Keith Rankin, 21 May 2026 – In 2026, a number of countries desperately need one or two circuit-breakers to trigger an increase in aggregate demand; an increase in spending which can induce both consumer spending and business confidence.

Keynesian economics tells us that the most reliable circuit-breakers are exports and government spending. New Zealand’s exports are booming, and have been for a while. But for New Zealand that’s still far from enough; New Zealand needs a government spending circuit breaker as well.

The United States last year sought to bully the world into buying more American goods. But that hasn’t been a circuit breaker for the United States (but it really boosted China’s trade with other countries), just as Roosevelt’s ‘New Deal’ of the mid-late-1930s was not enough. In that era, the final and successful circuit-breaker was American armament, in 1940 and 1941; armament in support of the United Kingdom in its war against Nazi Germany and also to prepare itself for a possible entry into war against Germany and/or Japan.

From 2023 to 2026, the United States economy is back into a growth phase, dramatically so this year; it’s Keynesian circuit-breaker has – once again – been armament for war. War production in support of others – including Ukraine and Israel – and war production in support of its own foreign adventures. Further, war has proved, literally, to be the killer application which makes AI (artificial intelligence) profitable.

The New Zealand Government this week, seemingly far from producing a circuit-breaking stimulus, has just announced a policy to retrench the public service. (Refer Scoop, Government plans to cut 8700 public service jobs over three years, 19 May 2026.) At first sight, it looks like Déjà vu, all over again; a quick exit to political ignominy for a failed government determined to not learn from the past.

Retrenchment in New Zealand’s past

What in the past was generally called ‘retrenchment’ is today, euphemistically, called ‘fiscal consolidation’. The worst two retrenching Ministers of Finance have been William Downie Stewart Jr., and Ruth Richardson. (Roger Douglas converted to that doctrine, but didn’t practice it to anything like the extent that Ruth Richardson did. Douglas and Richardson subsequently became principals of the ACT Party.)

During the second half of the twentieth century, it was well understood by most bureaucrats and relevant academics that the core political misdemeanour which converted the 1929 global financial crisis into a global Great Depression was government retrenchment.

Retrenchment was a ‘race-to-the-bottom’ policy whereby governments would undermine their own revenue bases in a misframed and impossible quest to ‘balance the Budget’. Undermining the revenue base through spending reductions at a time of already-low consumer and business confidence and already-growing unemployment could only be the height of fiscal folly. In the years from 1926 to 1933, New Zealand had a Minister of Finance who twice brought New Zealand to its economic knees through his ardent and ideological commitment to retrenchment; to a policy supposedly about reducing the size of government, but which actually achieved bigger size reductions to the private sector.

The global crisis around 1931 and 1932 was particularly bad, because the simultaneous retrenchment of almost all capitalist governments had the particularly discouraging effect of collapsing world trade. Government retrenchments and reduced spending on traded goods reinforced each other, creating a particularly problematic downward spiral.

William Downie Stewart Jr was Finance Minister from 24 May 1926 to 10 December 1928, and again from 22 September 1931 to 28 January 1933. During both of those comparatively short tenures, Stewart effectively waged fiscal war on the country. His first tenure as finance minister ended with an ignominious ousting of the Government which indulged his constipatory policies. The second stint ended with an internal putsch of sorts in January 1933 (a dispute around the issue of currency devaluation); a coup driven, ironically, by the man (Gordon Coates) who had been Prime Minister in the 1925 to 1928 government. (In both cases, the economy ‘turned the corner’ after the riddance of Stewart; though it took several years after 1933 to fully recover, meaning that the then proto-National government – led by the hapless George Forbes – was unceremoniously dumped in the 1935 election.)

In like vein, I think we can say that Ruth Richardson was the deserved victim of an internal putsch – a removal that was too slow, though, given that she was still able to do damage in 1994 – instigated by Bill Birch and Jim Bolger. In terms of the popular vote, in the 1993 election, the Left (deservedly trounced in 1990) thumped the Right. If that election had been held under MMP, the result would have been a landslide defeat for a one-term National Government.

Back to the Future

2026 is the future, as seen from 1933 and 1993. Indeed, the framed retrenchment undertaken this week by Willis and Luxon has optics similar to those of 1927, 1932, and 1991. But the then ‘future’ – ie today’s present – is different; subtly but importantly different.

Politically, Ms Willis and Mr Luxon are under pressure from the Treasury, from the New York credit-rating agencies, from David Seymour of the coalition’s Act Party, and from the whiney (but economically sub-literate) journalists whose first question is inevitably “where’s the money coming from?”.

Sending public servants down the road – and replacing them with bots – may be good optics for this kind of staunch masculine fiscal politics. But, to get re-elected, the government needs the circuit-breaker mentioned above. In economies, as in prostate science, flow works better than constriction.

So, what has the Government announced? Ahead of next week’s Budget, they have committed to more than a billion dollars of extra spending. That may be the circuit breaker. Here’s the crux of Nicola Willis’ announcement: “Over the next four years these initiatives will deliver savings of $2.4b which will be re-deployed“. Re-deployed when? In 2026, of course! (That is, predeployed rather than redeployed.)

Where will the money come from? From the public service retrenchment promised for 2027 to 2029. The promised retrenchment is in effect collateral for a loan to be drawn down this year, indeed this month. Based upon my reading, the announced public service disemployment probably won’t even happen; it’s like unmined gold used as collateral – alleged gold that will probably remain in the ground.

Labour, if returned to power in November, will almost certainly cancel National’s public servant retrenchment ‘plan’. And National, if returned to power, may simply move on to other policies and conjuring tricks; journalists are so easily distracted by political sleight-of-hand. Money, as always, is an illusion; a set of circulating promises.

Here’s hoping I’m correct; that this fiscal predeployment does represent a long-awaited expenditure stimulus.

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.

Keith Rankin, 20 May 2026 – Recently, the New Zealand First Party released its KiwiSaver policy, promising to make this retirement savings scheme compulsory for New Zealand born citizens, and setting them up with a $1,000 startup deposit at birth. (See Winston Peters unveils KiwiSaver-from-birth NZ First policy, bank takeover plan, Scoop, 18 May 2016.)

The New Zealand First Party also promised that no government which they are a part of will be allowed to raise (from 65) the age of entitlement to New Zealand Superannuation, which is New Zealand’s universal pension. The National Party, on the other hand, plans to campaign on a promise to raise that age of entitlement. What National did not confirm or deny, is whether it will raise the age of entitlement for KiwiSaver.

I cannot imagine the age for KiwiSaver entitlement staying at 65 – what today is loosely called the ‘retirement age’ – while the age of pension entitlement is raised to 67 or higher. Requiring people to wait until they are 67 before they can access their retirement savings may prove to be even more unpopular than raising the pension-entitlement age.

But, back to Peters’ KiwiSaver startup plan.

In the last 24 hours I have heard references on RNZ (publicity excerpt from The Panel) and on Stuff News (TV3) to such start-up retirement savings. And how we can all become retirement millionaires on the basis of ‘the miracle of compound interest’.

The RNZ item considered a savings plan – at five percent interest – commencing at age 18, which would result in a lump-sum at 65 of well over a million dollars.

The TV3 item (This KiwiSaver change could give Kiwis a $53,000 retirement boost. It’s gaining high-profile support across the political divide, Damien Venuto, 19 May 2026) goes like this: “If $1000 was invested into an aggressive account for a New Zealander from birth that would compound to $53,000 by the age of 65 even if nothing else was invested. The one disclaimer here is that inflation will eat into that over time, making the buying power of that $53,000 far lower than what it would be in today’s terms.”

Two Examples of ‘Miracle’ KiwiSaver savings

In my first example, I start with $1,000, and put that aside in a ‘conservative account’ which we expect to yield five percent interest per annum. The result, after 65 years (daily compounding), is $20,081. That’s assuming tax-free interest. To get to $20,000 while paying withholding taxes, a gross interest rate – gross yield – of about seven percent would be required.

In the second example, I go for Damien Venuto’s target: $53,000. You would need a net annual yield of 6.62 percent. Venuto claims that this is possible in an “aggressive account”. We note Venuto’s inflation proviso, though clearly Venuto presumes that average inflation over the next 65 years will be well under 6.62 percent.

(Given that inflation compounds in the same way as savings’ deposits do, we can say that, if inflation averages five percent over those 65 years, our savers at birth would end up multiplying their birth ‘investments’ by a factor of 2.65; meaning that, after correcting for inflation, their $1,000 seed deposit becomes $2,650. However, if inflation averages 2.95 percent, the $1,000 starter rises to $9,000 after adjusting for inflation. My best guess is that inflation over the next 65 years will average over ten percent, given both the present state of the world and the demands on goods and services which will arise from baby boomers and Gen-Xers eventually cashing in their private pensions. At ten percent average inflation, the initial $1,000 would be worth just $132 in 65 years’ time.)

Risk and Uncertainty.

If you are looking for a risk-free Saver account, you should be expecting a gross interest rate of about the rate of inflation; that means a net interest rate below the rate of inflation. Otherwise, you have to accept risk (estimable) and uncertainty (unknown unknowns can be predicted, at best, with intelligent guesswork).

If you transport yourself back to 1961 (New Zealand’s year of maximum births, 65 years ago) and try to guess your way to the year 2026, what inflation, yields, and risks would you have predicted?

(Inflation has compounded since then at an annual average rate of 5.3%. $1000 saved in 1961 would have to have compounded to $29,400 in 2026 just to break even. Money passively – yet ‘aggressively’, in Damien Venuto’s sense – ‘invested’ in shares or property would have achieved an excellent long-run return, however. Money in a savings account would have fallen well short of break-even. It’s highly unlikely that the next 65 years will be as favourable as the last 65 years were. What actually happened in the last 65 years was not necessarily the best prediction; you might win a game of roulette, but the best prediction is that you will lose. In 1961, most people would have predicted some kind of nuclear war by 2026; indeed, with hindsight, the chances of such a war in 1962 may have been as high as 50:50.)

In an ‘aggressive account’, there are many associated risks. The essential difficulty relates to the fact that the returns are principally capital gains, which may or may not occur, and may or may not be taxed.

Capital gains are largely self-fulfilling in economies with a high degree of inequality, because those people with lots of money tend to use it to buy and sell financial assets from and to each other, boosting the prices of those assets in a financial merry-go-round. This situation can go on for a long time, though never forever. The break happens when more than a few people want to cash in their inflated financial assets at the same time; and such ‘corrections’ are almost certain to happen with rapidly aging (‘first world’) populations in the ‘global north’. After all, much of this money is in pension funds and sovereign wealth funds, which are both going to come under extreme pressure when those older persons seek to spend their savings (and require more services); savings which individual savers cannot take to the grave. And, while sovereign nations may not have an imminent grave, their Treasuries have certain expenditure obligations towards their aging populations, and towards the younger people struggling to support the older people.

While investment yields can be real, capital gains by their very nature are largely illusory, dependent on most of the ‘invested’ funds not being withdrawn. These financial assets will largely disappear in the event of another ‘levelling event’, such as the Great World War of 1914 to 1945; noting that that event included the Great Depression, part of the levelling process.

Who Pays the Interest?

Whenever we hear about the magic of compound interest, we hear very little about who pays that interest. Let’s start with a static, non-growing economy. This may be called the ‘zero-sum’ case.

In such an economy, interest (unless the interest rate is negative) represents an unrequited flow of money from debtors to creditors. In the twentieth century world, when it wasn’t at war, that largely meant from private businesses investing in growth to private savers ‘investing’ in financial assets. Governments tended towards balanced budgets from 1950 to 2000, so were more on the financial sidelines than they are today.

In the twenty-first century world, the debtors are mainly small businesses, relatively poor households, and governments. (In some but not all cases, the same governments which have trillion-dollar sovereign wealth funds.) There are other situations, especially around large leveraged ‘investments’, where interest is paid by the very rich to the very rich; these situations ‘net out’, so can be ignored when looking for the big picture around systemic interest flows.

Once netted out, the main flows of interest today are from small and medium size businesses and relatively poor households to the richest ten to fifteen percent of households. Interest flows from poorer households to richer households. And from younger households to older households. Further, dwelling rents constitute a form of interest; they represent a yield paid to landlords by tenants. The words ‘interest’ and ‘yield’ are close synonyms.

What this tells us is that it’s impossible for all of us to benefit from the ‘miracle of compound interest’. Every dollar of interest received must be paid by someone. It also tells us that one of the risks associated with the miracle is the possible default – or bankruptcy – of a smaller or larger proportion of interest payers.

An interesting finding in New Zealand in the late-2000s, when finance companies were going broke, was that there were actually two types of finance company. One was mainly financing property investments, and the interest payers were relatively affluent people. This type of finance company – eg Hanover – failed during or prior to the global financial crisis (GFC) of 2008 to 2009. The second type of finance company were funding distress loans to the poor; they continued to thrive through the GFC. The poor struggle on, conscientiously.

Looking at this second type of finance company, we can see the emergence of a new ‘lower working class’ – many of them denizens rather than citizens of the countries they live and work in – who may be considered to be ‘debt slaves’ or something close to it. In that sense, the lucky Kiwi Savers are enjoying their credit miracle (in the cases when that miracle is not a mirage) at the expense of a global proletariat of debt slaves.

Now consider economic growth, real and nominal. Real economic growth is the ‘positive-sum’ case.

The standard growth story about ‘who pays the interest’, is that the savings are’invested’ in businesses that are creating economic growth. In this story the creditor ‘passive investors’ – the Kiwi Savers – and the debtor ‘active investors’ (small, medium and large businesses) are both receiving the yields arising from the societal process of economic growth. The yields are the increased amounts of goods and services made available through the growth process.

That’s real growth; indeed, exponential real growth. However, high-paced real growth can never go on forever. Eventually – later or sooner – it must crush the planet through depletion, waste, and (probably) the ‘laying waste’ of warfare.

If we don’t have indefinite real growth, we return to the ‘zero-sum’ case discussed above.

Now consider the forms of the nominal economic growth case. This is when apparent economic growth turns out to be inflation. This is benign compared to the zero-sum case outlined above, because inflation erodes both debts and savings. So, it means that the flows of interest from the poorer debtor community to the richer creditor community become sustainable, because these flows are always being ameliorated by inflation.

In the extreme form, the nominal economic growth case is a zero-sum case, because there is no real economic growth. In a less extreme form, there is a mix of some real growth and some inflation. This is probably the optimum. Modest real economic growth is sustainable if it does not intensely use non-renewable resources. And some inflation addresses the debtor-creditor inequity that the miracle of compound interest is predicated on.

In this relatively optimal case, interest rates will on average be approximately equal to the inflation rate. So the miracle of compound interest disappears. If interest approximately equals inflation, then $1,000 today will buy approximately the same amount of stuff in 65 years’ time. And that’s what should happen; we should save when we have a relatively high income, and withdraw our savings when we have a relatively low income. No interest, on balance. We should not kid ourselves that simply sitting on a nest-egg of magic money is going to make us fabulously rich!

Finally

There is another case where the debtor-creditor relationship becomes too exploitative, and when that broken relationship induces socio-economic breakdown. The result is a negative-sum game, whereby everyone – or just about everyone – loses.

Anyone trying to play the compound interest miracle game should understand that they are trying to get something for nothing; that they are playing the role of ‘exploiter’. Capitalism as we know it is a game of exploitation; indeed, low levels of ongoing exploitation can be sustainable.

Under our present order, of liberal private capitalism, the best possible option is a mix of low inflation and low sustainable growth based on renewable resources and accumulation of benign knowledge. Keeping this balance is a bit of a tight-rope walk. Today too many of us have slipped on the rope, and are hanging by our fingers. The more people who slip, the more the tight-rope wobbles, leading ever more people to slip in their wake.

There is a better capitalist order; a more democratic more sustainable form of capitalism which fully incorporates public equity – public property rights alongside private property rights – with appropriate public equity dividends to stem the growth of income inequality. This is consistent with a balanced mix of sustainable growth and sustainable inflation. It is not consistent with interest-rate exploitation.

In the meantime, why do we look kindly upon compound interest alchemists while lampooning conspiracy theorists? The worst offenders in both groups are equally bogus.

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.

Keith Rankin, 14 May 2026 – Since the latest Household Labour Force data was released on 6 May, there has been quite a lot of unfocussed chatter about NEETs; young people not in employment, education or training. The standard narrative about NEETs is that they are disengaged young people, especially teenagers, not sufficiently motivated to undertake tertiary education or vocational training in order to find a job.

The latest overall statistic is that 14.4% of New Zealand resident people aged 15-24 are NEETs. In addition, there is an even higher ‘underutilisation rate’. These data are published in an awkward way which makes it hard to mesh them together. And there is a further unmeshed measure; persons aged 15-24 – especially 20 to 24 – who have emigrated.

The real story this year is about young adults aged 20 to 24, not disengaged teenagers. “Women aged 20 to 24 continue to have the highest NEET rate, rising 1.9 percentage points to 20.3 percent in the March 2026 quarter”. This 20.3% is well above the overall rate of 14.4%. The female adult NEET rate has jumped significantly, whereas the male adult rate is lower and has not jumped much this year.

NEETs can be separated into four groups: teenage males and females, and young adult males and females (‘adult’ here being defined as aged over 20). Of these groups, we would expect adult females to be least disengaged. The story that appears to be true is that many if not most NEETS aged 20-24 are young adults who have completed their education or training; rather than being disengaged, these NEETs are educated, trained, often graduated, and raring to commence their careers.

The problem, then, is that we have created an economy which is barely interested in employing our educated youth. This is especially ironic when we keep hearing superannuation scare-stories about how this group of young people will be required to ‘support’ in retirement their huge parental (Gen-X) and grand-parental (Boomer) generations. The statistics clearly show that we are not nurturing this very special cohort, born in the early 2000s.

(Re the underutilisation rates, males aged 20-24 have gone from 11.6% in early 2023 to 18.7% in early 2024 to 19.0% in early 2025 to 21.8% in early 2026. Females aged 20-24 have gone from 17.0% in early 2023 to 23.0% in early 2024 to 22.2% in early 2025 to 25.0% in early 2026. These worsening statistics cannot be blamed on the Israel-USA-Iran war.)

Why Females?

The latest data suggests that tertiary-educated young women are having more difficulty gaining employment than their male peers. Employment outcomes for this age group are very much about employers’ hiring practices.

Economists understand that the perceived labour-cost associated with new hires is all important. This is an age group with minimal work experience, so it means that demographic and educational attributes will be particularly used when making hiring decisions. Statistical profiling – something all employers (including female employers) do, even if they do so with a degree of distaste – is particularly relevant to this age group.

Is the expected cost – a statistical concept meaning the average perceived cost – of hiring young females greater than the expected cost of hiring young males? Especially in the context of very tight business profit margins.

(Differences in expected cost played a huge role in hiring decisions during the Great Depression of the 1930s. Teenage females were cheapest, then teenage males, and then adult females. Adult male joblessness was particularly high in the early 1930s because adult males were the most costly demographic to hire.)

Reasons why young females might be perceived as more costly to employ

Such reasons arise from both statistics and politics.

Individual employers will have access to their own company data. If females in the past decade or so have had a record of leaving their jobs sooner than males, or if they have had a record of taking more sick leave than males, then those records would influence the perceived cost of employing any given female job applicant. Willingness to work overtime – including unpaid overtime – is also something that employers have records of; such willingness, on average, may be different for males than for females.

In the realm of politics, there may be areas of actual positive discrimination – for example, menstrual leave, which exists in a few countries. (See What working women really want: Paid menstrual leave? Stuff 15 August 2023. And of course there are definite examples around maternity leave.) Or perceived positive discrimination; perceived, for example, because pay equity is widely confused with equal pay.

In relation to options like maternity leave and menstrual leave, one way to politically manage these is to offer men similar discretionary leave provisions as those offered to women, to the point that employers perceive the likelihood that a man will take discretionary leave is the same as the likelihood that a woman will take such leave. This, I understand, is the Swedish way. In order to maximise employment of both sexes, the Swedish authorities offer discretionary leave provisions to females and males in equal measure.

Another issue is the sensitivity around the ‘gender pay gap’. (For society as a whole, the ‘pay equity’ argument is that gender-based pay inequity is between occupations, not within occupations or within workplaces.) Such sensitivity is heightened if employers are required to report to some government ministry their firms’ gender pay ratios.

There is one relatively quick way through which employers can make their gender pay ratios more equal. It is to hire fewer young females, giving preference to males. Given that new hires are towards the bottom of employers’ pay scales, having more junior males and fewer junior females will have a significant impact on a firm’s reported gender pay ratio.

Unintended Consequences

The hiring practices mentioned above can all have unintended consequences. Very few employers nowadays – whether male of female employers – believe that it is a good thing to have a gender pay gap. All employers practice ‘equal pay’, as they have been mandated to do since 1972. But employers – under the pressure of legal or moral compliance to achieve one or two key statistics – can end up achieving problematic outcomes for other important statistics.

Is it possible that an unintended consequence of moral compliance in relation to pay equity – of attempts to equalise pay by gender, within firms and other employing organisations – has been to create more young adult female NEETs? It’s a hypothesis that at least deserves to be investigated further.

Of course, there is a wider problem than this female-adverse NEET outcome. There are far too many adult NEETs of both sexes. Our recent governments, through stifling fiscal policies which undermine their own revenue base, have been playing an unnecessary and brutal game of musical chairs; a game in which the odds are stacked against New Zealand’s young adults.

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.

Keith Rankin, 13 May 2026 – On 7 May, Al Jazeera ran this alarmist programme about the ‘national debt’ of the United States: US borrowing exceeds GDP: What does it mean for the economy? (And here on YouTube.)

A topic surrounded by so much confusion. (Sigh!) The first problem is that what is commonly called the ‘national debt’ is actually the ‘government debt’. Second, we have the issue of which debt measure to use. By one measure the United States government debt has become equal to the United States gross domestic product (GDP). By another measure, that milestone or millstone was achieved long ago, and is now 123% of GDP. The Al Jazeera programme uses both measures interchangeably.

The programme host – Cryil Vanier, who I usually respect as one of the best news anchors in the world’s television media – commenced his contribution with an easily verified untruth; that is, untrue if using the usual measure of debt as a percent of GDP. He said: “The United States is the most indebted country in the world. Almost every year the United States Government has chosen to spend more than it collects. … The national debt now stands at $39 trillion dollars, exceeding the United States economy … for the first time since World War Two.”

($39 trillion dollars is 123% of the United States’ GDP! That 123% of GDP measure is exceeded by Venezuela, Japan [237%], Sudan, Singapore, Eritrea, Bahrain, Greece [146%], Lebanon and Italy [137%]. Government debt is not an indicator of a government’s economic performance, let alone a cause of poor ‘performance’; noting that the concept ‘performance’ itself is about optics – about theatre – rather than substance.)

Debt is owed by debtors, and owned by creditors. The Al Jazeera programme noted that ‘Japan’ is one of the big three foreign owners of the United States [government] debt. But note, above, that Japan is – among first-world countries – listed as the (proportionately) biggest ‘ower’ of debt. Indeed, Japan sees neither its large ownership of debt nor its large owership of debt as being a major problem; the Japanese economy is a sea of tranquillity compared to many other countries’ economies.

There is a problem though; the one trillion dollar interest bill. That’s unnecessarily large; indeed, that’s a much bigger problem for the United States’ government than for Japan’s government, due to very different monetary policies in the two countries.

The key question to ask about the interest is: ‘Where does the money go?’. It goes from the owers to the owners, of course; but who are the debt-owners who receive most of that interest, and to what extent do they represent the real problem (assuming there is a real problem)? For the most part, the interest-recipient owners – not exactly clamouring for repayment – are more than happy to return the interest to the owers, just so long as it is accounted for as additional debt.

The Al Jazeera programme, using one of the more egregious chart graphics that I’ve seen, shows that “debt has ballooned since the eighties”. Correct, though the chart (commencing around 1800) – not using the correct (logarithmic scale) fails to show earlier balloonings. The chart shows a tenfold increase in the dollar-debt – not the percent of GDP – from 1976 to 1996, and a just a 6½-fold increase from 2002 to 2026; yet the latter smaller jump looks dramatic. At the end of the chart-viewing, we are told that there’s “no plan to actively pay it back”.

Putting aside the one-third foreign ownership of the United States government debt, we can think of the remaining two-thirds – the domestically-held debt – as being owned by the ‘US banking system’ (the banks being a short-cut for what is a rather complex financial system). So, the United States domestic government debt – a liability of the Government – is an asset of the United States’ banking system. As is normal for asset-holders, the banks would rather retain and expand their assets; they would rather not liquidate their assets.

On the other side of the banking systems’ ledger lies the liabilities of the United States’ banks. These are the deposits of American households and businesses. The domestic debt is owned by Americans and owed by the American Government. Bank deposits are assets to depositors, and liabilities (ie debt) to banks. Banks hardly see this debt as ‘bad’ in any sense.

People would rather lend their governments than pay taxes, though most citizens realise that a substantial part of government spending should be funded by taxes rather than debt. A mix of taxes and debt works; it always has. Households and businesses prefer to own some government debt than to fund their governments entirely from taxes. It’s not a problem. Debt’s a solution.

The people own the debt that the government owes (albeit through the intermediation of the baking system). The people do not want the government to repay that debt. They just want the government to pay the interest. The people – the creditors, the debt owners – like it just as it is. The government debt is not a problem for them; rather it’s an income for them, and insurance for them.

What would ‘paying it back mean’?

So, if the government repaid its debt to the banks, the banks would either have to force the people to accept back their deposits, or would have to find other borrowers. In the latter case, some parts of the private sector would have to become substitute debtors, thereby adding much to the financial risk of the citizenry. In the former case, the people would have to accept banknotes – paper money – from the drastically shrinking banks; banknotes that could stand to become worthless.

In other words, if governments tried to pay back their debt, there would be a financial collapse on a scale which would make the global financial crisis seem like a non-event. (There was such a collapse in Romania in the 1980s.)

Looking at it from the point of view of the people, the banks’ creditors – especially consider the Mum and Dad savers. They, and ordinary people like them, are the government’s creditors. The government’s debt is an important part of their savings; indeed, of their retirement savings. Who would like their bank coming to them, saying that the bank’s main debtor (the government, as the banks’ biggest debtor) wants to ‘repay the debt’? So, they would have to take back their deposits; they would have to withdraw their funds; say, half their savings. And, at the same time, each other bank would be saying the same thing to its customers.

There is no clamour from the owners of the United States government debt to have that debt repaid. If anything, there is a clamour from would-be owners of United States government debt for the Government to take on more debt; not less. (In Japan, owning government debt is understood as ‘financial security’.)

Global Financial Balances

We can understand the world’s financial balance sheet, showing the net financial relationship between the two big sectors; the private sector (households and businesses), and the public sector (central and local governments).

Throughout the history of the world, the private sector has been the net creditor, and the public sector the net debtor. A financial balance sheet must add to zero; the net debt owed must be exactly equal to the net debt owned. It is not conceivable that the global balance sheet would have the worlds’ governments – taken together – owning the world’s debt, with the global private sector owing it; except possibly under a global soviet-style communist state, where we could imagine most people being in debt to the government.

The global balance sheet has two (net) components. The first component is financial stocks: assets (owning) set against liabilities (owing); these liabilities represent the global public debt. The second component is about financial flows: surpluses (credits) set against deficits (debits). Both components are, by definition, zero-sum games. Total assets minus total liabilities must equal zero. Total surpluses plus total deficits also must equal zero.

For the world as a whole, the public sector (the fisc) runs the deficits, and the private sector runs the surpluses. It is almost inconceivable that, in any year, there could be a global fiscal surplus, meaning a global private deficit. (In most years there are some countries’ governments which run fiscal surpluses.) This state of affairs is driven by the fundamental drive of private citizens to save parts of their income; if successful on balance, by definition a private sector surplus means a public sector deficit. Basic human nature dictates that there will be a global fiscal deficit, every year.

Public Debt management, in practice

The size of the global public debt, measured (appropriately) as a percent of the size of the global economy, goes up and down over time. This is because there are a numerator (the global fiscal deficit) and a denominator (nominal gross world product, the measure of the size of the world economy, the sum of all countries’ GDPs).

We note that the denominator is a nominal measure, meaning that we are referring to the monetary measure of the size of the world economy, not the production measure. Nominal GWP (gross world product) increases either if world production – global output – increases or if world prices increase. A major reason – but not the only possible reason – for increasing world prices is world inflation.

World public debt increases next year if the world’s fiscal deficit is greater than the increase in gross world product (GWP). Essentially, there are three possible reasons for an increase in world public debt: a big global fiscal deficit, a small (or negative) increase in global output, or low (or negative) world inflation. Commonly, then, rising public debt – as appropriately measured – is a result of slow economic growth and/or low inflation.

Conversely, world public debt decreases next year if the world’s fiscal deficit is smaller than the increase in GWP. Essentially, there are three possible reasons for a decrease in global public debt (expressed as a percentage of GWP): a smallish global fiscal deficit, a largish increase in global output, or highish world inflation. Commonly, then, falling public debt is a result of economic growth and/or inflation.

The most painless route to ‘acceptable’ public debt – what is acceptable is in the eye of each beholder – is through inflation. Far from being ‘economic public enemy number one’, inflation is the market’s method – capitalism’s method – of maintaining healthy and sustainable financial relationships within society. The more that financial relationships are ‘out of whack’, the more inflation is needed to put things right.

(We note that policies to raise the inflation rate are not easy to achieve; in the two decades most famous for such policies – the 1930s and the 2010s – it actually proved extraordinarily difficult to use monetary or fiscal policy to bring about reflation. Cutting interest rates did not achieve the inflation sought. Wars, on the other hand, did achieve inflation in the 1940s and 2020s.)

Of course, an ‘out of whack’ financial community is one with relative losers and perceived winners. A healthy correction restores over-indebted losers to a degree of financial health, and reduces the winners’ excessive winnings. That’s why we are in a battle today between the elite classes (including left [Bidenite/Starmerite] elites and right [Luxonite] elites) and the working classes (including most small and medium businesses).

Class conflict is real. Our political elites – left and right – have a policy bias towards high interest rates and low inflation. Our elites favour an ever-expanding flow of financial incomes from the poorer people to themselves. As debt-owners, they do not want inflation to make prevailing debt relationships more sustainable. (Smart elites might have more foresight than regular elites. Though ‘smart elites’ may be an oxymoron.)

Fiscal probity, its obsession and its distraction

Public debt is presented as a monster; public debt is posed as a fundamental cause of inflation. And inflation is posited as the problem which must be fixed before other problems are addressed.

When in the throes of (usually ineffective) inflation-fighting in the name of fiscal probity, the only thing that the established authorities allow as a distraction is the call to war. For some reason deep in the elite human psyche, financial probity has generally taken second place to the excitement of wars in which the elites become the generals and planners, and the working-classes become the planned.

We can easily see that the United States ‘national’ debt is on an upwards, not a downwards, trajectory; the Department of War can loosen Treasury’s guard-rails more easily than the Department of Health. (This is true in Germany too, with last-year’s partial removal of that country’s debt-brake.)

Wars have always been drivers of public debt; they are inevitably financed by huge fiscal deficits. Intractable wars have also been levelling events, wealth-collapsing events – accompanied by inflation – eventuating in relatively good times for working class survivors.

Elites start wars. Wars finish or diminish elites. Elites are poor learners.

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.

Keith Rankin, 12 May 2026 – The outbreak of (Andean) Hantavirus on board the Dutch eco-adventure ship Hondius clearly is a matter of concern; and is not being played well by the experts who tell us one rather soothing thing about it only being transmitted through intimate contact, but then show up in the highest grade of Hazmat suit when evacuating people from the ship.

See this story Where did the hantavirus outbreak start, and where has it spread? from Al Jazeera (11 May 2026) and this Inside Story episode: Should we be worried about the hantavirus outbreak? (Al Jazeera 9 May 2026, and here on YouTube).

We keep hearing about the established history of the virus in southern South America, whereas we need to get a handle on the possibly quite different future of the hantavirus. This zoonotic virus has probably already changed; or it may have found an environment in which it is possible (or even necessary) to behave differently from the way it behaves in its endemic South American setting.

Around 16 minutes into the program, interviewer James Bayes asks: “This particular ship … is not your typical cruise ship. They describe it as an ‘expedition ship, often with scientific, wildlife or geopolitics lecturers on board’. … I am told that the experience of previous passengers is that they have very strict safety protocols because of the places they visit, mainly for biodiversity reasons. Previous passengers have recalled sniffer dogs and having to wear sanitised boots. If it can happen on a ship like that, do you have concerns in general? … Are cruises incubators for disease? Would you go on a cruise holiday?”  (The subsequent answers, by experts, trivialised this important question.)

The Hondius was as sterile as any ship could possibly be. Could the human-human transmission on board that ship be because of that sterility, rather than despite the sterile shipboard environment? In a sterile environment, a virus which has already infected an embarking passenger has no soil or other muck that it can transmit to; rather, the least sterile life-forms available are the other people on board. Hence an unusually sterile environment may be the counterintuitive cause of human-human transmission of a virus which ‘prefers’ other options.

Evolutionary variation of any life-form can arise in three ways: because of selection in favour of one existing variant over another; because of a mutation creating a favourable new variant; or because of a hybridisation of two quite different variants creating a genuinely novel form. The first of these three mechanisms of variation may have been enough to create a humanly-transmissible form of the Andean hantavirus. (We note that Covid19 was significant because it was transmitted by a novel virus; transmission of coronaviruses has been widespread throughout our lifetimes.)

This would be a nightmare scenario. Such a new-variant virus – maybe a novel virus – would still be lethal, would still have a long incubation period, would have an unknown duration of infectiousness before symptoms emerge, and an unknown rate of transmission.

The Black Death in Europe: 1346 to 1353

This historically famous pandemic reduced the population of Europe by about forty percent. It is generally attributed to a disease called Plague (aka Yersinia pestis), which comes in several forms, the best known being bubonic plague. The Plague pathogen – Yersinia pestis bacteria – was identified by Alexandre Yersin and Kitasato Shibasaburō during a much more recent pandemic; a pandemic which impacted seaports all around the world in the decade after 1894 (including Sydney and Auckland in 1900).

This disease – linked to rats and fleas – looked like a good fit for the Black Death; the descriptions of the symptoms were a good match. So, the Black Death narrative came to incorporate Yersinia pestis as the culprit. This pathogen is endemic today in some parts of the world, including the southwest of the United States, but generally confines its lethal mayhem to rodents. People die of it most years. The good news for later twentieth century human populations was that bubonic plague is treatable with antibiotics.

However, especially around the early twenty-first century, the ‘Yersinia pestis as the culprit’ thesis was substantially questioned. (See A plague on all your houses, The Guardian, 14 Aug 2004; I have read Return of the Black Death: The World’s Greatest Serial Killer by Susan Scott and Christopher Duncan.) This questioning has subsided of late, because of the discovery of Yersinia pestis DNA in the bodies of known victims of the Black Death. James Belich, author in 2022 of The World the Plague Made: The Black Death and the Rise of Europe, argues that those sceptical narratives were an important part of the scientific process, but settles on Yersinia pestis, based on subsequent DNA evidence.

Nevertheless, I was persuaded by aspects of Susan Scott’s argument. She agrees that bubonic plague was significantly present in Europe – especially in Mediterranean ports – in the late 1340s. Essentially, her argument is that there was another disease present at that time in Europe, and that this other disease played a greater role than bubonic plague in the lived experience of pandemic plague in the period from the 1340s to the 1590s. Scott made her argument using village studies which suggested that the three main epidemic parameters – transmissibility (especially from humans to humans), incubation, and duration of infectiousness – were a poor fit for the known information about Yersinia pestis. (We may also note that there is a variation of bubonic plague known as pneumonic plague, which is human-human transmitted, looks a more plausible fit for the 1340s to the 1590s than rat-flea transmission. But the parameters of pneumonic plague don’t fit, either.)

In Scott’s thesis the principal agent of the Black Death was what she calls Haemorrhagic Plague. It is well known today that there is a family group of lethal zoonotic viruses which cause haemorrhagic fevers in humans; these include ebola and hantavirus. For the vast majority of human cases, they are transmitted to humans from animal incubators. Her argument is that the majority of Black Death deaths were caused by one of these viruses, not by Yersinia pestisbacteria. The parameters she calculated from the historical data match haemorrhagic fevers rather well.

The pneumonic symptoms of the two diseases could be similar (albeit more blue than black). Indeed the 1918 influenza pandemic was known, at least in New Zealand, as the Black Flu. Plague is bacterial, treatable by antibiotics. Haemorrhagic fever is not treatable, except at the margins; it’s a viral illness.

We may also note that it’s rare to have two simultaneous epidemics. One epidemic of a viral disease tends to pre-empt another viral pathogen. However, simultaneous epidemics – even pandemics – of bubonic plague and haemorrhagic fever seem entirely plausible. Because the pathogens are so different, even if the end states of both diseases are quite similar. And we note that the stresses arising from one lethal illness may create malnutrition and other states of being likely to make us more vulnerable to a second quite different pathogen doing the rounds.

We should also note that, after much trial and error, the Black Plague could be contained by quarantine; isolation for forty days. Quarantines are particularly effective for human-human transmissible diseases. Presumably less effective at containing burrowing rodents (or mosquito-borne diseases for that matter). Rats don’t carry passports.

Warning

Susan Scott was particularly concerned about modern complacency towards the Black Death. The widespread perception in modern infectious diseases studies is that bubonic plague is treatable, and that the rodent-flea transmission mechanism is less plausible in modern more-sterile environments, reflecting the perception that modern cleanliness and bubonic plage are incompatible. (And noting James Bayes’ presumption that if hantavirus can transmit human-to-human on a sterile ship, then it must be able to so transmit anywhere.)

There is no complacency towards haemorrhagic fevers such as ebola (hence the PPE); although it’s still widely understood to be – in a sense, dismissed as – a ‘third world’ disease. Susan Scott was concerned that complacent modern public health systems would leave us completely unprepared for a pandemic involving a haemorrhagic virus, such as hantavirus; indeed, I did not sense sufficient concern among the panel of interviewees on Inside Story.

Even if it can be proved that Scott’s thesis about the Black Death is completely wrong, then nevertheless her research still represented an important warning to the world about what the next really lethal pandemic might look like. At the very least, the present hantavirus scare should be understood as an important wake-up call.

If we had learned much more about the history of coronaviruses – viruses which were known to have been long-circulating as ‘common cold’ viruses – after the 2003 SARS1 panic, we might have been much more prepared for the SARS2 Covid19 pandemic in 2020. Scientists should not be too quick to dismiss Susan Scott’s hypothesis about the causes of the ‘great levelling’ event which came to be called the Black Death.

A lethal transmissible disease which is asymptomatic for six weeks, and which is infectious before symptoms occur, is one of our worst public health nightmares. The present scare should remind us of that.

How can we cooperate through pandemics when we are too busy waging hot and cold wars? The 1918 novel influenza virus was forged on the battlefields of France; a hybrid of influenza strains from Asia and America. In the end, it killed as least as many people as were killed on the 1918 battlefields.

We should learn to question prevailing narratives. Experts – whether epidemiologists, economists, or geopoliticians – don’t have all the answers; too often they pontificate from professional scripts while ignoring inconvenient evidence. People, especially those with a modicum of power, should exercise their influence with more humility and less sureness.

The world is becoming more vulnerable; too vulnerable for badheads and hotheads and sureheads (such as Christopher Luxon) and bombastic appeasers (such as Keir Starmer) who cannot broach alternative explanations or strategies. These people simply ‘double-down’ when the evidence is that what they are doing is harmful or counter to their stated objectives.

Pestilence follows deprivation, closed-mindedness, and stupidity. These qualities are not confined to the uncivilised. Our environments fight back, often in ways that we least expect, often in places where we do not look.

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.

Keith Rankin, 11 May 2026 – At the end of this month, the Russia-Ukraine War will have dragged out for as long as World War One, conventionally dated. It’s already much longer than World War One using Russian dating, given Russia’s early exit from that war.

World War One, especially in the East

Despite its minimal emphasis in the anglophile understanding of WWI, the central conflict of that war was between the German Second Reich (the Prussian Empire) and Russia (the Russian Empire). The war was started, with full intent, by the German military who were able to play the emotionally volatile Prussian Kaiser, Wilhelm II. Germany started the war because the Prussians had convinced themselves that Russia was becoming too strong and would inevitably – probably sooner rather than later – invade (and try to overrun) Germany and then the rest of Western Europe.

There was no evidence of such Russian intent. The German Prussians interpreted ‘could’ as ‘would’. So, they decided to attack Russia at a propitious moment, should such a moment arise. Germany had its opportunity in 1914 when Austria-Hungary deemed it necessary to start a Third Balkan War, against Serbia. The Germans adroitly manoeuvred the Austrians into pivoting away from the war the Austrians wanted, and to provide Eastern cover for the war against Russia which Germany wanted.

The reason Germany required Eastern cover was that they feared an attack from Russia’s ally, France. So, the Prussians decided to quickly deal to France, while Austria held back Russia to Germany’s east. Of course, the rest is history; the German army got bogged down in France and Flanders. Austria got exposed in the East. But Germany was able to fight on both fronts simultaneously, and eventually defeated Russia despite having to hold the Western Front.

Russia ratified its surrender in March 1918, when Leon Trotsky signed the Brest-Litovsk Treaty. In that 1918 Treaty, Russia – having just become the Soviet Union – surrendered Ukraine (though not Crimea) to Germany.

Luckily for the new Soviet ‘Bolshevik’ regime – in 1918, while running a substantially reduced Russian Empire – the forces of France, United Kingdom, USA, and influenza prevailed over the forces of the German Second Reich. (By giving Lenin free passage from Switzerland – the German military indirectly plotted the Russian counter-revolution that brought Lenin and his Bolsheviks to power in October 1917, nine months after Tsar Nicholas II was deposed in a popular uprising. Russia experienced regime-change twice that year.)

In the first half of 1918, Germany broke through in the West, bolstered by soldiers transferring from the East. But Germany’s supply lines were too stretched, and soldiers on both sides of the Western Front got very sick from the influenza which was the Americans’ principal contribution. It was only in July 1918 that France gained the upper hand over Germany on the Western Front; Germany quickly folded after that.

The result was the Armistice of November 1918, and the 1919 Treaty of Versailles. The 1919 Treaty stripped Germany of its March 1918 victory spoils; the principal of those spoils being Ukraine. The 1919 Treaty also humiliated Prussia, by separating Prussia’s eastern homeland (now Russia’s Kaliningrad) from the rest of Germany.

In 1919, Germany was not pleased about many things. Foremost among those things was the loss of its prize Eastern conquest. This humiliation formed a key part of reactionary Germany’s ‘stab in the back’ hypothesis; the hypothesis which galvanised the subsequent rise of Adolf Hitler and the Nazi (National Socialist) Party.

The Present War – which in an important sense is again Germany versus Russia

In normal ahistorical ‘rules-based’ discourse – the present war looks like an open and shut case. Bad Country A (Russia) invaded Good Country B (Ukraine). Naughty Vladimir. Solution: tell Vlad to take his war toys back home, and behave himself. (This narrative is hard to sustain now, though, given the 2020s’ behaviour of Israel and the subsequent suspension of the rules-based order.)

Seen through a geopolitical (and appropriately historical) lens, the Ukraine quagmire looks very different from the story that the anglophone world still clings to. A Nato/EU project of eastward expansionism – a ‘Greater Europe’, like a ‘Greater Israel’ but without the overt ethnic cleansing – threatens to return German troops to the heartland of what had been for centuries the economic core of the Russian Empire; namely the territory of Eastern Ukraine.

World War Two

From the Russian point of view, Germany has long coveted the entire territory of Ukraine; not just the bits of West Ukraine which once belonged to the Austro-Hungarian Empire of Franz Josef of Hapsburg (who gifted Aotearoa New Zealand the name of a glacier).

Adolf Hitler’s principal aim was to reverse the humiliations of 1918 and 1919. Thus, once in power, and once Germany had restored its manpower and its gun-power, Hitler struck back into France, forcing the French to sign their surrender at the same place and in the same railway carriage which was used for the 1918 Armistice signing. This time, there was no Austrian Empire to attend to Russia in the meantime. So, Hitler, in 1939, did a deal with Stalin, so that Hitler could deal to France without too much simultaneous aggro in the East.

Once France had been pacified, Hitler turned back to what was really the whole purpose of World War Two in Europe; to win back the territories that had been won in 1918, but had been lost through alleged ‘backstabbing’ in late 1918 and early 1919. (For the 1920s’ ‘make Germany Great Again’ project, the events of late 1918 and early 1919 were the first ‘great steal’.)

The reason for Hitler’s war was lebensraum; it was Hitler’s expansionist project. The principal aim was to re-acquire Ukraine. Having done so – for example, in the First Battle of Kiev (1941) – Hitler’s main goal for the Third Reich was to match the ambition for the Second Reich in WWI, and proceed to take control of the Russian oilfields to the east of Eastern Ukraine.

The Reich held Ukraine for more than two years, until the second Battle of Kiev late in 1943. This time the Russians of the Soviet Union had to defeat Germany on the battlefield; which they did at a huge blood cost.

Just this last weekend, Russia commemorated its military defeat of Nazi Germany.

Finally

From Russia’s point of view, today, the Ukrainian battlefield represents a field in which Nato’s proxy – the Zelenskyy regime of Ukraine – is bringing a Fourth Reich (the European Union; understood to be German dominated, even if Germany’s strength in the European Union temporarily waned after Angela Merkel stepped down) to finally achieve the conquest of Ukraine; the conquest which, from a German perspective, twice in the twentieth century fell agonisingly short.

So, as I read it, no Russian regime – whether led by Putin or somebody else – will ever let Nato (meaning, from a Russian viewpoint, Germany) into Eastern Ukraine.

Militarily, after years of stalemate, Russia has had enough; it is now looking for an offramp by trying to do a deal brokered through former German Chancellor Gerhard Schröder. Other than achieving an acceptable deal, Russia can only play for time; it cannot accept a ‘cease-fire’ involving ‘coalition of the willing’ ‘peacekeepers’. Western Europe – especially ‘Old Europe’ – is politically imploding at present; to sustain military ventures, it is dependent on an increasingly unwilling United States.

As I see it, the present war can end easily. But only under a Treaty which prevents Ukraine – or at least Ukraine east of the Dnieper River – from ever hosting German soldiers. The Russian history of World War One and World War Two is too recent for that. The American President, to his credit, has tried to broker a peace in Ukraine. But ‘Old Europe’ will not allow such a peace, as we have seen whenever such a peace deal seemed close.

The main reason Germany folded to the West in 1918 was the Royal Navy’s blockade of German ports; hence an important reason in the 1940s for Hitler’s emphasis on regaining Ukraine. Old Europe wanted, and still wants, Ukraine in its geopolitical orbit. Lebensraum, in the form of a greater western European geopolitical territory, is still at play.

This time Ukraine, Europe’s breadbasket, may be less required for the purposes of food security; though that may be changing with the protracted American and Iranian double-blockade of the Persian Gulf. My deeper sense is that the populist political right in Europe – which is slowly regaining ascendency – has demographic designs on Ukraine. Ukraine is a land with many white women; whereas Old Europe is much less white than it once was, and white women in Old Europe in the 2020s are having very few babies.

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.

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.

Analysis by Keith Rankin, 1 May 2026.

New Zealand is almost completely dependent on four things for its survival in the contemporary world. Imported wheat, rice, and refined fuel. And ships.

Wheat

New Zealand grows wheat in the South Island, most of which becomes animal feed. Reliance on New Zealand grown wheat is forestalled by a lack of milling capacity, and a lack of inter-island shipping. Eighty percent of New Zealand residents live in the North Island.

In the last week I have seen stories of South and West Australian wheatfields being plagued by mice. It’s a recurring story in Australia. I have also seen a story about a coming ‘super El Niño’ weather event. Such an event would hit the Australian wheatfields hard; drought and fires in South Australia, and too much rain in Queensland’s Darling Downs. Further, coming constraints on fertiliser supply can be expected to hit Australia hard,

In most years, 100% of New Zealand’s imported wheat – on which the North Island is totally reliant – comes from Australia. Much of that comes in processed form, given the constraints on flour milling in northern New Zealand.

What if Australia get better offers for its possibly compromised wheat crop? New Zealand may find itself in a diminished bargaining position for its usual slice of the Australian wheat pie.

New Zealand could transition to an economy based on balanced farming, with crop-farming and horticulture taking an essential and strategic place. But that would take time. It could only happen in the medium or long term.

Rice

Rice is a second staple food in New Zealand; a grain food which is entirely imported. Reliable supplies may become hard to secure in the future; though New Zealand’s traditional reliance on Australian rice means that there may still be a degree of rice-supply security.

We note however that rice is a staple of Asia, and that East and South Asian countries are likely to be among the most adversely affected by the imminent blockade-induced global economic crisis. Rice is a Giffen good, meaning that, as its price increases, Asian consumers eat more rice, not less. (Such Asian consumers can be expected to respond to a severe economic crisis by cutting back on the kinds of foods New Zealand exports, and to eat more rice instead; this is because rice will remain cheaper in Asia than long-haul imported foods, even when the rice price increases markedly.)

New Zealand should, from next week if not last week, establish a store of rice to ensure food security during a coming crisis; a crisis which seems increasingly likely. Rice, available now, may not always be available. Rice, once cooked, can be eaten directly; it does not require milling.

Ancient Romans, at times, depended on a universal bread allowance (as well as on circuses!). A society under deep strain depends on food benefits. For New Zealand in a future crisis, rice could be the best option as a dominant emergency food staple.

Fuel and Ships

While a producer of crude oil, New Zealand imports practically all the oil-based refined fuel that it consumes. 43% of New Zealand’s diminishing oil exports went to Australia for refining in 2025, down from 99% of a much larger amount of oil in 2011. Most of the rest is now refined in South Korea and Singapore.

For fuel, New Zealand is almost completely dependent on long-haul imports on fuel-consuming ships. At least this is a two-way trade with Korea and Singapore, though imports far exceed exports. So oil tankers taking New Zealand’s oil can at least be guaranteed to return with oil. But there is no guarantee that the rest of New Zealand’s scheduled oil imports will not be redirected, in response to better offers.

On the matter of fuel, it’s very distressing to see Ukraine – now a NATO proxy – doing its best to exacerbate the global fuel crisis by destroying the oil-export capacity of Russia, the one country best placed to relieve the present global crisis. When shortages of Ukrainian wheat threatened Africa’s food supply in 2022, arrangements were made between the combatants to free-up wheat exports. I see no sign of Ukraine or NATO taking the responsible option re the global fuel supply. (Even worse, King Charles – in the King’s speech – tried to incite the United States’ president to escalate the Ukraine-Russia war; a war that can never be resolved by escalation, but which can be resolved by a neutrality deal which would ensure that German troops would never again occupy places like Kharkiv.)

Finally, there’s the issue of ships. What is happening in the world’s shipbuilding industries at present? Are aging and eroding oil tankers and container ships being replaced as they normally would be in peace times? Will there be too few ships next decade to sustain re-established global supply chains; chains which, if similar to those of recent years, almost disregarded shipping as a cost?

Conclusion

For its most basic living commodities, New Zealand is almost completely dependent on long-haul shipping; or, in the case of wheat and rice from Australia, medium-haul shipping. By sea, Adelaide is a long way from Auckland. And New Zealand has minimum short-haul (ie coastal) shipping, which could serve – in a crisis – as an efficient domestic distribution mechanism.

To avoid a food security catastrophe, New Zealand needs to store more food. Food stores facilitate any transition in land use. A substitution to the production of food staples which will feed New Zealanders will take many years.

Rice is the best staple food to store, as well as being a staple much more widely consumed in the existing new New Zealand than in the previous century.

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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.

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.