A minute after my radio-alarm went off this morning, I was ‘privileged’ to hear this deeply scary interview with the Deputy Prime Minister: Deputy PM Seymour on NZ, Iran and fuel relief, RNZ 24 March 2026. For most of the interview David Seymour outlines why Ruthanasia politics is essential for New Zealand, even as a global existential crisis may be unfolding. While he didn’t use the word ‘Ruthanasia’, he may as well have.

(Ruthenasia was supposed to have been a policy to deliver relatively ‘more money’ to younger New Zealanders; that is, such policies of fiscal austerity are commonly conducted in the name of intergenerational equity, though that notion – as represented by the ‘financial literacy’ community – is a logical fallacy of the first order. Money, a set of claims on wealth, a social technology, is regarded by austerians such as Ruth Richardson and David Seymour as a form of intrinsic wealth. Seymour claimed that “the previous government maxed out the credit card”; New Zealand is about 105th out of 190 countries for government debt. Turkmenistan, Brunei and Kuwait are the top performers by Seymour’s criterion (with Afghanistan, Haiti and Russia also in the top 10); Sudan and Japan are the worst. According to Trading Economics, New Zealand now has a projected 47% government debt to GDP ratio, up from 39% in 2023. Truth is becoming an increasingly scarce commodity.)

NATO and the Greater Evil

The real problem though, contained in this interview, is in the presenter’s introduction, and also in the quasi-acceptance of the alarming content of that introduction.

In the recording, Nato Secretary General Mark Rutte claims that New Zealand has signed up to a 22-country Nato-led initiative “to implement his vision [referring to the President of the United States] of making sure the Strait of Hormuz is free, is opening up as soon as possible”.

First, we should note that the Strait of Hormuz is presently open to all neutral countries; it is not open to those countries waging a war of aggression on Iran (a country along with Oman which has, by virtue of geography, sovereignty over that narrow Strait). (Much as Egypt has sovereignty over the Suez Canal.) Although there is some ambiguity regarding countries (such as New Zealand) which condemn Iran but choose to not-condemn Israel or the USA.

What New Zealand should do, if it really wants trade access to the Persian Gulf, is to condemn – equally – all the belligerents in this war. Beyond that, the paucity of ships passing through the Strait is an insurance matter; a matter that can be most easily resolved by the aggressors stopping the present war rather than (literally and figuratively) inflaming it. Does New Zealand want to be safe, and to have safe access to the Gulf States, or does it want to be egregiously stupid?

Regional Wars too easily become World Wars

At present there are two ‘regional’ wars of global significance in ‘play’. We note that in World War Two there was something similar. In November 1941 there was an all-out European war in which Germany was fighting the Soviet Union on one front and fighting the United Kingdom on the other. And there was a war in the western Pacific in which Japan was fighting China and Indo-China; kind of a world war in that most of Indo-China was ‘colonies’ of the European powers France, Netherlands, and the United Kingdom.

Then, in December 1941, Japan attacked the United States’ fleet in Hawaii (noting that Hawaii was not a part of the United States then). Three days later, Japan sank two British battleships – Prince of Wales, and Repulse – in the South China Sea, effectively declaring war on the United Kingdom. And then, another day later, German Chancellor Adolf Hitler declared war on the United States – his biggest strategic mistake. Two regional geopolitical wars had become a world war.

Goliath 2.0; a modern-day unsophisticate and anti-intellectual, and his band of orcs

In 2026, the two wars are between Nato and Russia, with most of the action taking place in the territory of the Nato proxy-state, Ukraine. The second war is between Israel and Iran, with Israel being helped out by its much larger proxy with its Goliath president. Much of the violence is taking place in other countries; countries either sandwiched between Israel and Iran or coveted by Israel as part of its Greater Israel project.

What is now connecting these two wars – both being fought in parts of central Eurasia – the war in Europe and the war in the ‘Middle East’? First is that Ukraine became involved, earlier this year, as a military ally of Israel. Second is that Nato, one of the combatants in the Ukraine War, is now trying to join in the Middle East War as a formal ally of Israel and its subservient Goliath. And little New Zealand is showing all the signs that it is trying to become a formal ally of Nato, a willing participant of both regional wars; awestruck by Goliath and his band of merry orcs.

When two globally significant regional wars combine today to become a single war, we have World War Three. Why, on Earth, would New Zealand want to be a part of that? Why would we want to be a party to both ecocide and economic suicide? And why would we want to become a target in a nuclear war? Is that egregiously stupid?

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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 New Zealand Government’s response to Israel-US attacks on Iran has revealed a chasm. On one side are those who argue; that New Zealand must stay aligned with its 20th century allies right or wrong.

On the other side are those who insist; that the long fought for reputation, of a nation that stood for an international order based on law, justice and multilateralism, should be the guiding principles in good times and bad.

New Zealand has inched toward such societal rifts before; the Springbok Rugby tour of New Zealand in 1981; shortly followed by a generational shift and geo-political quake that came in the form of New Zealand’s anti-nuclear movement and subsequent enduring legislation. The United Nations security council endorsed response in Afghanistan to attacks on the United States shook the foundations of the Labour-Alliance coalition Government in 2001-02. And the fraudulently justified US-led invasion of Iraq triggered hundreds of thousands of New Zealanders to protest in the streets. (The Helen Clark Labour-led Government of the time refused to officially be included among the US-led coalition forces that invaded Iraq.)

In recent times, old loyalties and biases have been challenged with the genocidal disproportional response by Israel against Hamas and generally Palestinian woman, children, and the elderly whose only offence was to exist in the path of the military machine.

And now, the US Donald Trump Administration’s alliance with Israel has unilaterally justified its attacks on Iran – the murder of its supreme leader and the assassination of over 40 individuals in its operational chain of command – as a legal pre-emptive response to a perceived first-strike-plan by Iran. This, while negotiations were underway to address regional security concerns.

This is the backdrop to New Zealand Government’s response where Prime Minister Christopher Luxon and Foreign Minister Winston Peters wrote on Sunday March 1:

“In this context, we acknowledge that the actions taken overnight by the US and Israel were designed to prevent Iran from continuing to threaten international peace and security.

“We condemn in the strongest terms Iran’s indiscriminate retaliatory attacks on Qatar, the United Arab Emirates, Saudi Arabia, Kuwait, Bahrain, and Jordan. We cannot risk further regional escalation, and civilian life must be protected.” (Ref. https://www.beehive.govt.nz/release/nz-government-statement-iran )

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LISTEN: To Radio New Zealand’s The Panel, where host Wallace Chapman is joined by panellists Sue Bradford and Phil O’Reilly. First up, is an extended conversation on the US and Israel attack on Iran. Columnist and Iranian New Zealander, Donna Miles-Mojab, delivers her take on the conflict and what it means for the regime. Then, I (Selwyn Manning) give an analysis on New Zealand’s stance and the legality of the attack.

It’s well worth a listen, as the fault line of New Zealand debate is clear.

*******

For those who are prepared to abandon the process of law and justice on international affairs, the New Zealand Government’s statement offered clarity; that their government would stand at the side of traditional security ‘friends’ as they commit to fight against another ‘evil’ empire.

For others, the statement was another example of mediocrity from a coalition that lacks a morality within its own argument – an apparent abandonment of principles such as international law and multilateralism – frameworks that have served small significant nations like New Zealand well.

The argument follows; that New Zealand’s coalition government has jeopardised the national interest, the hard won identity respected by those nations that still hold true to multilateralism and principle.

Here’s a please explain moment:

New Zealand is a small nation, but it is a significant actor in international affairs. Once, it could be relied upon – especially on matters of principle – to articulate a strong position on breaches of international law and justice. We have held positions at the United Nations security council, have been a driven advocate among general assembly nations and a persuasive arbiter among multilateral groups such as CANZ (Canada, Australia, New Zealand) that tag-team diplomacy at the United Nations and elsewhere.

New Zealand was once a staunch advocate (and remains a member state) of the International Criminal Court. And, in matters of trade, New Zealand sought to develop common ground rather than difference – tools that have been beneficial to others in times past when conflict has raged and red-mist would otherwise have dominated attempts at a diplomatic solution.

Today’s New Zealand is a myriad of conflicting arguments; its current coalition government argues that Iran’s regime is evil so therefore the powerful must bomb it to peace.

But the fact that the Iran regime is not a paragon of virtue – either domestically or regionally – does not diminish the fact that the United States’ and Israel’s governments decided to attack – decisions that allegedly and arguably breach international law.

International law: In a rudimentary sense; it comes down to whether Israel in the first instance was legally obliged to commit a preemptive strike on Iran, murdering its supreme leader and taking out over 40 of those who were in its chain of command.

Was there an imminent threat to Israel? At this juncture, it appears not.

Were diplomatic efforts underway to address regional security concerns, through US diplomatic efforts? Yes… up until Thursday February 26.

When Opposition Is Beyond Political

Back to New Zealand: New Zealand’s Prime Minister Christopher Luxon, on matters of geopolitics and global security, often appears to operate more like a CEO rather than the chair of a nation’s cabinet.

Widespread reports of the Prime Minister’s lack of coherency on this matter is reasonably consistent with a manager waiting to be guided by a governor, or board chair by way of policy, on the required pathway ahead.

The problem for Christopher Luxon is; he has no such external nor internal guidance. In geopolitics and matters of global security, policy alone does not help. Natural leadership qualities do.

Throughout his prime ministership, Luxon has displayed a tendency to outsource foreign affairs leadership responsibilities to his junior coalition partner, New Zealand First leader Winston Peters. Or, when that doesn’t work, he leans toward Australia and/or the United States to provide direction on big picture issues.

But for many New Zealanders, New Zealand can’t have it both ways; either it (the coalition government) sides with the ‘might-is-right’ Trump-led approach to chaotic global affairs, or it sides with the multitude of countries that still hold on to principles of justice and international law.

Where will New Zealand as a society tilt? It will likely be up to New Zealand voters, later in 2026, to finally decide which way this country tracks over the next few years.

US President Trump’s vanity and sense of global imperialism has become more expansive and performative this year.

These are times when countries like New Zealand, lacking persuasive moral leadership, can easily lose their souls, and, in the process of being risk averse, risk abandoning their own sovereignty, national interest, and identity.

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We keep hearing that Iran is an “evil” regime run by “clerics”. This conflation of an unscientific and emotive concept (‘evil’) with a cultural occupation (‘cleric’) is made in the context of picking on an ethnic or religious group of people as inferior. In this context, ‘cleric’ applies to Shia Islam, a major denomination of one of the world’s major religions. In the context of white supremacism, that word ‘cleric’ – as applied to Shia Islam – could have been ‘negro’.

Iran has been attacked by forces representing Judeo-Christian techno-supremacy; western super-elites who worship at the altar of military and surveillance technology. And the mainstream media within the imperium parrot the talking points of these supremacists; supremacists, seeking a unipolar world order (aka global hegemony) masquerading as capitalist democracy and riding on the coat-tails of progressive liberalism.

The West is as much a theocracy as is the Iranian regime. Only bigger, and vastly more lethal; and prone to excesses of cowardly asymmetric violence. (In the present event, one of the first groups of fatal victims were over 100 schoolgirls in southern Iran; most western media outlets have not even reported this.) As well as being a zero-out-of-ten on the scale of political ethics, the attack on Iran was illegal in both United States and international law. Once again, Congress was bypassed.

Further, we note that Israel is the world’s most secretive nuclear power; without even the semblance of a nuclear energy program that might act as cover for this. Why do we never hear about Israel’s nuclear hammer-in-waiting?

At the head of the attacking forces is an American President playing the role of the useful fool; himself being simultaneously played by, on the one side, the manifestly-evil regime of Benjamin Netanyau, and the forces of the Dark Enlightenment among which Peter Thiel of Palantir – a New Zealand citizen – is prominent.

Secret City, and President Eisenhower’s Farewell Address

Yesterday I watched the final two episodes of Season Two of Secret City, an Australian political thriller. [Secret City finishes on Netflix tomorrow!]

The story, filmed in Canberra and Adelaide in 2018, was about an innocent Australian family killed from the sky by a deliberately misdirected drone attack; an attack like many similar executions of civilians living in northwest Pakistan, as part of a highly secret US/Australian ‘security’ program. A central point of Secret City was to highlight the asymmetry of western sentiment, whereby the deaths of four white Australians elicit 100 times more outrage than 400 similar deaths in or near Pakistan. In the story, the fictitious American company, Trebuchet, served as an equivalent to Palantir. (We note that last month’s mosque bombing in Islamabad was barely reported in the New Zealand media; deeply ironic given the Christchurch attacks on 15 March 2019.)

The end of the last episode of Secret City replayed extracts from President Eisenhower’s Farewell Address, televised in the United States on 17 January 1961.

Note these excerpts from Eisenhower’s address:

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.”

And: “The prospect of domination of the nation’s scholars by Federal employment, project allocation, and the power of money is ever present and is gravely to be regarded. Yet in holding scientific discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.”

Much can be said about President Eisenhower’s tenure in office. I will note just this. It was Eisenhower who was able to settle a cease-fire of the Korean War in 1953, after the more-than-two years of extremely bloody stalemate – most of the blood was shed in North Korea – which endured under the previous Truman administration. Technically, that war has not finished. But the cease-fire has held since 1953, for as long as my life, and for longer than the long reign of Queen Elizabeth II.

Is Judeo-Christian techno-supremacy an imperial theocracy?

We note that the ‘First Reich’ – labelled well after its existence – was notionally an imperial theocracy; the Holy Roman Empire (800-1806). But, once created, it was not expansionist, rather it was a kind of Roman Catholic caliphate. Philosopher Voltaire claimed that it was neither ‘holy’, ‘Roman’, nor an ‘Empire’; it was essentially a German-led ‘commonwealth’ which made titular reference to the Church in Rome. It is arguable that the European Union is a Fourth Reich which references the First Reich.

The expansionist forces out of Europe, which have made the modern world – the world of the last 500 years – came from elsewhere: Lisbon, Madrid, Paris, Amsterdam, London, Washington. Until the 1990s, those European-sourced forces of dominance were increasingly secular. Whether or not Judeo-Christian techno-supremacy represents a development of these religious traditions, there can be little doubt that world dominance and appeasement is a process of empire-building.

Especially in Washington circles, there was an air of triumphalism around 1990. This was the unipolar moment. Helping to maintain the new unipolar moment, a man called Jeffrey Epstein – an alleged Israeli asset – became a conduit between the Israeli and American administrations in the 1990s. That’s where and when I see the origins of twenty-first century entitled Judeo-Christian techno-supremacy. (On Epstein and Israel, see Starmer, Mandelson & Mossad – it’s worse than you think,Double Down News, Feb 2026; and The anatomy of the Epstein network The Listening Post, Al Jazeera, 9 Feb 2026.)

The greatest ever threat to humanity and the rest of the planetary biosphere

As noted, just about everyone in elite western politics and journalism is now, without analysis or knowledge, asserting that Iran is ‘evil’. Maybe. Though this is little more than believer rhetoric; the rhetoric of religious fundamentalists, the rhetoric of inflammation rather than resolution.

If this ‘evil’ moniker is accurate in some objective sense, then Iran – in the present conflict – is the ‘lesser evil’. The greater evil is clearly the philosophy and aggression of the Judeo-Christian techno-supremacists. Further, the appeasement of this greater evil is itself a most unsavoury thing to behold; almost as bad as the greater evil itself.

(On that appeasement, in a news report on Al Jazeera on Sunday [NZ time], Berlin correspondent Dominic Kane noted – with a straight face – that the governments of Britain, France and Germany all condemned “Iran’s retaliation”; and that Spain, in addition, condemned the American and Israeli aggression. Only Spain had the guts to demur from appeasement. One of the most important forms of  media appeasement is the omission of vital information from reports. According to those chairing the ‘Peace talks’ in Geneva, Iran was just about to present an accommodation which came very close to meeting President Trump’s stated demands, and that the aggressors were aware of this. These ‘negotiations’ were not conducted in good faith.)

The nihilistic logical endpoint of Judeo-Christian techno-supremacy is apocalypse. Indeed many of the ‘Christians’ in the Americanised conflation of Israel and Christianity are fully cognisant of, even excited by, the prophecies of the last book of the Christian Bible – the Book of Revelation.

Nuclear apocalypse – if or when it happens – will not only destroy humanity. Earth stands to become like Mars or Venus, if humanity ends in this way. In today’s circumstances, would it be acceptable to allow Israel or the United States to acquire nuclear weapons; we accept their weapons because they are already there, and because too many of us prefer hypocrisy over moral consistency.

But the Dark Enlightenment is still a developing supremacist project, embedded into Judeo-Christian techno-supremacy. Resistance to it and its premises need not be entirely futile. Worse things happen when good people look away.

PS

New Zealand is scheduled to play Iran in the Football World Cup. How will the politics of Iran’s presence in the World Cup play out, especially given that, in last weekend’s events, Iran was the aggresse, not the aggressor?

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

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

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

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

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

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

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

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

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

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

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

Democracy or empire?

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

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

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

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

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

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

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

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

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

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

A Very Basic Universal Income (VBUI)

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

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

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

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

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

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

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

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

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

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

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

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

A Teenage Basic Universal Income (TBUI) for adolescents

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

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

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

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

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

Finally

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

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

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

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

Note on the Politics of Achievement

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

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

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

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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 RNZ news bulletin of 10pm on 18 February stated: “New Zealand and Australia are outliers in having three-year parliamentary terms, with four or five year terms far more common … politicians have over the years expressed frustration at how much can be achieved in a three-year cycle.”

This is a common but not really valid belief. This year the world’s second largest democracy – United States of America – is holding its election for its House of Representatives. That country has – and has had – a stable two-year term. For some reason it is never mentioned in these discussions.

Below is a table showing average term lengths for comparator countries. We note that in countries with flexible electoral terms, which is all of these except United States, it is commonly only the more unpopular governments which go full-term.

We note in particular that elections in the United Kingdom have been on average 3.7 years apart, despite that country having a five-year term limit. And that that country presently has a governing party for which popular support, as consistently measured by opinion polls, has so far registered below 20% for much of the so far short life of its rule. The fact that the likely date for the next election is more than three years away is a major source of political instability there.

Most importantly, in the table above, New Zealand is not an outlier.

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

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

The narratives on the classical right and the fuzzy right

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

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

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

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

Dramatis personae

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

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

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

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

Aggregate spending as a driver of economic growth

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The fuzzy Willis fudge

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

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

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

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

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

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

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

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

The Debate?

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

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

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

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

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

Labour Party Policies

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

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

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

The Mansion

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

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

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

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

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

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

Relationship between the Commons and the Casino

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

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

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

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

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

Circular Flow

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

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

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

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

Goods’ types

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

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

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

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

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

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

When outflows into the casino exceed injections into the commons

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

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

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

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

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

Capital gains, and Labour policies.

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

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

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

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

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

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

Replenishing the Commons

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

Super-Inflation

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

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

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

Sovereign Wealth Funds

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

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

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

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

Magic Money Trees?

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

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

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

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

Intergenerational Equity

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

The Global Arms Race

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

Conclusion

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

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

Earlier this week, in The Truth about Prices in New Zealand, (on Evening Report, and on Scoop), I showed how the Consumers Price Index (CPI) is a lagging measure of inflation, and that the Producers Price Index (and the use of six-monthly rather than annual data) gives more timely information about turning points in inflation.

In this chart I look at the two published components of the CPI: inflation in the “tradable” and “non-tradable” sectors. And, because the CPI is a lagging measure, I have used the best presentation for historical reflection rather than for timely headlines. (This measure is annual, and it compares whole 12-month periods with each previous whole 12-month period. The latest data point in the chart matches to 31 March 2025, which is at the centre of the year-ending 30 September 2025.)

Consumer prices are retail prices, whereas producer prices are wholesale prices. Tradable CPI inflation mainly represents the retail prices of traded goods; goods New Zealand mainly exports and goods New Zealand mainly imports. Much of their pricing includes the markups of domestic retail outlets, domestic transport, and domestic customisation and packaging of imported manufactures and foodstuffs.

The non-tradable sector is mainly domestic services, utilities, and construction. Sellers of these services and goods do not compete with foreign suppliers.

In addition, the chart shows the monetary policy setting of the Official Cash [Interest] Rate; set by the Reserve Bank.

Interpretation

In the 2000s the OCR was set at what was then understood as normal levels, in the order of six percent. The received narrative of the time was that interest rates should be significantly above inflation rates. The achievement of such high real interest rates, then (and globally, not just in New Zealand), was probably the main single cause of the subsequent Global Financial Crisis in 2008. It created an environment in which money was transmitted en masse from borrowers to savers, and the ‘investor-class’ enjoyed ever-increasing demand for financial assets which would supercharge their ‘paper’ returns. In those years there was nothing like the degree of debt-phobia that exists today; leverage was the name of the game.

Despite the dubious anti-inflationary narrative which justified these high interest rate settings, high interest rates did not force countries’ domestic inflation rates towards the target rate of two percent. Due to globalised competition, the wholesale price inflation of traded goods remained low; even negative at times. In addition, for individual countries such as New Zealand, exchange rate appreciation also served to keep ‘tradable inflation’ very low. Indeed it was those high interest rates which facilitated the currency appreciations of ‘commodity currencies’ such as the New Zealand dollar.

Nevertheless, by the late 2000s, high ‘wealth effects’ – including (indeed especially) among indebted home owners – saw world commodity prices soar, leading to high inflation in the tradable sector despite commodity currency appreciations.

The Global Financial Crisis of 2008 and 2009 saw the collapse of a number of financial asset prices worldwide. Central banks cut interest rates dramatically, to revive a failing and flailing world economy. New Zealand’s annual inflation fell to below two percent. And it stayed below two percent for more than a decade. While non-tradable inflation sat between two and three percent, tradable inflation brought the overall CPI to one percent and even less (especially in 2015, ten years ago). (Note that the 2011 inflation ‘spike’ in New Zealand was due to the increase in the rate of Goods and Services Tax; GST.)

Interest rates in New Zealand were slashed to one percent in 2019, in the belief that that change would induce an upwards movement in the rate of inflation; and in the full knowledge that – if such monetary policy changes were to be effective – there would be a time lag of at least one year between the policy and the outcome.

Inflation did increase in 2021, though it would be foolish to attribute much of that to reductions in the OCR. Reductions on the OCR from 2015 had had minimal if any impact on inflation. And we know that 2021 and 2022 were very trying times indeed in the world’s supply chains, with pandemic and war. The supply chains quickly adjusted however.

Tradable inflation – even for a lagging measure such as the CPI – clearly turned downwards in 2022. And was plummeting in 2023. The steep rise in interest rates in 2022 could not have been the cause of the substantial tradable disinflation in retail prices; a falling inflation which began about the same time as the monetary policy squeeze.

Those increases in the Official Cash Rate almost certainly had an impact on non-tradable inflation, however. But not in a good way! Just as OCR settings between five and six percent in the early 2000s seem to have held non-tradable inflation at high above-target levels, so also do they seem to have held non-tradable prices in New Zealand in 2024 (and, based on recent quarterly data, continuing to have such an impact in 2025) at distress-inducing above-target levels.

The cost-of-living crisis since the National-led government took office is both the direct effect of the counterproductively high interest rates, and the laggard high non-tradables CPI-inflation which has extended well into 2025.

The real agenda for high interest rates would appear to be to recreate the early 2000s’ financial environment, whereby interest rates were well above inflation, and the elites of New Zealand and elsewhere were embarking on their ultimately destructive journey of inflating paper-wealth.

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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.

Luxon claimed the issue was ‘complex’ and New Zealanders should not expect a decision until well after his foreign minister Winston Peters has spoken on the matter at the United Nations in New York.

Advocacy group, Palestinian Solidarity Network Aotearoa (PSNA), immediately issued a statement headlined: Genocide is not ‘complex’, it’s a ‘cowards’ way out’.

It the statement, PSNA co-spokesperson John Minto said the ‘complexity’ excuse for cabinet inaction on Palestine this morning is “a cowards’ way out for the government to avoid even the most tepid policy to oppose Israeli genocide in Gaza”.

John Minto, said the New Zealand Government recognised Palestine at the United Nations in 1947.

“It’s taken nearly 80 years to work out ways to make that real and it still can’t do it.

“(Winston) Peters needed very clear and strong instructions to take to the UN, where he could have joined the calls for the growing list of sanctions to be imposed on Israel,” John Minto said.

He added: “In just over two days last week, Israel demolished fifty of the tallest residential tower blocks in Gaza City.  That’s a rate of destruction of more than one every hour and thousands more people made homeless.

“There’s nothing about defending borders, or implementing a strategy of getting hostages released in all of this barbarous onslaught by Israel.  It’s self-declared ethnic cleansing.”

Minto said the Prime Minister, Christopher Luxon, must face up to Israel’s blatant violations of international laws and conventions.

“At the same time, Israel has tried to kill the Hamas negotiations team by bombing them in Qatar.  New Zealand has declared that the issues can only be resolved through negotiations, but has said not one word of complaint that Israel is murdering the negotiators.”

He said there is a “yawning gap” between the government’s policy towards Russia and that towards Israel.

“Winston Peters has just implemented its thirty-second sanction measure against Russia. That does not seem to be complex,” John Minto said.

Public policy in New Zealand is paralysed by an unwavering mis-framing of the current economic stagnation. A key part of the problem is the popular attachment to the phrase ‘cost of living crisis’ as a catch-all for contemporary economic malaise.

The first task towards clear thinking is to disentangle ‘cost of living’ from ‘inflation’. To do that it helps to separate the words ‘price’ and ‘cost’. We should get out of the habit of saying ‘cost’ when we mean ‘price’. A commonplace expression of the crisis is that ‘prices are too high’, though that is often translated in the minds of professionals – economists, journalists, politicians – as ‘inflation is too high’. Inflation is the rate of change of certain prices, not the prices themselves. We note that the CPI – the consumers’ price index – is a direct measure of average prices; and is thus the measure from which inflation is usually calculated.

Rising (rather than high) real costs of production are important contributors to price increases. Real contributions to high consumer prices may include ‘profiteering’ by retail or wholesale firms with the market power to set high margins; ie high price markups. Although this situation begs the question as to why firms with such power would wait for a crisis to exploit their power. Such firms – such as supermarkets or banks or power companies – may or may not contribute to high costs, but are unlikely to be contributing to high inflation. By and large, these industries are being used as scapegoats; distractions from the real problems.

We note that the word ‘real’ serves critically as a contrast to the word ‘nominal’. A real crisis (or real crises) can easily set off a monetary inflation that’s presented as the main crisis. Indeed, that’s what has happened in the world economy in the 2020s so far. The real cost-crises (the disruptions to the global supply chains in, especially, 2021 and 2022) were the primary events, and the subsequent inflation – by definition a nominal (ie non-real) event – has been a secondary event. By ‘nominal’, economists agree that inflation happens, but that it’s simply a fall in the price – that is, the purchasing power – of a dollar. Inflation is deemed to be a problem, because people with money in the bank – or under the bed – wish their dollars to be able to buy as much tomorrow as they will buy today.

The quite simple story of price increases has however been complicated and perpetuated by poor narration and poor policymaking, by both central banks (such as the Reserve Bank) and by governments (such as New Zealand’s from 2022) pursuing policies of ‘fiscal consolidation’. Thus, as occurred with the Great Depression of the 1930s, a potentially simple crisis of real shocks and monetary adjustment has morphed into a fullscale crisis of inept policymaking, weasel words, and technocratic butt-covering.

We start by noting that real costs must be borne, whereas nominal price adjustments only have a distributional impact. The costs of pandemics, wars, and global warming are real and must be borne; whatever their causes.

The Malaise: a Mix of Non-Inflation and Inflation

The present ‘high price’ crisis is not an ‘inflation’ crisis; although some inflation is symptomatic of the crisis. ‘CPI inflation’ is a measure of how fast prices are increasing. Prices don’t have to be increasing to be problematically ‘high’. Further, increases in the CPI – our favoured ‘metric’ for the general level of prices – represent a mix of real price increases (due to higher costs) and nominal price increases attributable to (monetary) inflation.

(Milton Friedman, the renowned Chicago School ‘monetarist’, was right. ‘Inflation’ is everywhere and always a monetary phenomenon, by definition. But not all increases in the general level of prices are inflation. Further, such academic monetarists have a naughty ‘remedy’ for non-inflationary price increases; that remedy, ‘monetary deflation’ – negative inflation – can be used to conceal real price increases. Monetary policy can, seemingly, counter any crisis of higher prices; not just an inflation process. ‘Inflation’ can be defeated, even if it isn’t inflation. But at a cost.)

So, we have two definitions of inflation. Many commentators – including economists – switch backwards and forwards between the two meanings. The statistical measure (definition one) is called ‘CPI- inflation’. The economic process (definition two) is ‘monetary inflation’. The two definitions overlap, but are not the same. The latter is the correct technical definition of ‘inflation’.

The difference is important. To give an example. Perhaps the annual rate of increase of ‘CPI inflation’ is three percent. Quite possibly two percent of that (strictly, ‘two percentage points’) is due to an increase in ‘real costs’. And the other one percent is technical inflation. If so, then we can say that the ‘price of money’ has fallen by one percent, not by three percent. Monetary inflation – the economists’ definition of inflation – is the rate of depreciation of money. (And we note, given that money is a social technology rather than a pottle of wealth, any depreciation of money may or may not be a bad thing; and if it is a bad thing, it’s probably – like physical pain – a symptom of a problem rather than a problem in itself.)

(We do not have a way to accurately measure how much of a CPI increase is due to rising costs vis-à-vis inflation. While economists can estimate the proportions of each contribution to a ‘headline’ CPI number, many – especially those who wish to interpret a rising ‘cost-of-living’ as an inflation crisis – prefer not to make the distinction. What we can always say, however, is that a ‘headline’ CPI-inflation measure – like many measures – is an overall estimate for an underlying but unknown composite reality. While standard textbook remedies for inflation are quite different from remedies for cost overruns, some economists have an ideological predilection for anti-inflation remedies. For those economists, such remedies can represent a solution looking for a problem.)

So, what do we mean by an increase in ‘real costs’? (Price increases arising from such costs represent the non-inflationary component of CPI-inflation.) A good example is the cost of picking fruit from trees. If we only pick low-hanging fruit, then the cost of fruit picking (and hence the price of fruit) is ‘low’. If there is only high-hanging fruit on the trees, then the cost of fruit-picking is much higher; the price of fruit will be higher, because more labour was required to pick the fruit. A switch from low-hanging to high-hanging fruit can be expected to cause a price increase of fruit; this is not inflation.

We can apply this insight to other products, such as crude oil. If the oil is seeping out of the ground, then it’s the equivalent of low-hanging fruit. If the oil is deep under the North Sea or Alaskan ice, then it’s the equivalent of high-hanging fruit. Another possible source of rising real costs is increased bureaucratic compliance. Any situation where the economy is supporting more bureaucrats than is really necessary is an example of excess cost. A further source of real cost is a ‘primary increase’ in ‘factor costs’ such as interest rates (capital cost) or wages (labour cost); primary cost increases set off an adjustment process; secondary increases are the adjustment process itself. A primary increase in interest rates or wages may be due to a policy; for example, a ‘tightening of monetary policy’ or a ‘general wage order’. (On the matter of general wage orders and the like, see my Equal Pay, Pay Equity, and Cost-of-Living Narratives, 22 August 2025, here or here.)

A ‘secondary increase’ is an increase which represents a market response to a ‘non-clearing market’. Primary events are destabilising ‘shocks’ or ‘stresses’; secondary events represent stabilising adjustment processes, corrective ‘ripples’. Inflation is, for the most part, a secondary event. There is an important exception – called primary inflation – which is the impact of a demand-shock or a demand-stress; in my account so far, I have confined the discussion to supply shocks and supply stresses.

Generally, a ‘supply shock’ is a name for a sudden and unexpected increase in real costs (ie an acuteadverse event). And a ‘supply stress’ is a slow and ongoing increase in real costs, or an anticipated cost increase, such as we get from carbonisation of the atmosphere. A supply stress is a chronic malaise. Both kinds of increase in real cost have to be borne, to be paid for; in themselves they have no impact on the price of money.

A ‘cost-of-living crisis’ is a supply shock or a supply stress; or, very likely, both.

The capitalist marketplace has a mechanism for distributing the cost burden efficiently; it is an aspect of what is sometimes called the invisible hand. It is inflation, secondary inflation. It involves price increases; in effect the shocks and stresses ‘rippling’ through the whole economy. This shock-absorbing process of decelerating inflation works best when there is an accommodating monetary policy, meaning that – through banks’ double-entry bookkeeping – the money supply is allowed to rise to smooth this adjustment. This is inflation, but not problematic inflation; this inflation is the cure, not the disease. Problems occur when this process is suppressed by monetary authorities.

If the inflation process was initiated by a supply shock, the process settles down so long as it’s not disrupted or aggravated by further shocks or stresses; just as ripples in a pond eventually settle. (If the supply shock is a war, and the war comes to an end, there may then be a ‘benign supply shock’; ie falling real costs. The appropriate resolution is to facilitate CPI inflation to remain at the target level – eg two percent – despite a fall in real costs potentially decreasing average prices. This is an example of beneficial monetary policy, in this case seeking to prevent an adjustment which could be interpreted as deflationary.)

In the case of supply stresses, optimal market adjustment likewise requires a degree of ongoing secondary inflation. Again, such monetary inflation is a solution, not a problem. In this case the ripple-effect may not decelerate; it’s as if a continuous supply of stones is being thrown into the pond. (Another obvious part of the solution, of course, is to address the supply stress – by removing or mitigating that stress – the stress being a ‘root cause’ of a rising ‘cost of living’ burden. Stop throwing stones.)

Contractionary monetary policy can be a supply shock or a supply stress.

The contractionary (ie ‘tight’, or austere) monetary policy of jacking-up interest rates (mainly performed by Reserve Banks) in itself creates or perpetuates ‘cost-of-living crises’. These are direct policy interventions to increase the cost-of-living.  The initial supply shock of high interest costs becomes a supply stress if persevered with for more than a year. As a shock or stress, tight money is a problematic policy response either by exacerbating some other supply shock (such as the major 2021 [pandemic] and 2022 [war] disruptions to the global supply chain) or by adding an adverse supply shock to an adverse ‘demand shock’. (Both kinds of ‘adverse shock’ cause prices to rise.)

A ‘demand shock’ or a ‘demand stress’ constitutes a primary inflation; an increase in spending that is too great or too sudden to be accommodated by the economy’s surge capacity. (The technical term for ‘surge capacity’ is ‘supply elasticity’.) Tight policy – monetary or fiscal – was initially devised as a countershock to a demand shock. With a demand shock, the risk of problematic inflation is greatest when the economy has zero or very little surge capacity. The next and biggest coming inflation of this ‘demand shock’ type will arise from the world’s pension funds being liquidated as baby-boom generations either retire or are retired.

If this projected demand-side inflation gathers pace before the present supply-side CPI-inflation subsides, the two events stand to be conflated by future historians into a single inflation event. In the coming case, if future historians look back closely, they will come to see a demand-stress inflation as the ‘second-half’ of a conjoined 2020s’ and 2030s’ inflation event.

In the 1970s the reverse happened; a global demand stress inflation got underway from 1968 – the main source of the stress was the financing of the Vietnam War – followed by oil-supply shocks emanating from the 1973 Arab-Israel War and the 1978/79 Iranian Revolution. This ‘great inflation’ of the 1970s was perpetuated well into the 1980s by the problematic monetary-policy-induced supply shocks of the early 1980s; in particular those associated with Margaret Thatcher in 1980, with ‘Reaganomics’ in 1981, and in New Zealand with ‘Rogernomics’ in 1985. (I use the word ‘problematic’ rather than ‘counterproductive’ or ‘mistaken’ because, while the policy aggravated rather than ameliorated inflation, the policy did effectively serve other somewhat opaque purposes. While this is not the place to discuss the power-realigning unstated or understated reasons behind this type of policy, we may note that many – maybe most – policies have multiple objectives including unpublicised objectives. See The New Zealand Economy 1900-2000, by Geoff Bertram, New Oxford History of New Zealand, 2009; one of Bertram’s main themes is “the rise of a business and political elite based in the service sectors, particularly finance”, using the analogy of a political “coup”.)

Change in Real Costs plus Monetary Inflation equals CPI Inflation

This has been the main technical point of this article. When we hear in the media of ‘the inflation rate’, it means ‘CPI inflation’. Since 2021, both the ‘change in prices due to real costs’ and the rate of ‘inflation’ have been positive numbers. I have argued that the ‘monetary inflation’ has been the smaller of these two, and that the ‘real cost’ problem has been due to global supply-chain disruption and to the contractionary monetary policy of jacking-up interest rates. This policy response was done earlier and harder in New Zealand than in most other countries; though has now eased, in comparison with Australia, the United States, and the United Kingdom. (CPI inflation remains stubbornly high in those countries which continue with their supposedly ‘anti-inflation’ settings. Canada, with lower interest rates than New Zealand, also has lower CPI inflation.)

In past times of low CPI inflation, typically either the ‘change in real costs’ or the rate of ‘monetary inflation’ have been negative numbers. In better times such as 2013 to 2019, productivity (crudely measured as real gross domestic product per person) was increasing, meaning that real costs were decreasing. (We may note that, according to classical and neoclassical economics, in growing economies the CPI should for the most part be falling rather than rising; as indeed occurred in the nineteenth century.) So, in March 2018 for example, the annual change in real costs was around minustwo percent, and the rate of inflation was about plus three percent (together adding up to one percent). This is another example where inflation – a fall in the ‘price’ of money – was beneficial, because it averted CPI deflation and encouraged the circulation of money.

A further reason why inflation can be beneficial is that inflation tends to improve the distribution of monetary wealth (making wealth slightly less unequal), whereas deflation – negative inflation – tends to aggravate such wealth inequality. So, the combination of negative real cost growth and positive inflation is one of macroeconomic success; wages rise faster than prices.

An Engineered Deflation

What policymakers have been trying to do since 2021 is the opposite; they have been trying to engineer a deflation (a rise in the price of money) as a way of hiding non-inflationary increases in the ‘cost-of-living’; a real ‘cost-of-living crisis’ means a sustained period in which disposable incomes – meaning annual after-tax incomes – increase more slowly than prices. (This is how real costs are borne; typically, the burden unfairly falls on those least responsible for the problem.)

The way to achieve such a monetary deflation is to engineer a recession through, among other methods, maintaining a supply-stress policy of having interest rates jacked-up to levels higher than they would be if left to the market. Businesses, needing to reduce their selling prices, then act to cut their costs by paying workers and suppliers less. Those businesses with a decree of market power, such as supermarkets, lead the way by reducing the real wages of (mainly female) low-wage workers, and reducing the prices they pay to their suppliers of fresh foods. If anyone has a case for a pay-equity wage increase it is supermarket checkout workers; but policy in New Zealand – shared by recent National and Labour governments – is to press down the costs of supermarkets.

I have suggested that currently in New Zealand real costs are increasing at about plus two percent per year, and monetary inflation is plus one percent. An overly-engineered recession might see real costs rising by plus five percent a year, and inflation at minus three percent. That would show up in the official statistics as a CPI-inflation of two percent. Policy target achieved?! We note that such a policy would fail to address the ‘real cost’ problem – indeed it would exacerbate that problem – while trying to claim success by hiding the problem through monetary constriction and deflationary wage settlements.

A monetary deflation (or inflation) is very difficult to engineer, however (because of the ‘secondary’ nature of such processes); what usually happens instead, and as a result of the policy attempt, is a recession or depression. In order to engineer an offsetting deflation, monetary policymakers have to aggravate the supply stress; they have to aggravate the ‘cost-of-living’ problem in order to deliver their monetary ‘solution’.

Money is an economic lubricant, not a fuel. Neither the family car nor the national waka (aka NZ Inc.) will function well if decision-makers choose to economise on lubricating oil.

The Great Depression, in contrast

During the Great Depression of the early 1930s, real costs were decreasing (for the most part, though much of that was labour short-time), and there was a difficult-to-stem monetary deflation, aggravating a problem of growing wealth inequality. The main problem was one of deflationary demand-stress; insufficient spending. That spending problem was substantially aggravated by most of the world’s governments; a big shortfall in government outlays – whether reduced government benefits, reduced government spending on core services, or reduced government investment in economic capacity – creates future supply stresses.

In the mid-2020s in New Zealand, the present crisis is morphing from a cost crisis into a demand crisis more like the Depression; a crisis of too little spending, aggravated by government retrenchment. Australia, on the other hand, is about two years behind New Zealand; while it’s going through a greater supply stress from monetary policy, the government and consumers are forestalling such demand-stress by maintaining spending levels. Australia, if its government policymakers continue to be wise, will not choose to starve the economy of the public contribution to demand. Australia, by being more relaxed about its fiscal deficits, has upheld its fiscal revenue base; indeed, it has achieved fiscal surpluses in 2025 through more government spending rather than through less. New Zealand, on the other hand, cannot achieve fiscal surpluses because the fiscal policy wonks have generated a downwards expenditure-income spiral.

The next global economic depression will be different from the 1930s and the GFC (global financial crisis). Expect a combination of global supply shocks aggravated by national (policy-induced) supply stresses, and demand shocks in the western world as the older population cohorts seek to spend their retirement savings on the kinds of goods and services that older people most require. It will be a depression without the CPI-deflation which characterised the early 1930s. Most likely it will be what economists call ‘stagflation’. Nevertheless, there will be hidden (monetary) deflation amidst substantial real cost increases. It will not be pretty, and the world is unprepared.

Finally

The notion that jacking-up the cost of credit – interest rates, a critical cost which permeates the whole economy – is a cure for a ‘cost-of-living crisis’ is one of the all-time-great confidence tricks humankind has been subjected to. Let’s challenge the people who intimidate us, wittingly or unwittingly; they intimidate through the use of agenda-appeasing weasel-word narratives.

There is a solution, in addition to ending so-called anti-inflationary policies, and it’s called Public Equity. (See my Public Equity and Tax-Benefit Reform, a report prepared for The Policy Observatory, Auckland University of Technology, December 2017. Or see Public Equity and Tax-Benefit Reform – Scoop, 14 December 2017 – for a summary.)

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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 Initial vote on Kiwibank in the Labour-Alliance government in 2000 was 16 Labour against to 4 Alliance for.

I was there when this was reversed, and in 2001 the 4 insurgent Alliance Ministers – Jim Anderton, Sandra Lee, Laila Harre and Matt Robson- received our foundation Kiwbank cards in Jim’s office. New Zealand once again had a popular publicly owned bank to aid its development and counter the strangling grip of the privately owned foreign banks. Finance Minister Cullen said, begrudgingly, that the bank, operating from New Zealand Post premises, would get an $ 80 million loan , but not one cent more. Helen Clark continued her opposition by announcing she would remain an Australian Big 4 customer.

Kiwibank had been a long journey. Why had Alliance members campaigned so long and hard for this goal? Jim Anderton had  spelt out the reason in 1988 as the Lange Labour government continued its crash sale of public assets by putting the Bank of New Zealand with its 20 percent share of the banking sector on the auction block. In a 1988 parliamentary speech that led to his expulsion from the Labour caucus Jim Anderton said:

The sale of State Owned Enterprises transfers ownership, control, wealth and resources from the public sector to the private sector…Once it is sold the policy options available…are almost certainly removed…Even after the worst stock market crash in New Zealand’s history…the Bank of New Zealand made an operating profit of $182 million in the 1987-88 financial year… (it) is virtually a perpetual asset…(and) commands 20 percent of the current financial system”

As a highly capitalised bank the BNZ, meeting its huge taxation and dividends obligations to the government and with its long history in the development of New Zealand as an arm of government, the BNZ limited the destructive side of  private banks and kept profits and investment capacity in New Zealand.

Within a short time, an expanding  Kiwibank kept local branches open, and rapidly attracted customers. It paid back the initial government capital within 3 years. It now has over one million customers, including over 40,000 businesses.

Michael Cullen, resiling from his initial hostility , was to praise Kiwibank in his autobiography as follows:

But Kiwibank proved its real worth to New Zealand in the early stages of the global financial crisis. The Australian  banks withdrew substantially from the New Zealand mortgage Market. Kiwibank stepped  into the breach. Despite its very small size compared with the Aussies, it was for a year or two the largest provider of new mortgages…since Kiwibank was set up, the Australian banks have emphasised their New Zealand character…

The former Finance Minister then warned, and Minister Willis would do well to heed,  about the true character of the private banks:

…when the crunch comes , one should never be fooled  about where their primary accountability will lie.

In his 1988 speech to Parliament, opposing his own public asset selling Labour Party,  Jim Anderton also outlined the vision which in 2002 was to underpin both the  Kiwibank and  a newly minted  ministry of economic and regional development, of the public bank playing an essential role in national economic development:

…if it were decided to run an active regional development policy the geographical spread of the branches of the Bank of New Zealand makes the bank the only Government agency with the detailed knowledge required to act of the Government…of providing long -term development funds for viable projects in all the regions…sale of such an extensive economic power…may lead to the operation of the bank for purely financial commercial reasons…small borrowers , and even Governments, suffer when dominant banks  are run for short term financial reasons and profits.

All of these advantages are now at risk as the government , using the excuse of the need to raise capital for the bank to take on the Big 4, sets out to gift an essential economic tool to the private sector. The New Zealand Herald revealed the government’s intentions on 25 July:

In a routine letter of expectation sent to Kiwibank’s board chairman David McLean in April, shareholding ministers suggested they were open-minded as to how Kiwibank grew… ( Minister of State Owned Enterprises ) Goldsmith said the Government had no plans to privatise state assets, but conceded a possible outcome of the purpose statement exercise could  be that it decided it no longer wanted to own an asset.

Renationalisation Pledge

Warning bells should ring for Labour and the Greens. Labour members and voters triumphed over the initial opposition to Kiwibank of Helen Clark and Michael Cullen to Kiwibank. The Green Party has pledged to oppose asset sales. As Alliance MPs, Green Party founders Jeanette Fitzsimons and Rod Donald campaigned for Kiwibank . Labour and the Greens must form a united front in defence of Kiwibank.  A pledge to re-nationalise and expand through government financing ,there are multiple financing methods available , will deter the circling sharks which include the Australian bank competitors.

Governments of all stripes throughout the world recognise the crucial developmental role of a large state bank as an essential tool for long term investment and development. Labour and the Greens can unite to build on the vision of Jim Anderton and  ensure that New Zealand is not, once again, deprived of its state-owned bank by a short-sighted government acting in the narrow interests of the private sector and not in the best interests of New Zealand.

References:

• Building-a-new-public-banking-ecosystem
• BNZ Bill speech in the House
• LF Grant R 21.11.2022
• NZH 18 September 2024 Arena Williams MP

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This year, the heated non-debate in Aotearoa New Zealand about pay equity, has left important answers unquestioned.

Equal Pay versus Pay Equity

The first point that must be made is to distinguish ‘equal pay’ from ‘pay equity’. Equal pay means, for different identity groups, the same pay for the same work. The concept has been mainly applied to sex, and to employees paid by the hour; with equal pay, a woman with the same qualification and experience receives the same hourly pay rate as a man.

In New Zealand, this was mandated into law in 1972 – the 1972 Equal Pay Act – and has been an unwavering centrepiece of New Zealand’s labour law ever since. Before 1972, women gained a ‘market wage’, and men – presumed to be current or future ‘family breadwinners’ – received a privileged wage. (This privileged wage was enabled, especially from December 1938, by a regime of import protection – tariffs and customs’ duties – which meant that New Zealand breadwinners were sheltered from direct competition with foreign workers earning much lower wages.)

As recently as last week, supporters of ‘pay equity’ (including the great-grandson of Elizabeth McCombs), were claiming that ‘equal pay for equal work’ is a current aspiration rather than a long-standing reality. (Refer First female MP would have been ‘appalled’ by pay equity changes, says great grandson, The Post, 11 August 2025: “I grew up with … ‘women [and] girls can do anything’, you know – equal work, equal pay. It just seems absurd that my daughters and granddaughters are still fighting for the same thing that my great grandmother and her sisters fought for.” The Post article, in making no attempt to mention the 1972 introduction of Equal Pay, was perpetuating a kind of politics based on assertion rather than knowledge. Also note this RNZ article: Unofficial People’s Select Committee Starts Pay Equity Hearings, Scoop, 11 August 2025. ‘Equal pay’ is mentioned three times. Of those three, the only mention relevant to the theme of ‘pay equity’ was by the Minister, Brooke van Velden. No effort was made by the authors of the story to reconcile the contradictory references to ‘equal pay’. Not even basic fact-checking, re 1972.)

Pay equity is something different from equal pay. It is corrective remuneration in a case where a whole occupation is underpaid on the basis of employer-discrimination against an identity group. In the situation which has been politicised in Aotearoa in 2025, that identity group is women. A pay equity correction is made by the authorities proclaiming and enforcing a new relativity re some ‘comparator occupation’ whose work is deemed equivalent.

Clearly, like the privileged men’s wages of the distant past, success here would be a privileged wage in the sense that it is imposed by ‘the state’ onto the labour market. Before such a pay-equity correction can be authorised, the alleged discrimination itself needs to be verified (beyond reasonable doubt?). Under present and past law, to be allowed to establish inter-occupational discrimination, the claimant occupation’s employees should be predominantly women. I would define female-dominant as meaning at least twice as many women as men in non-managerial roles. (On this basis, primary school teaching would meet the criterion; but secondary school teaching would not.) To prove discrimination, you have to be able to make a very strong claim that the reason for alleged under-remuneration is the sex-ratio, meaning that if two-thirds of the workers were men then that under-remuneration would not have occurred. (Is it credible that female secondary-school teachers are significantly meeker than male secondary-school teachers?)

By definition, remuneration based on pay-equity is a departure from a market-clearing outcome, so a pay-equity settlement would need to address the problem of an overpriced market; such as an employer subsidy (for an occupation in the economy’s non-tradable-sector) or an export subsidy (for an occupation in the tradable-sector). We note that the pre-1972 ‘privileged wage’ paid to men had coincided with some forms of protection, such as import protection. In a 2020s’ fiscal environment, we have already seen that higher nurses’ pay has led to fewer nurses being hired; that is, given the financial constraints imposed on the principal hiring authority.

We need to note that the fact that an occupation is female-dominant does not in itself mean that there must be inter-occupational pay-discrimination. Conversely, it is also possible that some occupations which have a majority of male workers may be subject to adverse discrimination; occupations with large numbers of immigrant workers come to mind.

Equal pay in 1972 was a revolution which both reflected societal changes (from the 1930s) of sex roles – from prescribed household economic roles towards individualism within households and towards greater diversity in household structures – and also facilitated such changes, even towards the adoption of subjective notions of what ‘male’ and ‘female’ actually mean. While the practical effect of equal pay was to replace the legislatively privileged male real wage with an unprivileged market wage, the wider effect was to incentivise individual labour force participation, making paid work (as distinct from ‘pay’ itself) come to be understood more as a ‘benefit’ and less than the ‘cost’ that it unequivocally is in neoclassical economics. Households needed to supply more hours of work. And paid work came to be interpreted as ‘liberation’. (We note that New Zealand’s benefit system remains the major discriminator against women; the Ministry for Social Development continues to uphold the view that unemployed people with employed partners cannot receive a job-seeker benefit.)

Ironically, in the year after the Marshall-Muldoon National government introduced Equal Pay, Roger Douglas, a junior minister in the Third Labour Government, introduced a comprehensive New Zealand Superannuation Scheme; a scheme which was fully predicated on the traditional view of the male householder as a breadwinner supporting female and junior dependents. It was Robert Muldoon, once again, who rescued the progressive new individualism over the increasingly quaint and regressive ‘working-class male-breadwinner’ social milieu; Muldoon scrapped New Zealand Superannuation in its infancy, replacing it in 1976 with National Superannuation, a Universal Basic Income for seniors (defined, practically, as all New Zealanders aged over 60); this was a comprehensive reinstatement of the ‘Universal Superannuation’ legislated for by the First Labour Government – the Savage government – in 1938.

New Zealand is still one of the few countries in the world to have any kind of rights-based Universal Basic Income, although today the age of eligibility is 65; and it now has the name of Douglas’s very different scheme, New Zealand Superannuation (NZS). As important way in which NZS reflects the liberal ambitions of Equal Pay is that it creates a liberal retirement-income regime, individualised, facilitating individual choice over when to retire; and acknowledging the societal contributions of those in their ‘working-age’ lives (including many women) who did not ‘make lots of money’. (Sadly, one of the first things the Labour Government quietly did in 2020 was to disqualify people – about 90% of whom were women – from accessing NZS as a ‘non-qualifying spouse’; this former provision for retired couples ensured that partners aged under 65 of persons aged over 65 could gain an income-tested version of NZS.)

The rise of the Funded Sector

It’s always been a bit of a puzzle as to why, in the late 1980s, barely 15 years after Equal Pay, the Trade Union movement started to clamour for something else; for Pay Equity. Part of the answer is that ‘organised labour’ changed fundamentally after 1984, under the auspices of ‘Rogernomics’ and ‘Ruthenasia’. And part of that fundamental change was the decline of the traditional male-dominated trade unions which in some cases fought valiantly, but in a fated struggle, to retain high wage jobs for their members.

In its place, we saw the rise of ‘white collar’ unions, which proved to be a substantial feminisation of unions. We saw a dichotomy between what is now called the ‘funded sector’ and New Zealand’s traditional export-focused private sector with its freezing workers, railwaymen, seamen, wharfies, miners, and workers in protected manufacturing industries such as car-assembly. The ‘funded sector’ is a wide interpretation of the ‘public sector’, where employment opportunities are directly linked to governments’ fiscal programmes and policies; it includes crown entities, state owned enterprises, state-contracted organisations such as the ambulance service, and local government.

There emerged substantial numbers of women in a new ‘upper working class’; women in their twenties and thirties earning relatively low salaries, employed in the ‘brave new funded sector’ following the neoliberal reforms. While most of these women were glad to be seen and treated as equals in their workplaces, many were pushed into fulltime work while they had young children; the mortgage had to be paid. So, we also then saw the emergence of a substantial childcare industry (and the decline of kindergartens and play-centres), which is – in effect – also part of the funded sector. As is, also, the growing age-care industry, especially the nursing homes (distinct from the new retirement villages which cater for retired elites and members of the privileged generations – born circa 1935 to 1960 – who have been downsizing from mortgage-free standalone houses on large sections).

Differences between male and female pay on average are linked to the nature of the funded sector itself, as the dominant employer of women; and in particular the unnecessary realities of prioritising ‘fiscal consolidation’ over ‘duty of care’ and societal investment.

The feminist premise which underpins pay equity

Feminism has two contradictory premises. The first premise is that women are the ‘meeker sex’, and therefore require collective intervention to support equitable outcomes for female individuals vis-à-vis male individuals. The idea is that women have been muscled out – figuratively and almost literally – from opportunities for individual self-realisation and influence. The alternative premise is that women are not meeker than men; indeed, that there is no ‘meeker sex’. The idea is that women have achieved lives equally as fruitful as men; but that the many individual and collective achievements of women have not been adequately reported by (mainly) male historians and journalists.

Neither premise is entirely incorrect. Thus, the two feminisms differ more on emphasis than on one being true and the other false. Pay equity is informed by the first of these feminisms. And the substantial and visible successes of women in public life in the last fifty years or so suggest that changes such as Equal Pay have enabled women’s many very real contributions to become more visible. One feminism favours directive policy; the other favours enabling policy and equitable recognition.

The Pay Equity argument is subject to an important ‘catch-22’. To gain the desired policy outcome women have to argue that women are subject to adverse discrimination because of their meekness. Yet, for women to successfully pursue this argument, they have to reveal women to be anything other than meek.

Indeed, the female leaders of the labour movement (who have been substantive leaders of organised labour since at least the 1980s) have revealed that women can be and have been at least as assertive – indeed stroppy – as men. Further, we have for many years now seen that such female-dominant professions as nursing and primary school teaching have assertively advocated for their interests for many years. And it’s not new. Magazines such as Woman Today and Working Woman were doing this in the 1930s. And we openly acknowledge the contributions of strong women in the past, self-realisers and community-realisers, such as Jean Batten and Dame Whina Cooper.

On the matter of catches-22 see ‘Turning women’s wages into a political piggy bank’, Newsroom, 12 Aug 2025. The argument here seems to be that pay-equity claims would first have to be initiated to establish if the claims have merit; but that the prior establishment of merit has become a pre-requisite for a claim to be initiated. I would like to have seen that ‘catch-22’ argument put to a government spokesperson. The resolution here would be the reality of ‘degrees of merit’. Some merit would have to be present from the outset; the adjudication of the claim would then evaluate sufficient merit to adjudicate in favour of an intervention.

My understanding is that there remains a clear pathway to lodging a ‘pay equity’ claim – and hopefully available to any employee group who feels they are underpaid on account of their predominant sex, religion, ethnicity etc – but that it must place emphasis on evidence indicating adverse discrimination. It can never be enough to evoke correlation; causation is the idea that an occupation is subject to low remuneration because of the demographic mix of its employees, meaning that a less-meek employee-mix would, of itself, yield higher wages and better working conditions.

Wage activism and pacifism in New Zealand’s history

New Zealand once (from the 1890s to the 1980s) had a directive system of setting ‘award wages’; the 1894 Industrial Conciliation and Arbitration Act, “The brainchild of Minister of Labour William Pember Reeves”. It morphed into a system of relativities; wage increases would be set for one occupation, and wages for other occupations were effectively indexed.

Or there would be general wage orders. As a result of compliant male-dominated trade unions, by the mid-1960s wages in New Zealand were substantially lower than they should have been, given substantial per capita economic growth. When in 1968 the Arbitration Court mandated a zero wage increase despite five percent CPI inflation, the creaky system of general wage mandates collapsed. It was up to the new Finance Minister, Robert Muldoon, to pick up the pieces, which he did successfully. From 1969 to 1973, wage increases outpaced productivity growth. The new regime was what the stronger unions had wanted – ‘free-collective-bargaining’ – and it took place during the inflationary 1970s. Real wages in New Zealand reached their post-war peak in 1981, although after-tax wages had to wait until 1982 to be corrected through a substantial new tax scale.

While wage relativities between occupations were finally scrapped in Ruth Richardson’s 1991 Employment Contracts Act, in that same neoliberal era a system of salary-relativities was introduced for Members of Parliament and senior public servants. Their pay would be ‘indexed’ to the pay of corporate executives, in full knowledge that the deregulations of the late 1980s would start a process in which the remuneration growth of business executives would substantially outpace the remuneration growth of ordinary private sector employees. The MPs had hitched themselves onto an inequality bandwagon.

We note that, in the very uncertain 2020s, workers in the ‘funded sector’ have been relatively privileged. There now appears to be a new aristocracy of labour, and it is large parts of the highly unionised funded sector. In the 1950s in New Zealand, the aristocracy of labour were the seamen, wharfies, miners, and meat-workers; and the strongest unions represented their interests over the interests of workers more generally. That ‘aristocracy’ was undermined in the 1960s by relativity processes largely connected to Labour Governments in the 1940s and 1950s. In the 1980s an elite ‘salariat’ formed, a new kind of aristocracy of managerial labour; more like traditional ruling-class aristocrats in their consumptionist mores. Nowadays, from the 2000s, we have a unionised funded salariat – the core of a new ‘upper working class’ which is closely linked to Labour politics – and an inherently insecure and under-unionised passive ‘lower working class’ precariat.

Economic ‘games’ (a technical term in economics) – such as ‘pay equity’ activist games – have become increasingly tone-deaf. This is especially true for this week’s secondary school teachers’ strike action – which appears to be a somewhat piqued reaction to its thwarted ‘pay equity’ submission – for a profession with employment security and reportedly having already achieved six-figure average salaries. And it is ‘tone-deaf’ in the context of what both National and Labour have framed as the present ‘cost-of-living’ crisis. Clearly, New Zealand can never match Australia for teachers’ salaries; that ship sailed more than 35 years ago, when suffocating macroeconomic policies created a decade of near-zero growth in New Zealand but not in Australia. For decades now, New Zealand has been to Australia much as what Poland or Czechia is to Germany. The fact that 63 percent of secondary teachers are female cannot be, in itself, a justification for raising the pay relativity between secondary-school teachers and (say) prison workers or defence force workers. Those other occupations have their issues, too.

Inflation, Cost-of-Living, and Economics 202

Setting wages on the basis of occupational relativities rather than in accordance with the market forces of demand and supply has not served New Zealand particularly well. In the 1960s compliant wage-setting had been counter-inflationary. In the early 1970s, the necessary wage catch-up almost certainly contributed to escalating inflation, though international factors were then the main drivers of inflation. I remember 25% CPI inflation in the United Kingdom in 1976, significantly higher than for New Zealand’s peak year.

In the late 1970s, following a coup in academia (most associated then with the name Milton Friedman, and the Chicago School), ‘expert thought’ about inflation was returning to the monetarist ideas which gained currency during the mercantilist era; ideas associated with the likes of Jean Bodin (16th century), John Locke (17th century), David Hume (18th century), and David Ricardo (19th century). Money was understood then to be gold and silver coin (specie); inflation was understood as a fall in the price of money; effectively a fall in the price of gold or silver. In the 1970s, after the gold-exchange standard was abandoned, the ‘fall in the price of money idea’ was adapted to modern fiat money, with Friedman’s provisos that a seemingly insignificant (at the time) over-restriction of the money supply could cause a ‘great depression’, and a seemingly insignificant (at the time) over-expansion of the money supply could cause a ‘great inflation’. In Economics 202 (intermediate macroeconomics), this idea is embodied in the Rational Expectations Hypothesis for which Robert Lucas won a Nobel Prize in 1995.

While the rational expectations’ theory is false in one key respect – the idea that it is normal for an inflationary ‘spiral’ to accelerate in the absence of macho policies of monetary restriction and credibility brinkmanship (noting that the present Governor of the Australian Reserve Bank is ‘macho’ in this respect) – it does offer a valid understanding of ‘demand-shocks’ and ‘supply-shocks’ as the beginnings of inflationary events; as the beginnings of ‘secondary inflation’.

A demand shock, such as an ‘over-stimulus’ (or a bout of animal spirits), brings about primary inflation. Whereas a supply-shock is not inflation at all; it’s simply an unexpected or unwarranted cost that has to be absorbed, such as the 2021 Covid19 supply-chain disturbances and the disruptions to food supplies in 2022 due to the Russia-Ukraine War. Secondary inflation can be understood as the adjustment ‘ripples’ emanating from the primary event. The idea that such ripples naturally accelerate – through an expectations’ mechanism – is metaphysical nonsense. Ripples settle – in this case through market mechanisms – unless invigorated by misplaced policy settings.

(A critical missing ingredient of the theory of inflation is the notion of ‘supply-elasticity’, also known as ‘surge capacity’. A sustainable anti-inflation program needs to create a destressed norm, which allows settled economies to respond to shocks – such as wars – in a responsive ‘quantitative’ way, through output flexibility rather than being thrown into inflation or deflation. The monetarist theory of ‘too much money chasing too few goods’ overemphasises the ‘too much money’ and underemphasises the reasons why there may be ‘too few goods’. Recent restrictive monetary policies have created supply rigidities by requiring the emigration of skilled workers, and by forcing sawmills and similar industries to downsize their capacity; see More Jobs at Risk in Tasman Sawmill Closure, 21 August 2015.)

One of the most-cited examples of a supply-shock in the literature is the ‘accommodation’ of a primary wage bid, such as a Pay Equity bid. The best way to think of a primary wage bid is to consider an economy that’s in a settled state (‘equilibrium’), and (for some ‘perverse’ reason) a group of workers seek to gain an advantage over other groups of workers. (Of course, ‘the economy’ is never in a ‘settled state’; nevertheless, careful analysis can establish whether any particular wage bid is stabilising or destabilising. An example of a necessary wage shock was the previously mentioned catch-up wage growth in New Zealand from 1969 to 1973.) A classic example of a destabilising wage bid is one which a strong union seeks to forge a new relativity.

To a classical macroeconomist, pay-equity claims in general – and including pay-equity-like claims such as the present teachers’ dispute – look very much like (if the employer grants the wage demands, that is) a textbook supply-shock which can initiate a spiral of accelerating inflation. The monetarists’ medicine to any ensuing secondary inflation (or to anticipated secondary inflation) is to suffocate the economy by ‘restricting the money supply’ ‘as much as it takes’ to terminate or prevent that event. (To use the ‘ripple’ analogy, it’s a ripple-suppression policy.)

In addition to the suffocating nastiness of that policy medicine, the interest-rate method of anti-inflation monetary policy adopted since the 1990s, such aggressive policy itself is a supply-shock (a ‘cost-of-living’ shock, albeit a non-textbook shock). An upwards intervention in the price of borrowed money adds to the cost-of-living, creating secondary inflation much as textbook supply shocks can create secondary inflation. The treatment of the ‘inflation cancer’ is itself such a cancer. Sometimes – though not typically with medical cancer – the best treatment is to wait with a watchful eye; to allow the ripples to subside.

Careless and tone-deaf Trade Union actions can precipitate the adoption of harmful and unnecessary policy interventions.

From a Trade Union viewpoint

The first thing a trade union should do is to contest the economic analysis of ‘the other side’. If it cannot or will not do this – if it cannot demonstrate that a pay claim is benign to the wider working and non-working classes – then it should not pursue the claim. The current teachers’ pay claim has made little attempt to contest the prevailing ‘cost-of-living’ narrative. This in a fait accompli political environment of ‘fiscal consolidation’ (aka ‘austerity’) and sensitivity to high prices. Unions’ priority should be to contest these uncontested and under-contested narratives.

All I have heard from the secondary teachers’ Union is that ‘the government could have done other things’ in 2024 – such as not granting ‘tax cuts’. They say that what their members have been offered is “less than the rate of inflation”, meaning a real pay cut. They have a credibility problem here, because in real terms (ie after adjusting for CPI inflation), the 2024 income tax adjustments were a tax increase rather than a tax increase; those income tax adjustments only partly compensated for CPI price increases.

The second problem is that only a part of the CPI-inflation that we have experienced is actual inflation. It is likely that the major part of the CPI increases this decade have been due to (ongoing) primary supply shocks, and not to (secondary) inflation at all. The sad thing about supply shocks is that we all have to bear them. Though some try to make others bear these real costs; for example, those who favour forever-wars tend to want others to pay the costs. (We should of course recommend ways to minimise future supply shocks; for example, to advocate peace over war, sustainability over profligacy, sufficiency over the quest of a few to make more-and-more money by selling more-and-more stuff.)

Our trade unions need to ‘read the room’, and to offer analysis and critique of the problematic narratives which enmesh us, and prevent the human world from evolving in the gentler and more sustainable ways which most of us favour. They should not be pushing the interests of one identity group over others.

Pushing for pay relativities vis-à-vis other occupational groups is not the answer; rather it’s part of the problem of some groups trying to ‘get ahead’ while others cannot or should not. Women – certainly modern women – are not meek. The assertive pretence of female meekness cannot achieve much. Thoughtful analysis and courageous counter-narrative can achieve much more. Governments – and the funded sector generally – need to see ways beyond their own financial housekeeping, and to emphasise their ‘duty of care’ and societal investment roles. If privileged wages in the funded sector are the answer, the wrong question was probably asked.

We have Equal Pay – equal pay for equal work. And we have a Universal Basic Income for seniors. Those are achievements we should celebrate, and draw inspiration from. Women assertively pursuing the narrative that women are paid less than men because women are meeker than men, could instead be critiquing the false macroeconomic narratives which represent the real problem.

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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 central narrative of New Zealand’s Minister of Finance, Nicola Willis, is ‘There is only so much money to go around’. (For example, her interview on RNZ on 20 May, Willis on her second Budget, price of butter. The interview also covers, in the usual subservient way our media addresses these issues, Willis’s diversionary narrative to scapegoat supermarkets.)

A false zero-sum narrative

This zero-sum narrative about money is virtually uncontested, certainly in the mainstream media. Yet it’s not only sub-standard economics, it is also sub-standard theology. It is appropriate to debate whether ‘God made Man’ or ‘Man made God’; there should be no such contest about ‘Money made Man’ versus ‘Man made Money’.

Money is not (or should not be) God. The one fundamental truth about money, is that it is a human creation; Man made money. Money is a social technology, not a fundamental poverty-imposing constraint. In modern capitalism, central banks supervise the money supply, and can create money at will. The creation of the Reserve Bank of New Zealand in 1934 was a critical component of the post-Depression recovery and expansion from 1935 to 1940.

In modern capitalism, central banks act as lenders of last resort and governments as borrowers (and insurers) of last resort. The process of central bank lending and government borrowing is the engine of global capitalism, just as the sun’s energy is the engine that makes ongoing life on Earth possible.

Japan versus Germany

It is instructive to compare the economic fortunes of Japan and Germany this century.

Japan developed the new macroeconomics during its ‘horrible decade’, the 1990s. Its economy has thrived since 2000. The basis of its success, in a country with a financially conservative middle class and low inequality, is to borrow from its large pool of savers, rather than to overtax them. Japan has a stable public debt, sitting at around 240% of GDP since before 2015. And it has a stable fiscal deficit of around 4% each year. It has had interest rates around zero for more than a decade; currently 0.5%. Inflation peaked at 4% in 2023 (in the context of a falling Yen), up from 1% in early 2022. Japan’s current unemployment rate is 2.5%, having peaked at 3% in 2020.

Germany has taken the mercantilist line, which – in essence – posits money as God. It has imposed fiscal austerity on itself since 2010, and on the European Union which it then dominated. And it’s now in a state of socio-economic crisis, with a similar economic growth profile to New Zealand. In its last election (in February), using MMP, only 45% of voters voted for the two major parties. In the more recent opinion polls that support has fallen to around 40%. In the former ‘Communist’ East Germany, support for the two major parties combined is under 25%.

Germany, like most countries in the west, has stubbornly refused to learn from Japan. Fiscal counternarratives are effectively suppressed.

Debt ceiling?

New Zealand, when Grant Robertson was Minister of Finance, decided to impose a de facto ‘debt ceiling’ of 50% of GDP. Nicola Willis – inspired by Ruth Richardson’s (now entrenched) 1994 ‘Fiscal Responsibility Act’ – is entrenching this 50% debt ceiling. Thankfully for our great-grandparents, Michael Joseph Savage (and his Finance Minister, Walter Nash) did not operate similar ‘debt ceiling’ policies.

A policy to cut-back on government spending also has the effect of cutting back government revenue. That’s very basic Keynesian macroeconomics. If we buy less, we produce less, we earn less, and we pay less tax than we otherwise would. The combination of reduced government spending and reduced government revenue is anti-growth; pushed to its limits it represents a capitalist death spiral. The western world found a way out of such a spiral in the 1930s; before World War Two (WW2), but too late to prevent that war and the megadeath which came with it.

A true zero-sum identity

In a world in which the private sector – businesses and households – collectively chooses to run financial surpluses (choosing saving and debt repayment over borrowing), then governments must run deficits. When the world is divided into two sectors – private and public – the successful achievement of a surplus by one of those two sectors must be accompanied by a deficit in the other of those two sectors. In essence, governments can only – and have only – run surpluses or ‘balanced Budgets’ when businesses are running financial deficits. For the global economy as a whole, by definition there can be neither a financial surplus nor a deficit; financial balances add to zero, as an accounting identity.

Business sector deficits were substantially the norm in the twentieth century, but not since about 1990. Government balanced budgets were possible – though not normal – for much of the previous century. Japan met its new challenge in the 1990s, at a time when Japanese businesses were forced by their creditors to run substantial financial surpluses; substantial government deficits were a mathematically necessary part of the solution.

Inequality and increased private risk

The twenty-first century is characterised by high – and often-growing – levels of inequality in the western capitalist world. It is also characterised as a period of growing private risk, including the risk that even rich people (eg the ‘ten-percenters’) will struggle to afford life-saving medications for cancer and other ills. This twenty-first century private risk-profile means that the household component of the private sector is trying to run bigger surpluses. This is a kind of insurance situation; people feel they need ever bigger amounts of contingency savings to cover personal or familial ‘rainy days’. Japanese people led the way in this respect, in the 1990s.

This drive for ever bigger private surpluses – which includes things like debt repayments and retirement savings – means that, for capitalism to survive, governments must run bigger deficits; indeed ‘structural deficits’, in the way that Japan does.

Government spending on big guns.

In one sense the capitalist world – belatedly – is saving itself in this way through fiscal expansion; though only by trying to destroy itself in another way. Hitlernomics – a mutation of Keynesian economics – maintains de facto or de jure debt ceilings for civilian-oriented public spending, while allowing for virtual unlimited military spending on ‘big guns’ and ‘golden domes’. Germany explicitly moved in this direction in March 2025, by using a voted-out ‘lame duck’ parliament to authorise the removal of the de jure debt limit for military spending (and limited ‘infrastructure’ spending).

Urgent need for contestable democratic counter-narratives

We urgently need a democratic counter-narrative, which promotes public debt at least as a stabilising force (and in some cases to take priority over private debt). And a complementary counter-narrative promoting public-equity over pay-equity as an efficient means to correct destabilising inequality, given that excessive inequality is also a deathknell of capitalism. Capitalism depends on selling wage-goods to wage-workers.

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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.