentary about the Israel-Iran war, and especially the United States’ participation in that war, almost nothing is being debated about how the war is being funded.

I’ll make some comments about Iran later. But we need to focus on the United States, which is by far the most profligate party to this war. And Israel is being funded, like a charismatic and entitled teenage brat, by its (American) sugar daddy.

Most of us should have noticed that, with the exception of new tariffs which are not a significant source of United States government revenue, there has been no move to raise taxes. (The President has clearly invoked the use of tariffs as means of leverage through extortion; though he doesn’t properly appreciate that these taxes are paid by American residents.) Nor has any explicit ‘war loan’ or ‘war bond’ been floated in Wall Street.

The United States is ‘printing money’ to fund the war. This expression is both pejorative and a misnomer. Because printing money is an unmentionable, it’s hardly ever mentioned! Though it should be, because it’s an important financial mechanism, and it is not as sinful as it’s made to sound.

‘Printing money’ is not a literal expression; actually printed (or photocopied) money, counterfeit money, is illegal. Printing money, a figurative moniker, is in fact the day-to-day business of banking, with billions of dollars printed every day (and a near-similar number of dollars unprinted). The technology of printing money is that of double-entry-bookkeeping. Money is a social technology, as is double-entry bookkeeping.

What matters most to us is the role of the central bank – the Reserve Bank – in creating new money. And in particular the relationship between the Reserve Bank and its privileged customers, most of which are governments’ Treasuries and commercial banks. Even more particularly, we are interested in the most highly privileged relationship of all, that between the United States Federal Treasury and the United States Federal Reserve Bank. This exceptional relationship arises because the United States Dollar is the world’s reserve currency.

The War

Here are two quotes from Al Jazeera’s This is America: War on Iran: Cost of weapons and shift in the nature of warfare, 1 April 2026

Richard Gaisford: “It’s a significant contribution being made to the US economy by the defence industries. The last figures we have were for 2024, and that showed that it generated [?] something near one trillion dollars …”.

This comment reflects a wide belief that money is made by economic activity, and that the United States makes money by making, among other things, military hardware and software. The reality, of course, is that the money is made first, and is then used to purchase such hardware and software.

Interviewer: ‘Who has got the means to keep fighting at those levels the longest?’ Kenneth Katzman (a former senior analyst on Iran at the US Congressional Research Service): “The US Dollar is the main reserve currency of the globe, which means that the United States basically has the capability to manufacture money. Your viewers may not understand the mechanics of it, but basically the United States can print money.” (Actually, not only the United States.)

He goes on to address the military asymmetry between Iran and the United States: “The United States is a 28-trillion-dollar economy; Iran is a 400-billion-dollar economy”. Here he is talking about each country’s capacity to produce goods and services; not its capacity to manufacture money. Any amount of money can be made by any country’s banking-government nexus, and at trivial cost.

The interviewer (New Zealand’s Anna Burns Francis), and the other panellist did not respond to that seemingly provocative comment about printing money; there was no further discussion about how the war is being financed, only about how much it is costing. Discussion about the mechanics (and constraints) of printing money would go against the grain that most of us are fed. The public is not supposed to know – and generally does not know – that money is itself costless and can be manufactured, at will, in smaller or larger quantities.

Kenneth Katzman’s comments are not controversial; they are a statement of fact that no economist would disagree with. All countries’ banking systems (of which the central government is a component) have the capacity to print money; indeed, the New Zealand system (and other countries’ systems) necessarily did so in 2020.

The United States has fewer constraints on printing money than do other countries, but not zero constraints.

We note that money, like all financial and financialised assets, is not wealth; it is claims on wealth. So, the affordability of money – in practice – is measured by the ability of the economy to meet those claims, in the event that those claims are presented. (Indeed, the world can afford an octillion dollars’ worth of financial claims if it can be 100% certain that those claims will not be exercised; will not be spent on goods or services. The current world is awash with massive private holdings of financialised assets which, for the most part will not be spent on anything other than other financial assets. In technical language, such money has a very low ‘velocity’.)

We note also that newly printed United States’ dollars permeate into New Zealand through exports, including New Zealand made supplies to America’s war industry; to the United States’ military/industrial complex, which includes the space industry.

How does a country fund a war by printing money?

There are two key issues: rationing, and responsiveness.

The liberal critique against governments’ printing money is a general claim that governments are untrustworthy and spendthrift. In the eighteenth century when the liberal critique emerged, one principal concern was government adventurism in the form of warfare. This classical liberal critique presents one consequence of such government largesse as inflation (extra spending coming up against finite resources), and also presents any instance of general price increases as a consequence of government largesse. When governments consume relatively more resources, then – through the catalyst of inflation – private households and businesses consume relatively less.

The classical liberal critique emphasises this rationing issue, known as crowding out; in doing so, that critique presumes that private spending on goods and services is, per se, more efficient than public sector spending and redistributive transfers. There are two parts to this rationing argument: first, private parties are deemed to better assess (compared to bureaucrats and politicians) which items of spending translate to greater utility (ie happiness); second that relatively more private spending can be classified as ‘investing’, meaning spending for future rather than for present happiness. (Neither of these two propositions is generally true.)

The second issue, less emphasised by classical liberals, is responsiveness or ‘supply elasticity’. Classical liberals tend to assume that spending enabled by printed money does not elicit new production; ie does not bring-about a supply response. While this is true by definition for a hyper-taut economy, for the most part, economies are not hyper-taut and are indeed responsive to additional spending.

In the present case of the United States, the Israel-Iran War – on the pro-Israel side – is being funded substantially by new money printed for the United States government by the United States federal banking system; in the public accounts, this shows up directly as a huge increase in the United States’ fiscal deficit.

While prices are rising faster in the United States than before, this increase in general prices would appear to be substantially due to the supply-side cost-impact of the war itself, and not by increased aggregate demand inside the United States and the countries the United States imports goods and services from.

The United States domestic economy is not as supply-elastic as it might have been, given what ICE is doing to that country’s labour force. Nevertheless, the United States’ economy has been sufficiently depressed that it is now able to increase output without much difficulty. Hence, extra United States’s government spending has not in itself caused consumer prices in the United States to rise. The present chokehold on imports – a result of the war – is however causing CPI-inflation in the United States and the rest of the world. Prior domestic underemployment is one reason why money-printing may not be inflationary.

The second component of a country’s economic responsiveness to wads of newly printed money is that much production can be outsourced to the rest of the world. Thus, United States’ imports increase, the United States’ current account deficit increases, and the rest of the underemployed world gets to benefit from this as an economic stimulus. So, if the New Zealand banking-government nexus refuses to print money as a form of stimulus, the present Trump-printed money does create an alternative stimulus in New Zealand.

Certainly, New Zealand has very high visible and hidden unemployment, so (at present) is easily able to respond to the Trump stimulus. On that basis, New Zealand’s economic growth this year may not be as slow as is widely anticipated; though domestic confidence – in itself, a form of stimulus – may be countering the stimulus coming from the United States. In New Zealand too, any rise in CPI-inflation will be almost entirely due to the global supply chokeholds, and not to the American president’s money printing largesse.

Essentially, the United States is funding its war through its twin deficits: the United States fiscal deficit, and the United States current account deficit. The war is being funded through increased utilisation of underemployed resources throughout the world. In New Zealand’s case, we can see this easily and directly, by observing New Zealand’s increased exports to the United States.

How easily can other countries print money?

Technically, it’s as easy to print money in New Zealand as it is for the United States. However, the New Zealand dollar is not a global reserve currency, so a flood of new New Zealand dollars into the global economy is likely to generate financial risk; or at least perceptions of financial risk. ‘Investors’ – that is, financial traders – out there most likely would be more cautious about holding large quantities of New Zealand dollars (or $NZ assets) than they would be about holding large quantities of United States dollars. That caution generates an exchange rate risk; a risk that would be communicated to financial-asset-holders by the New York based rating agencies such as Standard and Poors.

When the exchange-rate risk is not widely seen as a matter of concern, New Zealand benefits mainly through its routinely-high current account deficit; that is, just the same way as the United States is able to benefit from printing money and enjoying the economic bounty of the world.

If the exchange rate risk becomes a concern however, the world would discount New Zealand dollar assets, and New Zealand would experience high levels of domestic inflation; that is, higher inflation than most other countries. The resulting low New Zealand dollar would confer a ‘competitive advantage’ on New Zealand; the current account deficit would close, exports increase, and reduced imports would create an increased demand for New Zealand- made goods and services.

The issue then becomes how responsive (ie supply elastic) the New Zealand economy is. If the domestic economy is able to respond to these new circumstances (which is the more common experience of other countries), then New Zealand would recover and soon prosper. The alternative is that New Zealand would go into an inflationary tailspin; that is, if its productive system is so hamstrung that it cannot respond to the stimulus of a low dollar exchange rate. One bad sign is over-dependence (as distinct from over-reliance) on imports. A dependent economy cannot switch away from imports. A country which relies on imports by choice, because imports are easily funded by exports, can usually pivot – if required to do so – towards more ‘tradable production’.

So, New Zealand can print money too, though printing in the proportion that the United States does certainly would be unadvisable. However, if a country overprints money, the normal situation is that the extra money just sits there in the banking system. (The brief real estate boom of 2021/22 has been widely attributed to excessive printed money stimulating a process of real estate speculation; though the unique circumstances of that few months – including labour and capital pandemic lockdowns – have not been properly researched. The government could easily have borrowed and then parked that money, but chose not to.)

Generally, the rest of the world is accommodating when some countries print more money (though not when all countries print too much money). The world has been very responsive to the United States for the entirety of post-WW2 history; it was American spending of new money that drove the economic growth of the capitalist world for 80 years.

The present US money printing to fund a globally-significant regional-war can be expected, sooner or later, to encounter an inflationary wall of its own making. The consequences of this war are to make the world economy much less responsive (ie are breaking the world’s economy) just as the American military-industrial complex – indeed the world’s expanding military-industrial complexes – are placing so many extra demands on the world’s economic environments.

War funding under pressure

Countries’ invaded or otherwise attacked on the perception that they are ‘easy meat’ tend to be much more capable of defending themselves than is widely understood. Their monetary systems are not integrated into the orthodox channels of the wider capitalist system; but their domestic monies work to keep domestic economies fully employed while on a war-footing. Yes, Iran will be printing money, and Iranians will be facing substantial visible and suppressed inflation. For Iran, that monetary process is a necessary part of its own defence. Money printing facilitates both necessary rationing in favour of the public sector, and also necessarily pushes the production system to its limits.

War times, historically, have shown that our economic systems are generally much more responsive than we presume them to be. Surprisingly often, the bullies neither win nor even achieve a limited range of objectives. Syria may be coming right today, despite rather than because of the nation which set off that 2010s’ war; a war which cruelly sandwiched the Syrian people between foreign bullies and a consequently more oppressive domestic tyranny.

We note that, when the United Kingdom was under threat during the first years of World War Two, it was able to import much on credit – especially from the United States, which was then a neutral country. China has played a large role in facilitating the United States’ more recent wars, through its current account surpluses. This time China will be helping to fund Iran’s war; as well as accommodating the United States through its ongoing – almost infamous – trade relationship with that country.

Indeed, when the Israel-US-Iran War is eventually over, it will be China’s version of the Marshall Plan which will revive the degraded world economy; part of that revival will be to write-off war debts, just as the United States – through plenty of printed money – eventually accommodated Germany’s reparations bill after World War One, and the West’s war debts after World War Two.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

The human world changed twice during the twentieth century. The first transition lasted from 1914 to 1945. The principal cause of World War Two was World War One. So, to understand the drivers of that long transition, indeed a great levelling event, it is necessary to investigate the causes of World War One. What happened between those wars was not inevitable, of course. But those inter-war events formed part of a comprehensible transitional sequence.

The next transition began, I would argue, in 1967 and lasted until 1980. Though key pre- and post-transition events took place in 1948, 1953 and 1956; and 1989/1990. The 1967 to 1980 transition significantly involved both Israel and Iran. As a result, the post-war world of cold war and decolonisation gave way to a neoliberal world order in which the new financial and political elites increasingly ruled under the titular covers of ‘liberal democracy’, ‘global rules-based-order’, and the ‘unipolar moment‘.

Are we today in a new transition, away from neoliberalism; maybe into a bleak zero-sum order (or negative-sum) of right-wing identity politics? An order in which national or cultural identity groups seek to harm other such groups more than they benefit their own group. An ultra-Hobbesian world in which individuals and groups gain pleasure directly from the pain they cause to others? Or will such gratuitous and predatory behaviour be limited to a transition now under way? While such behaviour happened markedly during the last years of the 1914 to 1945 transition, there were also substantial precursors to it in the lead-up to World War One. Not least the Judeophobic pogroms in Ukraine and some of its neighbouring territories.

These remain open questions. My aim here is to outline the 1967 to 1980 transition, noting some parallels between that transition and present times.

Before that, I’ll just mention that, in 1948, Israel and Palestine were both granted, by the new United Nations, the status of sovereign nation states. The Palestine nation was stillborn, for a number of reasons, one of which was that the eventual borders of Israel split the Palestinian territories. And I’ll mention that, in 1953, the United States instigated a political and military coup in Iran, converting a developing independent democracy into an absolute monarchy whose role was to acquiesce to Washington’s stated and unstated interests.

Suez Canal: the First Crisis

Most wars start with a pretext, an event manufactured or exploited by the true belligerent to justify its aggression.

One country which had been subjugated – indeed occupied – by the United Kingdom for many years was Egypt. That’s why Egypt came to be so important for the New Zealand military in both WW1 and WW2.

The critical strategic asset in Egypt was the Suez Canal, built by French interests, opened in 1869, and effectively wrested by the British from 1882 (though France maintained a strategic interest). For the steamship age, that canal became the critical conduit for the British Empire, connecting London with India (which included modern Pakistan and Bangladesh), East Africa, the ‘Middle East’ (meaning the Persian Gulf), the ‘Far East’, and the Australian colonies which became Australia.

The Egyptian Revolution took place in 1952, and Egyptian president Nasser nationalised the Suez Canal in July 1956. The result was a war in the latter part of 1956, in which the British and French persuaded Israel (only created in 1948) to invade Egypt’s Sinai Peninsula. (These events were covered in an episode of The Crown.) The Israeli attack took place as Operation Kadesh. Less than two days after this pretext, presented as a threat to Israel’s security, Britain (and France) started bombing Egypt at Port Said, in an operation to ‘secure’ the Canal.

The end result was an ignominious defeat for Britain and France, unsupported by the US, but with no meaningful withdrawal by Israel; the Israel-Egypt border had become permanently militarised, noting that Gaza had been (by agreement) under Egyptian control since 1949.

The Suez Canal was closed for nearly six months, until April 1957.

Suez Canal: the Second Crisis

Ten years later, in June 1967, Israel went for broke. This was the much bigger second crisis for the Suez Canal. In six days, Israel conquered the entire Sinai Peninsula – therefore including Gaza – meaning that Israel had annexed the eastern side of the Canal. In addition Israel conquered East Jerusalem, which in 1948 was supposed to have become the capital of an independent Palestine, the West Bank (which the State of Tennessee, in an act of appeasement towards Israel, now wants to call Judea and Samaria; refer Bill requiring Tennessee to use ‘Judea and Samaria’ instead of ‘West Bank’ advances, Fox17, 6 March 2026), and Syria’s Golan Heights.

The principal consequence was that the Suez Canal, an even more important waterway than the Gulf of Hormuz, was closed from 1967 to 1975.

With hindsight, we can see that the global economic crisis of the 1970s began in 1967. It is understood as a crisis of inflation which morphed after 1973 into a crisis of stagflation; for an overview, biased towards the US and towards the received narrative, refer to The Great Inflation, in Federal Reserve History.

The closure of the Suez Canal had little impact on oil prices. But it did lead to a surge in the cost of international transportation, as Asia to Europe trade had to be diverted to the South African and Panama routes. The other two drivers of that inflation-surge in the late 1960s were the escalations of the Vietnam War, and the prevalence of a corporate structure – outlined by John Kenneth Galbraith in The New Industrial State (1967) and Economics and the Public Purpose (1973) – which made the global marketplace less responsive towards increases in global spending. That last point means that large corporate firms, like today’s energy companies, became predisposed to respond to increased demand by raising prices rather than by raising the quantities of output supplied.

Wartime is almost always associated with inflation, because it both raises costs and constrains the supply of consumer goods. (American wars since the 1970s can be an exception, because they are financed by instant money and readily-available imports; by US government-deficits and US economy trade deficits. Deficits which the rest of the world is eager to facilitate.)

Israel 1967 to 1973

With the partial exception of Syria’s Golan Heights, Israel did not formally incorporate the other conquered territories. This retention of these territories as subjugated territories was partly due to international pressure to not recognise conquests, but was probably more to do with their implications for the demographic balance of Israel. Integration would have led to the possibility of Jews becoming a minority of Israel’s population, and Arabs a majority.

(We should note that, for the secular Jews who run Israel, to be Jewish is understood more as an ethnicity than as a religious faith. Hence, Israelis tend to juxtapose Jews and Arabs, whereas people in the rest of the world juxtapose Israelis (understood to be mostly Jews) and Palestinians. Israelis favour the word ‘Arab’ over ‘Palestinian’, because of a popular Israeli narrative that the indigenous population of Palestine is descended from immigrants from Arabia.)

The 1973 Arab-Israeli War happened in October 1973, beginning with a surprise attack by Egypt, during the Yom Kippur holy day (and noting that the 2026 attacks on Iran occurred during Ramadan, Islam’s holiest period). Basically, Egypt wanted its Sinai Peninsula back, in part so that it could reopen the Canal. Other nearby countries joined-in, especially Syria, but also Jordan and Iraq. Not Iran, which was then under United States hegemony.

Despite Egypt’s initial advantage of surprise, Israel not only fought back defensively, but counterattacked. The counterattack included an Israeli army contingent crossing the Suez Canal and marching on Cairo; ie approaching the Nile River. Potentially this war could have led to the creation of a Greater Israel; from the Euphrates (in Syria and Iraq) to the Nile. But again, the problem of conquest becomes the problem of having to incorporate supposedly ‘inferior’ populations into the expanded nation state.

(We note that surprise attacks often do not bear fruit; noting the American president’s tasteless and quasi-triumphant comparison between 28 February 2026 with the ultimately unsuccessful attack on Pearl Harbor on 7 December 1941. See Trump jokes about Pearl Harbour in meeting with Japan’s PM, TVNZ, 20 March 2026. For a brief moment, I wondered if the President was going to refer to the surprise attack of 6 August 1945, or that of 10 March 1945.)

Further, the international community had interests other than appeasing Israel. The biggest of these concerns was the price of oil. In the end the international community got its way, but at a cost of making Israel itself into a significantly more belligerent state than it had been hitherto.

Oil Prices

The 1973 Oil Crisis led to a quadrupling of crude oil prices by 1977, most of that taking place in 1974. Given the general inflation, much of it instigated by the oil price increases, real oil prices only increased by 150 percent in United States’ dollars.

The main reasons for the huge price increases of oil were the roles of the likes of Saudi Arabia and Kuwait – through the Vienna-based OPEC cartel – being able to push back against the encroachment of the Zionist project in their region, by using their effective near-monopoly power. In turn, these high prices led to the further development of the petroleum industries in the Persian Gulf, and of the Gulf States themselves. Additionally, we should note that oil was underpriced prior to the 1973 war; much as it can be argued that oil was underpriced in January 2026.

This had a much bigger economic impact on countries like New Zealand than anything we’ve either seen or projected in the present March 2026 crisis. (In my case, it brought forward my OE plans. At the end of 1973, for $400 I bought a ticket to sail to England via Acapulco, Panama, Curaçao and Barbados. By time the ship sailed in April 1974, the fare had been subject to two surcharges and I ended up paying more like $480. It could have been worse if the ship had not had access to cheap Venezuelan fuel in Curaçao.)

The result was a series of massive financial imbalances across the world; between oil-importing and oil-exporting countries, and also within larger oil-producing countries such as the United States. (New York’s loss was Texas’s gain.) While those 1970s’ financial challenges were navigated by the world’s finance ministers and central banks with a large measure of pragmatic success, the turmoil of the times let in a new and simplistic narrative around money and inflation; an unnuanced narrative that harked back to the classical stories about money during World War Zero (that’s the Napoleonic Wars of 1798 to 1815).

That new narrative was monetarism/neoliberalism, and placed itself perfectly to exploit the economic crisis – the Great Inflation– to create the neoliberal anti-intellectual hegemony which has ruled over the western world and hence over the whole world since the early 1980s. The guru of monetarism was a Chicago School economist; Milton Friedman. As an academic, Friedman and his acolytes had been plugging away through the 1950s and 1960s; well-placed to take advantage of a good crisis, especially a crisis centred around the word ‘inflation’. Chicago School economists experimented on Chile following its 11 September 1973 military coup.

If Israel had simply returned Sinai to Egypt in say 1970 – in circumstances similar to the eventual return of Sinai – allowing the Suez Canal to reopen, then the 1970s and 1980s could have turned out very differently.

Revolution, and Oil Prices again

One of the consequences of the political crisis in the Middle East was further crisis in the Middle East. Various latent nationalisms in the region intensified markedly; these intensifications turned for inspiration to the common faith in the region, Islam.

Hence, there was a direct – albeit convoluted – pathway from the 1973 war to the 1978/1979 Iranian Revolution. In February 1979 the Imperial State of Iran gave way to the Islamic Republic of Iran.

(I could have gained a personal glimpse of revolutionary Iran. Returning from my OE in September 1978, my partner and I were on a PanAm flight from Rome to Istanbul. The flight originated in New York, and terminated in Tehran, and was running late. Many of the passengers were agitated, because the flight was now projected to arrive in Tehran during the evening curfew. I guess it was always possible that PanAm would take the decision to overfly Istanbul, in order to arrive in Tehran on time. The plane did land in Istanbul, later than scheduled, so I know not about what dramas may have unfolded in Tehran later that evening. I expect that the return flight out of Tehran was fully booked, given the deteriorating situation there for American citizens.)

An important result is that oil from Iran, a founding member of OPEC, came off the world market for a few years. (Although, Aotearoa New Zealand, in its own pragmatic navigation of the crisis, came to do a swap deal with Revolutionary Iran. Despite the fact that, for a few years instances of capital punishment in Iran came to exceed those in the United States, New Zealand negotiated a sheep-meat for oil swap, thereby saving this country’s critical sheep-farming industry.)

The result of the loss of Iranian oil from the word market led, in 1979, to a further doubling of the world price of crude oil. In the second half of the 1970s, many countries – including New Zealand and United States – cut their speed limits to 80kph (or 50 miles per hour). (I still remember, in October 1976, riding in a Greyhound Bus in Pennsylvania, watching big trucks traveling very slowly along the United States’ interstate motorway system.)

In 1979, the crisis became so difficult that the New Zealand government made the sensible though since-derided decision to ration petrol by requiring motorists to observe carless days each week.

Governments in oil-importing countries made the pragmatic decision to both conserve oil and, for balance of payments’ reasons, to develop their own oil, gas and exportable reserves. New Zealand electrified its North Island Main Trunk Railway, doubled its aluminium production capacity (in order to export renewable energy), substantially expanded its oil-refining capacity, developed the Maui gas field; and developed the Glenbrook steel mill as a means to gain export receipts from the sale of west coast iron-sand.

Eventually, in 1986, the world oil price collapsed, ushering in a new (and environmentally discordant) era of cheap oil. Inflation-adjusted oil prices in 1999 were even lower than in 1972.

The Great Deception

World price-inflation was on a substantial downward path once the leading economies’ central banks allowed interest rates to fall (through liberalising monetary policies) in the years 1983 to 1985, and once cheap oil resumed. But in some countries high consumer-price-inflation persevered until the end of the 1980s’ decade, especially as they shifted towards goods and services taxes.

New Zealand pioneered a particular form of illiberal monetary policy in 1989, when inflation was already falling back to normal levels; and claimed that the new simple-minded monetary policy was the sole cure. This policy, which was in fact very much associated with the aforementioned monetarist project, became akin to a biblical truth; and was successfully exported to the consolidating globalised political and financial elites, making this new quasi-biblical truth into a bedrock policy-of-faith in the post-1980 world order.

Today, we can easily observe how false this ‘truth’ of faith is. By looking at the United Kingdom and Australia, two countries which have minimally reduced interest rates since 2022, we can see how their inflation rates have remained stubbornly higher than those with lower interest rates.

The next political and financial world order?

Are we in a new transition? Probably yes. Will it take a decade or so? Probably yes. While there are many calamities that could happen – and remembering that the world faced the possibility of global nuclear war early in both the cold war world order and the neoliberal world order – an optimistic take is that the world will move into a multipolar principles-of-engagement world order in which no single polity (or alliance) can dictate terms to the rest of the world with apparent impunity.

A unipolar world order is an illiberal geopolitical monopoly. Present events may either entrench or destroy the forces pushing for geopolitical illiberalism. Multipolarity is geopolitical liberalism.

The next world order should not be reliant on cheap oil nor indefinite economic growth nor the idolatry of money. Money is a means, not an end; it is a technology, not a commodity. Capitalism can become a peaceful private-public partnership. If enough of us want it to be.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

I heard this on RNZ News 11am 12 Feb 2026:

“The government’s finances are in better shape than expected due to lower [government] spending and a higher tax take. Treasury figures … show a deficit of $5.2b for the six months ended December, almost $1.6b below the half-year forecast. The tax take was $138m higher, while expenses were about $1b lower, because of lower spending on core government services: health, housing programmes, and the cost of carbon units. Net debt was slightly lower than expected, at 43.5% of the value of the economy.”

It was framed as good news, or at least as “better” news: government spending less than expected (despite the many dire needs for more, better funded, government-funded services and infrastructure) and a higher tax take (despite the needs of many people to have more spendable dollars).

I mention this quote from economic historian Adam Tooze, from his 2018 book Crashed, re the downward spiral that arises from policies of fiscal consolidation.

“Not only was [Greece, in 2010] slow to push through the changes the Troika demanded, but when it did the results were counterproductive; in a classic Keynesian downward spiral, demand fell and unemployment surged further, reducing incomes.”

We note that when private incomes are reduced, then income tax receipts are also reduced, meaning government income is reduced. (In idiomatic vernacular, this is known as cutting your nose to spite your face. “The idiom is often used in political and economic commentary to describe actions by a political actor, party, corporation or nation that appear to damage the actor’s own interests”.)

New Zealand is lucky at the moment in that it is benefitting from record high terms of trade – external stimulus, a commodity-led export-led boom – which is to some extent offsetting the fiscal doom loop that Tooze describes.

What will happen when those record-high export receipts fall-off? Tooze tells us: “a classic Keynesian downward spiral”.

Note that Greece was doing these policies, not out of political free-choice but because the EU Troika demanded that Greece follow this counterproductive policy path. At least Greece resisted, conferring upon itself some dignity.

New Zealand is today implementing similar policies; partly because the government is nominally free to choose, but also because it is heavily influenced by the false narratives peddled by another powerful Troika: the New York troika of Standard and Poor’s, Moody’s, and Fitch. New Zealand governments would rather lose elections than get on the wrong side of these big three.

Democracy or empire?

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Over the last few days, there has been plenty of media chatter in relation to the government’s proposal to pass a law enabling police to forcibly shift street dwellers from Auckland’s CBD. (Refer ‘Move On’ orders penalise those with the least, Scoop 22 Feb 2026.)

While Labour likes to express outrage, neither Labour nor National have given as much as a hint as to a solution they would commit to implementing. National sees street vagrants in much the same way as the Israeli government sees Palestinians; in both cases, they just want the ‘problem people’ to go away.

New Zealand, like most countries, has a long history of vagrancy, and of mean-spirited laws to deal with it. New Zealand, however, in 1938 introduced a universal welfare state; a political contract which gained broad bipartisan support until 1984. Over the 1938 to 1984 period the vagrancy problem was minimal. I remember being shocked at seeing beggars in Ireland in 1976; that was depression-era optics, which I thought had long passed in the developed world.

The most recent time I ventured out of Australasia was in 2019, on a trip to Canada, Scotland, and London. I remember remarking that Vancouver seemed to have fewer homeless people than Auckland. The next day I changed my mind; I discovered that the problem in Vancouver was more on the edge of the CBD, whereas in Auckland it had already become normalised around Queen Street and the city’s main library. I note this point, because the problem cannot be blamed on the Covid19 pandemic, and it was a problem that neither Labour’s Jacinda Ardern nor Phil Goff were willing to prioritise during their terms in office (as Prime Minister, and as Mayor).

(In Scotland, while Aberdeen did have a problem, it was less obvious than in Auckland; and even less obvious in Edinburgh. In London, I stayed in Stepney Green, a social housing area close to Whitechapel, and did not particularly sense a ‘street dweller problem’ there; nor in closer-to-the-City and now-gentrified Spitalfields.)

The current chatter focuses on homelessness, while only noticing in passing that many street occupiers are also beggars; meaning that, at its core, the problem is one of income insecurity.

Hardly anyone has connected the dots between begging and the regression of social security in New Zealand. The universal welfare state has lost its way since 1984. My sense is that many of today’s vagrants are not receiving any social security money; and that that may be in large part because it is too difficult – and humiliating – for them to deal with a Kafkaesque system that calls beneficiaries ‘jobseekers’, and is forever looking for ways to not support vulnerable people into constructive engagement. While the general public would regard vagrants as being unemployed, Statistics New Zealand does not even count them as unemployed. Our governmental systems are oriented around the ‘labour force’, and are largely blind to working-age people ‘not in the labour force’.

It is not my role here to analyse the way that our untweaked version of capitalism creates vagrancy. Rather, it is to note that our vagrants need these three things: an amount of unconditional income, a place better than the street where they can sleep and wash, and something fulfilling – maybe, even, productive – to do.

While, for the rest of this essay I’ll focus on the former, I’ll just mention the latter briefly. Minimum wage laws put most of these people out of the reach of the formal labour market. That leaves them two choices for something societally connected to do; voluntary work, or petit-entrepreneurship (aka non-criminal hustling). (Two other options, both disconnected from mainstream society, are: ‘hanging out’ in ways that intimidate, or participating in underworld crime.)

A Very Basic Universal Income (VBUI)

As our income-tax scale stands at present, a Very Basic Universal Income of $150 – payable to every tax-resident aged over 18 – could be mostly funded by abandoning the 10.5% and 17.5% tax rates. All annual personal income below $78,100 would be subject to a 30% tax rate.

Non-beneficiaries earning less than $53,500 would gain, because their VBUI would be more than their extra tax. (For these people in fulltime work, the gain would be small; $12 per week for a minimum wage worker working 40 hours per week; $16 per week gain for a minimum wage worker working 37½ hours per week.)

In technical economists’ language, the VBUI would be called a ‘refundable tax credit’, or maybe a ‘demogrant’.

People earning more than $53,500 per year – and beneficiaries – would have an unchanged net income situation. (For beneficiaries, the first $150 of their benefits would become universal; an accounting change only, from a costing point-of-view.)

People on benefits would have the first $150 per week of their benefit recategorised. People losing their jobs would continue to receive their VBUI, unconditionally. People not in the labour force would have their VBUI payments made directly, and there would be an opt-out mechanism; not an opt-in.

The biggest gains come to non-beneficiaries aged over 18 defined in the official statistics as either ‘underemployed’, ‘part-time’, or ‘not in the labour force’. The most important gains are that the $150pw VBUI constitutes an unconditional safety-bridge for those in danger of becoming redundant, or of having their hours reduced to part-time; and that it thus acts as an ‘automatic stabiliser’, meaning that people who lose their incomes can still maintain some of their usual spending.

The VBUI also means that people who gain work, or who gain extra work, still get to keep all of their Very Basic Universal Income. There is no income or poverty trap (as there is now), whereby gains in income from a new source lead to reductions in income from existing sources.

And it also substantially reduces the cost of administering social security, if people who lose their jobs automatically retain a very basic income to help tide them over losses in market income. The only information needed about non-beneficiaries in New Zealand would be their date and place of birth, their bank account number, and their immigration status. People receiving no publicly-sourced income other than a VBUI would at no stage be required to provide the authorities with any further information; they would pay tax at the going rate to the IRD based on market income connected to their IRD number.

Very Basic Universal Income is an ‘opt-out’ mechanism, which means that everyone receives it unless they have specifically asked to not receive it. And, even then, opt-outs should be managed as ‘temporary’. (All people legally allowed to earn income in New Zealand would have at least an IRD or NHI [Health NZ] number; ‘bank accounts’ at Kiwibank could be opened by Inland Revenue or Health New Zealand for people without other known access to banking facilities.)

In addition to reduced administration costs, there are several other ways that a miserly government could recoup its not-very-onerous outlays on VBUI. The two most obvious ways would be to raise the company tax rate from 28% to 30%, and to reduce the income threshold for the 39% tax down from $180,000 per year. A centre-right government which has done all these things – all very much consistent with centre-right philosophy – might then aspire to removing the 33% tax rate. That would leave a two-step tax scale: 30% and 39%.

We note that the introduction of a VBUI would, in itself, mean only one change to the existing benefit structure. That one change would be the accounting formality to categorise the first $150 per week of a benefit as a universal income, as a ‘duty-of-care’ income integrated into both the tax system and the benefit system.

A VBUI is not generous, and it’s not a Universal Basic Income (UBI). But it does act as an income that acknowledges both human rights and economic efficiency. Once the mechanism and mindset are in place – noting that the ‘mindset’ issue is analogous with that associated with the introduction of proportional-representation voting in New Zealand in the 1990s – then it becomes comparatively easy to tweak the numbers. In time, the VBUI might become a BUI, a Basic Universal Income; more like $250pw than $150pw. We need to start at a low amount, to sooth the apprehensions of the professional naysayers; those unimaginative people too ready to block social and economic progress.

A Teenage Basic Universal Income (TBUI) for adolescents

Late in 1979, Robert Muldoon raised the universal family benefit to $6 per week – a benefit (which commenced in 1946) payable on behalf of all children without any means testing. If we adjust that $6 by the CPI changes we get an equivalent of $42 today. Or if we adjust by GDP per capita – a better measure than the CPI, a measure which allows for economic growth – that $6 in late 1979 becomes $70 today.

My proposal is to pay a TBUI of either $42 or $70, to all New Zealanders aged from 14 to 17. For many of these teenage recipients, the amount would be paid directly to the recipient, and deducted from the Family Tax Credit payment presently paid to their caregivers.

I have calculated that recipients of a $42 (or even $45) TBUI should face a special flat tax rate of no more than 20% of their market income. And recipients of a $70 TBUI should face a special flat tax rate of no more than 23% of their market income. I favour fourteen- and fifteen-year-olds – all still legally at school – to receive the $42; and sixteen- and seventeen-year-olds to receive the $70 and pay a bit more tax.

The TBUI acknowledges that a significant minority of New Zealand’s vagrant population is in the 14 to under-18 age range. They would receive payments in the same way as older vagrants; if necessary, through an account opened for them by the IRD or Health NZ.

Call it ‘pocket money’, if you like. All New Zealand residents would receive this from when they turn 14, unless they opt-out. Fourteen is the age, in New Zealand, when children may be legally left-alone, unsupervised. Thus, it is the first age to directly signal that a young person should have a degree of independence, of economic autonomy.

Finally

All of the payments I have suggested are very basic and somewhat stingy. What matters is that they are unconditional, and confer a sense of citizenship onto our most vulnerable adults and semi-adults. There are no poverty traps; no impediments to recipients from ‘bettering themselves’, from being aspirational. Universal Incomes are not withheld when persons’ circumstances improve.

I personally would prefer less parsimonious payments; deficit-funded payments which would give an underdone economy a necessary bit of stimulus, realising that the arising increase in collective prosperity itself recoups such fiscal deficits. (The 1938 introduction of Universal Superannuation and other reforms turned out to have a fiscal cost significantly less than the projected costs. Refer Elizabeth Hanson’s 1980 book: The Politics of Social Security…) I note that we live in austere times; without really knowing the reason for these fiscal blindspots. Nevertheless, I am suggesting that, even with Scrooge in charge, we can do much better than we do today.

Further, with these universal incomes in place, everyone will know that everyone else will know that all of our vagrant population is in receipt of at least some income. (Refer Steven Pinker’s 2025 book: When Everyone Knows That Everyone Knows…) As it is, some of the beggars on the streets may be receiving substantial benefits, while others are receiving absolutely nothing; today we, in the public, are unable to tell any individual vagrant’s actual level of need.

There are solutions to these ‘all-rhetoric no-solution’ difficulties. It just takes the political will to see past our blindspots. Some form of rights-based universal income guarantee is a necessary but not a sufficient solution to the compounding vagrancy problem; and to other problems too, especially those problems affecting young people. (Note: Youth facing more psychological distress…, RNZ, 25 Feb 2026.)

Note on the Politics of Achievement

When Michael Joseph Savage in 1938 proposed (and then legislated for) a universal welfare state – with special emphasis on an initially very basic Universal Superannuation – he converted what could have been a political losing hand in that election year into New Zealand’s greatest ever electoral victory. There were many on the left and on the right of Savage’s parliamentary caucus – political people without political nous – who seemed to be eager to snatch defeat from the jaws of victory. Fortuitously, Savage was not one of them. By not being one of them, by not losing courage, he became the New Zealander of the twentieth century. Savage didn’t solve every problem. But he did make a difference, for the better; and was loved for that. While a modest man himself, his political leadership for New Zealand was far from austere.

Do our current lot of politicians even want to win in November? My advice to both National and Labour is to pursue the politics of success, and not the politics of nihilism.

(In this regard we might note that the Labour Opposition in 1931 suffered an ignominious election defeat, despite the appalling economic catastrophe which was then taking place. Labour went on to win in 1935, by promising a universal welfare state. It came close to electoral embarrassment in 1938; it came close to failing to deliver on its 1935 promise.)

*******

Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

On 14 January, Al Jazeera produced an episode of ‘Inside Story’, their daily current affairs feature programme: Why is the US Fed chair criminal probe causing global alarm? The context is the conflict between the Federal Reserve Chairman Jerome Powell, versus the man who appointed him to that role, President Donald Trump. In the sense of this conflict, Powell is the archetypal technocrat (the spokesperson for his craft guild), and Trump is playing the role of the democrat (the spokesperson for the American people).

(We note that, in New Zealand, something similar but different is happening; effectively a conflict – for a tiny slice of the historical narrative – between former Reserve Bank Governor Adrian Orr and the current Minister of Finance, Nicola Willis. It may be said that power is held by those who control the money, and by those who control the narrative.)

The format of Inside Story is that of three remotely-located expert or otherwise-interested interviewees, interviewed by a news-anchor studio interviewer. (Former Newshub newsreader Tom McRae serves as one such interviewer.)

For this episode, the interviewer was Adrian Finighan. The interviewees were: an American political commentator, Eric Ham; a London-based commentator representing the finance industry, Justin Urquhart-Stewart; and a celebrity Irish monetary economist, David McWilliams. (McWilliams was speaking in New Zealand last October; claims have been made that he is the “Attenborough” of economics.)

It is to McWilliams that I particularly wish to focus my comments; so, below, I have transcribed his contributions to the panel discussion. (I will confine my comments re McWilliams to his contributions to the Al Jazeera programme, and not to his writings or other presentations.) But first I have transcribed opening words from Finighan, Ham, and Urquhart-Stewart. There are also comments from Jerome Powell, reporter Fintan Monaghan, and German Chancellor Friedrich Merz. (To maintain focus the transcriptions have been slightly condensed; the original interview is available, see above.)

Finighan, Ham, and Urquhart-Stewart

Finighan: “A criminal investigation into the Chair of the Fed, Jerome Powell … could have implications well beyond the US … a swift and sharp response from central banks around the world, a joint statement expressing solidarity with Powell.”

Powell: “The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President … [through] political pressure or intimidation.”

The general tone here is that Powell – the chairman of a committee – is the good guy, and Trump the bad guy. In this sense the discussion falls into the trope that if there’s a bad guy [ie Trump], then the bad guy’s adversary must be a good guy. Note how Powell presents himself as the ‘man of the people’, even though in reality he is anything but.

Of course, it goes without saying that a narrowly focussed criminal law investigation is not an appropriate forum for discussing democracy and monetary policy. And there is no doubt that President Trump is intimidating, and has a tendency for ad hominem flights of fancy. We should note, for clarification, that the criminal charges referred to relate to the expansion of a building, and not to misconduct in the setting of interest rates.

Reporter, Fintan Monaghan: “The two [President and Chairman] have been at odds over the setting of interest rates for most of the past year. Trump wants cuts. That might give the economy a short-term boost by bringing down the cost of borrowing money, but Powell has resisted because it could cause inflation. … Heads of major central banks around the world, including the ECB’s Christine Lagarde, have voiced support for Powell and the independence of the Fed. Central Banks have traditionally operated separately from the central government. That keeps long-term decisions about the health of the economy separate from short-term political [aka democratic] interests.”

Friedrich Merz: “I hope there will remain a broad consensus that central banks must remain independent because independent central banks are a guarantee that a currency can remain stable in the long term.”

We may note these themes are emphasised by those who we might call ‘monetary policy hawks’; and most central bankers are monetary policy hawks in that they emphasise the notion of raising interest rates as the sine qua non [without which not] of anti-inflation purgative emulsions.

To claim that Reserve Banks have traditionally operated separately from the central government, indicates that some commentators have a very short sense of history. Most central banks operated as a long-arm of government for most of their histories (and most are less than 100 years old; the RBNZ has existed since 1934). The American Fed is usually regarded as having been independent since 1951, though it’s always been a political organisation with politically appointed leaders. Most Reserve Banks have a single shareholder; the Government. During Abenomics, Japan’s central bank was fundamentally a part of Shinzo Abe’s macroeconomic program. As was New Zealand’s Reserve Bank in, say, the late 1930s, when it played a crucial role in implementing the economic policies which launched New Zealand into the position of a global exemplar for a modern egalitarian economy.

We note also that central bankers generally favour the cynical word ‘political’ over the much happier word ‘democratic’. And we note that Friedrich Merz may be confused. He appears to be referring to a national or imperial ‘currency’ such as the Euro, whereas monetary policy at its highest calling seeks to protect the internal value of money; not its external value. (The internal value relates to inflation and deflation; external value relates to currencies’ exchange rates.)

Eric Ham [author and political commentator]: “… that very independence which has actually fuelled United States’s monetary growth.”

Justin Urquhart-Stewart [chairman of an investment platform]: “There is one vital word that central bankers have to give out and that is confidence … this is the first time that I’ve seen central bankers getting together almost as a ‘trade-union’ … [in response to] political interference.’

Ham, like most political commentators, is all-at-sea when trying to comment on monetary matters. I presume that he meant to say ‘economic growth’ rather than ‘monetary growth’. Certainly the wizards of money – ie the Lords of Finance [in the 1930s, the Bankers Who Broke the World] – believe, or claim to believe, that central bank independence fuels long-run economic growth.

Yet, I have a sneaky suspicion that Ham meant what he said. In the mercantilist worldview, a worldview upheld by President Trump, ‘monetary growth’ and ‘economic growth’ are tantamount to the same thing. New Zealand’s Prime Minister, Christopher Luxon, is also a businessman who believes that making hard-won money represents the economic purpose of human life.

In the golden age of mercantilism, from around 1500 to 1800, money was understood to have been legitimately made by mining, exporting, or stealing. (Queen Elizabeth the First was the monarch best known for having resorted to the latter; she boosted the Royal navy for that purpose.) In this view, only mining represents a legitimate addition to the global money supply. Kings and Queens however sometimes resorted to a fourth method, ‘debasement’; modern monetary bankers are still fighting that battle of yore, with ‘public debt’ representing their principal concept of debased money.

On the ‘other side of the coin’ from monetary philosophers – or is it the ‘other side of the ledger’ – there were accountant bankers. One of their clever tricks was double-entry bookkeeping. Another closely related trick was fractional banking. These (along with a clearing-mechanism developed from medieval Italian banking) became the central technologies of modern banking practice. (Many of the earliest bankers were goldsmiths, who on-lent other people’s gold and silver deposits – albeit by issuing receipts, the forerunners of paper money – without telling the depositors. When in trouble, these fractional moneylenders required a fast horse, and contacts who could smuggle them out of the country! The final piece of the modern-banking puzzle was limited-liability status, facilitating an appropriate amount of risk-taking. These are the initially-disreputable technologies that lubricate capitalism and give it its dynamism. Bankers were not alchemists trying to make money independent of the economies it serves.)

Re Urquhart-Stewart, he emphasised the role of confidence – ie belief – in monetary policy. A word widely used by monetary economists is ‘expectations’. Thus, the role that twentyfirst century monetary authorities have assumed is to manage public expectations, even if they have to resort to some kind of poker trick to do so. An important part of this is to maintain a druid-like sense of authority; to tell a good collegial story – not necessarily an accurate story – in order to give themselves an arcane aura of credibility. Democratically-elected politicians – among others – are required to believe their story.

This may be the first time that Urquhart-Stewart has been aware of central bankers getting together as a union or college or guild; but their recent “joint statement” is by no means their first rodeo. Central bankers of the world – like staunch cowboys – regularly get together at a place called Jackson Hole in Wyoming, USA. (And the lords of finance of the late 1920s – the preeminent central bankers of the United Kingdom, United States, France and Germany – were all in regular contact with each other.) On this note, New Zealand’s own Reserve Bank governor, Anna Breman, was one of Urquhart-Stewart’s unionists; and, for her efforts, she had her fingernails clipped by Nicola Willis. (In the recent state of New Zealand’s political cycle, Willis and Luxon have been more in Trump’s camp than in Powell’s, expressing frustration with an unnecessarily slow process of lowering interest rates. This runs counter to their position in the summer of 2023/24; then the new government’s first act in Parliament was to raise the monetary policy bias in favour of generally higher interest rates.)

In the earlier days of central banking, central bankers were more likely to have been well-connected bankers. Nowadays they are more likely to have been economists, specialising in monetary economics and finance. The division between these two cultures goes back at least as far as to the disputations in the 1840s and 1850s between the economists’ Currency School, and the bankers’ Banking School. While the Banking School may have had the better of the argument, as demonstrated by the ongoing development of monetary practice, the Currency School won the culture war.

Before I go on to reveal economist David McWilliams’ substantial contribution to the Al Jazeera programme, we should note that the setting of interest rates through monetary policy is a fundamentally interventionist overriding of the market determination of a price; it represents an exception to the sanctity of the price-mechanism which is fundamental to economics. Neoliberal anti-interventionists tend to show strong support for interest rate intervention; just not intervention by kings or queens or presidents or ministers of finance; they favour intervention by someone they have confidence in. It is part of a wider belief on the part of economic liberals that it is good for our health that money (unlike sugar) should always be scarce; and that the technocratic authorities, if they must err, should err on the side of money being too scarce.

David McWilliams’ ‘Testimony’

I transcribe McWilliams several contributions to the Inside Story programme:

Contribution One: “I’m speaking to you as a former central bank economist … authoritarian leaders from Nero to Lenin, from Hitler to Henry VIII have always tried to interfere with who prints the money, who gets the money and at what price. … This issue is about who gets to set the growth rate of the American economy. Is it the Federal Reserve or is it the President? … Typically, it is the Federal Reserve that gets to set the growth rate, consistent with a low rate of inflation, is going to be X, and were going to drive our monetary policy and our rate of interest according to that. Politicians are always wanting to put their foot down on the accelerator, more growth, more election success, more people feeling good in the very short term. Central bankers push their foot down on the brakes … because we are worried about the rate of inflation. … The central bankers get [their extraordinary power] because they are concerned about the long-term rate of inflation. Politicians are not concerned about the rate of inflation, and as a consequence they want things to accelerate quicker. … The rate of inflation, which affects poor people more than rich people, will go up. The long-term rate of interest, which affects your mortgage rate, will go up. I think, for the world in general, the idea that the people who actually manage and preserve the integrity of the US dollar are no longer concerned about the integrity of the dollar and much more concerned about short-term politics; that will scare people, not just in the High Street, but also in financial markets.”

Re “printing money”, it’s an intentionally pejorative label for money creation through banking based on double-entry book-keeping. Before ‘printing’, there was ‘minting’, which has been the necessary historical privilege of all kings; not just Nero and Henry VIII. McWilliams conflates printing with minting. When money was principally coins, it was the ‘head’ of the king on the coin that gave the public confidence in that coin; the minted coins represented the liability of the kings to the public. It’s not the place here to comment on the monetary policies of Lenin and Hitler. But, re Henry VIII, I recommend the book Gresham’s Law, by John Guy. Thomas Gresham served as banker to four of the Tudor monarchs, in the middle decades of the sixteenth century. Securing additional public debt for Henry VIII – ie, additional to the minted coinage – could be a difficult and hair-raising experience; actually tantamount to smuggling.

McWilliams posits that the technocratic monetary Tzar, Powell, has – and should have – the power to “set the growth rate of the American economy”. This assertion is problematic in that it is neither accurate nor democratic. Attributing the GDP of the United States to one man does a huge disservice to the other 330 million Americans, and grants Powell more concentrated power than Nero ever had. McWilliams doesn’t mention the word ‘productivity’ once, which is unusual for a media economist; it is more common to hear that long-term growth is determined by productivity than by central banks.

McWilliams goes on to say that elected politicians want economic growth rates higher than what monetary economists think they should want, effectively claiming that democracy is inherently inflationary, that inflation is the greatest of all economic sins, and that “politicians are not concerned about inflation”.

The whole discussion reveals overemphasis on a false conflict or dissonance between ‘long-term’ and ‘short-term’. In reality the long-term is no more than a sequence of short terms. We, all of us, all the time, live in the short-term.

His incorrect argument that inflation adversely affects poor people more than rich people is patently false, made most obvious by the facts that higher interest rates clearly favour the receivers of interest, and that past inflation has played a major role in establishing the wealth of today’s rich. We should note that active ‘inflation-fighting’ does not necessarily mean that prices become lower than they would otherwise be; central bank inflation-fighting is a costly process that contributes to the cost-of-living. If we are constantly inflation-fighting in the short-term, and the long-term is a succession of short-terms, then the cost of inflation-fighting becomes a ubiquitous presence in our lives.

Basically, his argument is that if we [ie people like himself] don’t put interest rates up [in the short-term] then interest rates will go up [in the long term]. We need to raise interest rates in order to lower interest rates, he claims. This illogical argument is essentially that inflation necessarily connects low interest today with high interest tomorrow (and vice versa); that interest rates act like an unlubricated seesaw in which one end is labelled ‘short-term’ and the other end is labelled ‘long-term’.

In his last two sentences above, McWilliams claims that a political appointee to replace Powell – compared to a career appointee – would undermine the “integrity of the US dollar”. There is a sense that the US dollar should be the master of the world economy, not its servant. By the way, all appointments by politicians are political; democracy is political.

Contribution Two: “Central backers are charged with – dully obsessed with – the rate of inflation. The rate of inflation is in effect the value of your take-home pay. … The second thing is of course ‘distribution effects’, who pays most. What you find is that, when the rate of inflation goes up, poor people pay more than rich people. Because a higher percentage of a poor person’s income is going to be going on basics … everybody is affected badly, but the poor are affected worse. And then the final point is that for anyone who has a mortgage … inflation means that interest rates will go up. Donald Trump is so keen to reduce interest rates because he is an endemic debtor. There’s always a split in the world between those people who are creditors, who lend money, and debtors, those people who borrow money. As a general rule those people who borrow money want the cost of borrowing to be as low as possible. And if you’ve spent your lifetime defaulting, borrowing, defaulting again, then your DNA will be biassed towards lower not higher interest rates. But who rewards the saver if the rate of interest is artificially low?”

Central bankers, but not McWilliams, make a virtue of themselves being dull technocrats.

The rate of inflation is not the value of your-take home pay. Inflation is an increase in prices, not a level of prices. Inflation, meaning a decrease in what a dollar will buy, strictly affects all prices, including wages; and including luxuries as well as necessities. What McWilliams is arguing is that inflation, though itself not about relative prices, nevertheless has a biased impact on relative prices. Relative prices are in fact caused by market forces; changes in the demand for and supply of different commodities and factors of production. Certainly, changes in interest rates represent a change in relative prices, because the rate of interest (comparable to the wage rate) is the price of a factor of production. If inflation is the only thing that’s going on, a four percent increase in prices will be matched simultaneously by a four percent increase in wages, so the value of your take-home pay is unchanged. All inflation does is reduce what a person’s money-in-the-bank will buy, and make it easier for a person to repay debts. It’s true that markets will respond to inflation by raising the money cost of future debt. Do markets really need help from the monetary druids who claim that interest rates should be raised in an interventionist manner, not only in response to inflation but also ahead of what they claim is expected inflation.

The line from people like McWilliams is that debt is akin to a form of sin, whereas squirrelling money away at four percent annual interest is a virtue. This is religious metaphysics, not science. How many people who have made a lot of money did so simply from squirreling away their wages? Not many. Rich people, except those who simply inherited from daddy, incurred debt to become rich. Rich nations incurred debt – private and public debt – to become rich. Debt has played and continues to play an absolutely fundamental role in economic and civilisational development.

Even in nature the squirrels are not rewarded. They earn no interest on their nuts, and they are subject to a ‘use it or lose it regime’. Nuts which are saved for too long become inedible, or simply go missing. Yes, savers should be rewarded when capital is scarce and people with unspent income need to be induced to take investment risks. In the twentyfirst century, however, the world has been awash with private stashes of idle money; central bankers should not be using public policy to serve the interests of the owners of these stashes.

Contribution Three: “Is the institution stronger than the personalities? I think what we are talking about is a power grab, and we know there’s nobody more powerful in society than the person who controls the money. Money is the glue that gels society together. It is an awesome weapon on the part of governments, which is why I suspect central banks have been independent for so long. We’ve largely seen a revolution of the central banks in the 1970s; by the 1990s with the exception of the UK most were independent.  … This is about power and the exercising of power; and I would say that money is a far more powerful tool than ideology, than even warfare, than certainly all sorts of other weapons in the hands of presidents. So, what we are seeing here is a man who doesn’t really understand – or isn’t bound by – the rules of the game, so he’s tearing up the rules as we go along. This is a particularly acute tearing-up. Why? Because he’s actually affecting financial markets, corporate interests, Wall Street’s interests, so there may well be a massive pushback. But to answer your question, if there is a patsy at the helm of the Fed it will undermine the credibility of the United States dollar at a time when the dollar is under credible threat. The United States is no longer the overwhelmingly dominant economy in the world; it is technically number one, but it is being gradually dragged back downwards by China and in the long term by other countries as they grow. So, I think President Trump doesn’t understand the exorbitant privilege that the United States has as [having] the reserve currency of the world. There is nothing more powerful than that you can print money for free as the reserve currency, and people have to give you real stuff to buy that currency that you print for free. How amazing a deal is this? And for the Americans to self-sabotage from the White House seems to be the politics of idiocy.”

Here McWilliams reveals the power agenda of the monetary church. Money should be controlled by the church, themselves; not by the people through their elected or unelected representatives. Henry VIII struggled with the Rome-based Catholic Church in the 1530s. Henry won. What we see today, in McWilliams’ words, is the new church in another power struggle; a struggle – possibly a struggle to the death – that the new faith is probably winning. Who should we trust; the king or the church? The “rules of the game”, by the way, were set by the monetary economists – the currency school – of the nineteenth century. Those rules went quiet in the 1930s, but they started to reassert themselves in the 1970s; in the mid-1980s in New Zealand.

McWilliams does understand the power of double-entry bookkeeping as applied to banks – the power to “print money for free”. And he is correct that Trumponomics – Trumpian mercantilism – is an unwitting policy to self-sabotage the United States’ economy. But to transfer power to a college of druids is not the answer, either. Rather, lay people should all be better educated about money; but not so-educated by these monetary Jesuits. Henry VIII was taught statecraft by Cardinal Wolsey. He overthrew Wolsey – his mentor and his tormentor – but was unable to seek, let alone find, a better counsellor; Henry lost his way. Today we have democracy; a civilisation-project that is still immature, a project whose survival cannot be guaranteed. For all Trump’s faults, he is nevertheless more sensitive to ‘the people’ than are the technocrats who, while really serving the church of sacred money, claim to “serve the public”.

Contribution Four: “I would like your viewers to just remind themselves that the key word here is ‘trust’; what keeps money sacred, almost has an alchemic value, is trust. I trust it, you trust it, we trust each other. Now if you chip away at that trust, which is ephemeral, entirely in our heads, you begin to chip away at the very foundations of the system that we all have in, that system remains stable. So once you put the trust in the currency in the hands of somebody who is untrustworthy you begin to open all sorts of dilemmas about what’s the value of money, who prints it, will it buy what it says it buys, and can I save it. These are massive, massive issues.”

I can say here that ‘sunlight is the best disinfectant’, that delegating our credulity to a college of wizards and metaphysicians is not our best way forward. What David McWilliams (and the people he speaks for) says here, while more Hogwarts than hogwash, perhaps belongs in the Age of Aquarius; like Christian Hawkesby’s ‘North Star’ (refer Reserve Bank cuts OCR 25 basis points, RNZ Morning Report, 29 May 2025). That, of course does not redeem President Trump.

In an important sense, McWilliams is correct. Money is free; freer than a piece of paper. But it’s always an accounting liability; a liability incurred by whoever’s signature or head is on it. Neither kings nor bankers have an incentive to overcook the money supply. It’s their heads that are on the line. The secrets are to always have enough money in circulation; and that it is better to err on the side of too much than too little. Value can seemingly be created from nothing; that’s always been so. But money, and any other form of promise, is not itself ‘value’; rather money is a set of claims on value. The alchemy perception is that a piece of paper with a signature – or a metallic disc with a king’s head etched on it, or a deposit entry in a bank account – may have intrinsic value, may in itself be wealth. But no, such things are only promises. If promises are to be kept, then sabotage – including self-sabotage – should be avoided.

(As an aside, it has often been believed that a destructive weapon of war was to flood a country’s economy with credible counterfeit money. The Germans allegedly tried it in the United Kingdom in World War Two, but to no avail. The Japanese also tried it in the Philippines; I have actually seen a case of counterfeit money recovered from a Japanese crashed aircraft in Mindanao, Philippines. Fascinating!)

Conclusion

The monetarists’ essential argument is that if the policy objective is to have future lower interest rates you have to have higher interest rates now. That is, the preventative for high interest rates is high interest rates! (By ‘monetarists’, I refer to the monetary bankers and the growing numbers of ‘finance-experts’ of the new Currency School, distinct from the now-scarce practical banker-accountants of the old Banking School.)

Mysticism about money is rife, and ripe, especially within the guardian church. The Church of Money is a part of the New Technocracy that is surreptitiously overwhelming the institutions of democracy.

Re John Maynard Keynes, on the short-term versus the long-term. Keynes said: “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again”; meaning that actual life is always lived in the short-term, and that the distinction between the short-term and the long-term is essentially vacuous.

The monetarists’ view is normative; that in the event of an economic stagnation or decline, those who had already built ‘nest eggs’ (portfolios of financial claims) should have priority access to diminished goods and services; priority over the workers and capitalists who would be producing those goods and services. That is, priority access to a diminished ‘economic pie’ should be given to rich old gentlemen and gentlewomen, with the greatest priority to be given to those with the biggest portfolios regardless of how those nest eggs were obtained. This is not a policy to benefit the poor.

Further, the implementation of neoliberal monetary policies – today’s Currency School or Currency Church, which favours intervention on the side of less money and dear money – substantially increases the likelihood of national and global economic decline, in the short-term and in the long-term. Just as a car with insufficient lubricating oil will not go well. Such a car may complete a short run, albeit inefficiently; but it will not complete a long run.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Truth in world affairs is not a single expert-narrated story.

National Politics

In our ‘official’ ‘United Nations’ world – the world referenced by the expression the international rules-based order – there are about 200 sovereign nation states (ie ‘countries’) which are equal members of the global community of nations. We mean equal in a juridical sense, not an economic or demographic sense; as recognised by ‘one nation, one vote’ in the United Nations General Assembly. Further, in this sanctioned and sanctified view – using the verb ‘sanction’ in its original old-fashioned sense – neither history nor geographical proximity matter; Mexico is as independent of the United States as it is of India.

Before moving on to geopolitics, there are four exceptions allowed within this official view. First is that there are numerous pieces of territory which are understood as too small – in population and/or land area – to be viable independent sovereign nation states. Second, some sovereign nation states – usually neighbours – may form a voluntary Union, whereby certain aspects of their sovereignty are ceded to centralised institutions. Third is that many citizens do not reside in the territories associated with their nationalities. And three exceptions not allowed for, but acknowledged to varying extents: countries that don’t exist but do exist; territories subject to internationally tolerated military occupation; and territories within recognised nation-states pushing for secession, though falling well short of either self-government or union with similarly-placed neighbouring territories.

An example of the first type of exception is Greenland, accounted for as a ‘realm’ territory of Denmark. (Other familiar realm territories are: Cook Islands [in the realm of New Zealand], American Samoa, and New Zealand’s closest foreign neighbour [Norfolk Island, in the realm of Australia].) The second exception is the European Union (noting that, in some circumstances – consider FIFA – the United Kingdom is also a Union of [four] nations). Might Canada join the European Union this century?

The third exception – the diaspora exception – applies to a degree to all nation states; and it applies particularly to New Zealand. New Zealand possibly has more citizens resident outside of New Zealand relative to citizens resident inside New Zealand; at least if we only consider countries with resident populations in excess of one million. Is New Zealand its citizenry or its territory? Given the realities of dual-citizenship, it is probably better defined as its territory along with its residentcitizens and denizens.

The fourth generally accepted exception is territories that are formally non-sovereign. Our example here is Antarctica. We may add the Moon.

Re the unsanctioned exceptions, Taiwan is the obvious example of the first type (other examples include Abkhazia and Somaliland) and Palestine is the obvious example of the second type. For the third (secessionist) type, I would cite Eastern Congo in which substantial domestic forces are in reality more aligned to nearby Kigali than faraway Kinshasa; I would also mention Myanmar’s Rakhine state, home to the Rohingya people.

Geopolitics

While the above ‘national politics’ narrative is real and contains a legal structure satisfying to its liberal architects, it is overlaid by an equally real (and quite different) geopolitical layer. Conflicts of big ego and big ideology can neither be understood nor resolved without substantial reference to geopolitics. Geopolitics is tied to both contested histories and geographical proximity. More than anything geopolitics is about empire (formal and informal), the unequal coalitions and powerplays among and between identities of people beyond and within territorial boundaries.

Geopolitics is about the centres of political power – the ‘great powers’ to use an expression from World War One – and their rival claims over the planet and its people. Geopolitical texts commonly refer to cities that are power centres, such as Washington and Berlin, rather than the countries in which those cities are located. Most conflict in the world can only be understood with recourse to geopolitics, which is largely the sociopathic politics of power masquerading as a set of struggles of ‘Good versus Evil’.

At least the president of the United States, DJT, is in a sense more honest than most ‘democratic’ leaders of powerful countries, in that he frames his acquisitive sentiments in the name of America rather than in the name of Good or in the name of God. Coveted Greenland looms larger in geopolitics than in national politics; in national politics it successfully hides in plain sight, as a large appendage of a semi-sovereign nation with a population barely larger than New Zealand.

Greenland: History

Greenland presently – at least formally – lies within the realm of Denmark, noting that ‘realm’ is itself a sanctioned rules-based exception. Denmark, as a member of the European Union, has delegated aspects of its sovereignty; from Copenhagen to Brussels and Paris and Berlin.

The first question to ask about Greenland is: why is it in the possession of the Kingdom of Denmark? Greenland was never conquered or colonised by Danes or by Denmark. Over 1,000 years ago, Greenland was colonised by Norse (ie Norwegian) Vikings. Greenland’s first people were Inuit, and the present population is substantially an Inuit/Norse mix. Around 500 years ago, Norway and Denmark formed a political union – a kingdom in which Denmark was the dominant partner – which lasted around 300 years. In that age of imperialism, Greenland became formally subject to that kingdom. This was a marriage between Denmark and Norway during the constrained period of the Little Ice Age. Greenland was ‘matrimonial property’ in this Union.

In 1814, Norway was passed on to Sweden through the Treaty of Kiel, in an era in which the wife was regarded as the property of the husband. Thus, Denmark formally gained Greenland as part of the divorce settlement. That remains the historical basis for Denmark’s claim over Greenland today. Though we remind ourselves that today’s reality is that Denmark is a somewhat junior partner in the polyamorous European Union. (Would Denmark get to keep Greenland if Denmark was to do a ‘Dexit’? Or would Greenland be passed on to the other husbands and wives?)

Greenland: Geography

Functionally, at least in geo-environmental terms, Greenland is the northern land-analogue of Antarctica. Arctica. While it doesn’t literally cover the North Pole (except that a large sheet of sea-ice extends from northern Greenland), it is near enough; and its land ice-sheet is certainly the northern analogue of the West Antarctica ice sheet. Based on this analogy, Greenland could become subject to a similar extranationalism to that which governs Antarctica. The difference of course is that Antarctica has no formally resident population; almost nobody was born there. The model could be adapted, with authentic Greenlanders becoming limited-power-landlords over an essentially international territory.

When I was a child, it was very common for families to have a globe in their living rooms, somewhere between the mantlepiece and the piano. About 15 years ago, I was lucky enough to have acquired a 3D jigsaw puzzle of the world; indeed, a small self-assembly globe. To see Greenland in perspective, it’s necessary to look at a globe. Short of that, see this satellite picture of North America from the Turtle Island page on Wikipedia.

(I was privileged to learn about Turtle Island when I visited Winnipeg in May 2019. When I walked through the Peace Park at The Forks, I learned for the first time about Turtle Island. See on YouTube: Winnipeg – the heart of Turtle Island. [And note this 16 December 2025 BBC story FBI foils New Year’s Eve terror plot across southern California, officials say relating to the Turtle Island Liberation Front.] I have a personal story about Greenland. While never having set foot there, I remember having a window seat flying from London to Los Angeles one October day. I saw the sun set somewhere northwest of Scotland; then a couple of hours later I saw it rise again, from the west, over Greenland. This was only possible because at such polar latitudes, an east-west flight is fast enough to be able to reverse the sunset.)

The map, in correct perspective, very much shows Greenland as a not-very-green part of North America. Its closest neighbour is of course Canada; indeed since 2022 Greenland has shared a land border with Greenland, on Hans Island in the Kennedy Channel, following the resolution of the Whisky War between Canada and Denmark. (It is unknown whether the Kennedy Channel was named after a Canadian fur-trader and politician, or the guy who was United States Secretary of the Navy in 1852 and 1853. If the latter, this might give false credence to DJT’s claim on Greenland for the United States.)

Greenland certainly looks to be geographically American – just as Norfolk Island geographically connects to New Zealand (on the Zealandia continent). But a geographical argument must also based on the connectivity between population centres. The flight distances from Nuuk, Greenland’s capital, to other capital cities are: Reykjavik, Iceland (1,430 km); Ottawa, Canada (2,560km); Dublin, Ireland (2,800km); Oslo, Norway (3,150km); London, UK (3,250km); Washington DC, US (3,260km); Brussels, EU (3,520km); Copenhagen, Denmark (3,530); Berlin, Germany (3,820); Moscow, Russia (4,630km); Beijing, China (8,400km).

Washington is closer to Nuuk than is Copenhagen. Dublin is the closest EU capital city to Nuuk, and is a more economically connected city to the North Atlantic than is Copenhagen. Brussels, formal capital of the EU is the same distance from Nuuk as is Copenhagen. Berlin, the geopolitical capital of the EU, is nearly 4,000 km from Nuuk (whereas New York, the power capital of the US is less than 3,000km from Nuuk). Moscow and Beijing are both much further from Greenland, have had no geopolitical influence there, and constitute no plausible geopolitical threat; future security issues in Greenland are more likely to emanate from piracy than from power centres in Asia.

While there is no argument in favour of the United States annexing or otherwise acquiring Greenland, the case for European Union control of Greenland is even weaker than that of the United States. The only European countries with credible claims to form a Union with Greenland are Norway and Iceland, on the basis of shared history and shared maritime geography.

Greenland: Demography

Greenland’s population of just under 60,000 is only slightly higher than the populations of the American realm territories of American Samoa and the Northern Marianas Islands. Guam has three times more people than Greenland. The American Virgin Islands, with 100,000 people, is more populated than Greenland. The largest American realm territory, Puerto Rico, has 300 times as many people as Greenland. Of these ‘countries’, only Puerto Rico is a serious candidate to become the 51st state of the United States. The Virgin Islanders don’t even drive on the same side of the road as the rest of the United States.

I suspect that the DJT vision for Greenland is for it to become something like the former Panama Canal Zone; a former American territory that existed when I sailed through the Panama Canal in 1974. Of course we are aware that DJT would like to re-acquire that Panamanian territory for the United States.

Greenland is different though, in the same way that Antarctica is. It has many potentially valuable mining resources; and it lies on economically significant sea channels which are becoming more navigable thanks to climate change. And it has global environmental values. A collapse of the Greenland Ice Sheet would drown all of Manhattan and most of the rest of New York; as well as much of other cities mentioned above such as Dublin, London and Copenhagen.

Greenland as Arctica

Greenland’s people can become landlords – but not landlords with monopoly power – able to procure citizens’ royalties (public property rights) from both extractive industries and the use of its sea-lanes. Greenland requires a Treaty of Nuuk, with a limited concession of sovereignty in return for those benefits; but a concession that leaves property rights in Greenland essentially the same as property rights in Antarctica.

Antarctica today represents geopolitics done quite well.

The Greenland question needs to be addressed. It is not sufficient for it to become a de facto territory of Europe – which eventually means Berlin. And it is too large a landmass to be independent in the way that Iceland is.

Warning

By understanding Greenland essentially as an inhabited Anti-Antarctica – as Arctica – we have to realise that the present United States regime may seek to undermine (literally and metaphorically) current arrangements for Antarctica. And when DJT turns his gaze southwards, he may look upon independent sovereign countries in the South Pacific as parts of his growing fiefdom. The South Pacific is America’s gateway to McMurdo Sound, in Antarctica. A number of ‘independent’ and proud countries in the South Pacific – Tonga, for example – already dutifully vote largely according to the United States’ say-so in the United Nations.

If Antarctica becomes a template for Greenland, that’s a definite improvement on the present accidental and unsustainable arrangement; but only if Antarctica’s present governance arrangements are preserved.

Watch what happens if Nasa’s Artemis Program successfully re-lands American men on the Moon. The Washington regime may lay claim to privileged property rights over the Moon – much as Wentworth acquired New Zealand’s South Island in 1839, requiring a treaty (Treaty of Waitangi) to repudiate that claim. If the United States believes it owns the Moon, it may stake a similar claim on Antarctica; and also seek to extend its Pacific realm. Citing America’s security! And breaking the Seventh and Tenth Commandments.

While current American-led geopolitics poses a deeply problematic story for resource-rich and low-populated territories, the expert-led official story of international politics is problematic too. The status-quo is not necessarily the best solution.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

RNZ news item, 12pm 9 Dec 2025: “Finance Minister Nicola Willis has challenged one of her predecessors Ruth Richardson to debate her on how to best manage the country’s finances. Our political reporter Anneke Smith has more: ‘The taxpayers union is poised to launch a pressure campaign targeting Nicola Willis in a campaign to convince the finance minister to cut spending and reduce debt. Ms Willis says it’s clear the campaign is being driven by Ms Richardson, chair of the Taxpayers Union; and she has a clear message for her, “Come and debate me face to face, come out of the shadows, I will argue toe for toe on the prescription that our government is following. I reject your approach, and instead of lurking in the shadows with secretly-funded ads in the paper, come and debate me right here in Parliament.” Ruth Richardson says that the Taxpayers Union is simply doing its job by challenging the government to address its finances. “We are seeking to hold the feet of the Minister of Finance to this fiscal fire. Her Treasury are shouting ‘Fire! Fire! we have a structural deficit, this cannot go on, it needs to be addressed.” Ms Richardson laughed when RNZ asked her if she would debate Ms Willis, saying it was up to the Minister of Finance to front government decisions.'”

The narratives on the classical right and the fuzzy right

Where are the libertarian right and the fuzzy right coming from? There must be more to their visions than ‘balancing the books’; in Victorian times, families might balance their books by selling their children.

What are the narratives which these actors are speaking to? Who are the defunct economists whose ideas are driving them? There are actually three narratives of the liberal conservative right. Present Minister of Finance Nicola Willis represents the fuzzy fudgy right. Ruth Richardson represents one purist branch of the classical right; the other is represented by former United Kingdom Prime Minister Liz Truss.

Note this oft-quoted (and, here, slightly massaged) passage from John Maynard Keynes’ General Theory (published 1936): Practical [wo]men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Keynes used the word ‘practical’ with irony. One intellectual ancestor who Ms Richardson may not be aware of was the prolific Mrs Marcet, (b.1769 London, d.1858 London) who was praised by Jean-Baptiste Say as “the only woman who had written on political economy and shown herself superior even to men”.

We note the context that the present recession (in terms of total fall of per capita GDP, and duration of fall) is now understood to be the second-worst in New Zealand since the Great Depression (1930 to 1935 in New Zealand). The worst since 1935 is unquestionably that which peaked in the early 1990s, and was very much associated with the fiscal governance of Ruth Richardson. We should note that a structural recession, also known as a balance-sheet recession, is an extended period of near-zero growth which typically follows an initial fall of economic output and income.

Dramatis personae

Four defunct economists feature in this story about Richardson, Willis, and Truss; all four associated with the first two decades of the nineteenth century: Jean-Baptiste Say, James Mill, David Ricardo, and Thomas Robert Malthus. In the chronologies relevant to most people alive today, these four men are all very much defunct (and pre-democratic in outlook), though their ideas are increasingly driving western economic policy today. They are the founding fathers of the classical school of economics. (Mrs [Jane] Marcet was the midwife.)

Today there is a curious kind of intellectual Benjamin Button process going on, with the most important post- industrial revolution contributions to economic policymaking (those of Alfred Marshall, 1890, and Keynes, 1936) having been unpeeled, with the most recently written (Keynes) having been unpeeled first. Intellectually, economics – or at least the loudest economic narrative – is moving backwards in time.

The unpeeling process has further to go. The mercantilist economics of DJT precedes the classical political economy which became fully formed in the 1810s’ decade; and it precede the partial demolition of mercantilist economics undertaken by Adam Smith in 1776 (The Wealth of Nations). And it precedes the scientific revolution most associated with the name of Isaac Newton. The heyday of mercantilist ‘thought’ was the first half of the seventeenth century. (The most mercantilist of organisations in history were the Dutch East India Company, which ‘discovered’ New Zealand in 1642 [and subsequently named it, along with New Holland to New Zealand’s west], and the Dutch West India Company, which founded New York in 1624; these companies’ narratives give the best possible insight into the strategic thought of the current United States president, a man of New York, and his acolytes.)

The paradigm of classical economics was formed from 1798 to 1823, mainly in England; formed during the peak years of the Industrial Revolution, but almost completely without reference to (and with minimal application to) the dramatic economic events (also mostly in England) of that quarter-century.

Aggregate spending as a driver of economic growth

The central issue in New Zealand’s economic politics today is about whether (and how) aggregate spending is a driver of economic growth. The Richardson supply-side version, which denies that aggregate spending has any role, falls directly in line with the doctrine of the godfather of classical economics, James Mill, and his mentee David Ricardo. The Truss version, however, follows Malthus in his later dispute with Ricardo, and represents what has been popularly known since the 1970s as trickle-down economics. Conservative and centrist western policymakers today mostly follow a fuzzy fudge version of classical economics, where they selectively allow for increased aggregate spending to facilitate economic growth while disavowing the role of central government as an autonomous spender.

The first principle of classical economics is called Say’s law (of markets); though it could have been called Mill’s Law, and its ongoing presence in liberal-conservative economic narrative is more due to Mill’s role in overseeing the classical economics’ project than to Say after whom the ‘law’ is named.

Say, in looking for an argument to show that a general glut (the term then used for a recession) is impossible, noted that aggregate income must be equal to aggregate output, and believed that all income must be spent (on that output) in one way or another. He understood an apparent glut (ie unsold goods) to be a simple mismatch between what goods people produced and what other goods they wanted to buy. In other words, Say argued that an apparent excess of output was equally matched by a less visible shortage somewhere else. (In subsequent neoclassical economics, most associated with the name of Alfred Marshall, it was the price mechanism of markets which would resolve such an apparent glut, by providing the information required to ‘signal’ to firms what they should be producing.)

In the days of Say and Mill, it was true that producers blindly supplied goods to the marketplace. Today’s world is very different, as most of us do understand. Today, the norm is to produce goods and services for the market; in other words, today’s producers directly and indirectly respond to market forces. Today, when people buy more, firms respond by producing more. The connection between prior spending and output has become so obvious; yet few push back when economic policymakers and liberal conservative commentators repudiate that connection by constantly promoting the supply-side mantra of ‘increasing productivity’. (In reality, firms most increase their productivity when they have more customers, not when they reduce their costs. Henry Ford raised rather than cut his employees’ wages!)

Say’s law is easily repudiated; just look at any basic Economic Principles textbook. We see that some income is saved rather than spent, and that some previously saved income is spent; there is no necessity that the two will cancel out. As a result, much spending is (necessarily) a result of lending, and there is no simple relationship between saving and lending. It turns out that banks and governments act as pumps and sumps. If they don’t pump enough, then there will be a ‘general glut’, a recession; there will not be enough spending to buy everything that people would like to produce, and maybe not enough to buy all that they have produced. Falling prices (deflation), a possible consequence of insufficient spending, acts as a further deterrent to spending; that’s what happened during the doom-loop we now know as the Great Depression. (Irving Fisher described a debt-deflation spiral; when debtors stopped spending in order to repay debts, there became too little aggregate spending, meaning that prices and incomes fell and debts increased relative to incomes.)

Ricardian economics – named after its most precise theorist, David Ricardo – includes Say’s law of markets as a core axiom. Another core axiom was Malthus’s theory of population; first published in 1798. The central idea was that wages could never permanently rise above the level of absolute subsistence, because whenever wages did increase to higher levels then fertility would increase leading soon enough to competition in the labour market sufficient to beat wages back down to subsistence levels.

A third premise was that profits fall as rents increase; rents would inexorably increase as rising populations forced capitalist tenant farmers to rent lands of decreasing quality, meaning that the better lands would command higher landlords’ rents. (Famers, the quintessential capitalists in the Ricardian system, could slow down this profit decline by increasing their productivity.) The argument depended on competition between tenant farmers, comparable to competition between wage workers.

The end result of classical economic growth would be a dismal stationary state in which only landlords (the one-percenters of ancien régime times) would have access to discretionary income. The sociology which accompanied that perspective on agricultural capitalism was that the early capitalists would seek to acquire land and become one-percenter landlords; in the classical system, farmers had displaced merchants as the archetypal capitalists.

(David Ricardo was a particularly successful specimen of capitalist, though neither farmer nor merchant; he was a financial capitalist and speculator, who made sufficient money to acquire for himself the Gatcombe Park estate, now the country residence of Princess Anne. War times generally provided better opportunities than peace times for speculators to make fortunes; the backdrop to classical economics was the Napoleonic Wars – effectively World War Zero – which featured the most glorious years of the British Navy.)

Malthus’ contribution to classical economics went well beyond his renowned theory of population; the theory which begat the concept of the tragedy of the commons. That tragedy is playing itself out today, through both escalating military conflicts and the barely restrained use of fossil fuels; nobody is making the news today by advocating ‘green warfare’.

Malthus became the first dissenter, among classical political economists, to Say’s law. He argued that general gluts were perfectly possible, and that aggregate spending did need to be topped-up under certain circumstances. Malthus favoured policies such as debt-relief and tax-relief to landlords, so that they could buy more luxury goods, thereby helping to keep servants and the like employed and fed.

None of the classical thinkers came close to understanding that, in a mature industrial economic system which focusses on the mass production of consumable commodities (later known as ‘wage goods’), wage workers would need to have a sufficient share of overall income to be able to buy the mass-produced goods which they made. They should have. The John the Baptist (ie precursor) of classical economics – Adam Smith – made a detailed description of a 1770s’ pin factory; Smith had more to say about mass production than did the founders of the classical school.

Malthus, by favouring a stimulus which directly favoured the rich, became the founding father of trickle-down, the variant of liberal conservative economics favoured by Liz Truss.

In the meantime, namely the 1970s and 1980s, new classical economists (including Robert Barro, a sometimes visitor to New Zealand in the 1980s and 1990s; who I and colleagues lunched with on one occasion in Auckland in the 1990s) rediscovered a more technical version of Say’s Law, and called itRicardian Equivalence in honour of David Ricardo.

The pure classical school to which Ruth Richardson adheres uses the Ricardian Equivalence argument to claim that, at best, extra government spending makes no difference to the rate of economic growth. She is of the school of Mill and Ricardo that supply always creates its own demand, and that – exempting a few essentials such as national defence and the law courts – government spending simply crowds out allegedly-superior private spending.

The fuzzy Willis fudge

While Prime Minister Luxon inclines towards the ‘making-money’ mercantilist economics of DJT – mining, exporting, and acquisition of resources through one-sided deal-making and military threats; Luxon clearly emphasises exporting – his Finance Minister Nicola Willis is much more in tune with Treasury’s liberal conservative macroeconomics.

While essentially schooled in the new classical macroeconomics of the 1980s, and increasingly sceptical of the market-corrective economics of Marshall and his disciple Arthur Pigou, Willis adopts an ambiguous attitude towards the general proposition that more spending generates higher levels of GDP (gross domestic product) than would otherwise occur.

This Treasury view values foreigner-spending; and business-investment spending, believing that firms should invest liberally in cost-cutting techniques even if consumer markets are weak and getting weaker. Generally, the Treasury view substantially underplays the ways that working-class consumer spending and government spending can revive a stagnating economy.

But Treasury points to monetary policy as a source of stimulus. In the old days monetary policy as a stimulus meant a stimulus to new business borrowing and the funding of consumer durables through hire-purchase. Nowadays, this ‘price effect’ of monetary policy is understated. Rather, the story we hear is that ‘mortgagors will spend more when they refix their home loans at lower rates’, and that new spending by relieved mortgagors on middle-class goods will prove to be a critical factor inducing economic revival. This is called an ‘income effect’; traditionally neoclassical economics has downplayed income effects while upplaying price effects. The change we see today represents part of the disavowal of neoclassical economics, and the Benjamin Button style return to its predecessor, classical economics.

The supposition is that rational mortgaged homeowners will spend more when their mortgage liabilities decrease (including when the equity in their homes is decreasing as a result of ‘softening’ house prices), because their disposable incomes have increased. Yet that same rationalist logic is almost never applied to governments. We should be hearing Nicola Willis saying, now that interest rates are much lower the government can and should borrow and spend much more. But we are not hearing that. It worked in the late 1930s – increased government spending was very popular with households and businesses, and annual economic growth reached double-digit percentages – but is not even being considered today.

Despite what Ruth Richardson says, Nicola Willis is an austere money-woman.

Richardson is obsessed with the fiscal deficit. But the deficit is the result of our present recession, not the cause of it. (Look at the section on automatic stabilisers in the economics textbook.) Ricardian equivalence, if it truthfully applies under any circumstances, certainly does not apply to an economy in the midst of a recession. Arguably monetary policy is enough to get an economy out of a normal recession (a ‘gumboot recession’?), but spending by government (or some other ‘countercyclical players’) is the only known method of getting an economy out of a structural recession. (The only known method, that is, other than waiting for an export recovery. We’ve had our export recovery since 2024; so far it has not been enough, and is unlikely to bring the New Zealand economy back to its counterfactual growth path.)

The political problem is that you cannot simultaneously repudiate Keynesian economics and implement it. Unless you fudge it, of course!

The Debate?

Will Richardson and Willis have a media debate this week? I’m guessing not. If it does happen, will Ruth Richardson talk about the merits of Ricardian Equivalence? Probably not; but if she is to be honest, she must tell us that it is the concept at the core of her macroeconomic belief system.

At least Willis is a pragmatist, of sorts. Richardson and Truss are classical dogmatists, standing on opposite sides of the Ricardo-Malthus controversy.

(If the money-women have time to swot-up on their defunct economists, a debate could probably be hosted at short notice by the New Zealand Society for the History of Macroeconomic Thought. Thursday-week at the site of Unitec’s Penman House; “feet to the fire” not compulsory, bring your own umbrella and hose. We could invite, from London, Liz Truss; and a descendant of Charles Dickens who could reflect on the political economy of high-density housing. Complimentary screening of Christmas Carol the musical if a power source can be arranged.)

By the way, the way to remove the fiscal deficit is to invest in economic growth. Governments, like businesses, have to spend money to make money. Say’s Law is old hat. What is your real agenda, Ruth?

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

TVNZ’s special programme on Tuesday (News Special: You, Me and the Economy; 25 November 2025) included (about two-thirds of the way into the programme) among a number of helpful and unhelpful suggestions, a call for New Zealanders to get onto the compound interest bandwagon, the magic formula of getting rich in the never-never through thrift. Jam tomorrow, never today; which seems to be our main narrative towards fixing the West’s economic woes.

The spokesperson for compound interest on the program sort-of acknowledged that ordinary compound interest (ie “conservative” compound interest) was hardly good enough; she pushed for an amplified “high growth” version of compound interest.

She was correct, if understated, on her point about conservative returns.

Ordinary Compound Interest

If we go back 100 years, to 1925, the equivalent of today’s minimum wage was $120 per year. If a person saved $120 then, and allowed it to compound (say in the form of a one-year bank term deposit) through to 2025, an average after-tax interest rate of 4.23 percent would have been required to make that ‘investment’ worth $7,540 today. $7,540 represents compounded CPI inflation over those 100 years. Thus, in principle, $120 (actually £60) would have had the same purchasing power as $7,540 today. In reality, the average term-deposit interest rate over the last century was well under 4.23 percent before tax, let alone after tax.

(We note that tax on interest is charged at a person’s marginal rate – commonly known as the secondary tax rate – and is nowadays withdrawn at source. For most of the last 100 years, tax on interest was more easily evaded, and it was paid separately, meaning that the compounding appeared to relate to before-tax interest income.)

In 1925, $120 per year supported, in many cases, low-income families. Imagine any family trying to live on an annual income of $7,540 today! The better way of evaluating past compound interest is to compare the compounded present value with today’s annual minimum wage, which is $48,800. For $120 in 1925 to compound to $48,800 in 2025, an average after-tax interest rate of 6.2% would have been required. That’s vastly in excess of what term deposit interest rates actually were, on average.

We should note that an average interest rate of seven percent would have compounded the $120 term-deposit to $104,000 today, and that an average interest rate of eight percent would have compounded the $120 term-deposit to $264,000 today. So, the magical exponential outcome of compound interest can occur, but only if the interest rate is sufficiently above inflation (ie above the compounded growth of prices); or, more pertinently, sufficiently above the compounded minimum-wage rate.

Other starting years

My calculations show that if the approximate minimum wage was invested in 1935, an after-tax average interest rate of 7.1% would have been required to achieve today’s minimum wage. (Wages were about twenty percent lower in 1935 than in 1925.)

In late 1970, I was earning seventy cents an hour milking cows every Sunday morning. That was about the minimum wage then. In 1980 I was in a well-paid IT job, earning $13,000 per year, which was more than double the before-tax minimum-wage-equivalent of the time. I have estimated annual minimum-wage equivalents for those years of $1,500 (for 1970) and $5,000 (for 1980).

For $1,500 in 1970 to compound to $48,800 in 2025, an average interest rate of 6.54% would have been required. For $5,000 in 1980 to compound to $48,800 in 2025, an average after-tax interest rate of 5.19% would have been required. (For the 1980 example, a before-tax annual average interest rate of about ten percent would have been required for such 1980 savers to have achieved three times today’s minimum wage.)

For a $30,000 term deposit in 2015 (again, set close to the minimum wage), an average after tax interest rate of five percent would have been required to compound that amount to today’s minimum wage.

Today’s one-year term deposit rate is 3.4% before tax, 2.4% after tax (applying a secondary tax rate of 30%). A $30,000 minimum-wage term deposit in 2015, compounded for ten years at today’s rate, would now be worth $38,000; well under today’s annual minimum wage (for a 40-hour per week job) which is nearly $49,000.

In the last 80 years, many people did make investment fortunes; but through property and other debt, not through saving.

Target Audience

We note that the target audience for this compound-interest narrative is young adults, because compound interest – like Mainland cheese – takes time. Most young adults in New Zealand today can only afford to save in this way if the money is taken from them ‘at source’ (eg through KiwiSaver), and then (if they are trying to live independent lives) they have to incur higher levels of debt than they otherwise would to be able to make those obligatory savings. Further, employer contributions to KiwiSaver are very much a part of the cost of labour, and are therefore factored in with employers offering lower wages than they otherwise would; after-tax employee remuneration is just a part – albeit a large part – of labour cost.

“High Growth” Compound Interest

The above simple mathematics show why the savings industry is trying to push products that simulate high-growth compound interest. In the years before 2008, and in the mid-2010s, these products rode the property bubble wave. Those ‘investments’ now appear rather naïve. But the industry of professional optimism always looks forward; it almost never looks back.

Today, amplified compound interest is (allegedly) being achieved through riding the world’s stock markets, with an emphasis on military stocks and ‘tech’ stocks (especially those of the ‘AI’ companies), and on cryptocurrencies. The ‘tech’ stocks (which the New Zealand Super Fund is highly exposed to) are one modern-day equivalent of mining-company shares; shares which historically have been amongst the most volatile. And crypto-currency mining is the virtual – and equally unsustainable – equivalent today of gold-mining as in the days of the Klondike, Ballarat, and Tuapeka gold-rushes. (Re gold rushes, 2025 is a global gold-rush year, though the years of the individual undercapitalised goldminer-made-good are in the past.)

Speculations on AI, Bitcoin, or African gold are no more routes to financial security or future abundance than is prosaic money-losing compound interest.

What are they thinking?

Compound interest without compounding economic growth.

We have to think about the compound interest narrative in two contexts, that of a static economy, and that of a perpetually growing economy.

The basic idea of a static economy is that there is no inflation nor economic growth. To keep it simple, imagine no population growth as well. And no taxes.

The mathematics of compound interest in this case are real. If you were able to save a sum of money and to wait for it to compound at two percent per year, you would more than double your money after fifty years, and increase it tenfold in less than 120 years. These gains to you and your entitled grandchildren would be fully funded by some other people and their impoverished grandchildren; every dollar of interest received is paid by someone else. It would be a zero-sum game for society; for every winner there would be a loser.

To propose compound interest like this sounds ludicrous, and it is. But, the whole object of monetary policy in New Zealand and like countries is to create a world in which the rate of interest is about two percent higher than the rate of inflation. That is precisely what I have described here. To achieve that goal, monetary policy ends up creating a structural recession, a perpetual state of zero economic growth; ‘green shoots’ only appear when the rate of interest is allowed to fall to at or below the rate of inflation.

In reality, compound interest has always been for the few, not the many. It’s an accounting trick that depends on the majority of the beneficiaries of compound interest never realising their apparent gains; never spending their paper bonanzas. Paper wealth can be converted to real wealth by just a few. Paper wealth – financial claims – can be inflated, infinitely, so long as it remains just that; paper wealth or its digital equivalent.

Compound interest with compounding economic growth.

The advocates of compound interest will respond by saying that compound interest depends additionally on economic growth, real economic growth.

In this story, there are two versions: either compound interest parasitically exploits economic growth, or it enables economic growth. Either way, the supposition is infinite exponential growth.

The simplest scenario here is of an economy with zero inflation, zero population growth, two-percent annual interest, and two-percent annual growth of real GDP. So, in this case, the two-percent compound interest simply represents the fruits of that economic growth; the only debtors would be firms, not households. In principle everyone could be doing it; the interest payable to every household would be paid by business growth.

There are two obvious problems. One is that real exponential growth cannot go on forever. If average real incomes today had been growing by two-percent per year since the early days of the Roman Empire, today we would on average have living standards 16 million trillion times greater than those of Jesus Christ and his Disciples.

The illusion (really delusion) of long-term sustained economic growth has been made possible by early-modern humans’ learning to extract energy in the form of fossil fuels, and to dump waste products into the environmental commons. Late-modern humans could have invested – financially and intellectually – in systems to maintain high living standards beyond the fossil fuel age; but haven’t. Our home planet, though forgiving in many respects, is finite.

The other obvious problem is that if too many households are saving rather than spending much of their incomes, then there would be insufficient demand for final goods during the long period of saving. This kind of saving behaviour breeches Say’s Law, which is the basis of the belief-system of classical-liberal supply-side economics – manifest today as neoliberalism. Say’s Law supposes that policymakers do not and should not concern themselves with matters of ‘upside demand’ – aka ‘stimulus’. Nor should they concern themselves with ‘downside demand’ – aka ‘counter-stimulus’ – yet that’s exactly what we got with the openly touted manufactured recession created by the Reserve Bank of New Zealand from 2021. (Refer Adrian Orr admits Reserve Bank is ‘deliberately engineering recession’, Stuff, 24 November 2022.)

The required economic growth would not continue, because there would be insufficient demand for the extra output; demand is created by the creation of and spending of claims, the prerogative of sovereign governments and of banks.

Saving must be balanced by investment; too much saving disincentivises investment spending, sometimes dramatically so. We can see that, the reason for today’s weak investment climate; so we depend on the Deus ex machina (or cargo cult) of exogenous foreign demand. Exports featured prominently as the principal narrative of You, Me and the Economy.

The other mantra word is ‘productivity’. Most cafes do not need more cost-saving devices to improve their productivity; rather, to improve their productivity, cafés need more customers.

See Our inability to understand the exponential function is our biggest weakness, YouTube, posted by Professor Albert Bartlett about a month ago. All exponential growth, in nature, ends; sometimes catastrophically.

Finally

Why don’t the people we believe to be experts tell us these things? Could it be that the experts we most see and hear are experts in the arts of storytelling and story-marketing; in this case, experts in the fantasy rather than in the reality of growth? (Refer Greta Thunberg’s radical climate change fairy tale is exactly the story we need, The Conversation, 28 September 2019.)

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.

Labour Party Policies

Last month the New Zealand Labour Party announced two policies: a second sovereign wealth fund, and a capital gains tax on non-owner-occupier real estate. For me, both are worrying, representing further steps in the financialisation of an already over-financialised economy. Then yesterday, I heard a story (Report highlights benefits of Kids KiwiSaver scheme, RNZ 13 November 2025) about a group philosophically in tune with the Labour Party lobbying for compulsory KiwiSaver accounts for children; accounts to be opened at birth (and presumably, for those not born in New Zealand, from the date of their being granted permanent residence) and subsequently subsidised. Further promotion of KiwiSaver would be a third financialisation policy.

To understand the issues that I am concerned about – issues about capitalism as understood by mainstream western parties including, indeed especially, Labour parties – a useful metaphor is a ‘mansion’. Our mansion has four spaces: a downstairs commons, a mezzanine, an upstairs casino, and – at the top – a penthouse. The spaces become progressively less inclusive with their elevation.

We note that Aotearoa New Zealand has, since the mid-1980s, become the world’s poster-child for neoliberal finance capitalism. And many, including myself, would argue that New Zealand’s relative (and now absolute) economic decline since the 1980s has been due to its even greater commitment – compared to other western capitalist nations – to the neoliberal financial project.

The Mansion

Money circulates in the downstairs commons (the real economy where goods and services are demanded and supplied) and the upstairs casino (where existing assets are traded, and where derivative assets are created). The casino has an exclusive penthouse annexe – an upper casino – for high rollers.

To our metaphorical mansion we may add a mezzanine, consisting of the government and the banks. We can think of these as regulating the flows of money between the commons and the casino. Money is a special kind of asset – a liquid asset – which flows throughout the mansion, facilitating all the different kinds of trade which take place there. The mezzanine is an active mediator; a pump, a valve, and a sump.

Markets in the commons are primary markets; places where goods and services are produced and bought. Markets in the casino are secondary markets; the casino is a place of trading and speculative gambling. The mezzanine connects the two principal spaces within the mansion.

Though I’m mainly concerned here more about the normal casino, not the penthouse, there is a narrative common among many Labour policy people – many of whom are nine-percenter elites, people in the political class who are not one-percenters – that the ills of society can be placed upon the one-percenters, the penthouse dwellers. These Labour people want the penthouse to be super-taxed, regarding the penthouse as both a fount of grabbable wealth and a place of entitled behaviour. Tax the bads, not so much the goods; and tax capital, not labour. They say. Tax the high-rollers and the landlords. The one-percenters have become a scapegoat for capitalism’s economic failings, allowing the nine-percenters to bask in a bourgeois bubble of self-declared virtue.

Generally, a policy of taxing ‘bads’ for the purpose of raising public revenue must be a policy of supporting those bad activities in order to protect the bad revenue stream. (An ideal tax on bads will generate zero revenue, because it will eliminate those bads.)

While the mansion is a metaphor for a nation’s grand economy of outputs, markets, and money, we note the complication that money also comes and goes through the front and back doors; out of and into other nation’s economies. (While this complication is not unimportant, we can pull away from this by considering the global economy as a complex of commons, casinos, and mezzanines; but no entrances or exits. The global economy is a closed economy. For my purposes here, so is the mansion economy.)

Relationship between the Commons and the Casino

When inequality is high or growing, more money flows from the working classes to the top-ten percent – the ten percenters – than flows the other way; the casino grows faster than the commons. Much of that money being pumped upstairs is profits, royalties, rents; including managerial ‘profits’ in the form of oversized salaries and bonuses. This is income saved rather than spent, meaning it migrates from the commons into the casino.

A significant proportion of income goes into the mezzanine: taxes, savings, debt-repayments, interest payments. Banks and governments then make key decisions about cycling such income back (ie downstairs) into the commons – the economy – or forward (ie upstairs) into the casino. Or it may sit, parked, in the mezzanine.

Thus, the mezzanine has monetary conduits into both commons and casino. Governments spend and save and borrow. When borrowing, governments issue new bonds which are subsequently traded in the casino; but the money raised is generally spent, by the borrowing government, into the commons. Banks may lend to either the commons or to the casino. When, in the judgement of the banks, the economy of the commons is not looking too flash, the profit-seeking banks will lend less to the commons (meaning lending less for the purpose of spending, including genuine investment) and more to the casino (meaning lending more for the purpose of ‘investing in’ existing assets or new derivatives).

We note that, through the processes of production and commerce, economic wealth – useful stuff – is created in the commons. And through the processes of saving and asset trading, financial wealth is created in the casino. The two forms of wealth, commonly conflated, are fundamentally different from each other. Economic wealth – actual wealth – includes both hens and their eggs. (Not golden geese nor golden eggs!) Financial wealth is claims on actual wealth (or on other claims). Gold – except in its industrial and dental and purely artistic uses – is an example of financial wealth; a claim on economic wealth, as are all forms of money. Traded artworks, too, are financial wealth.

We note that employees within the finance sector themselves operate in the commons economy, selling and buying goods and services; albeit, financial services.

Circular Flow

In traditional economic description, the injection of investment spending (controlled mainly by banks) offsets the outflow of saving. And the injection of government spending offsets the outflow of taxation. This is known as the circular flow, and was modelled in the 1950s by the hydraulic moniac machine, invented by the economist Bill Phillips who had worked as a teenager in the early 1930s on the Waikaremoana hydroelectric scheme. (Detractors of descriptions of economies which emphasise the circular flow over the price mechanism, may refer to Phillips’ hydraulic Keynesianism.)

The main impetus to economic growth – growth of activity in the commons – occurs when injections slightly exceed outflows; creating excess demand. (This is refuted by the neoliberal advocates of supply-side economics, who believe that growth is natural regardless of demand, but may be hampered by price distortions and other cost impediments.)

Other injections into the commons from the mezzanine or the casino include dissaving – ranging from the withdrawal of money from savings’ accounts to the sale of assets for the purpose of buying goods or services – and new consumer debt. Consumer debt can take place through the wealth effect, meaning that people with increasing financial wealth are encouraged to borrow against that collateral in order to purchase goods and services in the commons.

Price inflation can stimulate the spending of money parked in the casino or the mezzanine. With inflation, the purchasing-power of money erodes, creating incentives to spend it ‘downstairs’. But inflation also creates incentives to deploy money ‘upstairs’, by buying non-money assets with expected returns above the rate of inflation.

Goods’ types

The ‘bread and butter’ of developed, industrialised, economies is the production of ‘wage goods’, essentially meaning the goods and services that working class people buy; indeed many fortunes have been made from selling wage goods, especially addictive goods, which enjoy economies of scale. The most important wage goods are food, rental housing, clothing, transport, basic personal services, and entertainment.

The wealth effect, however, tends to favour ‘bourgeois goods’ over wage goods; in that sense we may say that money from working-class taxes and savings is ‘laundered’ through the casino, re-emerging in the commons as discretionary middle-class spending. Another part of the economy, which connects the commons directly to the penthouse, is known as conspicuous consumption – ‘vanity goods’ – basically spending which can only be undertaken by aristocrats and other one-percenters; think the ‘gilded age’.

A fourth category of consumer goods produced in the commons are military goods, built by the military-industrial complex, and principally facilitated by governments.

A fifth category is ‘illicit goods’ – goods and services which are either illegal outright, or are otherwise disreputable; the most obvious examples are the consumption of illicit drugs and sexual services. An important and understudied aspect of this fifth category is the extent that elites and counter-elites – the ten-percenters – generate demand for illicit goods. Economic theory treats illicit goods as any other type of consumer goods.

In addition to consumer goods, in the circular flow there are investment goods, which are important for economic growth. Investment goods become, for general purposes, the built environment. The demand for investment goods is largely derived from the demand for wage goods.

The two main threats to the sustainability of capitalism are excess flows – net flows – from the commons to the casino; and spending flows from the casino to the commons which undermine the demand for – and hence production of – wage goods. Capitalism is at its healthiest when workers are also consumers; and when workers don’t have to incur debt in order to buy wage goods.

When outflows into the casino exceed injections into the commons

This is a state of systemic unbalance, likely to happen when wages fall behind productivity; ie likely to happen when the incomes of the upper income-decile increase the most. The casino gets more populated with money, with the commons less populated. More play for some, and less pay for others!

Such unbalance leads to a form of structural recession; a shrinking of the real economy as the financial emporium upstairs expands. In such a structural recession, the commons starve – or at least suffer malnourishment – whereas the casino bloats and inflates.

The attraction of the casino is ‘financial return’, which has two components. The first component is yield, which is revenue extracted from the commons by asset-holders participating in the casino. The second component is capital gain, which derives when demand for existing assets exceeds the supply of existing assets, pushing up the exchange prices of those assets. This quest for – indeed the gamble for – capital gains is the reason why it is appropriate to call the upstairs financial room of the mansion ‘the casino’.

Government policies which facilitate flows of revenue into the casino from the commons are policies which fuel the capital gain process, by generating excess demand for existing claims; in effect creating more claims by making claims more valuable. The capital gains process gives the illusion of wealth-creation; but it is really the creation of financial bloat or inflated wealth, of excess claims. It occurs when speculation gives – at least in the short term – better returns than investment in the commons. It increases the claims on real wealth of the casino class vis-à-vis the incomes of the commons class of mainly working people.

What happens most of the time, however, is that financial wealth is not spent on goods or services; rather it is left in the casino, to inflate. Inequality begets inequality. When capital gains are the norm, the casino operates as an alternative form of compound interest. Regular compound interest occurs when interest yields outpace consumer price inflation; interest payments augment financial wealth while draining the commons of demand for goods and services. Casino compounded interest occurs when capital gains exceed inflation. Leveraged compound interest occurs when casino punters borrow money to buy assets; while risky, the growth of financial wealth made possible substantially outpaces the more ordinary and passive forms of accumulating compounded claims. When leveraged compound interest is taking place, banks in the mezzanine look to upstairs-lending instead of downstairs-lending for more of their profits.

Capital gains, and Labour policies.

We in New Zealand have become most familiar with real estate as the asset class which generates capital gains; so it is that asset class for which there has been most agitation – especially from the established ‘Left’ – for a capital gains tax.

The Labour Party is proposing a capital gains tax on ‘investment property’ as a future revenue source. To achieve revenue from such a tax, there have to be such capital gains, and therefore that part of the casino needs to be nursed to convert this problem into a solution.

Yet, in the casino at present – especially in New Zealand – capital gains are being made from just about every category of financial assets other than real estate. And Labour has no plans to impose a capital gains tax on any of these others: shares, bonds, gold, crypto-currency being the main types. Labour also plans to exempt owner-occupied housing, creating disincentives to labour mobility (homeowners moving to other locations, renting out the family home). But they do not plan to exempt young aspirants to property-ownership who can most easily get onto the property ladder by buying (and letting) houses in towns or suburbs other than where they live and work.

NZ real estate is too overpriced relative to financial fundamentals at present and in the foreseeable future; substantial capital gains seem unlikely to restart so long as the commons is in the doldrums. Though it seems that northern European nations, which kept a lid on property prices in the 2010s, are now ‘enjoying’ the financialisation of housing.

An unremarked-on form of capital gain taking place at present is in the bond market, especially government bonds which are regarded in many jurisdictions as risk-free. When interest rates fall steadily – not too fast, not too slow – then bond prices increase for a period of years; especially the prices of ‘long-dated’ bonds. (Though New Zealand has a rather thin government bond market, given its official aversion to government debt. This chart shows yields on US 30-year bonds; these bonds can be expected to generate large capital gains when interest rates finally fall in the United States.) Falling interest rates do not necessarily restore the downstairs-upstairs balance, boosting consumer spending, as most commentators suggest. The revival of the commons needs to be kick-started by spending – such as government spending – not merely by cheaper debt. As well as stimulating the market for bonds in circulation, lower interest rates create the expectation that banks will lend more funds into the casinoand thereby further boost the prices of financial assets.

If governments tax some forms of capital gain, but not others, they simply distort the financial marketplace, creating more ‘investment’ in those classes of assets not subject to the tax.

Replenishing the Commons

Money that flows into the casino and stays there is effectively withdrawn from the real economy, so the commons need to be replenished by the mezzanine with new money. In essence, that process of replenishment is known as quantitative easing; it’s essentially a process of expanding government debt – creating new liabilities on governments’ balance sheets and new assets on banks’ balance sheets. The requirement is that the new money is lent into the commons, and in the process spent in the commons; not lent into the casino or left in the banks’ sumps.

Super-Inflation

In near-normal times, replenishing the commons depleted of money maintains that normality, and therefore minimises financial risks. It’s normally OK if money – effectively play-money – circulates in the casino, so long as that money doesn’t interfere with vital markets such as the housing market. But such monetary bloat acts like a Sword of Damocles dangling over the commons.

A super-inflation problem comes when there is a sudden and unexpected cascade of reactivated money descending from the casino to the commons. When there is panic in the casino – as there was in 2008 – the mezzanine may replenish the casino with money, in the hope that the panic will ease and the money in the casino will stay in the casino. That’s what happened at the end of the 2000s, indeed with a degree of deflation; yet there was plenty of scaremongering that dramatic inflation might be a consequence of the monetary easing which took place then.

The principal Sword of Damocles which we face today is the world’s corporate casino-dwellers – the many private and public pension funds, and sovereign wealth funds.

Sovereign Wealth Funds

Sovereign wealth funds are funds which ‘invest’ public savings in the global casino. Some such funds may have restrictions placed upon them; these are usually funds which seek to promote certain sectors of the real economy, and are sometimes nationalistic in nature. This is the kind of second fund proposed for New Zealand, and is similar to sovereign wealth funds promoted by Roger Douglas in 1973, and the fund promoted by certain elements of the First Labour Government in 1937. (New Zealand’s present sovereign wealth fund is commonly known as the Cullen Fund, a superannuation fund, and is scheduled for liquidation in the coming decades.)

Countries for which sovereign wealth funds are appropriate are mainly those with large stocks of in-demand export commodities. The obvious examples in recent history are those of the oil-producing countries, such as Saudi Arabia and Norway; these countries have had large trade surpluses. Another country famous for its sovereign wealth fund is Singapore, which also has had large trade surpluses. Singapore borrows money, in Singapore’s own currency, to fund its fund. Singapore has a huge pool of private savings, which are channelled into that country’s public ‘investment’ fund.

New Zealand is the very opposite; it’s a country with a very long history of current account and trade deficits. The New Zealand government, like the Singapore government, effectively borrows to fund its fund. The new Labour-proposed fund is intended to divert certain monies (profits of publicly owned businesses) into this new fund – money that would normally be spent into the real economy and thereby supportive of the commons – and shunt it into the casino. It has been conceived of as a magic-money tree – a compound interest scheme – which will create future financial wealth. In reality, it will simply augment the Sword of Damocles which is already hanging over the economies of New Zealand and like countries.

Likewise KiwiSaver, which is a set of private pension funds, made semi-compulsory, shunting lots of money into the casino, and funded by incomes which could otherwise be being spent into – supporting – the commons. KiwiSaver breaks two of the most commonsensical rules of monetary literacy. It requires working-class New Zealanders to save money while simultaneously incurring debt, and requires them to prioritise this building of casino assets over their paying down mortgage and other personal debt. In addition, it requires New Zealanders to hope that their KiwiSaver balances will outpace inflation; indeed the balances are outpacing inflation in part by policies which boost the casino at the expense of the commons – hence facilitating structural recession – and which require Kiwi savers to take on systemic risks in order to achieve those above-inflation returns.

Magic Money Trees?

For modern mercantilists, the metaphor for money – as a strictly finite commodity – is ‘gold’. (In the mercantilist epoch in the past – the era of merchant capitalism in the sixteenth to eighteenth centuries – the practical metaphor for money was silver.) The mantra of contemporary mercantilists is that “money doesn’t grow on trees” or that there is “no magic money-tree” or that there are “no money-making pixies”.

The mercantilists lampoon the idea of a magic money-tree, while themselves upholding their own implicit (compound interest) concept of a magic-money tree. (The different placements of the hyphen are so important here.)

The people who really promote the casino at the expense of the commons are the ones who believe that money has magic powers. In the end, money can only buy what is being produced at the time that it is spent. If there is a future cascade of casino-money landing in an economy which is in a state of collapse – and it was a near-run thing after 2008, and after 2020 – then saved money will become close to worthless. The only thing that will matter in a collapsed economy is the capacity of the commons to produce the necessaries of life.

The neoliberal financial project is a political programme of liberal-mercantilism; the conflation of private-property interests, governments that support those interests, and the fairy-tale view that wealth and claims on wealth are the same thing. This magic-money view is predicated on the idea that whole societies can become wealthy by destructively mining the world’s resources in order to create claims on the world’s resources. It is a project of linear economics in a world in which real and sustainable economies must, by the very nature of life, be circular. Money’s power lies in its circulation, not its extraction.

Intergenerational Equity

Intergenerational equity is not achieved by funding the casino and the magic-money tree of enhanced compound interest. This is what the ‘financial literacy’ industry claims. Through this approach, the young of today can only expect to be dumped-on tomorrow. Intergenerational equity is achieved by investing in a sustainable commons, not in magical compound interest.

The Global Arms Race

What seems to be happening is that, in addition to boosting the casino, western capitalism is becoming increasingly devoted to militarising the commons, and to forcing non-western countries to do likewise. A degraded militarised commons, with more guns and less butter, is – among other things – a second Sword of Damocles poised over us all. Yet our political classes are conspicuous in the lack of attention they are paying to the problems of militarisation and unsustainability, and most of the rest of us are too busy making ends meet or looking the other way.

Conclusion

The future of western capitalism depends on its investment in – support of – the commons, not the casino. While the casino may operate in parallel to the economy, largely as a sort of irrelevance, it also imposes a kind of severe danger – an avalanche risk, if you will – to the real economy upon which we all (including our elites and would-be elites) depend. The heightened risk is that the casino has been and is being supported by governments – indeed Labour governments – at the expense of the increasingly impoverished commons. The mansion depends on its lower floor; not its superstructure.

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Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.