One puzzling feature of the present Israel-Iran war is the almost complete absence of reference – in the western media at least – to the Iranian President, Masoud Pezeshkian.

The American president claimed that Israel had killed the Iranian President, but he was referring to the Supreme Leader. Killing Ali Khamenei, the Supreme Leader of Shia Islam – and, when he was alive, the Patriarch of Iran – was comparable to the assassination of Pope Leo or King Charles. (These last two are both ‘supreme leaders’, though neither of these two are anything like the administrative or military leader of a nation state; they are moral and morale leaders.) Iran’s President, Masoud Pezeshkian, is still very much alive; and would prefer to build bridges than bombs.

Admittedly, the Iranian constitution is somewhat complex – especially to casual western onlookers – having distinct power centres for religious, military, and civilian authority. Do we dismiss Pezeshkian simply because he is neither a ‘cleric’ nor a ‘revolutionary guard’? I think there is much more to our dismissal of him than some consideration that he’s unimportant.

Ali Khamenei was, during the 1980s, the third President of Iran. His two predecessors had fewer religious credentials than Khamanei, reflecting the comparatively secular nature of the role of president. Their presidencies were short-lived however; the first president was impeached in mid-1981, and his successor was assassinated by bombing four weeks later; revolutionary Iran was a tumultuous place.

President Khamenei clearly played a critical role in the 1980s’ Iran-Iraq War, from which Iran survived; unexpectedly to many, and stronger from having been tested through a war in which the western powers supported the other side and its president Saddam Hussein.

The Presidency of Iran is clearly a very important political role. Problematically for the West, who wishes to cast Iran as an anti-democracy, it’s a highly-contested democratically-elected position of power. Indeed the President has featured in most political news stories throughout the history of the Islamic Republic, at least until the election of the present president in 2024 (following the death of his predecessor, Ebrahim Raisi, in a helicopter crash).

In the 2024 election, Pezeshkian, the ‘progressive left’ candidate defeated Mohammad Bagher Ghalibaf and Saeed Jalili, the ‘conservative right’ candidates. I heard recently that, when Ingrid Hipkiss asked who the Americans might negotiate with, given President Trump’s claim to have killed several tiers of Iranian leadership, the answer suggested by Simon Marks was Ghalibaf, who was high up in the regime and had even stood for president. Not a single mention of the actual President! (Refer Morning Report, RNZ 24 March 2026, Trump suspends strikes on Iran’s power plants.)

I would argue that Pezeshkian’s success was more reflective of popular preference than the other elections that year, which delivered Donald Trump in the United States and Keir Starmer in the United Kingdom. Both Trump and Starmer were widely disliked by their countries’ electorates (now even more disliked than in 2024), only winning because the only other options for political leadership were deemed by voters to be worse.

Pezeshkian, on the other hand, was a progressive and genuinely popular choice; not a person wanting to align Iran with the West, but a person wanting to build strong relationships. Through, for example, Iran joining the BRICSnetwork of economically powerful countries which favour geopolitical multipolarity rather than Western unipolarity. (See this picture of BRICS 2024, with Pezeshkian very prominent, and neither looking like a Shia cleric – as Raisi had looked – nor conforming with western dress codes.) He comes across as a statesman, certainly not a demagogue.

My take on the Iranian presidential enigma is this. Politics is substantially propaganda – aka ‘narrative’ – and geopolitics involves such messaging on a global scale. Much narrative is conducted through images rather than through words, and is largely shaped by which images are missing; propaganda is as much about deamplification of unwanted messages as it is about amplifying regime (and prevalent media) narratives.

President Pezeshkian does not present the imagery of smarminess (being unpleasantly suave) or of evilness or of rigid fundamentalism; he does not present the images that Israel and the West would like to portray in conveying their story about Iran. Rather, he presents as honest, pragmatic, constructive, and electable. He is quietly spoken. I have heard mention that one of Iran’s political strategies is the so-called good cop, bad cop strategy. If so, Pezeshkian is certainly the good cop. I think he is a good cop, period.

Pezeshkian is neither a clerical ideologue nor a shouty military spokesperson. He is not a newsreader with head covered, dressed all in black. Those are the images which western media push about Iran. Too moderate to assassinate; such grotesque (albeit routine) geopolitical violence would increase Pezeshkian’s profile in the West, which the West seems not to want. Better to just pretend he doesn’t exist, even though he’s the President. (Though some – including Al Jazeera’s Israeli-born political analyst, Marwan Bishara – suggest that Israel prefers to assassinate their more moderate opponents, given that such people [when alive and visible] might distract us from consuming Israel’s dehumanising narratives.)

To glean a semblance of truth in contentious times, you often have to hear what is not being said, and see what is not being shown. You have to look out for softly spoken messages; looking past caricatures and scapegoats, and looking past CAPITAL LETTERS and !!!

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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.

For this, the sixth series of A View from Afar, political scientist and former Pentagon analyst Paul Buchanan and Selwyn Manning deep-dive into geopolitical issues and trends to unpick relevancy from a world experiencing rapid and significant change.

And, in this episode, the topic will be: How to Define A Way Forward When the World is in Chaos.

Since the re-election of the US President Donald Trump, Paul has been doing a lot of work… a lot of reading… and a huge amount of thinking.

Today we hear from Paul about:

1. The US Trump Administration’s “Authoritarianism at home, Imperialism abroad” currency.
2. How to deconstruct the entire “spheres of Influence” nonsense.
3. About United States fears of the rise of the Global South in a poly-centric world.
4. And Paul and I will lean-forward and consider; what to expect in the medium and longterm.

If listeners enjoy interaction in a LIVE recording environment, you can comment and question the hosts while they record this podcast. And, when you do so, the hosts can include your comments and questions in future programmes.

With this in mind, Paul and Selwyn especially encourage you to join them via YouTube, as on YouTube live interaction is especially efficient.

You can join the podcast here (and remember to subscribe and get notifications too by clicking the bell):

OK, let us know what you think about this discussion. Let the debate begin!

*******

SIGNIFICANT QUOTE PAUL G. BUCHANAN: “The sad fact, though, is that the US is the center of our earthly geopolitical universe, serving as the first rock to drop in the global pond whose ripple effects are extensive, negative, and washing up in unexpected and unforeseen ways. That rock, in fact, is a black hole sucking the remnants of the rule based order into oblivion, or if not oblivion, irrelevance in a new age of power politics (might makes right, etc.). It is a dark force from which things as they exist cannot return.”

You can follow this podcast via the following podcast platforms:

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.

Last week I looked at how, for modern day purposes, monetary policy started around 1750. It began with the departure from the presumption that money is wealth to the idea that money is a veil and that therefore wealth is something else. That was, in a sense, the beginning of political economy as a branch of philosophy, morphing into economics as a social science. In the then new (now ‘classical’) utilitarian view, wealth came to be seen as useful ‘product’ and money as a ‘veil’.

The liberal view arose that the best monetary policy was no-policy; that is, no policy beyond the steady coin production of each sovereign’s Royal Mint. While no longer the definition of wealth, across the capitalist world, money was understood as central (as a lubricant or a catalyst) to the workings of a self-regulating productive super-machine. Money came to be understood (correctly) as a technology – a flow technology – rather than as wealth itself. The mercantilist idea of money as wealth – and of gold or silver as money ‘to be made’ – never disappeared, however.

With that view of money as a lubricant in mind, we today can understand that a shortage of money is always going to be a bigger problem than a surfeit of money. (A car with an oil leak will eventually grind to a halt. A car with an overfilled sump, on the other hand, will still function; it will function near-to-perfectly if there is a place within the car to park the excess oil.)

This new laissez-faire view of monetary policy changed once it was realised that the mechanism didn’t work in practice as it did in theory. While it didn’t work for multiple reasons, there was a continuation of the pretence that it did work. In order to maintain that pretence, senior bankers and political leaders – the emerging ‘lords of finance’ – turned to interest-rate manipulation within the context of the ‘gold standard’.

Ultimately, what societies’ elites wanted was to have a form of ‘liquid’ wealth that they could store over time, and which would maintain (or even increase, through the ‘magic’ of compound interest) its purchasing power across time. The merchant capitalist mindset came to prevail over the realisations of progressive bankers and economists. The elite-classes still wanted a monetary policy which would operate as if mercantilism was true.

The elite-classes wanted money to come at a cost, so that they could be sure money would remain scarce. Gold and silver mining (and latterly crypto-currency mining) have been the primordial costs of commodity money. Interest rates would have to serve as the entry costs of modern ‘as if’ money.

Modern Monetary Theory

There is a known and substantially correct story in academia – albeit ‘heterodox’ academia – about money, monetary policy, and the relationship between public finance (fiscal policy) and money. It’s called Modern Monetary Theory or MMT. The conceptual relationship between OMT (orthodox monetary theory, though a better name might be PMT ‘prevalent monetary theory’, or even better LMN ‘liberal-mercantilist monetary narrative’) and MMT is akin to the relationship in the 1850s between miasma-theory and germ-theory in epidemiology. (Many people died of cholera in Europe and the Americas because the scientific establishment clung onto the miasma theory, despite the overwhelming and increasing weight of evidence to the contrary.) MMT dispenses with the requirement that money must enter into circulation at a cost; and disposes of the argument that the public and private sectors are each-other’s rivals.

I was fortunate to meet Randall Wray at an economics’ conference in Sydney in 2011, and found that he and his academic collaborators already had a well-developed theoretical framework which matched some statistical work I was doing at the time. I had been exposed to the work of Japanese/Taiwanese macroeconomist Richard Koo, and his studies of the Japanese structural recession of the 1990s and Japan’s recovery from that event. Of importance was Koo’s concept of a balance-sheet recession.

The central idea is that core money is public debt; a set of promises spent into circulation and backed by sovereign governments. A simple example of this is traditional coin money, made from bronze or silver or gold. In MMT, what gives the coin its value as a token of circulation is the depiction of the sovereign’s head, and not the amount of precious metal in the coin. A second example lies in the history of central banking, whereby the original three central banks (in Stockholm, Amsterdam, London – all in the seventeenth century) pioneered central banking through their roles as bankers to their governments; in particular, they managed their governments’ historical war debts. Those debts became private assets; and the core assets on these banks’ balance sheets.

These banks evolved to become bankers to the other banks as well as bankers to the state. Almost all the world’s central banks – ie Reserve Banks – are now publicly owned; they are very much part of the apparatus of the state. While governments sub-contract monetary policy to semi-independent central banks, MMT suggests that monetary policy is in reality undertaken by nations’ Treasuries. As a result of Treasuries’ monetary misunderstandings, modern capitalism risks becoming like an under-lubricated car with leaks.

Public debt(s) are private assets, just as a bar of gold is an asset. The world’s effectual money supply is the ‘liquid’ – ie flowing or circulating – component of (or derivative of) any monetizable asset; the core monetizable asset being public debt. This chart (from my Governments run financial deficits; it’s their role to do so, Evening Report, 17 October 2023) shows that, this century, public debt – the monetary base – increased each year from 2008 to 2022 by an average of about four percent of global GDP. That’s about how it should be, and with significantly larger injections of money required whenever a financial or economic crisis threatens to undermine the circulation of money in the real economy, as occurred in 2008 and 2020.

The real economy is the purchases of goods and services. The ‘unreal economy’, into which much money leaks, is the ‘casino economy’ whereby money is spent on financial assets; non-money circulating promises such as shares, bonds, and property titles. The ‘upstairs’ casino economy acts as a dynamic treasure hoard, fuelled by leaks from the real economy, with players buying and selling assets at mostly increasing prices.

While according to MMT, public debt (not gold or silver) is the foundation rather than the pariah of capitalism, that is not to say that more public debt is always better than less public debt; just as, in the classical schema, more gold is not necessarily better than less gold. Though in 2025 Aotearoa New Zealand, more public debt would certainly be better than the present constricted amount. The growth of public debt is always limited by tax revenue arising from the circulation of money; as they say, nothing is more certain than taxes. One efficient way to increase public debt – and thereby enhance the liquidity of the economic machine – is through ‘negative income taxes’; for example, universal tax credits (which should act like the credits received in the game Monopoly whenever a player passes ‘Go’).

The prices of money

There are three important prices associated with money: the internal price (which wavers with pure inflation and pure deflation, and does reflect the idea of money ‘as if’ it’s a commodity like silver); the external price (the exchange rate between one form of money and another, eg $NZ vis-à-vis £UK); and the interest rate which is best understood as the price of ‘inter-temporal trade’ (although OMT treats it as the ‘necessary cost of money’).

Inter-temporal trade simply means exchanges when, unlike direct barter, selling and buying do not occur simultaneously. Wage workers effectively sell their labour on pay-day, and buy stuff (say at the supermarket) on another day. When they ‘save’, then it may be months or years before they spend that saved money; that is, months or years before they use it to buy stuff. Alternatively, workers may spend some of their wages in advance; for example, with a payday loan or a credit card. Interest rates are a market-clearing price which – if correctly set in the money market – ensures the balancing of income spent late with income spent early.

People who tend to spend their money before payday are usually net payers of interest. Likewise, people who spend most of their money after payday are net receivers of interest. Thus, interest rates should be high when few people want to spend late and many want to spend early; and low when many people want to save and few want to borrow. There is no reason why interest rates cannot be very low; that is, negative.

Negative real interest rates are indeed commonplace; they occur when the rate of inflation is higher than the interest rate. For example, if the internal price of money is falling by five percent a year (ie annual inflation is five percent) and the interest rate is three percent, then the real interest rate is minus two percent. Under such conditions, interest effectively flows from savers to borrowers; rewarding early spenders over late spenders.

(For a while in the late 2010s, Switzerland had a published interest rate of minus three-quarters of a percent and inflation at minus one-and-a-quarter percent, meaning that the real rate of interest was plushalf a percent. Everything worked fine; interest effectively flowed from borrowers to savers. Switzerland then needed negative interest rates in order to limit the appreciation of its currency the Swiss Franc; otherwise, the external price of Swiss money would have been rising too much. In that episode, all three prices of money came into play.)

Looking at the three prices of money dispassionately, we see that they all play a role in free market capitalism, and that the inflation rate is itself a part of the price mechanism. This indeed has been grudgingly accepted by the mainstream, with today’s monetary policy proposing the optimum annual inflation rate as two percent rather than zero; and there are advocates today for higher inflation targets. The internal price of money should fall, policymakers agree, albeit in a predictable manner. Australia indeed has a higher inflation target than New Zealand.

(If inflation is 2.1% every year for 100 years, two $20 notes put under the mattress today should buy one loaf of bread in the year 2125; $40 would become equivalent to today’s $5.)

One important benefit of inflation is that it encourages the circulation rather than the hoarding of money. The biggest danger arising from large caches of non-circulating money is that such money may reactivate at short notice, creating substantial ‘excess-demand’. Just as we are used to seeing money regularly leaking into the casino, money in the casino can be injected into the real economy at short notice.

Bimetallism as a way of favouring Inflation over Deflation

An early attempt at monetary reform during the gold-standard period was the advocacy of bimetallism.

The United States election of 1896 was fought, in effect, on the issue of inflation versus deflation. At that time, due to gold scarcity, the gold to silver exchange rate was high (16:1) and rising. There was a substantial world depression in the early 1890s; an event that hit Australia very hard, causing New Zealand to resist overtures to join the incipient Australian federation.

In the world of the gold standard, prices were at an all-time-low and many small businesses had become distressed; especially farmers who were selling their produce at prices which were falling even faster. In the United States the free silver movement was prominent, and the Democrat Party chose a candidate – William Jennings Bryan – who favoured that political position. He failed to get elected because there was an effective party split, with many urban voters in opposition to the policy to shift from the gold standard. (As a result of the Democrat split, many Gold Democrats aka Bourbon Democrats voted Republican. The new Republican president was the recently hyped imperialist William McKinley. The gold-silver exchange-rate issue largely dissipated following the 1897 Alaska gold rush.)

The anticipated effect of a switch to a silver or bimetallic standard was that prices and wages would go up, and the highly indebted small businesses would be able to service their debts in an environment of inflation rather than deflation. City workers in 1896 tended to favour deflation; many were unable to make the connection between their future standard of living and the retention of a thriving small-business sector.

As we have seen, this position of favouring inflation over deflation is now mandatory in most capitalist jurisdictions. The largely successful monetary policy attempts in the 2010s to ward-off deflation ensured that there was no general depression in that decade. The policy, strictly, was largely unsuccessful in achieving its inflation target. That’s because of one of the fundamental flaws in orthodox monetary policy; low interest rates generate lower rather than higher costs, and therefore low rates of CPI-inflation.

Examples of ineffective and effective monetary policy from (mainly) New Zealand history

There were antecedents of MMT (and other pragmatic initiatives) in New Zealand and elsewhere during the recovery from the Great Depression which peaked in the early 1930s.

In the 1920s New Zealand had no Reserve Bank. New Zealand’s (mainly Australian-owned) banks did their banking in London, the world’s pre-eminent financial sector. From 1926 until 1928, New Zealand’s Minister of Finance was William Downie Stewart, an economic liberal and a monetary conservative. Gordon Coates – more of a pragmatist, but largely untested – had been endorsed as Prime Minister in the 1925 election months after the death of William Massey.

1927 was a disaster year for New Zealand, exacerbated by Stewart’s unresponsiveness in his role. Australia had its economic meltdown a year after New Zealand, reversing the trans-Tasman migration flow. This made the government even less popular, as unemployment in 1928 was blamed on immigrants. Coates’ Reform Party – the principal precursor of today’s National Party – went from 48% of the vote in 1925 to 35% in 1928, losing power as a result. In 1929 there was a United minority government, initially facilitated by Labour. The winning policy of United – the former Liberal Party – was increased government borrowing. The result was 20 months, in 1929 and 1930, of relatively good times despite the unfolding international crisis.

Reform went into the December 1931 election as junior partner in a United-Reform Coalition (a formal coalition which formed that September). While gaining many more votes and seats that election than United, Reform remained the junior partner. Stewart was restored to Minister of Finance at the worst possible time; going into 1932, the most difficult year of the Great Depression. Labour’s doctrinaire socialism was unappealing to voters, despite the growing unpopularity of the United government in the months following the retirement and death of Prime Minister and Finance Minister Joseph Ward.

As a ‘sound-money’ man, Stewart had been a stickler for the revised gold-standard rules. However, before the 1931 election, Britain’s government collapsed due to the financial crisis. Britain had to suddenly withdraw from the Gold Standard. The ensuing rapid depreciation of the British pound (largely reversing deflation in that country) kick-started the British economy, and also brought the New Zealand economy out of its 1931 ‘free-fall’. But New Zealand, being an agricultural commodity economy facing severe terms-of-trade issues, needed an even bigger (and longer-lasting) currency reset. Eventually, in January 1933, Stewart did the right thing and resigned on a matter of monetary principle. Coates – Stewart’s replacement – now pragmatic and worldly-wise, immediately devalued the New Zealand pound against the British pound, in line with the recommendations of the young generation of economists.

New Zealand’s recovery remained slow, but at least it was under way. The management of New Zealand’s financial reserves in London remained too conservative. Nevertheless, many subsequently iconic new businesses began their lives in 1934 and 1935 (for example Wattie’s, Fisher and Paykel, Sleepyhead).

Coates did two more things of great importance. First, he established a reform-minded Brains Trust made up of three young economists – Campbell, Sutch, Belshaw – who would argue for monetary pragmatism. And Coates established the Reserve Bank of New Zealand in 1934. Though created with conservative monetary principles in mind, the means had become available to introduce heterodox monetary policy in the event of a future government willing to flirt with an alternative narrative.

Another important development was the rise in the United Kingdom in the 1920s of Social Credit, then known as Douglas Credit, a ‘lay’ movement (counter to the political economy traditions of Marshall and Marx) reminiscent of the previously-mentioned American ‘free silver’ movement. Social Credit largely antagonised academic economists, by making anti-orthodoxy generalisations which were simplistic and too broad. Nevertheless, Social Credit gained a substantial political influence, not least in New Zealand; and it did have policy prescriptions helpful for extracting economies from a state of structural recession and inequality.

In the Labour Government elected in 1935, there was a substantial Social Credit faction; and there were a range of other monetary reformers with varying degrees of sympathy towards Social Credit. Social Credit’s central argument was that the orthodox monetary system had a permanent and structural deflationary bias, and that a public institution – such as an appropriately modified central bank – would be required to offset this bias. In effect, Social Credit argued for quantitative easing, and a national dividend (and food price subsidies, called ‘compensated prices’) as means to inject new money into circulation while addressing monetary poverty and inequality. (See A National Dividend vs. a Basic Income – Similarities and Differences, by Oliver Heydorn, 2016.)

Unlike the quasi-Marxian form of socialism advocated by New Zealand Labour from the 1910s until 1933, the party under the leadership of Michael Joseph Savage became infused with monetary radicalism and a desire to unite rather than divide diverse economic interests.

A commitment to monetary reform within Labour in 1935 led many rural voters to vote Labour for the first time ever (including voting for my great-aunt’s husband in Kaiapoi). Those voters remained loyal to Labour in 1938, in light of Labour’s subsequent monetary achievements. Particularly effective was the State Housing programme, politically managed by John A Lee, a working-class monetary reformer. Labour made full use of the new Reserve Bank to create-through-spending the money required. Economic growth boomed (about 25% in two years) while inflation remained low; a big recovery from a big depression.

In New Zealand, Social Credit split from Labour in the 1940s, and formed its own political party. While often polling highly, it could not break the two-party system, and was eventually broken as a political force – in 1984 losing two-thirds of its 1981 vote – after having been lampooned by Bob Jones. Jones was leader of the one-election-wonder New Zealand Party; an ‘unsuccessful’ party which successfully acted as a political catalyst for the return of economic liberalism and the floating-currency version of classical monetary orthodoxy.

While much of what Social Credit claimed as chronic weaknesses of the orthodox monetary narrative has turned out to be true, the successful albeit piecemeal monetary reforms which took place in the middle-third of the twentieth century eventually undermined Social Credit’s critique of monetary orthodoxy. Social Credit had indeed contributed to its own seeming redundancy as an economic force in New Zealand. (There was a Royal Commission on Money in 1954, in which Social Credit had a chance to make a substantial case. Although there had been a near-recession around 1953, after the Korean War, and Social Credit gained 10% of the vote in 1954, there was little evidence then of structurally unsound monetary arrangements.)

A third important development was the publication in 1936 of The General Theory of Employment, Interest and Money by John Maynard Keynes, an already famous British economist. This was a largely technical book which extended and reconsidered Keynes’ earlier views on money and monetary policy (1930 A Treatise on Money), while emphasising the critical roles of public debt and government spending in getting a country out of structural recession. Keynes also recognised in 1933 that import protection through tariffs would help with national economic recoveries, and that national economic recoveries would enable the restoration of the international capitalist economy. Keynes criticised international capitalism in order to save it.

Keynesian analysis led to the pushing a string critique of monetary policy.

It was the Keynesian critique which created the post-war international expansion; underpinned by an emphasis on government spending as a curative for the kinds of unemployment which widely prevailed in the 1930s. But Keynes believed that the problem of the 1930s was more cyclical than structural; hence he argued – in contrast to the MMT argument – that governments should run budget surpluses during periods of full-employment.

Keynes was the architect for the post-war monetary system that might have been. But the alternative American-led version won out, with politics prevailing over good argument, and with Keynes’ premature death.

Keynesian and other insights from the Great Depression of the 1930s informed monetary policy during the global decolonisation period from 1946 to 1976. Newly independent countries emerged, all with central banks. Central banks became, more explicitly than before, an arm of government. In New Zealand, with its substantial historical national debt (a result of imports exceeding exports for around 100 years) the development of import-substituting and export industries became central to economic policy. Interest rates remained below the rate of inflation through sufficient costless money creation. Organisations close to government – especially the producer boards such as the Dairy Board, forerunner of Fonterra; also, the State Advances Corporation which funded mortgages – gained direct lines to practically costless money through their Reserve Bank accounts.

While those monetary reforms worked in their time, future fiscal-monetary policies will need to be more about sustainability and private-choice than through a single-focus on selling more goods in a stormy world marketplace.

Unfortunately, monetary policy from the 1980s regressed into the spirit of 1920s’ economic liberalism and monetary conservatism. The result has been the nonsense of simultaneous economic growth and deteriorating living standards through stagnant wages, overwork, unaffordable housing, and weak environmental stewardship; the inequality norm of the neoliberal era matches that of the early twentieth century.

Money is inherently public. Unfortunately, there is a ‘groupthink’ in the economics profession; the profession which describes economies with a very limited vision of capitalism’s public sphere. Modern monetary theory straddles capitalism’s public-private interface.

Financial Mercantilism and Labour Mercantilism

In the neoliberal counter-revolution of the 1980s, the Reserve Bank of New Zealand was mandated to use interest rates as a weapon to suppress inflation by creating a recession. Although government debt was costless to create, governments were obliged to pay high ‘market’ rates to borrow. A new ‘expensive-money’ era of neoliberal-mercantilism was born, in which money was required to have innate scarcity value. Money reverted to its former status as a commodity to be made and stored.

The neoliberal era is best characterised as a new period of financial mercantilism; an era in which money is king, and the objective of economic life is – through capital or through toil – to ‘make money’.

This neoliberalisation took an unusual path in New Zealand, in that the figure after whom these changes were identified – called ‘Rogernomics’, after Labour Minister of Finance, Roger Douglas – had a deeply set philosophy which can best be described as ‘labour mercantilism’. The philosophy dates to conservative working-class practices in the Victorian era, the Fabian era, and which gave a nod to Marxian class consciousness. In that era of working-class self-help, worker welfare came through worker-funded contributory societies in which all contributors had an equal stake and expected equal benefits, though spread out over time. To be a beneficiary, you had to be a contributor to the fund from which you and your family expected to benefit. Money earned in one period would be paid out much later. Pension-fund benefits, for example, paid out of saved money, needed to purchase new goods and services. While this idea presumes economic growth through the accumulation of physical capital, the initial withdrawal of money from circulation could inhibit such growth.

This funding idea forms the basis of ‘savings-funded’ pension schemes, as distinct from ‘pay-as-you-go’ taxation-based schemes. The savings-funded schemes create huge financial liabilities which must be liquidated in an inherently uncertain future; the fiction is that wealth is stored in the past to be consumed in the future. The current-tax-funded schemes, on the other hand operate entirely in the present tense; a person’s pension is determined by today’s economic conditions, not yesterday’s conditions.

Financial mercantilism is a ‘store-money-today’, spend it decades later perspective. Labour mercantilism is the variation applied to the savings of wage and salary earners.

In the late-1930s’ Labour Government there were three factions, which Michael Joseph Savage (Prime Minister) had to manage. There were the monetary radicals – the radical centre – which included Social Credit. There were the left-wing redistributors, who wanted to ‘tax the rich’ and ‘pay pensions and tax concessions’ to workers. And there were the ‘right-of-the-party’ labour mercantilists who wanted to withdraw money today to build sovereign wealth funds from which future retirement and other benefits would be paid to workers’ families. These last two groups squabbled intensively behind the scenes. (A very useful source is the 1980 book, The Politics of Social Security, by Elizabeth Hanson; another is A Civilised Community, 1998, by Margaret McClure).

That first Labour caucus included Bill Anderton, Roger Douglas’s maternal grandfather (MP for Eden and then Auckland Central from 1935 to 1960; no relation to Jim Anderton, whose father’s surname was Byrne and mother’s birth-surname was Savage, though no relation to Michael Joseph Savage). From 1960 to 1975, Norman Douglas succeeded his father-in-law Bill Anderton as MP for Auckland Central. Norman and Roger Douglas were in Parliament together from 1969 to 1975.

In 1937 there was a push from Labour’s right to abandon the 1935 policy pledge of universal pensions (and other benefits) in favour of an actuarial scheme – what we would today call a sovereign wealth fund – that was conceived-of as a kind of ‘magic money tree’ based on the ‘principal of compound interest’. Minister of Finance Walter Nash, returning from the United Kingdom in 1937, was accompanied by accomplished British actuary George Henry Maddex. Much time was spent with Maddex – some would say wasted – trying to supplant the promised ‘pay-as-you-go’ universal pension with this scheme which promised some people – mainly men – with large benefits in the distant twilights of their lives. Further, because the people who financially contributed the most would get the most, the scheme in essence promised an avalanche of future-spending by people other than those with the most needs. In the end the left and right factions cancelled out, resulting in a universal welfare state funded for current beneficiaries with current money.

Compound interest only works if interest is less than inflation over the medium-long term. In practice such ‘pension funds’ play about for decades in the casino economy, trying to replicate the promise of compound interest. Further, they represent capitalism’s greatest financial risk; the possibility that financial assets, dynamically-parked in the casino of capital gains, will sometime in the future return at scale and at short notice to the real economy. Flooding the future economy with excess demand. Or eventually providing deferred benefits which would buy much less than promised.

Fast forward to 1974, Roger Douglas devised and established such a sovereign wealth fund, which commenced operation in 1975, and was cancelled months later. In the midst of high inflation and a global economic crisis, the greater monetary priority was addressing the issues of that time, not stashing away stocks of money for the never-never. The National Party under Robert Muldoon fully exploited that misplaced priority.

When in power again in 1985, Douglas turned to the redistributive face of Labour, means-testing the ‘universal superannuation’ which had existed in one form or other since 1940.

Nevertheless, still alive and well at 88 – and long-after he established New Zealand’s most right-wing party, ACT – Roger Douglas is still pushing for the same sovereign wealth fund that his grandfather wanted in 1937 and that briefly operated fifty years ago. This time he has University of Auckland Economics’ Professor Robert MacCulloch at his side, claiming this pension fund as a magic bullet solution to New Zealand’s present stagnation (refer GDP drop sparks calls for Willis to step aside, RNZ, 19 Sep 2025). One-again, withdrawals from the ‘circular-flow of money’ will not rejuvenate an economy which desperately needs injections of ‘money-in-circulation’.

Kwasi-nomics

An interesting recent episode was the Fall 2022 rise and fall of Liz Truss as United Kingdom Prime Minister, and her hapless Chancellor of the Exchequer Kwasi Kwarteng. Truss and Kwarteng were right-wing monetary mavericks, willing to expand the United Kingdom’s public debt through ‘unfunded’ tax cuts. Yet the structure of those tax cuts was principally to allow the already rich to become richer, rather than to inject the money into where it was most needed. Subsequent to her effective dismissal, she went on to laud Argentina’s hatchet (aka chainsaw) President Javier Milei whose modus operandi is to drain money from those sections of Argentine society which most need it. Kwarteng and Truss were co-authors of Britannia Unchained, which argued ‘for a radical shrinking of the welfare state in order “to return it to the contributory principle … that you get benefits in return for contributions”. That’s the same quasi-economic principle which underpins labour mercantilism.

Ricardian Equivalence

Ricardian Equivalence is an idea gleaned from classical macroeconomics which became fashionable within neoconservative economics in the 1980s. It claims that fiscal policy is futile; that increases in government spending are ‘internalised’ in such a way that private spenders adjust by spending less. It has been widely used as an argument for the futility (rather than the centrality) of government spending as an engine to establish a healthy full-employment market economy.

Neoconservatives push the liberal-mercantilist monetary narrative as the only valid macroeconomic policy programme. Ricardian Equivalence, much-touted by economic liberals to justify fiscal conservatism, puts all their policy eggs into monetary policy. Meaning the monetary policy, based on innate money scarcity, of using interest rates to recreate the primordial costs previously associated with gold and silver mining.

Ricardian Equivalence is a ‘straw man’ argument. In as much as the data supports it, that conservative characterisation of government spending does not apply to economies stuck in depressions or structural recessions. Only programmes of active government spending – or waiting for too long – can resolve a structural recession.

And the monetary system always requires enough public debt to act as the banking-system’s ‘modern gold’.

Finally

Modern Monetary Theory is a valid description of money as it actually is (and was), and a policy recipe for economic growth. There are important twenty-first century stories which require money to be something more; in particular, a means to generate higher living standards and productivity without requiring economic growth. This is partly an issue of work-life balance, better enabling those who wish to choose more leisure and less work. And a prosperous future without economic expansion will be a requirement of a future of demographic contraction, as is forecast for the end of this century.

To achieve these ends, we have to go beyond public-debt-induced peoples’ money to achieve ways in which ordinary people – households of people who consume goods and services among other things – can choose their own balances between consumption and other facets of good living.

It can be done. Public equity dividends – dividends arising from public domain capital, equal and unconditional, complementing private incomes – can enable the overworked to work less and the underworked to work more. That could be the future direction of modern money.

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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.

Back in the day, Economics 101 students learned that trying to recover from a depressed economy using monetary policy alone was like ‘pushing on a string’.

Easy monetary policy is supposed to work by getting people – households, businesses, and governments – to incur more debt; in a phrase, to borrow and spend. Easy money alone sometimes works; for example, in an ordinary downturn of the trade cycle. It does not work in a depression or a structural recession (see my Chart Analysis – Structural Recession, Evening Report 21 September 2025); because – for most parties – the overwhelming priority is to get out of debt rather than to recover through debt. The carrot of cheap loans does not appeal to overextended and technically insolvent borrowers.

Recovery through easy monetary policy depends on there being enough potential borrowers willing and able to respond to the monetary carrot.

The central government is such a potential borrower. When the government responds to the incentive, the policy is called easy fiscal policy. It’s a game-changer. Easy monetary policy may mean there’s plenty of money sitting in banks’ balance sheets; sitting waiting to be borrowed and spent. For the economy to recover, that money has to move; money – to be money – must circulate. It requires a spending agent able to take on the risk of more debt in a recession to get money moving once again. The government is generally best-placed to be such an agent, though not necessarily the only one; larger domestic corporates should also be motivated to help with the recovery of the economy which represents their home base.

In a structurally recessed economy, the banks need to create the extra money and the spending agents with deepest pockets need to borrow and spend. It’s not rocket science. Banks will almost always create the money when good customers come to borrow; that’s a central feature of profitable banking.

Will governments which borrow more end up with more debt; with too much debt? The answer is, generally no. By spending, governments generate income and therefore income tax. There’s a multiplier that is particularly powerful during a structural recession. (In 1937, the New Zealand economy had double-digit annual growth, as state-housing funded by new money created the necessary stimulus to get New Zealand out of the Depression.) Customers of governments generate income and therefore income tax. And customers of those customers also generate income and therefore income tax. And so on.

It’s widely known that income tax grows faster than income in an expanding economy, especially a growing economy with two-to-three percent inflation. (And it’s known that income tax shrinks faster than incomes in a contracting and/or deflating economy.) That’s why the Australian government has a Budget surplus (0.6% of GDP) at present and New Zealand has a deficit (-3.1% of GDP); as well as why Australia has less government debt as a percent of GDP (data from Trading Economics; though data users should be critical, that source gives the latest United States quarterly economic growth data at four times what it really is – note the presence or absence of the word ‘annualized’). Australia has a Treasurer who’s not afraid to spend (and despite Australia having higher interest rates, tighter monetary policy); hence the healthy revenue of the Australian Treasury.

In a depressed economy, fiscal policy is the answer. Monetary policy helps of course. But relying on monetary policy alone is like pushing a string. The economy just goes slack. This is not a revelation. It’s basic Economic Principles, as it was once taught.

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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.

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.

It’s time that the nations of the world (or at least the influential western nations) accept the reality that all the lands that constituted 1920-1948 Mandatory Palestine should be formally recognised as a single nation-state; ideally called Palestine Israel or Israel-Palestine, but more realistically called Israel.

In other words, the never-viable notion of a two-nation-state division of ‘Israel’ (https://en.wikipedia.org/wiki/Eretz_Israel) should be dropped as a viable solution in favour of the promotion of a liberal bicultural (or multicultural) nation-state. The role model for change could be South Africa.

Jewish and Non-Jewish intellectuals (such as Hans Kohn, Shlomo Sand and Yanis Varoufakis) – on the political left – have been arguing for this ‘one-state-solution’ for over 100 years. It’s just that their voices have always been deamplified by those on the political centre and the political right. (On the centre, we think of people like Joe Biden, Keir Starmer, and their predecessors. On the right, we may consider former Israeli Prime Minister Yitzhak Shamir, a leader in the 1940s of the openly fascist Lehi, yet a moderate by today’s Israeli political standards.)

Shlomo Sand outlines the history of the arguments for a single ‘binational’ state in his 2024 book Israel-Palestine: Federation or Apartheid? His vision, which is not quite what I favour, emphasises binationalism (https://en.wikipedia.org/wiki/binationalism), and looks towards these successful liberal examples of bi- or multi- nationalism: Canada, Belgium, Switzerland.

The better framing of this approach, I believe, is biculturalism; though even that is not problem-free, because it is an exclusive concept. What I think would work best for Palestine Israel is also the same as what would work best for Aotearoa New Zealand: multiculturalism with a bicultural (treaty) emphasis. (Ireland could have become something similar, as in Irish rugby; but it went down a failed two-state path, and experienced two substantial civil wars last century.) The ideal is for Palestine Israel to become a liberal democracy in which all people born within its borders become citizens with equal citizenship rights; a nation state which commits to both the domestic and international norms of liberal democracy.

(In a bicultural nation-state, the principal divider is religion; normally people’s religious loyalties are discrete, meaning that being, say, a Muslim or Jew or Christian is mutually exclusive. The word ‘national’ is increasingly used in the 21st century as it was in the 19th century; to refer to a ‘people’ or a ‘race’ rather than to relate to a territory defined by its borders and its sovereign institutions. Ethnicity – the better word is ‘ancestry – is not a discrete concept such as ‘religion’; individual people have multiple ancestries, and should not be required to identify as one over another.)

How can this be achieved?

First, we should note that the status quo in Eretz Israel is at least as unacceptable as Apartheid South Africa was to our world of mostly ‘internationally-civilised’ nation-states. (An internationally civilised state is one that accepts agreed norms in the ways that it relates to other nation states, meaning that it does not indulge in offensive hard-power geopolitics – such as ‘gunboat diplomacy’; and it practises cultural equality. Terrorism is understood as criminality. Such a state does not have to be a ‘democracy’ in the Westminster or American sense; but it should meet open liberal standards in the ways it treats its resident denizens – non-citizens – and it should subscribe to international treaties on matters such as climate sustainability and nuclear energy and election authenticity.)

Second, this desired outcome will not come about by force. The community of liberal nations should simply recognise Eretz Israel as a nation state, based ideally on the prior borders of Mandatory Palestine.

While there should be no demands, such a new nation-state would be risking discriminatory sanctions if it abuses liberal norms; in particular if it implements laws (including civil-marriage laws) that discriminate on the basis of sex, religion, or ancestry. Again, the obvious model is Apartheid South Africa, and the ways that South Africa was excluded from international sport so long as it implemented laws which discriminated on the basis of ethnicity. (Palestinians and many Israelis have Levantine ethnicity. Many Israelis have European, African or Asian co-ethnicity; that non-indigeneity should never be held against them. Nor should the indigeneity of the Palestinians.)

In recognising Eretz Israel as Israel-Palestine (or even just under the name ‘Israel’), a Levantine nation state, Israel’s nuclear status should be addressed and normalised. (Likewise, India and Pakistan should be pressured to join the ‘nuclear club’. One of the most problematic regional asymmetries at present is the advanced nuclear-status of Israel versus the embryonic nuclear status of Iran; Israel at present hides behind its non-membership of the Treaty on the Non-Proliferation of Nuclear Weapons to make it seem that Iran is a bigger nuclear threat to the world than Israel is.)

Recognition of Eretz Israel as a sovereign nation state, under any name, should come with overt expectations of democracy, amnesty, truth, reconciliation, and press freedom. There should be no formal or informal mechanism of ‘settling scores’, no matter how reprehensible anyone’s past or present behaviour has been. Truth trumps vengeance cloaked as ‘accountability’.

Lebanon was an initially successful, but now largely failed, version of a similar attempt at creating a tolerant multicultural nation state in the Levant. Lebanon’s main problem was its belligerent southern neighbour. Israel-Palestine would not have Israel as a neighbour.

Abandon the naïve two-state solution.

There is no way a Palestinian nation-state can be viable. At the very best it could become like a mini-Pakistan or mini-Bangladesh; and even that would take decades. (And the last Israeli prime minister to formalise a two-state future – Yitzhak Rabin – was assassinated in 1995, having achieved a Nobel Peace Prize in 1994.) The two-state-solution agenda seems to be more about deescalating sufficiently for the Palestine issue to disappear from its media prominence; and not at all about ending a forever war which began in 1948.

The present forever war – now in its hottest phase – followed a brutal war for Israeli-Jewish independence and non-Jewish expulsion waged by fascist and non-fascist ‘non-state actors’ from 1939 to 1948 against the British ‘protectors’. That, in turn, followed a prior Palestinian insurrection against the British and the settlers from 1936-1939 (though overshadowed in the international media by the Spanish Civil War), which in its turn followed the 1929 Palestine riots. That’s 96 years of escalating forever violence.

In Summary

Recognise a new expanded state, with or without a new name, but with certain (unenforceable, but well-publicised) expectations. This expectation should be a multi-cultural Levantine sovereign state, embracing adherents of the three Abrahamic faiths (as well as people of other religions, or no religion, as citizens; people born in Israel or Palestine, and documented immigrants): Levantine Jews, Levantine Muslims, Levantine Christians, plus others. All Israelis. And all Palestinians.

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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.

People of a certain age will be aware that the 1962 Cuba Missile Crisis was, for the world as a whole, the most dangerous moment of the Cold War. The 1962 ‘Battle of Cuba’ was a ‘cold battle’ in the same sense that the Cold War was a ‘cold war’. (Only one actual shot was fired, by Cuba.) Nevertheless, it is appropriate to ask, “who won”?

In military events hot or cold – it is surprisingly difficult to answer such a question. But it’s actually quite easy in this case.

The cold Battle of Cuba was about three countries, and three charismatic leaders: Nikita Khrushchev (Soviet Union), John F Kennedy (United States), and Fidel Castro (Cuba). Following the disastrous American invasion of Cuba in 1961, Cuba had taken on the role of a Soviet Union ‘client state’ – hence a military proxy – of the Soviet Union. (Prior to the Bay of Pigs assault, Cuba, while a revolutionary country, was not a communist country; though at least one prominent revolutionary, the Argentinian doctor Che Guevara, was certainly of the communist faith and took every opportunity to convert Cuba into a polity that followed the Book of Marx. The actions of the United States facilitated Castro’s eventual conversion.)

The situation that Khrushchev faced in late 1961 was that NATO had an installation of American nuclear-armed missiles in Turkey (now Türkiye). While Turkey had a common border with the Soviet Union – Azerbaijan, Armenia and Georgia – the missiles were essentially facing north across the Black Sea, into Ukraine and Russia. This was a clear and open – though not widely publicised in ‘the west’ – security threat to the Soviet Union.

Taking advantage of the political fallout between Cuba and the United States, Khrushchev – in an act of bravado, indeed brinkmanship – negotiated with Castro to install nuclear-capable missiles in Cuba, one of the few genuine security threats that the United States has ever faced.

The world trembled at the prospect of imminent (and possibly all-out) nuclear war. Castro looked forward to a hot battle which he was sure Khrushchev and Castro would together win. But Castro was doomed to disappointment. Khrushchev dismantled his missiles in Cuba, and Kennedy dismantled his missiles in Turkey.

So, compare, say, October 1963 with October 1961. The only real difference was that in 1961 there were American missiles in Turkey pointing in the direction of Moscow, and in 1963 there were not. Game, set, and match to Khrushchev. (And of course, the whole world was the winner, in that not a nuclear missile was fired in anger. Though the Cubans did shoot down an American reconnaissance aircraft.)

That’s not the narrative which the western world has taken on board though. In the West, it’s interpreted as a Soviet Union backdown, in the face of relentless diplomatic pressure from the Kennedy brothers (with Robert Kennedy playing a key negotiating role). Certainly, the world was on tenterhooks; brinkmanship can go disastrously wrong.

There are some analogies with the current Ukraine crisis. Though the Ukraine War is certainly a hot war.

Brinkmanship failed in 2021 and 2022. Nevertheless, Volodymyr Zelenskyy does pose as a good analogue to Fidel Castro (though not as an incipient communist!).

Donald Trump’s brinkmanship re China and the European Union

Trump’s war is a ‘trade war’, Winston Peters’ rejection of the ‘war analogy’ notwithstanding. This is a war that uses the language of war. Two longstanding mercantilist economic nations (China, European Union) and one mercantilist leader are slugging it out to see who can export more goods and services to the world; the prize being a mix of gold and virtual-gold, the proceeds of unbalanced trade.

(Historically the United States has also been a mercantilist nation, going right back to its origins as a ‘victim’ of British mercantilism in the eighteenth century. The United States has always been uneasy about its post World-War-Two role as global consumer-of-last-resort and its historical instincts towards mercantilism; an instinct that contributed substantially to the global Great Depression of 1930 to 1935. ‘Mercantilism’ is often confused by economists with ‘protectionism’, and indeed the American Smoot-Hawley tariffs of 1930 were a mix of both.)

My reading of Donald Trump is that he is a mercantilist, but not a protectionist; that he’s not really a tariff-lover, just as Khrushchev was not really a missile lover. Instinctively, China and especially the European Union are protectionist as a way of supporting their ingrained mercantilism. But a country that is ‘great again’ – in this ‘making money’ context – can prevail in a trade war without tariffs. Indeed, that’s exactly why the United Kingdom moved sharply towards tree trade in the 1840s and 1850s. England had not lost its mercantilist spots. But at the heart of an English Empire within a British Empire, London had the power to win a ‘free trade’ trade war. It was the other would-be powers – the new kids on the global block; the USA, Germany’s Second Reich, and later Japan and Russia – which turned to tariff protection in order to stymie the United Kingdom.

Trump’s super-tariffs against China and the European Union – trade weapons, economic ‘missiles’ – are designed to get those two economic nations to remove their various trade barriers that existed in 2024. Once they do that, then Trump may remove his tariff threats.

Trump is playing brinkmanship in the way of Khrushchev. Xi Jinping is Kennedy; so, in a way, is Ursula von der Leyen. Canada, in a sense, is Cuba. (Though Mark Carney may not like to think of himself as Castro!)

If Trump gets his way, the United States’ economy in 2026 will be as free as it was in 2024. The Chinese and European Union economies will have significantly fewer tariff and non-tariff import barriers than in 2024. Significantly fewer ‘trade weapons’ poised to ‘rip off’ the United States! Canada will be much the same in 2026 as in 2024, albeit with a newfound sense of national identity.

Implications for the Wider World, and the Global Monetary System

The wider world will probably not be better off with a mercantilist war, albeit a free-trade war. When hippopotamuses start dancing …!

We already see how free trade in ‘big guns’ is creating military instability in Africa and South Asia. And we must expect to see the United States’ special role as the fulcrum of the world’s monetary system dissipate if the United States significantly reduces its trade deficits; requiring some other deficit countries to take up that challenge. Canada? Australia? India? United Kingdom? A new anti-mercantilist British Empire? I don’t think so. Türkiye? Saudi Arabia? Brazil? Maybe not. Japan? Maybe. Russia? If the Ukraine war ends, Russia will struggle to import more than it exports; though I am sure that Donald Trump would like to see the United States exporting lots of stuff to Russia.

The International Monetary Fund? Maybe, but only if it changes some of its narratives. The challenge here will be for it to reform itself in line with John Maynard Keynes’ proposals at and after Bretton Woods, the 1944 conference which set itself the task of establishing the post-war global monetary order. Keynes envisaged a World Reserve Bank; though he didn’t envisage monetary policy – with New Zealand in 1989 acknowledged as the world’s lead ‘reformer’ – falling into the hands of the ‘monetarists’ and their false narratives about 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.

Government-owned Kiwirail is supposed to be presiding over the New Zealand Main Trunk (Railway) Line, from Auckland to Invercargill. As such it runs a ferry service (The Interislander) between New Zealand’s North and South Islands.

We are being told by Kiwirail (and see today’s report on Radio NZ) that the only rail-enabled roll-on roll-off ferry – the Aratere – will cease operations in August this year, five years before its putative successor ferries will commence operations.

At the same time, rail is being revitalised in the South Island, with the Hillside workshops redevelopment. (And see the following on Scoop last Friday: New Hillside Workshops Officially Opened and Rail Workers Celebrate Hillside Workshops Rebirth.) How can this be: simultaneous expansion and contraction of New Zealand’s trunk railway under the governance of the same government?

There is a simple conceptual solution, which covers both the short run and the long-run.

Kiwirail could relocate the Interislander’s South Island terminus to Lyttelton, the rail-accessible port of Christchurch. Indeed this should have become policy after the dramatic 2016 Kaikoura earthquake which destroyed both railway and highway around Kaikoura, halfway between Wellington and Christchurch; both road and rail main trunk. Not only is the present route precarious, but also it is so much ‘greener’ for both road and rail traffic between the North Island and the southern 85% of the South Island (by population) to travel by sea between Wellington and Christchurch. That is, the bulk of interisland vehicle travel undertaken directly by sea is more sustainable than a journey by sea between Wellington and Picton followed by a long 340km Picton to Christchurch land journey.

The suggested solution is that The Interislander should operate out of Lyttelton from about 2030, leaving Bluebridge to service the Wellington Picton route. If that were to happen, then the Aratere could stay in service until 2030; because the new facilities suited to the new ships – at least the South Island facilities – would not have to be on the same site as Picton’s present rail-ship facilities.

Last year I wrote to MPs from all five parties, before it was too late to cancel the shipping order for the cancelled iRex project, including the Labour MP for Lyttelton. Only the Green Party bothered to reply to me. And even they were unenthusiastic about the idea of the Interislander shifting to Lyttelton; their lack of interest came across as more a matter of political priority than as an argument about economics or sustainability.

Maybe I am stupid, and I simply cannot see the obvious reasons why a shift back to Lyttelton cannot happen. But I really think we should have a national conversation about the restoration of ferry services between Wellington and Lyttelton; and with the current consciousness about the future of rail being a very important stimulus to that conversation.

After all, for over 100 years, before 1960, Wellington to Lyttelton was the essential ‘main trunk’ link between the two islands. The change-around happened around 1960 because the previous Wellington to Picton service had become so run-down that something had to be done about it. And that there just happened to be a relatively new railhead at Picton. After 1960, the Lyttelton service was doomed to fail when it became a one-ship service in 1968, after the tragic demise of the then state-of-the-art Wahine.

Why don’t we have national conversations anymore? Everything seems to happen as a fait accompli, narratives driven by unimaginative back-office accountants with short time horizons. And mainstream academics and media simply accept this under-democratic state of affairs.

We are still suffering from the infrastructure backlog that escalated in the early 1990s when Finance Minister Ruth Richardson forced many of New Zealand’s unemployed and underemployed to emigrate, especially to Australia; all in the name of ‘fiscal responsibility’. Some of those people who left for Australia just as its banking crisis was unfolding – especially their children – are drifting back to New Zealand in the 2010s and 2020s as ‘501’ deportees (see Product of Australia, Stuff December 2019, and noting in a chart that more than half of the 501s deported to New Zealand from 2015 to 2019 were aged 26 to 40).

Those young (mainly) men could have been building New Zealand; instead, too many became criminals in Australia. And the New Zealand economy regressed for the best part of ten years (from 1985), while the rest of the world was progressing. That period is the source of the now-entrenched Australia New Zealand differential in living standards.

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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.

‘Rational Expectations’ is a problematic theory in economics. Here I want to focus more away from economics; and more on the meanings of ‘rationality’ in decision-making, than on the problematic ambiguity of the word ‘expect’ (and its derivatives such as ‘expectations’). ‘Expectation’ here means what we believe ‘will’ happen, not ‘should’ happen; a rational expectation is a prediction, an unbiased average of possibilities, formed through a (usually implicit) calculation of possible benefits and costs – utilities and disutilities, to be technical – and their associated probabilities.

A rational decision is one that uses all freely available information in unbiased ways – plus some researched information, bearing in mind the cost of information gathering – to reach an optimal conclusion, or to decide on a course of action that can be ‘expected’ to lead to an optimal outcome to the decision-maker.

All living beings are rational to a point, in that they contain an automatic intelligence (AutoI) which exhibits programmed rationality. For most beings, AutoI is fully pre-programmed, so is not ‘intelligence’ as we would normally understand it; for others, that programming is subject to continuous reprogramming through a process of ‘learning’, true intelligence. In addition, beings of at least one species – humans – have a ‘manual override‘ intelligence (ManualI), which is our consciousness or awareness.

AutoI is an imperfect, though subversive, process of quasi-rational decision-making. Brains make calculations about optimal behaviour all the time; calculations of which we are not aware. (Richard Dawkins – eg in The Selfish Gene – would argue that these calculations serve the interest of the genotype rather than the individual phenotype.) For humans at least, full rationality means the capacity to use ManualI to override the amoral limitations of AutoI.

Rational decision-making, through learning, may be called ‘intelligence’. Though intelligence has another meaning: ‘information’, as in the ‘Central Intelligence Agency’ (CIA). It is perfectly possible to use unintelligent (stupid?) processes to gather and interpret intelligence!

Even when rational processes are used, many good decisions will, with hindsight, have inferior outcomes; or many good forecasts will prove partly or fully incorrect. It’s mostly bad luck, but also partly because intelligence is rarely completely unbiased, and partly because the cost of gaining extra information can be too high.

Expected Value, aka Expected Outcome

There is a simple rationality formula – familiar to students of statistics and of finance – which can yield a number called an ‘expected value’. In this expectations’ formula, a high positive number represents a good decision and a higher positive number represents a better decision. A negative number represents a bad (ie adverse) expected outcome, although sometimes all available expected outcomes are ‘bad’, meaning that the better course of action is the ‘lesser evil’. A positive number indicates an expected benefit, though not a necessary benefit. Negative possible outcomes represent ‘downside risk’, whereas positive possible outcomes represent ‘upside risk’.

(It is important to note that, in many contexts, a negative number does not denote something bad. A negative number may indicate ‘left’, as in the left-side of a Bell Curve; or ‘south’ or ‘west’ as in latitude and longitude. In accounting, a ‘deficit’ by no means indicates something bad, though President Trump and many others are confused on that point [see Could US tariffs cause lasting damage to the global economy? Al Jazeera 7 April 2025, where he says “to me a deficit is a loss”]; and we note that the substitution of the term ‘third world’ for ‘global south’ suggests an inferiority of southern latitudes. In double-entry bookkeeping, items must add to zero; one side of any balance sheet has negative values by necessity. A deficit, in some contexts, represents a ‘shortfall’ which is probably ‘bad’; but also a ‘longfall’ – or ‘surplus’ – is often bad, just think of the games of lawn bowls and pétanque.)

A simple example of rational decision-making is to decide between doing either something or nothing; for example, when contemplating asking someone out on a date. The expected outcome of doing nothing – not asking – has a value of zero. But, if you ask the person for the date, and you evaluate the chance of a ‘yes’ as 0.2, the utility of a ‘yes’ as +10, and the disutility of a ‘no’ as -1, then the expected value calculates to 1.2; so, the rational decision is to ask (the calculation is 10×0.2–1×0.8). This example is interesting, because the more probable outcome is a ‘no’, and a ‘no’ would make you less happy than if you had not asked the question; nevertheless, the rational decision here is to ‘take the risk’. (‘Risk averse’ persons might have rated the consequence of ‘rejection’ as a -4 rather than a -1; they would calculate an expected value of -1.2, so would choose to not ask for the date.)

Political Decision-Making when Catastrophic Outcomes are Possible

A rational calculation allocates values and probabilities to each identified possible outcome. A favourable outcome is represented by a positive number, a neutral outcome has a zero value, and an adverse outcome has a negative value.

A basic favourable outcome may be designated a value of one; an outcome twice-as-good has a value of two. An outcome an ‘order-of-magnitude’ better has a utility or happiness value of ten. The same applies to adverse outcomes; the equivalent disutility scores are minus-one, minus-two, and minus-ten.

An aeroplane crash might incur a score of minus fifty to society and minus ten million to an individual. The probability of dying in such a crash, for an individual, getting on a plane is probably about one in 100 million. If it was less than one-in-a-million, hardly anybody would get on a plane. (The chance of winning NZ Lotto first division is about one-in four-million.)

We should be thinking like this when we think about war. What kind of risk would we be willing to take? A problem is that the people who provoke wars do not themselves expect to be fatal victims.

A catastrophic outcome could range from minus 100 (say a small war) to minus infinity. An outcome which meant the total eradication of all life on Earth would come close to minus infinity. However, because of the mathematics of infinity (∞), any outcome of minus infinity with a non-zero probability yields an expectation of minus infinity. So for the following example, I will use minus one billion (-1b) as the disutility score for such a total catastrophe. A catastrophe that leads ‘only’ to human extinction might have a value of minus ten million (-10m). A holocaust the size of the 1943 RAF firebombing of Hamburg might have a catastrophe-value of minus one thousand (-1,000). A catastrophe the size of the 1932-1945 Bloodlands of Eastern Europe (which included 14,000 murders including the Holocaust, and much additional non-fatal suffering) might have an overall catastrophe-value of minus a hundred thousand (-100,000).

(Could we imagine an outcome of plus infinity: +∞? Maybe not, though certain evangelical Christians – extreme dispensationalists – pray for Armageddon; “dispensationalism views the progression of history in stages that begin in the Garden of Eden and ends in the paradise of the New Heavens and New Earth“. Thus, what might be minus infinity to most of us could be plus infinity for a few. There is an analogy of ‘wrap-around-mathematics’ in geospace; a longitude of +180° is the same as a longitude of -180°. And, in another example, some people believe that there is little difference between extreme-far-right politics and extreme-far-left politics. On this topic of extremes, the mainstream media should avoid the mindless repetition of hyperbole – as in a comment recently heard that President Trump’s tariffs may amount to an “economic nuclear winter“.)

My Example – the Ukraine War

In an example with some relevance to today, we might consider the NATO-backed ‘defence of Ukraine’. I could assign a modestly favourable outcome of +1 with a 50% probability, a very favourable outcome +10 with a 10% probability, and a catastrophic -1,000,000 with a 1% probability. (All other possibilities I will treat here as neutral, although my sense is that they are mostly adverse.) I calculate an expected value of minus 9,998.5; practically, minus 10,000; this is an average of all the identified possibilities, a catastrophic risk rather than a prediction of a major catastrophe.

This decision to persevere with the NATO-backed ‘defence of Ukraine’ is only rational if the only alternative decision – to abandon the NATO- backed ‘defence of Ukraine’ – comes up with an even lower expected value. (These two alternative decisions would be characterised by New Zealand’s former Ambassador to the United Kingdom – Phil Goff – as ‘standing up for Good in the face of Evil’ versus ‘appeasement of Putin’.) It seems to me that catastrophe becomes much less probable, in my example, with the ‘appeasement’ option than with the ‘defence’ option. (In the case that Goff was commenting on, his implication was that the 1938 ‘appeasement’ of Adolf Hitler by Neville Chamberlain led to either an increase in the probability of catastrophic war, or an increase in the size of catastrophe that might ensue.)

Morality Fallacy

One view of morality is the identification of some Other as Evil, and that any subsequent calling out of that (Evil) Other must therefore be Good. Further, in this view of morality, the claim is that, if and when hostilities break out between Good and Evil, then Good must fight to the ‘bitter end’ at ‘any cost’. (When we see Evil fighting to the bitter end – as per the examples of Germany and Japan in World War Two – we tend to think that’s stupid; but Good fighting to the bitter end is seen as righteous.)

Of course, this kind of morality is quite wrong. The idea that one must never surrender to Evil is a moral fallacy, based on the false (binary) idea that one side (generally ‘our side’) of a dispute or conflict has the entire ‘moral-high-ground’ and the other side has the entire ‘moral-low-ground’. Further, a victory to ‘Evil’ is surely less catastrophic than annihilation; a victory to Evil may be a lesser evil. Choosing annihilation can never be a Good choice.

Most conflict is nothing like Good versus Evil, though many participants on both (or all) sides believe that their side is Good. Most extended conflict is Bad versus Bad, Bad versus Stupid, or Stupid versus Stupid; although there are differing degrees of Bad and Stupid. Further, in the rare case when a conflict can objectively be described as Good versus Evil, it can never be good to disregard cost.

Morality in Practice

True morality requires a broadening of the concepts of ‘self’ and ‘self-interest’.

The important issues are benefits and costs to whom (or to what), and the matter of present benefits/costs versus future benefits/costs. In a sense, morality is a matter of ‘who’, ‘where’ and ‘when’. Is it beneficial if something favourable happens ‘here’ but not ‘there’? ‘Now’, but not ‘then’? To ‘me’ or ‘us’, but not to ‘you’ or to ‘them’.

Human ManualI is very good at inclusive morality; AutoI is not.

It is natural, and not wrong, to prioritise one’s own group; and to prioritise the present over the future. The issue is the extent that we ‘discount’ benefits to those that are not ‘us’, and future benefits vis-à-vis present benefits. And costs, which we may regard as negative benefits. A very high level of discounting is near complete indifference towards others, or towards to future. An even higher level of discounting is to see harm to others as being beneficial to us; anti-altruism, being cruel to be cruel.

Then there is the ‘straw man’ morality much emphasised by classical liberals. ‘Libertarians’ claim that certain people with a collectivist mindset believe in an extreme form of altruism, where benefits to others take priority over benefits to self; such an ethos may be called a ‘culture of sacrifice’, benefitting by not-benefitting. While this does happen occasionally, what is more common is for people to emphasise public over private benefits; this is the sound moral principle that libertarians really disapprove of.

Thus, an important part of our ‘rational calculus’ is the private versus public balance; the extent to which we might recognise, and account for, ‘public benefits’ in addition to ‘private benefits’.

So, when we complete our matrix of probabilities and beneficial values, what weight do we give to the benefits that will be enjoyed by people other than ourselves, to other people in both their private and public capacities. Should we care if another group experiences genocide? Do we gloat? Should we empathise, or – more accurately – sympathise, and incorporate others into a more broadly-defined ‘community of self’?

If we have a war against a neighbouring country, should we care about how it affects other more distant countries through ‘collateral damage’? Should we care about a possible catastrophe if it can be postponed until the end of the life-expectancy of our generation? Should we care about the prosperity of life forms other than our own? Should we care about the well-being of our environments? Should we care more about our ‘natural resources’ – such as ‘land’ – than we care about other people who might be competing for the use of those same resources? If we have knowledge that will allow us to make improvements to the lives of others so that they catch up to our own living standards, should we make that knowledge public and useful? Should we account for the well-being of people who live under the rule of rulers who we have cast as ‘Evil’ (such as the burghers of Hamburg in 1943)?

One important morality concept is that of ‘reciprocation’. If we accept that others have the right to think of us in ways that compare with how we think of them, then we must value their lives much as we value our own lives. If I live in Auckland, should I value the life of a person who lives in New Delhi nearly as much as I value the life of someone who lives in Wellington? I should if I expect persons in Mumbai to value my life nearly as much as they value the lives of people in New Delhi.

Reciprocal morality can easily fail when someone belongs to a group which has apparent power over another group. We may cease to care whether the other group suffers our wrath, if we perceive that the ‘lesser’ group has no power to inflict their wrath onto our group. We may feel that we have immunity, and impunity. They should care about us, but we need not care about them.

It is through our ManualI – our manual override, our consciousness, our awareness – that we have the opportunity to make rational valuations which incorporate morality. Our AutoI, while rational in its own terms, is also amoral. We can behave in amoral self-interested ways – even immoral ways – without being aware of it. Our automatic benefit-cost analyses drive much of our behaviour, without our awareness; we cannot easily question what drives our Auto-Intelligence.

Our AutoI systems may – in evolutionary terms – select for degrees of ignorance, stupidity, blindness as ways of succeeding, of coping. AutoI protects us from having to face-up to the downsides of our actions and our beliefs; especially downsides experienced more by others than by ourselves. And they tell us that we are Good, and that some others are Bad.

Pavlovian Narratives

We come to believe in other people’s narratives through habit or conditioning. AutoI itself has a cost-cutting capacity that allows speedy decision-making; it adopts reasoning shortcuts, in the context that shortcuts save costs. We build careers – indeed our careers as experts in something – by largely accepting other people’s narratives as truths that should not be questioned and that should be passed on. We enjoy belonging to ‘belief communities’; and we are ‘pain-minimisers’ at least as much as we are ‘pleasure-maximisers’; it may be ‘painful’ to be excluded from a community. We too-easily appease unsound public-policy decisions without even knowing that we are appeasing. We turn-off the bad news rather than confronting it.

Our beliefs are subject to Pavlovian conditioning. And one of the most painful experiences any human being can suffer is to have beliefs cancelled as ‘stupid’. So we unknowingly – through AutoI – program our auto-intelligences to protect our beliefs from adverse exposure; and, if such protection fails, to denounce those who challenge our belief-narratives.

One form of cost-cutting-rationality is ‘follow-the-leader’. It’s a form of ‘conclusion free-riding’. We choose to believe things if we perceive that many others believe those things. An important form of ‘follow-the-leader’ is to simply take our cues from authority figures, saving ourselves the trouble of ‘manual’ self-reasoning.

With AI – Artificial Intelligence – we delegate even more of our decision-making away from our moral centres, our consciousnesses, our manual overrides. We allow automatic and artificial intelligence to perform ever more of our mental labour. It’s more a matter of people becoming robot-like than being replaced by robots.

Pavlovian rationalisation is heavily compromised by unconscious bias. Beliefs that arise from uncritical ‘follow-the-leader’ strategies are unsound. They lead us to make suboptimal decisions.

Why War?

Many people, including people in positions of influence, make decisions that are sub-rational, in the sense that they allow auto-biases to prevail over reflective ‘manual’ decision-making. There are biases in received information, and further biases in the way we interpret/process information.

Unhelpful, biased and simplistic narratives lead us into wars. And, because wars end in the future, we forever discount the problem of finishing wars.

When we go to war, how much do we think about third parties? In the old days when an attacker might lay-siege to a castle, it was very much ‘us’ versus ‘you’. But today is the time of nuclear weapons, other potential weapons of mass destruction, of civilian-targeting, and drone warfare. Proper consideration of third-parties – including non-human parties – becomes paramount. A Keir Starmer might feel cross towards a Vladimir Putin; but should that be allowed to have a significant adverse impact on the people of, say, Sri Lanka; let alone the people of Lancashire or Kazan?

Proper reflective and conscious consideration of the costs and benefits of our actions which impact on others should be undertaken. Smaller losses are better than bigger losses, and the world doesn’t end if the other guy believes he has ‘won’. Such considerations, which minimise bias, do allow for a degree of weighting in favour of the protagonists’ communities. But our group should never be indifferent to the wellbeing of other groups – including but not only the antagonist group(s) – and should forever understand that if we expect our opponents to not commit crimes, then we should not commit crimes either.

War escalates conflicts rather than resolves them. And it exacerbates other public ‘bads’ such as disease, famine, and climate change. War comes about because of lazy unchecked narratives, and unreasoned loyalty to those narratives.

Further Issues about Rational Expectations:

Poor People

It is widely believed by middle-class people that people in the precariat (lower-working-class) and the underclass should not gamble; as in buying lottery tickets and playing the ‘pokies’. But ‘lower-class people’ generally exhibit quite rational behaviour. In this case, rare but big wins make a real difference to people’s lives, whereas regular small losses make little difference to people already in poverty or in poverty-traps.

The expected return on gambling is usually negative, though the actual value of a big-win cannot simply be measured in dollar-terms. $100,000 means a much greater benefit to a poor person than to a rich person. Further, the expected value of non-gambling for someone stuck in a poverty-trap is also negative. It is rational to choose the least-negative option when all options are adverse.

Policy Credibility

Here I have commented about the rationality of decision-making, and how rational decisions are made in a reflective, conscious, moral, and humane way. However, there is also an issue around the meaning of ‘expectations’. While the more technically correct meaning of expectation is a person’s belief in what will happen, the word ‘expectation’ is also used to express a person’s belief in what should happen.

(An expectation can be either what someone will do, or should do. Consider: ‘Russia will keep fighting’ and ‘Russia should stop fighting’. To ‘keep fighting’ and to ‘stop fighting’ are both valid expectations; though only the first is a rational expectation from the viewpoint of, say, Keir Starmer; the second is an ‘exhortation’.)

The phrase ‘rational expectations’ is used most widely in the macroeconomics of interest rates and inflation. The job of Reserve Banks (‘central banks’) in the post-1989 world is to condition people (in a Pavlovian sense) into believing that an engineered increase in interest rates will lead to a fall in the inflation rate. This is called ‘credibility’. The idea is that if enough people believe a proposition to be true, then it will become true, and hence the conditioned belief becomes a rational belief. If people come to believe that the rate of inflation this year will be less than it was last year – however they came to that belief – then it should dowse their price-raising ardour; it becomes a contrived ‘self-fulfilling prophecy’.

War

The same reasoning may be applied to warfare. If, by one side (especially ‘our’ side) talking-tough (and waving an incendiary stick), people on both sides believe that the other side will dowse its asset-razing ardour (due to fear or ‘loss of morale’), then the belief that a war is more-likely-to-end may in itself lead to a cessation of hostilities. While unconvincing, because humans are averse to humiliation, it’s an appeal to ‘our’ AutoI (automatic intelligence) over our less credulous ManualI (manual override, our reflective intelligence). It’s the ‘credible’ ‘tough-man’ (or iron-lady) narrative. In this sense, Winston Churchill was a credible wartime leader.

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

This story, Germany to ease government debt limits in major step aimed at boosting economy, defense spending,AP, 6 March 2015, reflects my comments in Germany’s Election 2025. (And note Reforming the debt brake: Now or never! Landesbank Baden-Württemberg, 28 Feb 2025. And Germany’s election victor must ditch its debt rules—immediately, The Economist 24 Feb 2025. These are gung-ho stories.)

The plan in Germany is to use the ‘lame-duck’ Parliament that was voted out on 23 February 2025 to alter that country’s constitution. To do this, a two-thirds majority is required in Parliament, and the Chancellor-elect (Friedrich Merz) believes he will not be able to get such a majority in the new parliament, which convenes at the end of March.

To achieve this change in Germany’s constitution, the provisional coalition (CDU/CSU/SPD) will need the support of either the Green Party (in the new parliament) or the ‘liberal’ (ie like New Zealand’s ACT) Free Democratic Party (who will not feature in the new parliament). Hitherto – before 2025 – the CDU, the FDP, and the SPD, were the main supporters of the debt brake. They understood it – in 2009, when it was added to the Constitution – as a means of hobbling any future government which might oppose fiscal austerity; as a means of baking-in, for all foreseeable time, their particular macroeconomic philosophy.

(New Zealand, though with a less formal constitution, has the 1989 Reserve Bank Act and the 1994 Fiscal Responsibility Act effectively baked in. And for similar reasons; to make it extremely difficult for a future government to undertake reforms similar to the very popular macroeconomic policies that were implemented, and successful, in the late 1930s.)

Germany has less than two weeks to break its self-imposed shackle. If they miss that deadline, if they have to use the new parliament, they will have to do something like what Adolf Hitler did in 1933 with the Enabling Act. The irony is that the parties expected to vote against the emergency measure will be the parties – strong in Eastern Germany – who, if in power, would benefit most from a general release of the debt brake.

For the Green Party it will be a case of ‘Which side are you on?’; the Establishment or the Anti-Establishment? This vote may be ‘make or break’ for the German Greens. Historically, the Greens have been opposed to the use of the debt brake to hobble progressive domestic policies. Will they now favour a piece of unprincipled political manoeuvring so that Germany can put itself in a position to make war on Russia or in support of Israel?

A Case for Comparison: New Zealand’s ‘Constitutional Crisis’ of 1984

Robert Muldoon was New Zealand’s caretaker Prime Minister in the week of so after his political defeat in the 14 July 1984 election. The constitutional crisis unfolded the following Monday.

Before and during the election campaign, the Labour Party’s ‘Finance Minister in Waiting’ Roger Douglas had indicated a desire to devalue the New Zealand Dollar by around twenty percent. This set up a ‘one-way-bet’ within the monied community; sell New Zealand dollars for another currency, wait for the election, then buy-back New Zealand dollars. At best there would be windfall capital-gains of 20%; at worst there would be no losses.

So, in the weeks leading up to the election, a financial crisis took place on account of the dramatic rundown of foreign exchange reserves. After the election, Douglas and Prime Minister elect David Lange wanted Robert Muldoon to immediately devalue the New Zealand dollar by twenty percent. Muldoon was reluctant to grant the one-way-speculators their maximum windfall profits; he favoured a much smaller five-percent devaluation.

This reluctance was presented as a constitutional crisis, because the ‘lame duck’ Prime Minister (and Finance Minister) disagreed with the incoming administration. Though eventually Muldoon conceded. Subsequently, the foreign exchange crisis has always been dubbed a constitutional crisis – a crisis of democracy – because the outvoted ‘lame-duck’ government was reluctant to give way to the government-elect. On the matter of the best policy, Muldoon was correct; a 5% devaluation would have been optimal. But nobody seemed to care about that; the barely contested narrative was that in a proper democracy the incoming parliament is always right, even when it’s wrong!

On this basis, what Friedrich Merz is planning to do should be a political scandal. But it probably won’t be. In the end, its all about who’s pushing the narratives, and whose interest it is to buy into which narrative.

Friedrich Merz’s double narrative

In Merz’s first narrative, public debt is bad, so bad that it must be curtailed through a country’s constitution. In his second narrative, Russia is worse; and the United States has become an unreliable ally. Merz still wants to have it both ways. He wants Germany (and the European Union) to continue to be self-hobbled on social spending, including those automatic stabilisers that prevent recessions turning into depressions. He wants to have access to unlimited public debt only for a limited purpose; freedom to wage war, to pursue military spending (despite his country not being under military threat). Mainly as a concession to his putative coalition partner, Merz will agree to use public debt (beyond that presently allowed for) to provide some improvements in public capital infrastructure. He continues to promulgate both an anti-public-debt narrative and an anti-Russia narrative. He wants to perpetuate a forever stalemate in the Russia-Ukraine war, and to promote a baseless domino theory narrative about Russia’s global military ambitions. Germany borders neither Russia nor Ukraine.

Certainly, there is an argument for Germany to have a defence force in balance with the totality of the public sphere, especially in a liberal democracy which sets its own foreign policy. In that context, any German government should be able to persuade the entire parliament (not just two-thirds) to proceed by removing the debt brake without privileging military spending. The recently elected German government should be able to do this with the Bundestag-elect. But in the present context, the constitutionally dubious proposal is not about self-defence, but in about the pursuit of a geopolitical narrative which posits an urgent need for Western Europe to escalate the Russia-Ukraine War.

Historical Military Conflicts between Russia and Foreign Powers since Tsar Peter the Great

While Russia expanded eastwards in much the same way as the United States expanded westward, there has never been anything like evidence that Russia would like to become a global hegemon. As such, Russia has never attacked German territory with expansion in mind. Russia did ‘liberate’ Eastern Europe at the end of World War Two, and continued to control most of Eastern Europe (including a portion of Germany). But that was the end of a vicious conflict in which Germany coveted much of Russia’s territory. Russia (or Soviet Union as the Russian Empire was then) never sought to extend its living space into Germany, though it did inadvertently in 1945 (in the former East Prussia, the Kaliningrad enclave today).

World War One started on 1 August 1914, when Germany declared war on Russia. And the Soviet Union’s ‘Great Patriotic War’ began when Germany invaded the Soviet Union on 22 June 1941.

Other great power military invasions of the Russian Empire included that by Sweden in the 1700s (Sweden was a ‘great power’ then), repelled by Tsar Peter the Great. Then there was Napoleon’s invasion by France in 1812, the subject of Tolstoy’s novel War and Peace. Then there was the conflict in the 1850s in Crimea, involving United Kingdom and France and Florence Nightingale (Crimean War); and an abortive invasion by United Kingdom and United States on the incipient Soviet Union in August 1918 (at Archangel and at Vladivostok). (In addition, Russia fought Japan in Manchuria in 1905; Japan opened hostilities. Both Russia and Japan were emulating the prior European powers’ aggression towards China.)

The Domino Theory as applied to Russia

We should mention the Soviet Invasion of its neighbour, Afghanistan, in 1979. This serves as an analogue for the present Russia-Ukraine war. It this stage we should note several things: that Afghanistan was the neighbour of the Soviet Union, the Soviet Union had genuine concerns about western-power game-playing in Afghanistan, that Afghanistan was not intended by Soviet Russia as the first domino of a global military campaign, and that the world is still dealing with the unforeseen consequences of post-1976 foreign-power-meddling in Afghanistan. The 1989 outcome, a withdrawal of the Soviet Union from Afghanistan, should not be seen as a credible template for an end to the present war. (‘Game playing’, for the West, is a semi-formal process, representing an application of game theory, a branch of economics.)

Despite the historical record being one of Western European aggression towards Russia – and not vice versa – the present conflict in Ukraine is being increasingly framed (without evidence) as Russia waging a ‘domino war’, meaning that once the Ukrainian domino is knocked over, there will be no halting Russia’s alleged ambitions to control the western world. (Indeed, in the White House rhetorical fracas on 28 February, the comment by Ukraine’s Volodymyr Zelenskyy that set off Donald Trump was the suggestion that Trump might “think differently” when Russia had secured territory on the Atlantic coast of Europe.)

In three years, Russia has not had sufficient military power to fully appropriate the Oblast of Donetsk, in Ukraine. Under what conceivable scenario might the Putin military machine have the capacity or competence to threaten Germany or indeed any part of the European Union?

This is not the first time of course that the domino theory has been applied to Russia. Many of us will remember how North Vietnam was portrayed as a ‘Communist’ stooge – a Soviet Union proxy – and that if the Communists won in Vietnam they would be all around the Pacific Rim next.

1885 and all that

Going further back into history, there was the Russian Scare, which peaked in New Zealand in 1885. New Zealand’s major cities still have the gun emplacements constructed in 1885, to protect the colony from the Russians! Near the albatross colony at Taiaroa Head, Otago, there is a disappearing gun that’s still in pristine condition. And the similar gun at Auckland’s North Head is also a major tourist attraction.

(New Zealand references include the ‘fake news’ article: War with Russia. A Calamity for Auckland. Hostile Visit of Russian Ironclad. Seizure of Gold and Hostages, Daily Southern Cross, 19 February 1873. And: The Russians are here! New Zealand Geographic 2015; The Russians are coming! NZ History; The Enemy that never was: the New Zealand ‘Russian scare’ of 1870-1885, 1976, by Glynn Barratt.)

It’s worth noting that the 1880s was in New Zealand a period of fiscal austerity – the global Long Depression, and in New Zealand – in which defence spending was being pushed despite what was, for all practical purposes, a public sector debt brake.

What was happening in and around 1885 was conflict in Afghanistan between the United Kingdom and the Russian Empire; conflict in which the United Kingdom was portraying Russia as a domino-style aggressor. (Refer the Panjdeh Incident. This period in British military history was sometimes known as the Great Game, and it includes the Crimean War.)

The Russians never came. (Though 101 years later a Russian ship was sunk through misadventure in New Zealand waters.)

Who’s Threatening Who in the Former Soviet Union?

Russia has always seen Ukraine as being part of Greater Russia. Indeed, Kyiv was Russia’s foundation city. In 2022, Russia’s Plan A was to do to Ukraine exactly what the United States did to Iraq in 2003; use military force to bring about regime change through conquest. Aggression, indeed. That war was apparently within the ‘international rules’; or was an ‘acceptable’ departure from those rules. (And, as of now, civilian casualties in Ukraine have been fewer than those of Iraq in the Iraq War.)

Russia’s Plan B has been to redraw the former provincial boundary between Russia and Ukraine, as Russia did in Georgia in 2008 with the effective incorporation of South Ossetia into Russia. (In 2008, there was no subsequent domino invasion of the wider world, and the West was not as invested in Georgia as it came to be in Ukraine.) These border disputes reflect that the former Soviet Union provincial boundaries might not have been optimised for a world in which former republics have become nation states.

From 1999, the United States has overseen the process in which a new state, Kosovo, has been created through a split that Serbia was forced to accept; it was a commonsense rationalisation arising from the breakup of the former Yugoslavia, despite the supposed sanctity of international borders.

None of these issues warranted escalation into a world war. Nor does the present Ukraine dispute. Nor did the Third Balkan War (1914); a war that did (but needn’t have) become World War One.

The irony is that Plan B, the plan Russia is following, is the lesser plan; a partial military conquest is always lesser than a full conquest such as the 2003 Iraq War. And a second irony is that, if hostilities do not end this or next month, then Russia (which seems to have settled for some form of Plan B) may end up achieving its original Plan A goal.

War is a nasty business. There should always be alternatives to war, so that conflicting security concerns can be understood and managed peacefully. It requires international ‘players’ seeking mutual optimisation rather than ‘victory’ for one party over another.

What has been the game of the United States and its European proxies?

Three Well-Informed Realists

John Mearsheimer is an American international relations scholar and practitioner who distinguishes between the ‘liberals’ and the ‘realists’ in places like Washington. He’s firmly in the realist camp. And he’s able to evaluate the debates between the two groups. This short clip on YouTube is an interview with John Anderson, former Deputy Prime Minister of Australia (under John Howard). He traces how, from the time of Bill Clinton’s presidency, the liberal foreign policy hawks have always pushed for the ongoing eastward expansion of Nato after the fall of the Soviet Union in 1991. And how realists (including former senior European political leaders Nicolas Sarkozy and Angela Merkel) opposed this, especially the push to get Nato into Ukraine and Georgia; but were outmanoeuvred by the ‘liberals’. Journalist Peter Hitchens echoes this realist view, also in an interview with Anderson, noting how democracies will get into wars on the basis of overhyped narratives, and on account of those same narratives find it almost impossible to get out of these wars.

Jeffrey Sachs is an esteemed Harvard and Columbia University development economist, who’s been a consultant on global economic development and has been a first-hand witness to much geopolitical policymaking over the last four decades. You can see and hear Sachs in this long clip; in an address/discussion to the European Parliament in late February 2025. He connects the 1990s’ United States expansionist project to the philosophy of Zbigniew Brzezinski, for example outlined here in A Geostrategy for Eurasia, Foreign Affairs 1997; though noting that American unipolar hegemony builds on British Empire principles that go back to Lord Palmerston in the 1850s, and to the early twentieth century theories of Halford Mackinder. Brzezinski was an important figure, United States’ rival foreign policy guru to the pragmatic realist Henry Kissinger in the 1970s. It was under Brzezinski’s period in power as National Security Adviser, in the late 1970s under Jimmy Carter, that the Cold War – dampened in the early 1970s under Richard Nixon’s presidency – reheated; and that the United States started meddling in Afghanistan.

Peter Turchin is the Russian-born American cliodynamicist (scholar of long period history with the use of long-period statistics) who wrote in End Times (2023) and a number of other important books in the last quarter-century. He has substantial insights into the political and business dynamics of the United States, and of Russia along with its historical satellites such as Belarus and Ukraine. Turchin sees – for the 1990s – the United States, Russia, and Ukraine as true plutocracies (or ‘oligarchies’), subject to the power and foibles of the very rich. For the United States, that influence has waxed and waned throughout its history, but has always been there. Russia, Turchin observes, ceased to be a plutocracy after what was effectively a coup in the late 1990s on the part of the former military/bureaucratic establishment. Belarus never got started as an oligarchy. But Ukraine continues as a true plutocracy, and the United States liberal establishment invested heavily into ensuring that Ukraine would remain so. He says in End Times “By 2014, American ‘proconsuls’, such as veteran diplomat Victoria Nuland, had acquired a large degree of power over the Ukrainian plutocrats.” On this basis, it would seem to be true that the American Lobby in Ukraine operated much as the Israel Lobby operates in the United States. (And we sort-of know the stories of the Bidens’ interest [Joe and Hunter] in Ukraine.)

Conclusion

Germany is dowsing the embers of a twice-vibrant democracy. A war that might have been a small regional war threatens to become a world war, as big liberal-mercantilist (money-focused ‘economically conservative’ and ‘socially liberal’ political classes who are indifferent to unselected genocides and mass-suffering-events) economic powers such as Germany (and the United Kingdom) become less democratic and more bellicose. If we treasure our democratic principles, we should at least take notice.

The Russia-Ukraine War is a mucky border conflict between two countries with a long and intertwined shared history, and with more than enough ‘stirring of the pot’ from outside to convert a regional security dispute into an existential global security threat. It can be settled with a deal that reflects the military situation, rather than by democratically compromised sabre-rattling from Western Europe. After a fluid war in 1950 followed by an extended bloody stalemate – and a change of government in Washington – the 1953 Korean War cease-fire enabled the Republic of Korea (South Korea) to become an economic superpower. An independent capitalist Republic of Ukraine (or, if necessary, West Ukraine) might do the same.

(In that context, we note that Korea’s Volodymyr Zelenskyy, Syngman Rhee, “refused to sign the armistice agreement that ended the [hostilities], wishing to have the peninsula reunited by force”. Syngman Rhee’s country was saved, though not by him.)

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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.

Background Image courtesy of Nick Minto, Copyright 2024 Nick Minto; photographed November 6, 2024, Philadelphia, Pennsylvania, USA.

In this episode Paul and Selwyn discuss:

• Why Democrats Lost: Incumbency, Elitism, Class & Alienation, Identity Politics…
• Why Trump Won: Anti-Establishment, Populism, Avatar for the Alienated…
• What to Expect Next: Trump Appointments, Isolationism, Geopolitical Impact & Response…

INTERACTION WHILE LIVE: Paul and Selwyn encourage interaction while live, and encourage their audience to lodge comments and questions. Please subscribe to our YouTube channel and click on notification-bell for an alert for future programmes.

Here’s the link: https://www.youtube.com/c/EveningReport/

Background image: courtesy of and Copyright Nick Minto 2024. Image taken November 6 2024, Philadelphia, Pennsylvania, USA.

RECOGNITION: The MIL Network’s podcast A View from Afar was Nominated as a Top Defence Security Podcast by Threat.Technology – a London-based cyber security news publication. Threat.Technology placed A View from Afar at 9th in its 20 Best Defence Security Podcasts of 2021 category.

You can follow A View from Afar via our affiliate syndicators.

The LIVE Recording of this podcast will begin today, Monday at 12:45pm November 11, 2024 (NZST) which is Sunday evening, 7:45pm (USEST). Image courtesy of Nick Minto, Copyright 2024 Nick Minto; photographed November 6, 2024, Philadelphia, Pennsylvania, USA.

In this episode Paul and Selwyn will discuss:

• Why Democrats Lost: Incumbency, Elitism, Class & Alienation, Identity Politics…
• Why Trump Won: Anti-Establishment, Populism, Avatar for the Alienated…
• What to Expect Next: Trump Appointments, Isolationism, Geopolitical Impact & Response…

INTERACTION WHILE LIVE: Paul and Selwyn encourage interaction while live, so feel free to lodge comments and questions, but remember if you do so your interaction may be used in this programme. We recommend that you subscribe to our YouTube channel and click on notification-bell.

Here’s the link: https://www.youtube.com/c/EveningReport/

Background image: courtesy of and Copyright Nick Minto 2024. Image taken November 6 2024, Philadelphia, Pennsylvania, USA.

RECOGNITION: The MIL Network’s podcast A View from Afar was Nominated as a Top Defence Security Podcast by Threat.Technology – a London-based cyber security news publication. Threat.Technology placed A View from Afar at 9th in its 20 Best Defence Security Podcasts of 2021 category.

You can follow A View from Afar via our affiliate syndicators.

Building upon recent episodes of A View from Afar, Political Scientist Paul G Buchanan and journalist Selwyn Manning discuss The Politics of Desperation. This episode flows on from our discussions about long transitions and the moment of friction.

As the old status quo begins to crumble (under the weight of fraction), political leaders and elites invested in it get increasingly desperate, leading to more dangerous decisions, more acute moments, and, increased chances of mistake, miscalculation and unanticipated backlash.

The Politics of Desperation accentuates an ongoing downward spiral. And, the Politics of Desperation takes form in differing degrees. For some, the risk of losing is merely a dent in the leader’s ego, reputation, and an awakening that voters have moved on from their style of politics.

But for others, a loss will prove to be devastating, for example; should Donald Trump lose his bid to regain the United States presidency, he will face sentencing as a felon and perhaps even face jail time. For Israel’s Prime Minister Netanyahu, a future loss or a collapse of his right-wing coalition would likely see him facing domestic charges and possibly charges laid by the International Criminal Court for his role in the disproportionate use of military might in Israel’s war on Gaza.

So, Paul and Selwyn discuss the examples of the Politics of Desperation from around the world and assess the risks as the world rests on the cusp of an unknown future.

INTERACTION WHILE LIVE:

Paul and Selwyn encourage their live audience to interact while they are live with questions and comments.

To interact during the live recording of this podcast, go to Youtube.com/c/EveningReport/

Remember to subscribe to the channel.

For the on-demand audience, you can also keep the conversation going on this debate by clicking on one of the social media channels below:

• Youtube.com/c/EveningReport/
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RECOGNITION: The MIL Network’s podcast A View from Afar was Nominated as a Top Defence Security Podcast by Threat.Technology – a London-based cyber security news publication. Threat.Technology placed A View from Afar at 9th in its 20 Best Defence Security Podcasts of 2021 category.

You can follow A View from Afar via our affiliate syndicators.

In November 1928, New Zealand had its own ‘Biden moment’ when the 72-year-old Sir Joseph Ward appeared to promise that, if his party won that year’s election, the New Zealand Government would borrow £70 million in 1 year, as a fiscal super-stimulus that would get New Zealand out of the economic doldrums. In large part as a result of that promise, Ward’s party – United, hitherto in third place – was able to form the next government.

Ward misread his speech notes. One source says the proposed loan was meant to be for 10 years; another source says he meant to say £7 million. Probably both are right, in light of what actually happened in 1929; Ward probably meant to say £7 million over ten years. (The Government borrowed about £2 million in 1929, from the London money market. In 1930 and 1931, the United Kingdom was in a deep financial crisis.)

Joseph Ward was one of the most enigmatic of New Zealand’s political leaders. And, importantly, he was one of the few who were ‘fiscal liberals’; opposite of ‘fiscal conservatives’ like Chris Hipkins and Christopher Luxon. (New Zealand has had comparatively few fiscally liberal Prime Ministers. The most fiscally liberal was undoubtedly Julius Vogel. Two others, who are also household names, were Robert Muldoon and Michael Joseph Savage. Along with John Balance, they were New Zealand’s most ‘progressive’ prime ministers, at least in the sense that Julius Vogel understood that word. But in 1928, Ward was well past his political prime; his ‘promise’ was not an articulation of a new vision.

Joseph Ward and his times – a very short potted history to 1925

Joseph Ward (MP for Awarua, ie Bluff) became New Zealand’s Minister of Finance in 1893, a few weeks after his 37th birthday. He was ‘Colonial Treasurer’ during the country’s most ‘progressive’ period – in the modern sense of that word – prior to that of Savage; following Ballance’s premature death. (Ballance had been both Prime Minister and Treasurer during 1891 and 1892.)

Ward was forced out of Cabinet in 1896 on account of his personal financial situation, and resigned from Parliament in 1897 when he had to file for bankruptcy. But he contested the 1897 by-election, and was re-elected by a wider margin than in the 1896 general election. Ward was reappointed to Cabinet once he had paid off his creditors.

Ward became Prime Minister – and, in what was becoming a tradition, also Finance Minister – in 1906 following Richard Seddon’s death. His government folded in 1912; see my France’s Two-Ballot Voting System, and its New Zealand Antecedent, 12 July 2024. Ward resumed his duties as Finance Minister in the World War 1 coalition government, from 1915 to 1919. Ward lost his seat in the 1919 election; that year Prime Minister Massey was able to re-establish majority government.

In 1923, Ward tried to get back into Parliament; he unsuccessfully stood in the Tauranga by‑election. The 1922 general election had been the first genuinely three-party election. Massey’s Reform Party got 37 seats, Ward’s Liberal Party (now led by Thomas Wilford) got 22 seats; Labour (under Harry Holland, an immigrant [1912] from Australia with Marxist sympathies) got 17 seats. Massey governed with the help of the Liberals, though died in office before the 1925 election.

In 1925, Massey’s Reform Party, now lead by Gordon Coates, swept to victory. One of the Liberal’s small caucus of 11 MPs was Joseph Ward, now MP for Invercargill. The Liberal Party had become New Zealand’s third party; suffering a parallel downfall in the 1920s to Lloyd-George’s Liberals in the United Kingdom, and for the same reason – the rise of the proletariat and its own Labour Party.

1925 to 1931: Crisis Years in New Zealand

It was all downhill for the Coates’ government in 1926, and especially 1927. New Zealand suffered from a triple-financial-whammy: the return of the British pound to the gold standard at an over-valued exchange rate, the British general strike which paralysed Great Britain’s seaborne trade, and a significant downturn in the terms of trade (ie relative prices) of agricultural and pastoral products vis-à-vis manufactures. Additionally for the labour market, it was a period of technological unemployment; marked in New Zealand in particular by the revolution of machine milking on dairy farms.

1927 was a year of wholesale bankruptcy of farmers, and became the biggest year of emigration since the 1888 ‘exodus’; especially emigration to Australia, and migration of young job-seekers from the farms to the cities. However, Australia suffered the same triple-whammy, though not as intensively as New Zealand.

In 1928, Australians and others were coming to New Zealand. It was a crisis in both countries. In New Zealand in 1928 there was a National Industrial Conference; the main conclusion was that the apparent and significant rise in unemployment was mainly due to migrants and machines. (Has much changed since then?)

This was the backdrop for the 1928 election. The Liberal Party was fighting for its survival. It hired a very capable campaign manager, Albert Davy. It changed its name to United. And it chose Sir Joseph Ward to be its leader. Then, thanks in part to Joe Ward’s ‘Joe Biden moment’, United ‘won’ the election; it gained more seats than any other party, once four ‘independent Liberals’ were included in the count. United formed a Government with Labour support. Ward was Prime Minister and Finance Minister.

Labour under Harry Holland, with more seats than it had ever had, was at the ‘power table’. Holland has been New Zealand’s only ever ‘far-Left’ political leader in a position of power.

The dynamic didn’t work. While 1929 was a good year for New Zealand, in the midst of many bad years, Ward’s health deteriorated. And he had to switch to Coates’ Reform Party to gain the confidence of the House. This moment represents the real beginnings of the National Party.

Ward died early in 1930, with his earnest and conservative Deputy – George Forbes – taking over as both Prime Minister and Minister of Finance. United was lean on talent and experience, remembering that in 1928 they only had 11 MPs.

The performance of the minority United government in 1930 and 1931 matched its surviving talent. They sleep-walked into the global Great Depression, which hit New Zealand in around August 1930, later than in most countries. In 1931 they ‘saved money’ by cancelling the five-yearly census.

In the 1931 election, United and Reform went to the electorate as the ‘Coalition’, and won comfortably against a fiscally conservative far-left Labour Party. In the UK, a similarly conservative Labour Party with ‘Left’ principles but not practice was in the process of collapsing.

Once again (ie after his 1925-1928 failures), Reform’s William Downie Stewart junior, New Zealand’s dogmatic precursor to Ruth Richardson and Roger Douglas – a ‘classical liberal’ – became Finance Minister. Forbes, as sitting Prime Minister, stayed on, becoming New Zealand’s least-inspiring political leader

The Great Depression deepened in New Zealand, until Downie Stewart lost a political arm-wrestle with his Reform Party leader Gordon Coates, in January 1933. The New Zealand economy bottomed out in the summer of 1932/33, after Coates won his battle to devalue the New Zealand pound.

Summary

Joseph Ward’s ‘Biden moment’ bisected the 1925 to 1933 period, enabling 1929 and most of 1930 to be relatively good years for New Zealand in the midst of a disastrous run of circumstance compounded by the unbending economic liberalism of William Downie Stewart, one of New Zealand’s worst-ever Ministers of Finance.

Today, we could learn from the failings of fiscal conservatism in those years, and the brief relief gained during Joseph Ward’s brief ‘Lazarus’ administration.

Additional References:

https://nzhistory.govt.nz/people/sir-joseph-ward

https://teara.govt.nz/en/biographies/2w9/ward-joseph-george

https://nzhistory.govt.nz/culture/the-1920s/1928

https://paperspast.natlib.govt.nz/books/ALMA1929-9917504153502836-The-remarkable-life-story-of-Sir Joseph Ward

https://www.odt.co.nz/opinion/today-history-nzs-most-shocking-election-result

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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.