Are wars affordable? The answer of course is ‘yes and no’.

Affording a war is different from financing a war. To make any new thing affordable, either there must be a reallocation of resources or a deployment of resources not otherwise in use. Or a mix of both. Further, resources get destroyed, and not only the resources of the ‘loser’.

Wars may be fully tax-funded – that is, by increased taxation – by one or more belligerents; but most usually they are not. Otherwise, wars are financed. Financing is a mechanism which enables the distribution of spending to differ from the distribution of income. Typically, spending by warring parties exceeds their incomes, so must be financed through government ‘fiscal’ deficits.

Income is the rights to current goods and services; that is, to current output. Present tense. In particular wages, profits, rents, royalties. Finance is the principal mechanism whereby such rights to current output are transferred by some people (including businesses and governments) to other people. By giving up a right to current output, a party either gains a right (ie a ‘claim’) to future output or is fulfilling an obligation – a debt – incurred in the past. Thus, giving up rights to current output is called either ‘saving’ or ‘debt repayment’. Saving, conceding such rights in return for claims on future output, is commonly understood as lending or ‘advancing’ funds.

We note that in many cases, debtors – parties holding obligations incurred in the past – have discretion over when they fulfil their obligations. Likewise, savers (creditors) have some discretion over when they call in (ie realise, spend) their savings; that is, discretion over when they exercise – ie liquidate – their historical claims to current output. As a general matter, is it a good thing if those two matters of debtor and creditor discretion balance out, creating a sense of ‘equilibrium’.

Historically, however, creditors have often failed to liquidate their claims at all; many creditors like to hold onto their claims for indefinite periods, thereby enabling debts to be merely ‘serviced’ rather than repaid. Unrealised claims are called ‘wealth’, and many people like to hold wealth until they die, rather than spend it.

If insufficient current output is purchased by past savers, it becomes a systemic requirement that new debts are contracted and spent.

When sovereign governments contract new debts to fulfil this systemic requirement (possibly as ‘debtors of last resort’), this is ‘fiscal accommodation’. When governments refuse to contract new debts to fulfil this systemic requirement, we may call this either ‘fiscal consolidation’ or ‘public austerity’.

Wars – and preparations for war – may be destructive (or at least non-productive) examples of fiscal accommodation; such accommodating militarisation may achieve that purpose without specific intent to do so. (In the 1930s the renowned economist John Maynard Keynes offered, as an example of contextually beneficial non-productive fiscal accommodation, governments paying workers to dig up holes and fill them in again!)

Wars

Medieval wars were often short-term affairs, because of seasonal patterns of labour demand. Wars have for the most part been labour intensive; and that’s still the case today, even if the casualties of post-modern wars are more likely to be civilians and less likely to be soldiers and sailors.

Medieval sieges often had to be terminated around August because the soldiers in the sieging army had to return to collect the harvest. September was the time of the year when there was virtually zero unemployment. Siege defence was made possible because harvest labour requirements would likely break the stalemate. The corollary is that medieval wars could be afforded because, in late-spring and early-summer, there was seasonally unemployed labour.

In the modern period (approximately 1490 to 1990), especially in Europe, labour became increasingly divorced from agriculture, making it possible to have ever larger standing armies (and navies), making bigger and longer wars possible. Further, the modern period saw the emergence of sovereign nation states; so, increasingly, war finance became intrinsically connected to public finance. Wars of exploitation and territorial expansion became a central feature of the emergent mercantile States.

Public finance and war finance were essentially the same thing in the golden eras of merchant capitalism (roughly 1550 to 1800) and subsequent industrial capitalism. That financial conflation is re-emerging as a new reality of the twentyfirst century, as sovereigns (and their foreign state and non-state proxies) up their military spending while simultaneously diminishing their commitments to the peacetime provision of public goods.

Fast forward to the years from 1989 to 2011

This transition period from modern to post-modern may be seen as a particularly peaceful period – after the Great World War of 1914 to 1945; after the wars of recolonisation and decolonisation which may be seen to have ended in 1979 with the revolution in Iran and Vietnam ending the post-colonial genocide in Cambodia; after the wars in Lebanon, the Falkland Islands, and Iran-Iraq; and after the fall of the empire of the Soviet Union.

The millennial years 1989 to 2011 are sometimes called the ‘unipolar moment’, when the United States could and would call the shots; typically with a foolhardy and exceptionalist perspective of the world as a kind of playpen for Washington and New York largesse. And with a neoliberal outlook through which narratives about the Great Depression and World War Two were recast. In the latter case, World War Two became a grand narration of ‘Hitler versus the Jews’; most of the many other lessons arising from the years 1914 to 1945 were largely forgotten.

I am particularly interested in the affording and financing of the Second Gulf War (essentially 2003 to 2009, an asymmetric war between United States and Iraq); although good starting points are the post-Tiananmen (after 1989) emergence of China and the execution in 1990 by the United States of the First Gulf War.

These charts of financial balances for China and the United States give some important clues about who paid for the Gulf Wars. (For the United States in particular, it is necessary for now, to not be distracted by the dramatic financial accommodations between 2009 and 2021, relating to the Global Financial Crisis and the Covid19 Pandemic.) They show variations over time in private saving and spending, government deficit spending, and these nations’ saver/spender relationships with their outside worlds.

We note that most of the economic and financial cost of war comes after the main event (eg after 1990, and after 2003); as military equipment needs to be replenished, armies need to be expanded, and destruction zones need to be rebuilt. Indeed, the costs of a standing defence force are high whether or not there is a war.

1990, the middle of a period of both economic and financial flux in the world, came at the end of a recovery in the United States following the 1987 sharemarket crash. So, almost unusually, there was no speculative bubble in place, there was increased saving as people looked more to future spending than present spending, and the labour market remained weak.

For the United States, we see in the years from 1991 to 1993, high saving in the private sector – largely household saving – and comparably high spending in the government sector. Thus, domestic private savings directly funded the war. Unemployment in the United States was lower than it otherwise would have been. While savers were not asked whether they were happy that their caution was being translated into government military spending, it’s unlikely that they minded too much; the ‘war against Saddam’ was not an unpopular war in the United States.

In times of recession, when more people than usual are unemployed or underemployed, affording a war is easier but financing a war is harder. Liberal governments must make financial accommodations by departing from the standard fiscal rules they impose upon themselves. (We note that, just this year, 2025, the German Bundestag has made such an accommodation, and abandoned its self-set and dearly-held fiscal rule; giving itself a blank cheque to pursue debt-funded military spending.)

Most modern wars have been afforded through a process of restrained consumption, financed through the mechanism of new government debt and a build-up of household credits; governments owing, and households owning new debt. As a side-effect, and considering the United States, this affording and funding enlarges the combined balance sheet of American banks: more assets (government debts) and more liabilities (private savings).

Affording wars is always a matter of economic resources being deployed into military theatres, whether that is redeployed from civilian production or a reduction of resource underemployment. From a financing point of view, the four options are that wars are funded by taxes (which would not show up on this type of chart), by domestic saving (as happened in the United States from 1991 to 1993), by foreign saving (as happened in the mid-2000s), or by foreign aid from patron to proxy.

War financed by foreign saving may mean direct or indirect foreign funding. Much of the Allies funding in the Great World War was financed by American debt which, in the fullness of time, would be written off; making that war significantly American gift funded, even if at the time the advances were only intended and consented as loans. Nevertheless, the United Kingdom afforded their war only with substantial reductions in normal consumption; this was even more true for most of the other participating nation states.

In the United States chart above, we see (in green) that in every year shown except 1991, the United States has incurred debts to the rest of the world. Though these foreign advances were unusually low in the early 1990s. America’s war in 1990 was domestically funded, and relatively easily afforded.

(We note that that Gulf War involved both an invasion by Iraq and an invasion of Iraq. I make no attempt to discuss the affording or financing of the war from the point of view of either Iraq or Kuwait. Clearly, however, there was a substantial loss and degradation of life in Iraq, and degradation of land and infrastructure.)

The Wars of the 2000s, especially the Second Gulf War from 2003

The United States economy changed dramatically with the birth of the Internet-Age, just after the First Gulf War. Private balances follow a classic ‘bubble’ formation from 1994 to 2000/01; this came to be known as the dotcom bubble, and was characterised by a new ‘information technology’ sector being speculatively debt-financed. Government tax revenues ballooned, leading to unheard-of government budget surpluses. In addition, the United States economy attracted increased foreign credits before the turn of the millennium, though not much then from China.

We can see the collapse of the dotcom bubble in 2001, with a marked reduction in private debt spending, and the ensuing unusually high foreign financing of the United States economy.

The wars of the new-millennium began with the United States’ invasion of Afghanistan in 2001, followed by the bigger United States invasion of Iraq in 2003. These wars were foreign-funded, the US chart shows, and lasted – in their predominant phase – throughout the Bush presidency. (Refer Iraq War troop surge of 2007.)

We can trace this funding of the Bush-wars by examining the China chart. From 2002, we see a clear rise in Chinese private saving and of ‘foreign investment’. The ‘rest of the world’ percentages represent spending in the rest of the world (from China’s perspective) made possible by non-spending in China.

At its peak, China’s foreign investment ‘current account surplus’ – for our purpose, China’s excess of exports over imports – reached almost 10% of GDP in 2007. This co-dependency of Chinese exports and American imports has been called by some Chimerica; the best known proponent of this concept is the British global historian Niall Ferguson.

As well as considering the percentages, we remind ourselves that Chinese supercharged annual economic growth, which bottomed-out at 8% in 1999-2001, climbed to 14% in 2007. Given earlier growth in the 1980s and 1990s, China was no longer starting from a low base. These were massively increased levels of Chinese economic output in the 2000s; output sent from China rather than spent in China.

The result was that industrial capacity within the United States was freed up to supply military goods rather than civilian goods. While China provided the ‘butter’ (ie consumer goods), Uncle Sam was freed to specialise in the production and deployment of ‘guns’.

While China paid for the Second Gulf War through its massive export surpluses, for the West in general and the United States in particular, the war was fought for free; a ‘free lunch’ so to speak. Of course it wasn’t technically free; China built up a massive amount of financial claims on the United States, though it was never clear how or when China might exercise those claims. China is yet to show any desire to acquire the American imports which would constitute the settlement of China’s claims on the United States.

China will only be reimbursed for its massive lending to the United States in 2003 to 2008 when we see, in its future financial balances’ chart, a whole lot of green on the upper ‘savers’ side. Otherwise, China’s loans to the United States will morph into gifts. An export surplus can only be reimbursed in the form of an export deficit; not China’s style in current or near-future times.

Tax Cuts

Not only did the United States wage two major wars in West Asia, close to America’s Indian Ocean antipodes, it did the unheard-of for a nation at war; it reduced its tax rates. While the most obvious way to fund a war is to raise taxes, the United States did the precise opposite; to not fund the wars ‘because it could’. China was happily paying for those American wars. For many Americans not directly involved, these wars were more than a ‘free lunch’; they were, through tax cuts, a ‘sugar hit’.

Indeed, this detachment of fighting from cost-bearing has become the most dangerous facet of the emergent ‘Warrior epoch’. Western elites have come to believe that they can undertake wars – be they ‘good wars’ or ‘bad wars’ – without themselves facing up to the reality that all wars are costly.

The United States legislated two major rounds of tax cuts, in 2001 and 2003. The first round was undertaken in the light of the Clinton budget surpluses (see the year 2000), and without awareness that war was coming. Those Clinton fiscal surpluses were unsustainable, a consequence of the dotcom bubble mini-boom, though the tax cuts (ill-targeted as they were) helped to fiscally accommodate the recovery from the 2000/01 dotcom bust.

The 2003 federal tax cuts were inexcusable. Initiated just as the pre-Gulf-War hype was peaking, these tax cuts passed through Congress and the Senate during the peak initial phases of the war. The incongruence of simultaneous military aggression at scale and tax decreases was astounding in its brazenness.

After 2011

The principal wars in the 2010s were located in Afghanistan and Syria; there was additional militarisation in Eastern Europe and the former Soviet Union, associated with the eastward expansion of Nato.

China played a constructive new role in that decade.

An important feature of global financial imbalances – very clear in the American chart – was the Global Financial Crisis, showing resurgent American private saving (mainly debt repayment) and the spectacular (and necessary) US Government accommodation of that dramatic change in private behaviour. Then we see a return to normality from 2013 to 2019. Higher than usual United States government deficits were a critical part of the global recovery from the financial crisis. (We may mention in passing that the New Zealand government’s fiscal policy – under National and Labour – has been and still is non-accommodating; the pandemic year 2020 being the exception that ‘proves’ the rule.)

For the second critical component of the 2010s’ global economic recovery, we can see a big change in China’s financial balances. In particular, we see the emergence of the Chinese consumer and taxpayer (much less blue and less red). And Chinese net exports substantially diminished as a share of the Chinese economy. Consumer spending and government spending in China and the other BRICsrevived global demand for non-military goods and services.

Although the United States incurred a specific debt to China during the Second Gulf War in the 2000s, subsequently the whole West ‘owes’ China a considerable debt of gratitude for its role in restarting the global economy around 2010. Thankyous to China have been considerably lacking, however, as the West increasingly seeks to point its military hardware at China.

The West – led by the United States – has gamified war, and has become indifferent to non-western lives. There are also too many signs that western elites are becoming indifferent to western working-class lives; starting with indifference to the many immigrants who are already performing so much of the necessary labour to support higher-middle-class living standards.

China, already on the verge of a balance-sheet recession in the view of Richard Koo, may now be following in the financial and economic footsteps of Japan in the 1990s (see my Red Gold; Japan’s lesson for the world). Certainly China’s financial balances’ chart (above) is starting to look very Japanese, with a smallish and stable export surplus, and large government deficits.

2020s’ Wars

After the 2020 Covid19 Financial Crisis, which, as in 2009, required huge fiscal accommodations – especially by the United States federal government – wars have become proxy affairs whereby the means of war have been largely gifted by patrons to their proxies. Such financing leaves only small marks on countries’ financial balances charts. Though the patron nations will have larger-than-otherwise government deficits; see the United States’ government balance (above) for 2023 and 2025 (and the 2025 forecast).

The financing of the two sides of the Sudan ‘Civil War’ appears too convoluted to examine here. It would seem to involve proxies of proxies, and to be an important outlet for internationally traded military goods.

For the West, the affording of the wars in Ukraine and Israel-Palestine would appear to be mainly through a mix of gifts and loans by patron governments, meaning involved governments undersupplying too few peacetime public goods. (Too little ‘butter’, to use that metaphor, and too many guns.)

Russian citizens will be incurring substantial opportunity costs, mainly through higher taxes, a reallocation of government spending, and reduced opportunities for its citizens to live international lives. Ukraine seems to be funding its war through a mix of foreign gifting and government debt; though its people – like Russians – have been paying a high price through reductions in their living standards.

Israel continues to be a net exporter, so its deliveries of military hardware from the United States should definitely be regarded as aid rather than imports. Lucky Israel! To be able to fight its neighbours on such favourable terms is a privilege rarely granted.

In Retrospect

Wars are costly. Very intensive and extensive in the use of resources and the destruction of resources; let alone the loss of quantity and quality of life.

In all wars, all parties incur costs; significant costs. Sometimes, a party to a war can avoid most of those costs through having someone else pay. Of course, the United States paid to some extent for the wars against Iraq in terms of American lives lost and degraded; little cost was borne by those Americans who propagated those wars, though.

The material costs of the wars in the 2000s were paid – indirectly – by Chinese households not consuming large swathes of the goods they produced; Chinese workers and capitalists were, on an increasingly massive scale, exporting the fruits of their labour and their capital to the United States. More sending than spending. Much more. (A Marxian analysis would attribute the seemingly costless affording of the US-Iraq war to the extraction of ‘surplus value’ from the Chinese working class by the American capitalist class.)

Yet these Chinese costpayers didn’t much mind, because – while their abilities to enjoy the increasing fruits of their labours were highly constrained by China’s export policy – they were happily stacking up claims on future production; deferred enjoyment, rather than the pure exploitation which occurred in the early years of Chinese Communism.

China bore the West’s costs in other ways too; in those years Chinese people suffered huge environmental costs, at a time when natural environments were improving in the deindustrialising West.

There was a wider set of ongoing costs, however, arising from the ensuing highly unbalanced global capitalism. United States’ industrial survival is now largely dependent on its specialisation in military hardware and software; meaning that the United States’ economic deformation has made that country into a predatory warrior state. Violences, especially upon non-Americans, are today directly committed by the American state; and through both exported and gifted military goods and services, and through violations committed directly by America’s proxies (and, as in Sudan, by its proxies’ proxies).

Wars, when they happen, are affordable because they happened. They are very costly, both in terms of their opportunity costs (the loss of other uses to which the deployed resources could have been put) and the human misery of death, destruction of habitat and taonga, and injury. They are commonly financed by third parties – eg Chinese households – who may or may not enjoy reimbursement for their credit advanced.

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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 chart above summarises Japan’s financial balance sheet since 1980. A wall of red below the line, and blue above. Additionally, a persistent ‘slice’ of green below the line, indicating that Japan – the country, not the government – is very much a creditor (ie saver) nation.

This red wall has been the norm for Japan, except for a brief period in the late 1980s and early 1990s when Japan had one of the world’s most spectacular financial bubbles and busts. Japan took a decade to get over that crisis, and in the process forged a new macroeconomics; a macroeconomics created ‘on the fly’ so to speak, and which substantially demonstrates the validity of modern monetary theory. (For Japan’s story of recovery, restoration and education, refer The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession 2009 by Richard Koo.)

The red wall shown in the chart is Japan’s monetary base. It functions in the monetary world much as gold was meant to function during the gold standard era. Japan is not starved of money, and Japan has inflation no higher than the rest of the most-economically-developed world. Its equivalent of New Zealand’s Official Cash Rate is 0.5%; the highest it’s been for over ten years. (Contrast the OCR, which has come down from 5.5% to 3.0% in the last year-and-a-bit.)

Further Japan’s ratio of people over 60 to people under 60 reached ‘crisis levels’ at least a decade ago, yet Japan is still able to provide for – to afford – an older generation of healthy and happy retired people.

The wall of ‘red gold’ in the chart features in Japan’s national accounts as government debt. On the other side of Japan’s national balance sheet, that red wall becomes a blue wall; a blue wall which features as the principal store of private wealth in Japan. The red wall and the blue wall are the same wall; it’s simply ‘painted’ blue on one side and red on the other.

During 25 years of construction, that red wall grew to 250 percent of Japan’s GDP in 2020; to the equivalent of five trillion United States dollars. Since 2020, Japan’s government has continued to run substantial though diminishing deficits, adding to its red golden wall of public debt; though the growth in the wall since 2020 has been slower than the growth of Japan’s economy, meaning that Japan’s government debt has fallen to 237 percent of GDP.

(Among developed economies, after Japan the next biggest red walls are those of Singapore, Greece, Italy, and the United States. The Singaporean government effectively borrows internationally at very low interest rates (and in its own currency), thereby providing much of the funding for its much-vaunted sovereign wealth fund; and the United States’ wall of red gold is the de facto base of the global monetary system. The currencies of Singapore and Japan will be best placed to take over from the $US as world reserve currencies – because of, not despite, the level of public debt in those currencies – should any financial catastrophe befall the USA.)

Japan’s red gold is safer than yellow gold, because it is fully backed by the Japanese taxpayer; all governments have the sovereign right to claim taxes from their citizens. The purchasing power of Japan’s store of red gold is not contingent on the variability of the global market for yellow gold.

The Yellow-Gold Bug

Meanwhile, the world has become enamoured with yellow gold; you only have to look at the triffid-like growth of yellow bling in the White House in Washington DC. Likely the unsanctioned new ballroom replacing the East Wing of that presidential residence will soon enough house the world’s biggest display of yellow gold. Red gold drives the global economy forward, though – given the levels of inequality outside of Japan – into some nasty elite consumption spaces. Yellow gold drives the narcissists’ vanity, and is driven by the widespread fear of the middle classes – especially in the emerging and developing world – of global collapse.

Also meanwhile – just this week – Sudan has experienced another genocidal setback; see Massacre in el-Fasher: What’s happening in Sudan right now? and ‘A true genocide’: RSF kills ‘at least 1,500 people’ in Sudan’s el-Fasher, both Al Jazeera 29 October 2025. Many people will be wondering what it’s all about, though listening to mainstream news media won’t help very much. (We know that Sudan will continue to play a role in the world’s military armaments industry, both as a cynical testing ground for big boys’ toys and as a significant future supplier of the rare earth minerals needed to make those toys.) However, this piece from Al Jazeera’s Charles Stratford gets close to the real truth: Sudan’s natural wealth becomes the new front line of its ongoing war, YouTube, 29 October 2025.

Sudan has produced truly massive amounts of gold bullion since the start of its ‘civil’ war; yellow gold which has been smuggled out by the genocidal ‘Rapid Support Forces’ under the patronage and tutelage of its megarich backers. ‘A true genocide’: RSF kills ‘at least 1,500 people’ in Sudan’s el-Fasher states: “Saudi Arabia, Egypt, Qatar, Türkiye and Jordan have condemned the abuses committed by the RSF in Sudan”. Significantly missing from that list – and from the whole story that we do hear – is the UAE, the United Arab Emirates, reputed to be the RSF’s principal patron.

The Virtual-Gold Bug

Crypto-currencies seek to mimic gold, through an equally environmentally unsustainable process of ‘mining’. They have succeeded, becoming a speculative commodity par excellence. Indeed the First Family, in addition to its very overt and rather sickening displays of yellow gold, is reputed to have made nearly a billion dollar’s worth (Reuters) of acquisitions (and capital gains) of various cryptocurrency hoards. (And see this from the Australian ABC.)

New Zealand’s Opposition leader Chris Hipkins wants to make revenue from a capital gains tax on residential and commercial real estate (see this on Scoop). Yet, except for a brief bubble in 2021/22, there have been minimal capital gains on New Zealand land holdings since 2017; rather, capital losses have been the 2020s’ norm. Yet there are massive capital gains being made, in yellow and especially in virtual gold. Also, there are increasing claims that world sharemarkets are at unsustainable levels; see Awash with cash. How the investment world is feeding upon itself, ABC. Indeed, the ‘investor’-class is busier than ever, though not in real estate. Further, there is no clear reason why there should be a resumption of real estate bubbles anytime soon, given the abundance of alternatives.

These booms in real-gold and unreal-gold booms pose a major financial instability risk. Red-gold, on the other hand, can be the epitome of stability.

Conclusion

There is a form of ‘gold’ – invisible in the political chatter – which represents the backbone of the world’s monetary system. That’s red gold, and Japan is showing us the way, if we could only look and see. (There’s an ever-present fear that Japan will sooner or later snatch monetary defeat from the jaws of victory. And see this about “embarrassing antics in Tokyo“: I hope that Japan’s new prime minister Sanae Takaichi will not push too far her Mrs Thatcher reputation.)

Meanwhile, parts of the financial world are spinning out into some Lulu La La land, in the gargantuanly wasteful – and at times genocidal – pursuit of gold and virtual gold.

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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 first chart shows annual price increases in New Zealand for businesses (PPI: Producers Price Index) and consumers (CPI: Consumers Price Index), since 1999. We note that the latest CPI datapoint is for the third quarter of 2025, meaning that it’s centred on mid-August. The most recent PPI data is for the second quarter of 2025, meaning that it’s centred on mid-May.

For the whole period, the first important points to note are that the PPI is more sensitive to changing influences on prices than the CPI, and that the PPI tends to lead the CPI. Indeed, annual CPI inflation is a lagging measure of price change; meaning that it’s a poor measure to base policy decisions on.

The other key point to note is the unusually long lag of the CPI after 2022. Using the more sensitive and timely PPI measure of price inflation, we see that inflation in New Zealand troughed in 2023, and that, using the ‘outputs’ PPI, annual inflation in New Zealand was bang-on the two percent policy target at the time of the 2023 general election.

Despite the claims of our Prime Minister that he inherited “seven percent inflation” from the previous Labour government, in the two years since the election, actual inflation (based on the more sensitive PPI) has been rising.

It is very clear that there was a double ‘price spike’ in 2021 and 2022, periods exactly corresponding to the disruptions to global supply chains caused first by the Covid19 pandemic and secondly by the Russia-Ukraine war. Commodity price increases (PPI-inputs) fell almost to one-percent once those global supply disruptions were resolved. After that, the main source of ‘cost-of-living’ increases – suggested by the CPI lag in 2024 – was panicked and counterproductive domestic policy measures.

Historically, we note that, at the onset of the 2008 Global Financial Crisis, inflation in New Zealand was far worse than anyone realised at the time. We also note that, while the 2011 ‘spike’ in CPI-inflation was due mainly to the increase in the GST rate, there was also a spike in producer price inflation at that time. Normally the amplitude of PPI-inflation is greater than for CPI-inflation; because of GST, this amplitude difference did not happen.

Best leading measure of price variation: biannual price change

The most-timely measure of price variation is the quarterly change of the PPI [inputs]. However, quarterly measures are notoriously ‘noisy’, so the first reliable measure of price variation is the six-monthly [ie biannual] change in prices. The measure here takes six months (the two most recent quarters, averaged) compared to the previous six months.

The second and third charts clearly show both the annual and annualised biannual rates of PPI-inflation. The chart clearly shows how the six-monthly (biannual) inflation rate reveals the key inflation turning points first. By the August 2023 release of the PPI data, it was evident that – by the first available measure of prices – inflation in the first half of 2023 was below two percent. Yet, in election year, the Labour Government never mentioned this very favourable piece of economic news! Why was the actual data not being discussed? Presumably because the truth conflicted with the narrative about inflation; the narrative which New Zealand society succumbed to and was cowered by. Part of the problem is the time-poor (and sometimes credulous) media having been, in effect, trained to follow certain statistical indicators but not others.

These charts also plot the Official Cash Rate (OCR), the principal (though typically misplaced) policy lever to push-back on inflation and deflation. They show that anti-inflation policy commenced late in 2021, and peaked in 2023 and 2024. Thus, the ‘anti-inflation’ policy was persevered with well-after the leading indicators had shown that the inflation problem had disappeared.

The fourth chart shows the annual and annualised biannual rates of increase of consumer prices, again showing the OCR as well. Once again, even though the CPI is a lagging price-level indicator, a proper look at the CPI data shows that CPI-inflation was falling markedly in 2023, and that there was no case for anti-inflation policy in late 2023.

The explanation for the unusually long lag of the CPI (compared to the PPI) lies in the fact that the perseverance of anti-inflation policy itself created an ongoing ‘cost-of-living crisis’. If we go back to the first chart shown, it is the long lag in CPI inflation in late 2023 and in 2024 that is in fact the essence of the ‘cost-of-living crisis’. Rather than the crisis being cured by the contractionary monetary policy settings (of the OCR), that extended CPI lag was caused by the anti-inflation policy.

The fifth chart goes back to the PPI-inflation, using the ‘outputs’ measure of business prices, as in the third chart. This chart shows the OCR settings shifted by 18-months, to simulate an 18-month lag. The reason for this is that we are told that monetary policy takes at least a year – with Reserve Bank research in the late 1980s claiming as much as five years – before monetary policy ‘does its work’. If 18 months is the correct lag between policy and outcome, then we should see upturns in the OCR coinciding with downturns in inflation; and downturns in the OCR coinciding with upturns in inflation.

Instead, considering the two years from mid-2023, we see the very opposite, the upturn of the OCR almost exactly coinciding with the upturn of business inflation. We know that the short inflation spike of 2021 and 2022 was caused by global supply-chain disruptions; this kind of causation is probably true of some other inflation spikes. Also exchange rate fluctuations contribute to spikes in price variation. If we look at the late 2010s, we see falling interest rates accompanying falling rates of price increase; contra to the policy narrative. In the early 2010s we see fluctuating inflation while interest rates were essentially unchanging. In the late 2000s, we see interest rate increases matching inflation increases; again, contra to the policymakers’ narrative.

The conventional neoliberal narrative about inflation is that there is a substantial lag in policy effectiveness, and that inflation is principally driven by expectations of inflation. In this narrative, the inflation data should not be ‘spiky’ at all; rather, once set in, inflation supposedly establishes its own momentum or inertia. The PPI data clearly refutes this ‘momentum’ narrative; inflation is not driven by expectations arising from immediate past inflation. And the alleged momentum in CPI-inflation in New Zealand in 2024 is clearly false; rather there was a lag in CPI-disinflation caused by interest rates being too high; not too low. (Disinflation is falling inflation, whereas deflation is falling prices.)

Accepted reasons for an OCR-increase to PPI-outcome lag include the fact that business loans – like home loans – are typically set at fixed interest rates, for say two or three years. In the case of a falling OCR, however, businesses may quickly repay (or break) high interest loans and refinance as quickly as possible with the new low interest rates. So, policy reductions in the OCR are likely to affect outcomes more quickly than increases in the OCR.

It is looking as if anti-inflation policy actually achieves a mix of neutral and pro-inflationary outcomes. My suspicion is that anti-inflation policy is substantially pro-inflationary – counterproductive – with a lag of 15-24 months; and anti-deflation policy is actually pro-deflationary, with a shorter lag.

It is likely that the lag from anti-deflation policy (as in these years: 2001, 2008, 2015, 2019; refer third chart) to consequential deflation is quite short, in large part because the commencement of disinflation commonly precedes the policy. (Like trying to end a war that’s already ending.)

2026 and 2027 will be interesting because the longer outcome lag from high interest rates in 2024 and the shorter outcome lag from falling interest rates in 2025 suggests a wait until later in 2026 before there are marked falls in PPI-inflation, and early 2027 before marked falls in CPI-inflation.

There are at least two disruptors, however, given the global environment in flux. First is the 2025 American-led haphazard disruption to the already disrupted global economy, including the redirection of global supply-chains in favour of military goods and services. Second, for New Zealand, there is the ever-present possibility of a domestic financial crisis which would see a rapid fall in the value of the New Zealand dollar and therefore a 2027 spike in high rather than low inflation.

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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 following tables represent an update of mortality by sex in relation to Table 2 from Decennial Increases in Deaths by Birth Cohort, in Aotearoa New Zealand.

By looking at deaths registered in February to May only, it is possible to extend trends into 2025, avoiding fluctuations arising from winter illnesses.

The numbers look at people born over a ten-year period and the percentage increase in deaths in a given recent year compared to ten-years earlier. I am most interested in the ‘generations’ born between 1935 and 1990. The oldest generation/cohort shown will not have many more deaths than ten years earlier, because more than half have already died before the age of ninety. For younger generations, only a small minority have already died, meaning that a population can be readily compared with its younger self.

Results are unreliable for people under 25, because too few of them die to reveal any patterns.

Typically, at least for working-age adults – defining working age here to mean about 25 to about 75 – a birth cohort will normally have about 100% more deaths in a given year (eg 2020) compared to ten years previously. We can see that in the Male table below, by looking at the 2010-2020 column, and by looking at the 1935-45+ row.

If we look at the first highlighted figure of 98.3%, it means that 98.3% more men born from 1945 to 1954 died in 2020 than in 2010. The next figure in that row says that 100.2% more men born from 1946 to 1955 died in 2021 than in 2011. The last figure for that row says that 119.4% more men born from 1950 to 1959 died in 2025 than in 2015. (Noting again, that these data are for February to May only.)

This decade we have observed some problematic increases in deaths for men born between 1955 and 1980. (I would rate any number over 120% as ‘problematic’.)

For Females, these increases in death numbers over ten years for a generation/cohort are even more concerning; though it remains true that fewer working-age females are dying than working-age males. It’s more that women are catching up to men. As with men, it is those women born between 1955 and 1980 where the greatest concern lies.

While I’ll leave these data for others to interpret further, the numbers tend to bely the mantra we hear from the finance industry and many politicians that “we are all living longer”. The aging process seems to be coming earlier for people born after 1955 than for people born before that year. (It’s too early to say whether this conclusion about ‘Gen-X’ will also apply to ‘Gen-Y’. While Gen-Y men, born after 1975, seem to be doing OK so far, data for Gen-Y females is not looking too good.)

A final point to note is that Aotearoa’s working-age population is particularly affected by immigration and emigration. The numbers given here will be distorted if, for any cohort within that ten-year period of comparison, there was a marked difference in emigration compared to immigration. We should note, however, that both immigrants and emigrants (to and from Aotearoa New Zealand) tend to be healthier than average for their birth cohorts. Thus, data of this type – which does not rely on population denominators – can reveal subtle truths which may otherwise remain hidden.

Ultimately, societal problems – such as inequality, insecure housing, over- and under-work – all do have an impact on average lifespan at least as much (if not more) than the state of a country’s healthcare services. Actuarial methods of measuring lifespan are lagging indicators of the health of a national population. And they can be problematic in this country, because so many people who will die in New Zealand were not born here; and vice versa.

My tables are forward-looking rather than backward-looking. They warn of trouble ahead, especially in relation to those people born in the 1970s and 1980s. We may note the following: What researchers suspect may be fuelling cancer among millennials (Washington Post article, published in NZ Herald on 30 September 2025).

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Data is from Statistics New Zealand, Births and deaths: Year ended June 2025. That data series only begins in 2010.

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.

Yesterday the provisional Quarterly Economic Growth data was released. It showed that, seasonally adjusted, remunerated output (ie GDP, gross domestic product) fell 0.9% in April-to-June compared to January-to-March. While the resulting media hoo-ha overstated the significance of this result, there was still very little coverage of the underlying problem; New Zealand appears to be at the peak (not the trough) of a structural recession.

I have represented the same latest New Zealand growth data in three charts: biannual (rather than quarterly) economic growth; annual growth, and biennial growth.

Biannual Growth

In the chart above (and the other two charts, below), the black dot represents the latest datapoint. To the right of the black dots are ‘slightly optimistic’ and ‘slightly pessimistic’ forecasts projected to early 2026.

The first thing to note is that the latest biannual growth datapoint is 0.7%, which translates to annualised growth of 1.4%. The policy target for annualised growth is three percent (equivalent to 1.5% for biannual data, and 0.75% for quarterly data). The 0.7% statistic is the seasonalised GDP for the first half of this year compared to the second half of last year.

In the present scheme of things 0.7% biannual growth is rather good. The most important feature of the data series is the surprisingly high figure for the first quarter of 2025; a bounce-back from the 2024 disaster. The second quarter ‘slump’ does no more than reverse the first quarter rise, suggesting a ‘flat economy’.

The chart shows the data series as released by Statistics New Zealand; that quarterly GDP series begins in the second quarter of 1987, when ‘Rogernomics’ was in full swing. The first available biannual growth datapoint is for the beginning of 1988. We also note that I have omitted the wildly swinging short-term growth data for the two years of the Covid19 lockdowns. The dashed line for 2020 and 2021 indicates average growth for those years.

The chart shows the economic crises of the last 40 years. In doing so it shows that there is a common pattern of above-average growth immediately after a crisis; this is the easy re-employment growth that follows a period of high unemployment. This did not happen so much in the period of the early-2010s, when the New Zealand government pursued a policy – moderate by European Union and United Kingdom standards – of ‘fiscal consolidation’.

We also note that the high bounce-back in 1993, when Ruth Richardson’s ‘dead hand’ was being eased off the tiller, was not enough to prevent – in the election that year – ‘the Right’ suffering its biggest electoral deficit since 1938.

The most recent part of the biannual chart suggests that New Zealand is currently at (or just past) the peak of a structural recession. Biannual growth will be negative for the period April-to-September, even if quarterly growth is positive. We note that the early 2025 growth ‘spurt’, linked to New Zealand’s near-record-high terms of trade (the record was in 2022), is still well below the biannual growth target of 1.5%.

Annual Growth

The second chart shows the same data, but comparing a whole year with the previous whole year. Here much of the nasty 2024 recession is incorporated into the most recent datapoint. The whole experience looks much like the global financial crisis which troughed in 2009; though this time New Zealand has performed relatively worse compared to other developed nations.

The long structural recession of Rogernomics and Ruthenasia (Roger Douglas and Ruth Richardson) remains a standout, however. Those years of the late 1980s and early 1990s represent fiscal and monetary austerity at its silliest.

Biennial Growth

For some purposes, even annual growth is too ‘short-term’. For fifty-year-plus analysis, I sometimes favour quinquennial growth calculations. But biennial growth gives a good big picture when looking back three to five decades.

Here we can see the substantiality of the Ruthenasia policy crisis and of the global financial crisis; and how a relatively normal crisis such as that of the late 1990s should be placed in context.

Looking at today, even my slightly optimistic projection (of one-half percent biannual growth) shows a structural recession comparable to the global financial crisis. We note that interest rates in most developed countries were reduced to near-zero as a rapid policy response to the 2008/09 global crisis. (Global inflation didn’t happen in the 2010s, as the woe-betiders claimed it would!) We see none of that urgency this time, noting that something like the present New Zealand malaise is emerging in United Kingdom, France, Canada, and especially Germany. Others are likely to follow these.

Reflection

New Zealand’s economy is stuck in a mire. With other major economies following suit, it’s much more likely that things will get worse not better, as the decade progresses. As the first chart shows, the New Zealand economy has recently ‘enjoyed’ a peak – albeit a low peak – not a trough.

Lower interest rates will not solve the problem. That’s like ‘pushing on a string’ as the textbooks used-to-say. Governments need to generate revenue by spending more, not less; more spending means more income means more income tax, and means more investment in the economy rather than in the casino.

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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 above chart shows – in red – the annual percentage increase (since 1988) in numbers employed of women aged 65-69, based on Household Labour Force Survey employment data. (And it shows, for comparison, males aged 30-34; in blue, their percentages are shown on the right-hand side of the chart. I explain below why I contrast older women with younger men.)

The employment growth of older women is particularly variable. But there are some clearly discernible patterns. To help show these, I have used “vertical gridlines” 33 months apart; 2¾ years is the persistent period of New Zealand’s trade cycle.

There are several reasons why employment may go up or down. First is simply the growth of the population for the demographic portrayed. For the latest data, the most recent women portrayed (the 2025 data point) were born around 1957 (ie born in 1957±2). Birth numbers in New Zealand peaked in the decade from 1955 to 1964; so, there will be many more women still alive in this birth cohort than in previous cohorts, and recent international migration will be low for that age group. Especially as life expectancy has been rising, population growth is a major reason for an increase in women aged 65-69 who are employed. So, growth of employment in this demographic should be well above the zero showing for the last two years.

Another reason for higher employment numbers is ‘labour force participation rates’. Charts that I posted recently from the same dataset show participation rates for women aged 65-69 having risen to 44% in 2022, the last peak of the cycle. (See my Employment in New Zealand – especially of women – at the Age Margins.) It’s unlikely that the actual participation rate has fallen since 2022; more likely it has risen in line with the trend this century (participation up from 10% to 44% of the available population); although the official participation rate has fallen. The difference between the actual and official participation rates is known as ‘hidden unemployment’)

The third reason for changing employment for ‘retirement-age women’ is the ‘added-worker effect’. This effect, highly apparent for this demographic, means that employment and actual labour force participation move essentially counter to the economic cycles (including the 33-month trade cycle). This countercyclical effect, similar to the enrolment patterns for tertiary education, is particularly apparent from 1988 to 1997. And it’s understated by the employment data, because the times when more older women want to be employed will be times of generally high unemployment. The data peaks here – eg in late 1988 and mid-1991 – reflect both the increased desire for paid work, and the reduced ability to secure paid work.

The ‘added-worker effect’ operates when other sources of household income are reduced, or when major costs such as mortgage interest or rent are high and/or rising. For this demographic there is also a ‘subtracted worker effect’, meaning that these women choose to retire whenever they can afford to retire.

It is apparent that, for the most part, the peak increases in the employment of older women follow the 33-month trade cycle. The red peaks are on or close to the charts’ vertical gridlines. There were however disruptions to the cycle caused by the 2008/09 Global Financial Crisis, and in the 2020s thanks to the Covid19 pandemic.

Males aged 30-34

The blue graph for males aged 30-34 shows the economic cycle as we would expect. This is a demographic with a very high and stable labour force participation rate. As is apparent, the blue plot is to an extent countercyclical to the red plot. The main male employment cyclical peaks were in the mid-1990s, the mid-2000s, the late 2010s, and in 2023.

We particularly note that employment growth for youngish men was weak in the late 1990s and the late 2000s. Rising young-male employment was particularly strong between 2024 and 2018, reflecting strong immigration for this demographic.

Since the present government has been in power – ie from November 2023 – employment growth for youngish men has plummeted, despite high levels of net immigration, and despite this being the baby-blip generation born in the early 1990s. Basically, the economy ‘tanked’ in 2024 and 2025.

Female birth cohorts

The second chart shows women’s employment/participation for different ‘generations’. For women born around 1957, employment peaked at just under 80% of the available population, when they were aged about 47. For the next generation, that peak is even higher, at about 83% of available women; and this is despite more women having babies later in life.

Generally, younger generations of women have had markedly higher participation rates, especially between ages 25 to 40.

Finally

Once upon a time ago we ‘worked to live’. Since the neoliberal and feminist revolutions, we have ‘lived to work’. I am not convinced that this is progress. Progress is supposed to be productivity growth; more outputs per unit of (labour and other) inputs. What we have seen is much more input – with labour inputs being shown here – yet economic growth if anything seems to have slowed.

To have a sustainable future, we should be stabilising output, while contracting inputs. Employment counts, as defined by the HLFS, are crude measures of inputs. It is perfectly possible to have more people employed, wanting and getting fewer hours per week on average. That’s not what we have here. Rather, we have more and more people desperate for employment to pay the bills, and a substantial decline in time committed to the other non-income-focused aspects of life. Women have been on the frontline of this seek-more-work play-less zeitgeist.

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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.

Quarterly Labour market data in Aotearoa New Zealand was released today. Much of the data is functionally useless, because of definitions which disguise rather than reveal important trends and turning points.

I have focussed on employment data (although the definition of ’employment’ is too generous to be optimally useful) relative to estimated populations for age groups at the younger and older margins of the ‘working age’. (For me, ‘active in the market economy’ means meeting the official definition of employment. Unlike the International Labour Organisation, I am not classing unemployed people as ‘active in the market economy’.)

The first chart focuses on older women, a group particularly impacted by recent and ongoing economic changes. Many of these people neither qualify for benefits when they become redundant; nor do they even make the official unemployment data because, compared to people aged 25 to 55, they are more often regarded as withdrawing from the labour force when they lose their jobs.

We can see that the post-1980s’ trend for all depicted age groups is one of rising ‘participation’ in the labour market; much of this is for financial reasons (eg needing to pay mortgages or rent), rather than for lifestyle or feminist reasons. Some of the change of course is linked to the increase of the age of entitlement to New Zealand Superannuation, from 60 to 65.

We see that recent (ie post-2022) data shows a flattening of the trend, or a fall against the trend for 65-69-year-old women. Most of these are actual unemployed people who are counted as ‘discouraged workers’ or ‘retired’. In reality, the financial pressures on older women to stay working are stronger than ever. 2022 represented the year of peak-grandmother-labour.

The second chart shows the trend fall in older men and women NOT employed. We note that New Zealand Superannuation – a Universal Basic Income for Seniors – incentivises people to stay working after age 65. (Australia has a substantially lower proportion of people over 65 in employment.) The trend in falling non-employment has been arrested by the greater difficulty since 2022 in finding paid work.

For younger people, the trend is for more employment and less higher-education (although many people in higher education also meet the definition of being employed). It would appear that many New Zealanders in their twenties have returned to higher education in lieu of being employed, looking to live from student allowances or student loans.

The third chart compares the teenage workforce with workers of peak working age (45-49). For peak working age we see convergence of male and female participation, despite more women in their late forties with children aged under 10 in their care.

For teenage workers, the male data fluctuates more than the female data. In this decade, more teenage males are not employed than teenage females; a clear change from the 1980s. There was a dramatic ‘flight to employment’ for teenagers after covid; a return now reversed as the job market clams shut.

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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 most important measure of the favourability or otherwise of the international economic environment is called a country’s ‘Terms of Trade’. This label essentially means ‘barter price’, reflecting that international trade is essentially one country’s barter with the rest of the world.

(Digression. We note that such ‘barter’ is rarely the simultaneous barter with which we usually associate that word; whereby in a single mutual exchange, swaps of agreed equal value are made. So, for any given country in any given year, the barter is rarely a swap of equal value between domestic [our] and foreign [their] goods. If, in any given year, a country receives [by agreed value] more goods and services than it gives up – ie imports more than it exports – then that country is either incurring a debt to the rest of the world, or spending a credit. This process of incurring debts and spending credits – or, from the other side of the ledger, of incurring credits and settling debts – is known as ‘intertemporal trade’; ie as trade over time. Trade between one country and the rest of the world is expected to balance in the long run, at least in theory; however, see my International Trade over time: gifts with strings, Evening Report 8 May 2025, which shows that this long-run balancing often doesn’t happen in practice. We also note that Donald Trump’s project is to upset this coherent barter process by separately accounting for trade between his country and each other country; Trump wants, in each year and for each country, either a perfect barter, or for the other country to get [to import] more by agreed value than it exports. Thus Trump wants the United States to build up indefinite trade credits with each and every country; meaning that, eventually, he wants each country to have permanently unsettled debts with respect to the USA. That perpetual accumulation of credits is what President Trump calls “making money”. It’s what economists call mercantilism. Historically, Netherlands is the country most notorious for its mercantilist approach to international commerce.)

The ‘terms of trade’ does not measure the balance of trade. Rather, it is a measure of what a given amount of exports will buy. Thus, ‘favourable’ terms of trade are when $1,000,000 of exports will buy many imports. And adverse terms of trade are when $1,000,000 of exports will fund a relatively small quantity of imports.

The chart above shows that Aotearoa New Zealand is currently enjoying near-record favourable terms of trade. At least with respect to New Zealand’s economic position in the world, New Zealand is currently enjoying the best of times. (And Donald Trump’s shenanigans in the United States will barely put a dent in this serendipitous state of affairs for New Zealand.) Indeed, when the Terms of Trade data for the June quarter of 2025 is released next month, New Zealand may have achieved a record-high terms of trade; the present covid-induced record high (from 1957, the year the data from Statistics New Zealand commences) is late 2021.

This year, if a terms-of-trade measure of 1000 is seen as neutral, then we are at present fifty percent above neutral, meaning our exports will buy fifty percent more imports than they would have bought under neutral – eg 1990s’ – international conditions.

We may note that from a perspective of 1985, New Zealand was ‘suffering’ a long-term decline in its terms of trade, indicating a need for economic diversification. But over the last 40 years, the whole lives-to-date of most living New Zealanders today, New Zealand has enjoyed a secular (albeit fluctuating) rise in its terms of trade; a persistent rise of its average living standards. This is not because of diversification; it is indeed despite diversification, and because the diversification of New Zealand’s tradable economy since the 1980s has been somewhat limited.

We can look back over this chart, and observe the good times and the bad times; noting that these good times and bad times have reflected New Zealand’s position in the ‘stormy seas’ of international commerce.

The terms of trade are only minimally affected by the economic policies of the day. The main reason for the improvement of New Zealand’s terms of trade since 2000 would be the rising living standards of the growing middle classes of the developing world (ie of the ‘global south’).

The terms of trade have contributed to many of New Zealand’s election results. A declining ‘terms of trade’ during election year would increase the likelihood of a change of government in New Zealand.

I’ll just make three further comments about the history.

First, the drops in 1974 and 1979/80 reflect geopolitical crises in southwest Asia – the Arab-Israeli War of 1973, and the Iranian Revolution of 1979 – and their impacts on world oil prices. Conversely, the rebound from 1986 reflects the resolution of the economic consequences of those crises, with substantial real falls in the price of oil.

Second, in the 1960s, the timing of the terms of trade fluctuations tended to reflect the timing of British general elections (meaning the relatively generous fiscal policies of the British government in the lead up to those elections, leading to more British consumer spending): 1959, 1964, 1966, 1970. (We note that, in the absence of such policies in 1970, the British Labour Government lost an election it was expected to win. And the new Conservative Government pursued unusually generous fiscal policies soon after it came into being.) The United Kingdom joined the European Economic Community (now the European Union) in 1973. Before then, it was the British market that largely determined New Zealand’s terms of trade.

Third, New Zealand economists used to take a keen note of the terms of trade, as a key economic barometer. This century, the ‘terms of trade’ only rarely becomes a point of public discussion about ‘the economy’. This reflects an increased (and somewhat misplaced) academic emphasis on government policy as a determinant of New Zealand’s economic success or otherwise. And a reflection of the unwillingness of New Zealand’s progressive and conservative elites to facilitate a sharing of the gains arising from New Zealand’s favourable terms of trade.

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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 ‘see-saw’ chart above shows the accumulated ‘excess benefits’ that Aotearoa New Zealand, and a few other countries, have enjoyed from international trade over the last 40 years. These are benefits arising from ‘unbalanced trade’ which are in addition to the regular benefits – arising from efficient specialisation – of ‘balanced’ world trade. Real world trade is a mix of ‘balanced’ (paid for) and ‘unbalanced’ (on forever-credit).

The excess benefit data shown is an inflation-adjusted accumulation of the United States’ current account deficits. We remember that the benefits of trade are what (goods and services) you get, not what you give up.

We note here that the United States is a ‘winner’; not the loser which Donald Trump claims that it has been. The United States has enjoyed $70,000 worth of excess trade benefits over 40 years, per American. And it is projected to enjoy another $10,000 worth of excess trade benefits over the next seven years.

So, what is Donald Trump grumping about? Rhetorically, why does he aspire that ‘America’ should be like Germany?

The biggest losers, as shown here, are a group of northwest European countries, plus Taiwan. (For lack of a complete set of data from 1984, China is not shown here. But China would fit into the chart next to Malaysia. While China has significant accumulated trade surpluses, these are spread over a very large population.) The losers are the countries which have – in effect – ‘given’ away lots of stuff; exports for which they have not received anything in return and will probably never receive anything in return.

The 2030 projections show that these ‘surplus’ countries will continue to under-import; they are not projected to claim the imports that are rightfully theirs to enjoy. Rather, the deficit countries will most likely continue to enjoy these excess unpaid-for benefits.

(There are at least two other ‘surplus countries’ – countries like Germany and Sweden – which would be ‘off the chart’: Singapore and Norway. And one other deficit country: Türkiye.)

Discussion

With international trade in any given year, surplus countries ‘give’ goods and services to deficit countries. They give ‘with strings’. The most obvious form of ‘string’ is a return gift next year; a fully commercial kind of ‘string’ would be a return gift with interest.

For example, if Sweden exports US$1,100 million worth of stuff (ie goods and services) to New Zealand in 2025, and New Zealand exports $1,000 million worth of stuff to Sweden in 2025, then the 2025 gift is $100 million worth of stuff from Sweden to New Zealand. (In technical language, and from New Zealand’s viewpoint this gift from Sweden is called a bilateral trade deficit; from Sweden’s point of view, it’s a trade surplus.)

A return gift with 3% interest would be $103 million worth of stuff from New Zealand to Sweden. (This would be a New Zealand bilateral trade surplus – a deficit for Sweden – in 2026.) The bilateral – ie two-country – ledger would be settled. Effectively, in this example, Sweden lends $100 million of stuff to New Zealand in 2025, and New Zealand repays the loan, with interest, in 2026. Gifts ‘with strings’ are debts.

There are two potential problems. The first problem is that New Zealand may not be able to sufficiently increase, in one year, its exports to Sweden (eg from $1,000 million to $1,203 million, assuming unchanged imports from Sweden). One solution might be for New Zealand to increase its exports by that amount to other countries, and for other countries to export $203 million more to Sweden. But that increase in exports of $203 million might still be too difficult for New Zealand to accomplish in 2026, regardless of who the buyers are. New Zealand might need to borrow more in 2026, (or to import less,) or to repay its 2025 trade debits further into the future.

Indeed, New Zealand might prefer something like a 40-year mortgage. New Zealand could run trade surpluses re Sweden (ie Sweden running deficits) of about 4,358,000 each year for 40 years. In total, over the 40 years from 2026 to 2065, Sweden would receive stuff worth $174,323,300 as its ‘return gift’.

The second (much larger) ‘problem’ is that Sweden might not want to run a trade deficit at all; that is, Sweden might not want to be repaid (except, that is, in some imaginary never-never timeframe). Whether this qualifies as a problem depends on a person’s belief-system. If New Zealand is perfectly happy to receive – into the indefinite future – annual increments of unpaid-for goods and services, and Sweden prefers to keep supplying such stuff without material recompense in foreseeable time, then this sort of unbalanced trade can be categorised as a win-win outcome.

Sweden might not want New Zealand’s (or anybody else’s) debt to it to be repaid; in 2026, or ever. Sweden, happy to run a trade surplus in 2025, might actually prefer to keep making annual ‘gifts’ to New Zealand (and other countries). While each of these gifts would be technically an addition to New Zealand’s debt to Sweden, New Zealand would be able to – maybe, be obliged to – delay settlement of any of that debt (let alone all of it) indefinitely.

In this example, Sweden is a ‘mercantilist’ country; mercantilist means ‘merchant capitalist’, the social science analogue of alchemy. Indeed, Sweden actually is a mercantilist country. Its preference is to accumulate ‘promises’, whereas countries like the United States and New Zealand have been accumulating (and enjoying) imported goods and services.

Mercantilists of yore sought to accumulate ‘treasure’, especially gold. Indeed, in the quarter millennium from 1500 to 1750, economic policy and foreign policy – especially but not only in European power centres – was to become rich by accumulating treasure hoards.

Mercantilism never went away, despite having been debunked by Adam Smith and others around 250 years ago (The Wealth of Nations was published in 1776). In that golden age of mercantilism, the Dutch – the Netherlanders – succeeded par excellence. (Part of their success was in exporting military hardware and software – big guns, and big military knowhow – to all sides in the Thirty Years War of 1618 to 1648. Is that what the USA will end up mimicking?) As we can see from the chart, the Dutch still do incur some of the world’s biggest export surpluses. Instead of accumulating treasure as they did in the seventeenth century – as gold and silver bullion and specie – they now accumulate ‘virtual treasure’ or ‘virtual gold’. Virtual gold is the whole set of ‘promises’ and ‘titles’ – including money and real gold – that are formally known as ‘financial assets’.

New Zealand and America, and others, get the consumable loot. Sweden and Netherlands and Germany get the paperwork. Everyone should be happy.

The dark cloud on the horizon comes when the Americas and the Aotearoas of the world start wanting to be like Germany and Sweden. Then indeed our happyish world descends into a ‘race-to-the-bottom’. Not every country can sit with Germany and its neighbours at the bottom of the above chart. This can be thought of as a see-saw chart: someone has to be at the top; we cannot all be at the bottom.

If some countries have forever-surpluses, other countries must have forever-deficits. Getting to benefit from other countries’ largesse – as New Zealand and America do – may seem like a problem to some. But we should remember that the driving force of the capitalist market system is to want – indeed, to demand – consumable goods and services. Someone has to be able to benefit from all the hard work and sacrifice of others.

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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 above chart traces the vote-share of Germany’s establishment political parties: the right-wing CDU/CSU and the now-centre-right SPD (essentially the Christian Democrats, just like National in New Zealand) and the Social Democrats (just like Labour). And it compares Germany with England to show a similar process there.

An increasingly stale political centre has consolidated power in both Germany and the United Kingdom, despite record low vote-shares for these establishment parties. In Germany, the ‘major party’ combined vote has fallen to 45% (nearly as low as that in last year’s election in France, for the Centre and the traditional Right). In the United Kingdom, the establishment (Labour, Conservative) vote has fallen to 60%; though, given a much lower turnout in the United Kingdom than Germany, 60% there represents a similar level of support to that of the equivalent parties in Germany.

With these outcomes being at-best borderline-democratic (JD Vance had a point about the shutting-out of alternative voices), neither country is scheduled to have another election until 2029. And the ‘left’ establishment parties – in office in both countries in March 2025 – are as right-wing as their centre-right predecessor governments of Merkel and Sunak.

We note that, for Germany, elections before 1991 are for West Germany only. And, for the United Kingdom, my aim has been to focus on England, where Celtic nationalist parties have not played a role; thus until 1979, the British data is for the United Kingdom, whereas from 1983 the data is for England only. We also note that Germany shows few signs of promoting the literally colourful characters who play such an important part in contemporary British politics.

The waxing and waning of the postwar German mainstream

Postwar German politics began in 1949, with its new MMP voting system; proportional voting featuring two disqualification mechanisms, a five percent party-vote threshold, and the failure to gain a local electorate using the simple-plurality (FPP) criterion. (In Germany, in the 1950s, the latter disqualification rule was tightened; three electorate seats were required, rather than one.)

The rise in the two-party vote from 1949 to 1972 represented the consolidation of the major-party system, essentially in line with the post-war German economic miracle. From 1949 to 1969, the government was CDU-led. The SPD led the government from 1969 to 1982 (though with fewer votes than the CDU/CSU). All subsequent governments have been CDU-led, except for the relatively short-lived administrations of Gerhard Schröder (c.2000) and Olaf Scholz.

The fall in establishment-party vote-share reflects the rise of the Green Party in Germany, which itself reflects the waning of the economic miracle.

The 1990s’ political stability reflects the reunification era, the political dominance of Helmut Kohl; and the fact that, due to reunification, German politics suspended its characteristic debt-phobia.

The 2000s and 2010s represents the Angela Merkel era. The 2009 result reflects the Global Financial Crisis. The 2005 vote reflects the early Eurozone period, in which investment within the European Union was diverted into the development of the southern EU countries (and to Ireland). In particular, the 2000s saw the rise of The Left Party, which was shunned by the Establishment parties; this was the beginning of the German ‘firewall’, which meant that ‘grand coalitions’ were favoured over the inclusion of ‘outsider’ parties into government. In that time, the Green Party became a centrist party; inside rather than outside ‘the tent’.

In 2014 the debt-phobic way Germany ‘resolved’ the Euro crisis was popular in Germany, though ‘austerity’ ushered in the deflationary bias that has characterised subsequent fiscal policy in the European Union. (The adverse effect of deflationary fiscal policy was the use of a zero-interest-rate monetary policy by the European Central Bank; so the adverse consequences of the austerity policies played out more slowly than they might have.)

Since the initial ‘triumph’ of austerity in 2014, we have seen a substantial and ongoing decline in the vote for the establishment parties. However, these parties managed to consolidate power despite haemorrhaging votes. The new 2025 Government will be a substantially right-wing government made up of German-National (CDU 28.5%) and German-Labour (SPD 16.4%); this represents easily the worst vote ever for the ‘left’ SPD and easily the second-worst vote ever for the ‘winning’ CDU/CSU.

And, in the United Kingdom, the vote for Labour in 2024 was easily the worst vote of any ‘winning’ party in any election since 1945 (and possible since the time of Walpole in the 1720s).

Democracy anyone?

Postscript UK

In the UK, the highest percentage vote for a political party in the postwar era was 48.8% for Clement Attlee’s Labour Party, seeking a third term in office (in a very-early election which Attlee was tricked into calling). Labour was defeated, despite its record-high poll! Winston Churchill’s Conservatives got 48.0% of the vote; but, crucially, more seats. Attlee’s government was the least stale government in the United Kingdom’s post-war history; Attlee, in the UK, had a popularity and significance comparable to that of Michael Joseph Savage in New Zealand.

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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.

Recently I have published charts showing how people born around 1960 are already placing huge burdens on New Zealand’s healthcare system (Death Frequencies in Aotearoa New Zealand, by Birth Year, 26 Sep 2024) and how big falls in age-specific death rates have plateaued since 2010, and may now be reversing upwards (Death Rates of Older Working Males in Aotearoa New Zealand, from the late 1970s, 17 Oct 2024).

Here I look at decennial increases in total deaths by ‘generation’, where each generation is a ten-year birth cohort centred on a zero year. Featured generations are the ‘lucky generation’ (b. circa. 1940), post-war baby-boomers (b. circa. 1950), generation Jones (b. circa. 1960), generation X (b. circa. 1970) and generation Y (b. circa. 1980).

In Table 1 above we see that in 2020, 109% more people born around 1970 died than in 2010. The main reason for the increase is that these ‘Gen-X’ people were ten years older in 2020 than in 2010. Secondary reasons could relate to the net-immigration between those years for that age cohort, or could relate to the underlying health attributes of generation-X.

(Note that the ‘+’ in the labels arises because, due to data limitations, the definition of the generations used varies slightly for each year. Thus, for 2021, Gen-X is 1966-1976.)

We see that all of the followed generations show marked increases in the increases of deaths as we progress from 2020 to 2022, with the younger age cohorts showing increased increases in 2023 as well. Generation-X is highlighted as having the biggest increases in each of these four years: 2020, 2021, 2023, 2024. This suggests underlying health issues in this generation, or greater increases in net immigration for Gen-X (compared to say Gen-J or Gen-Y), or both.

On the matter of Gen-X net immigration, we note that immigrants must undergo health checks, so it’s likely that the death rates of Gen-X immigrants since 2010 are lower than the death rates of Gen-X non-immigrants. So it’s looking like there are significantly problematic health issues being experienced by Gen-X Aotearoans.

Table 2 focusses on just February to May data. These are the months in which death numbers are generally lowest. Older people tend to die more in winter, and younger people in summer. These are mainly autumn data. We also note that Table 2 allows us to access 2024 mortality data.

This is more worrying for Gen-X, because the data show higher rates of death increase from 2022, with an especially problematic number – a 170% increase in deaths – for 2024. These data definitely suggest there’s an underlying health problem, especially for that generation. The problem may be in two parts: underlying health status (eg incidence of chronic illnesses), and increased inadequacy of healthcare (including inability to access life-saving drugs).

Table 3 focusses on July and August only, the two main months for deaths attributable to respiratory infectious diseases. As we would expect, the older generations come out ‘tops’ in 2020 and 2021. But in 2022, the year the pandemic hit in New Zealand, it’s Gen-X again which has copped the biggest increases in deaths from infectious causes. Further, in 2023, it’s the younger generations – Gen-Y as well as Gen-X – that are showing the greatest increases in winter deaths. (Lack of access to Covid19 boosters might be part of the problem here.)

So, while yesterday’s charts might have showed that life-expectancy improvements have bottomed out after 2010, these table suggest that very recent mortality data is showing definite signs that life expectancies are starting to fall, with Gen-X – born around 1970 – taking the lead in this new development.

From the point of view of funding the healthcare system, not only is the aging of the population not being properly accounted for, but also substantial swathes of the bulging generations (generations J and X) are seemingly less healthy. We remember that deaths are only the ‘tip’ of the disease ‘iceberg’; mortality increases indicate underlying morbidity increases, and it is morbidity that places the greatest demands on healthcare.

(Is there a ‘sound’ fiscal argument for expanded access to euthanasia in the coming decades?!)

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Data is from Statistics New Zealand, Births and deaths: Year ended June 2024.

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.

This chart shows how death rates have fallen since the 1970s, emphasising the higher male death experience. The principal finding is that dramatically falling death rates have plateaued since around 2010, especially for men aged 50 to 64. Yet the starkest fact portrayed is the much higher death rates of males than females, in each of the age groups shown.

While this chart shows the differences in death rates clearly, the arithmetic plots used have an inbuilt visual bias with respect to changes over time; they exaggerate the slowing down of the improvements in death rates and the narrowing of the gaps. The second chart uses a ‘logarithmic scale’, which corrects this bias. For this second chart it is the slopes that matter, not the gaps between the groups.

The ‘plateau-effect’ still clearly shows. What it means is that it is no longer credible to say that “we are all living longer” (as many people urging us to save more for retirement say). Essentially, since about 2010, older working-age adults were dying at the same rates in the late 2010s as in the early 2010s. For the 2020s there is a small Covid19 effect. It seems unlikely that the declining age-group death rates of the millennial period will resume.

The data used shows some other things that are not easy to chart. First, the large gap between male and female death rates is closing (but remains large). Second, males aged between 15 and 35 had disturbingly higher death rates in the late 1980s ‘Rogernomic period’ compared to the early-1980s ‘Muldoon period’. Though females aged 20-24 did have markedly rising death rates in the early 1980s. In recent years, the death rates of younger people has risen significantly, especially females; though female death rates remain significantly lower than male death rates for all age groups. The biggest improvements in death rates in the millennial period were made by younger people, and by males aged 50 to 74. Those improvements slowed or reversed after 2015.

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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.

This chart essentially shows the stresses that New Zealand’s public health system can expect to face. I have analysed the death data by age, covering all deaths from July 1998 to June 2024. For those years (using June years) I have looked at every age of death from 16 to 99 and every birth year from 1900 to 2022, and counted deaths by birth-year.

For death-age 95, the most frequent birth year was 1928. As we would expect, most deaths at these high ages occurred in 2022 or 2023, thanks to Covid19. Thus, birth years in the 1920s feature in the chart.

Birth years in the early 1930s don’t feature so much because of the low birth numbers in those years. With fewer people born in say 1933, then 1933 will not often feature as the most frequent birth year for any given age.

Birth years around 1950 do not feature. This is both because the classic baby boomer generation is a healthy generation, and also because there were not as many births in the decade after World War Two as there were in the following two decades. So, while classic baby boomers will place an increasing burden on the public health system, the biggest burdens will come from those born between 1955 and 1975. (Also, classic baby boomers have high levels of private health insurance; this will be less affordable for subsequent generations as they age.)

Birth years from 1955 to 1964 feature most strongly, mainly because births in New Zealand peaked in those years. This birth cohort will place massive pressure on New Zealand’s public health system. People dying since 1998 between age 37 and age 67 are most likely to have been born in the years either side of 1960.

The cohort born 1966 to 1974 will also place huge pressures on Te Whatu Ora (Health New Zealand), in part because there are likely to be very many new Aotearoans in this birth cohort. By and large, immigrants are healthier than the New Zealand born population, because their health is considered before New Zealand residency can be granted.

The late 1970s represents a ‘baby-bust’ generation, like the early 1930s. Hence these ‘Gen-Y’ people don’t feature in this chart. The frequencies for the late 1980s’ and early 1990s’ birth years reflect the ‘baby blip’ which began in 1987. Also, these birth years relate to death of young people, which, being less frequent, can also be a bit more random.

People born in 1939 turn 85 this year. From 1938, birth numbers generally increased each year until the early 1960s. The impact of an aging population on New Zealand’s public healthcare system is certainly beginning. This impact will escalate each year for at least the next 25 years. People born in 1961 will turn 85 in 2046.

By contrast, we have been lulled into complacency because the unusually small early-1930s’ birth cohort placed a substantially below-average pressure on public healthcare.

We note that death numbers are a proxy for the demand for high-intensity healthcare. People born after 1955 are already making considerable demands on Aotearoa New Zealand’s health care.

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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 above chart shows the votes for the principal ‘leftish’ political parties in England from 1992 to 2024. The important thing to note is that vote tallies should be rising over time in any country which has a rising population. England had had a rising population trend, yet the numbers of votes cast for the established centre-left parties have been on a falling trend.

For Labour the situation is worse than it looks. In 1992 Labour was comfortably defeated by Conservative. Yet Labour got a million more votes in 1992 than it did in 2024.

We may blame ‘apathy’ for this situation. Many more people are not voting at all. But apparent apathy is usually a symptom of something else. Ideally, when we vote we are voting for some ideal or somebody. More people vote when they perceive at least one of the options in a positive light. There is another situation which can lead to a high propensity to vote; namely if the existing government is perceived as being so bad that people will vote for whoever they must vote for in order to dismiss the government. This was the situation in England in 2024; yet even that urgency failed to galvanise voters. The total number of votes cast in England was the lowest since 2005, when Labour ‘won’ with 35% of the vote. (In 2024 Labour got 34% of the vote.)

In 2024, the total votes cast for Labour in England fell by nearly a million, after the 2019 election which was disastrous for Labour. Yet the number of seats Labour gained nearly doubled. Clearly this last distortion is a result of the ‘plurality’ voting system used in elections to the Westminster Parliament. But there’s something more important going on. The centre-left is losing favour.

The vote for the Liberal Democrats also fell in 2024, despite that party gaining a huge increase in the number of seats won. Their decline in votes is the result of what is commonly known as tactical voting; in this case it appears that about a million people who would have voted LibDem in an MMP election chose to lend their votes to Labour. (Probably more LibDem supporters than this lent their votes to Labour, because it is also clear that, where the LibDem candidate was better placed to beat the Conservative candidate, many otherwise Labour voters lent their votes to LibDem candidates.

It was this ‘efficient’ and rational vote-lending behaviour that enabled the centre-left to win so many seats. So, while, for once, ‘progressive’ voters were clever this time, the bigger story is the decline of popular support for the centre-left political agenda.

Another feature of the 2024 election is the Palestine-Gaza factor. In many traditionally Labour seats, there were ‘independent’ pro-Palestine candidates who cannibalised the Labour vote; indeed a few of these candidates won their seats.

The other important feature is the rise of the Green Party as a left-wing party winning pro-Palestine votes; especially votes of non-Muslims who are disturbed by what is currently happening in the Levant. For this see the two tables below. The Green Party may have gained ‘critical mass’, being poised to be the new left presence in British politics.

England General Election Results
Votes
	Total	Labour	Conservative	LibDem	Green	other
1992	28,148,506	9,551,910	12,796,772	5,398,293		401,531
1997	26,058,712	11,372,329	8,780,881	4,677,565	60,013	1,167,924
2001	21,870,762	9,056,824	7,705,870	4,246,853	158,173	703,042
2005	22,713,855	8,043,461	8,116,005	5,201,286	251,051	1,102,052
2010	25,085,097	7,042,398	9,931,029	6,076,189	258,954	1,776,527
2015	25,571,204	8,087,684	10,517,878	2,098,404	1,073,242	3,793,996
2017	27,165,789	11,390,099	12,379,200	2,121,810	506,969	767,711
2019	26,909,668	9,152,034	12,710,845	3,340,835	819,751	886,203
2024	24,288,122	8,365,122	6,279,411	3,199,060	1,780,226	4,664,303

England General Election Results
Seats
	Total	Labour	Conservative	LibDem	Green	other
1992	524	195	319	10
1997	529	329	165	34		1
2001	529	323	165	40		1
2005	529	286	194	47		2
2010	533	191	298	43	1
2015	533	206	319	6	1	1
2017	533	227	297	8	1
2019	533	180	345	7	1
2024	543	348	116	65	4	10

Watching that election on UK Sky TV (live on You Tube), one commentator repeatedly mentioned the “efficiency” of Labour, meaning that Labour won many seats on small margins. This so-called efficiency will make Labour very vulnerable in the next election, which, luckily for them, may not be until 2029.

Unless Labour performs exceptionally well, the votes lent to Labour will return to their LibDem homes.

What about the votes Labour lost to Independents and Greens in safe Labour seats? And the votes, Labour lent to winning (and near-winning) LibDem candidates. They are most likely to stay with the Liberal Democrats who will need these votes to fend off Conservative candidates.

The Tories

What of the ‘Tory’ Conservatives? They clearly got trounced; their vote count fell by more than 50% in the 2024 election. They may or may not get votes from people who voted Reform, the biggest of the ‘other’ parties in 2024. A useful strategy for them could be to cultivate the large conservative Muslim vote. A significantly higher proportion of voters in England are now Muslims; that proportion will only grow as Muslim households continue to have more children than the national average. And, Islam is a very conservative religion.

There is a natural fit here, going forward. Former Chancellor of the Exchequer Nadhim Zahawi was born in Iraq and is “thought to be a Muslim”. Likewise, another former Conservative Chancellor, Sajid Javid – born to Pakistani parents – “still identifies as being a Muslim”. If the Tories wish to be relevant in England’s future, they will need to adopt a wider political vision that is attractive to non-radical Muslims as well as to conservative people of other faiths. Otherwise, the future of the Right in England may fall to the new Reform Party; such a change has already happened in France.

So, I am predicting that – in 2029, or before – the LibDems may come through the middle, just as Emmanuel Macron’s party did in France in 2017, leaving both Labour and Conservative to play the role of small ‘legacy parties’. Labour’s ‘landslide’ is likely to accelerate, but in the wrong way; indeed, a landslide is actually a disaster.

Note

In this chart and text, I have looked at England only, which is the core of the United Kingdom, but not its entirety. This is because, especially in Scotland and Northern Ireland, other parties play significant roles. In Scotland in 2024, the big story was the crash of the Scottish National Party (SNP). Labour was a beneficiary of that crash. But it is likely that votes lent to Labour by regular SNP voters will not stay with Labour.

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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 above chart shows CPI inflation in New Zealand in historical context. The chart shows (in orange) the present policy target band of one to three percent annual inflation. And it shows the ‘home-ownership’ component of the CPI.

The chart looks different to most charts of CPI inflation, because it uses seasonally-adjusted price comparisons over a six-month period, rather than over a 12-month period. These biannual price increases are then ‘annualised’, so that the numbers are scaled to the annual percentages we are familiar with.

The making of this chart was triggered by me reading a NZ Listener editorial ‘House of the rising sum’, from 28 November 2020. The context is that some economists were arguing, even then, that the Reserve Bank should have started raising interest rates in the latter part of 2020.

The Reserve Bank has mandates to manipulate interest rates and monetary quanta in order to keep CPI inflation within the orange band. (The Bank is also mandated to protect the integrity of the financial system, and this overriding provision was in play in 2020, as it was in 2008/09.)

The mantra goes that if the calculated CPI inflation rate is below the orange band then the Bank should cut interest rates, and that if above the orange band then the Bank should raise interest rates. (The mantra is basically a policy-vestige of the gold standard era – 1870s to 1914, 1926-1931 – which was revived in the monetarist 1980s and applied to a world with flexible exchange rates.)

The chart shows that, based on the inflation-interest mantra, late in 2020 (at the time of the Listenereditorial; see the first blue dot in the chart) that interest rates should not have been raised (and should perhaps have been cut, from 0.25% to 0% or 0.1%). There is certainly no mandate in favour of pursuing an anti-inflation policy at that time.

The chart also shows that CPI inflation in 2024 is within the orange band. (Refer to the second blue dot.) This means the Bank should be in an interest-rate cutting phase. Yet the bank hasn’t yet done a single cut. This failure to act in accordance with its mandate should be the subject of a major political conversation today.

Looking more broadly, we see that CPI inflation is typically ‘spikey’ in nature; quick to rise and quick to fall. Some of the biggest spikes are associated with the introduction of GST (Goods and Services Tax) in 1986/87 and the two occasions in which the GST rate was increased (1989, 2010).

The spikey nature of CPI inflation gives lie to the new-monetarist notion that inflation is driven mainly by expectations of inflation. If that was true, unacceptably high inflation rates would plateau until those expectations were bludgeoned out of our psyches. (Yes, even the textbooks say that sound disinflationary monetary policy requires “credible” interventions, meaning that the bludgeon has to be seen to be being used, and that it will continue to be used until our alleged-beliefs conform with our required-beliefs. It’s like a credible torture policy, common in autocratic societies.)

The only times there were something close to inflationary plateaux in New Zealand were in the 1970s and the Korean War period of the early 1950s. The more recent plateau was essentially over in 1984, with two subsequent spikes being principally due to the short-lived devaluation of 1984, and the introduction of GST in 1986.

The introduction of the Reserve Bank Act, which formalised the present practice of monetary policy, took place well after the end of the 1970s’ inflation plateau. It was a policy to address a problem that did not exist then; though some will argue that the plateau of inflation did not end until after 1986. (The argument is that inflation would have been high in 1986 even if GST had not been introduced. I don’t think the data supports that interpretation; the 1986/87 spike looks to me like a classic tax spike.)

Two more points to note. The deflationary plateau of the early 1930s is the Great Depression. Deflation is a much bigger problem than inflation, and policy-making in 2020 appropriately had that message in mind.

The second point is that the purple line shows the urban real-estate price booms since 1984. In the 1980s and 1990s we see house price inflation spikes coinciding with general CPI spikes, although 1986/87 was also a tax-spike. In the 2000s we see (after the initial spike) a house price boom coinciding with a period of tight monetary policy – rising Bank-set interest rates and rising CPI inflation.

In the 2010s we see a similar house price boom coinciding with a period of unusually low interest rates. This tells us that neither high nor low interest rates are the dominant driver of real-estate inflation; something else is going on. The suggestion in the later 2010s was that the something-else was immigration. Yet immigration certainly was not the cause of the 2021 house-price spike. Mass immigration came after that spike.

The most recent house-price-spike most likely does have something to do with easy monetary policy lasting for nearly a year after the first blue dot. But it didn’t have to be that way. The Bank created extra money, contingency money; the course the pandemic was taking was highly uncertain. Newly created money was parked in the commercial banks instead of in the government’s coffers. Because the government was unwilling to borrow that money – even when the interest rates were near to zero – the money ended up sitting on the balance sheets of the commercial banks. The banks naturally found that the most profitable outlet was to push that money through the commercial banks into the housing market; increased business lending was neither possible nor appropriate at that time of great global uncertainty. Asking commercial banks to park money is like asking a fox to guard chickens.

CPI inflation spikes are a fact of normal economic life. Global events create price shocks. Normally the market-economy resolves these shocks quite quickly; and that’s what most of us expect to happen despite a few academic and bank economists telling us we have inflationary expectations whenever prices spike.

Autocratic monetary policy – a policy mantra through which central authorities override normal market-based resolutions – undermines normal market responses, and raises inflation expectations while claiming to be lowering them. High interest policies act as a tax on producers – precarious workers and precarious businesses – for the benefit of the top wealth decile, the ten-percenters. Far too much of our political conversation has been dominated by ten-percenters and their ‘west-wing’ world views; these are the people who refuse to contemplate that the interest rate inflation mantra might be flawed policy.

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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.