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

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

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

Ordinary Compound Interest

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

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tax on interest is charged at a person’s marginal rate – commonly known as the secondary tax rate – and is nowadays withdrawn at source.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

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

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

Other starting years

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

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

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

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

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

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

Target Audience

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

“High Growth” Compound Interest

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

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

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

What are they thinking?

Compound interest without compounding economic growth.

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

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

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

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

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

Compound interest with compounding economic growth.

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

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

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

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

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

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

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

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

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

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

Finally

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

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

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

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

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

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

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

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

The Malaise: a Mix of Non-Inflation and Inflation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Change in Real Costs plus Monetary Inflation equals CPI Inflation

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

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

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

An Engineered Deflation

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

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

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

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

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

The Great Depression, in contrast

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

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

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

Finally

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Renationalisation Pledge

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

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

References:

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

*******

Democracy Now!

AMY GOODMAN: We begin today’s show with Syria and the aftermath of the historic collapse of the Assad regime. Israeli forces are continuing to attack key military sites, airports and army air bases in cities across Syria, including the capital Damascus.

In just the last 48 hours, Israel has carried out 340 airstrikes, according to the Syrian Observatory for Human Rights. A resident from Qamishli in northeastern Syria described the strikes that took place Monday night.

ABDEL RAHMAN MOHAMED: [translated] The strikes happened at night. We went out after hearing the sounds, and we saw a fire there. Then we realized that Israel struck these locations. We didn’t get a break from Turkey, and now Israel came. Israel has been striking the area for a while now.

AMY GOODMAN: Turkey and the United States have also continued to strike targets in Syria since the lightning offensive led by Hayat Tahrir al-Sham (HTS).

In a message posted to Telegram on Tuesday, the rebel commander Ahmed al-Sharaa vowed to hold senior officials in the Assad regime accountable for “torturing the Syrian people”.

As different factions of armed groups vie for power and their international backers defend their interests, Syrians are grappling with the enormity of what has happened to their country and what comes next.

In 13 years of war, more than 350,000 people have been killed, according to the United Nations, more than 14 million displaced.

President Bashar al-Assad has fled to Russia, where he has been granted political asylum with his family. Syrians are adjusting to the new reality of life after 50 years of rule by the Assad family, Hafez al-Assad and his son Bashar.

MAHMOUD HAYJAR: [translated] Today we don’t give our joy to anyone. We have been waiting for this day for 50 years. All the people were silenced and could not speak out because of this tyranny. Today we thank and ask God to reward everyone who contributed to this day, the day of liberation.

We were living in a big prison, a big prison that was Syria. It’s been 50 years during which we couldn’t speak, nor express ourselves, nor express our worries. Anyone who spoke out was detained in prisons, as you saw in Sednaya.

AMY GOODMAN: For more on the dramatic changes in Syria, we’re joined by Omar Dahi, Syrian American economics professor at Hampshire College, director of the Security in Context research network, where he focuses on political economy in Syria and the social and economic consequences of the war.

He was born and raised in Syria and involved in several peace-building initiatives since the conflict began. Professor Omar Dahi joins us now from Amherst, Massachusetts.

Professor, welcome to Democracy Now! First, your response to Assad’s departure, him fleeing with his family to Russia, and what this means for Syria?

In Syria, what’s next?         Video: Democracy Now!

OMAR DAHI: Hi, Amy. Thank you so much for having me.

Yeah, I’ve been watching, like many others from outside the country, in shock and disbelief in this past two weeks, and with mixed emotions in many ways. First, shock and disbelief at the collapse of the Syrian regime and the way it happened after 13 or more years of conflict, where there were frontlines that were frozen for the past several years, but suddenly they disappeared.

Of course, incredible joy at the personal level and also for millions of Syrians who were directly hurt by the regime, both through the violence of the war, the displacement, the killings and tortures that were taking place, as well as previously, before the war.

It’s been incredible watching the scenes of the liberation of prisoners from prisons like Sednaya, which have been referred to, I think correctly, as “human slaughterhouses.” It’s been incredibly moving to see people celebrating in the streets, people saying that they can finally go home, they can finally speak their mind.

So, all that has been really a joy to watch and witness as we kind of see the sequence of events unfold with the — you know, Bashar al-Assad fleeing to Russia.

Thankfully, this process, which we can talk more about, happened, finally, with as minimal bloodshed as possible, even though there was plenty of bloodshed over the past years. But in the way it had happened, it actually provided a possibility for positive change, at least at the moment.

But this joy is also tempered with lots of other feelings, as well, primarily the costs at which this happened. And I would say the costs are the human costs, that you outlined, which may be even more in terms of the people killed.

Entire generations have been destroyed. There is a generation of Syrians that grew up in displacement, in refugee camps, the destruction that happened to the country. All the human cost and the physical cost, I think, it’s hard to say that it was not too high. It’s impossible to say that it was OK that all this happened.

There are other costs, of course. The other cost is the loss of sovereignty of Syria, which has been a process ongoing for 10 years. Syria was occupied and invaded by the United States, by Turkey, on the opposition side. And on the Syrian government side, it drew on its allies to defend itself, Russia and Iran, which came to place the regime in a position of dependency.

So, there were multiple foreign types of occupations in the country, which we see what is happening now in the Israeli airstrikes as a continuation of that loss of sovereignty. And I think this is something that Syrians have to grapple with.

There are other costs of the war, as well. There are the empowerment of actors that are not acceptable to a wide variety of Syrian society. Not that there isn’t some backing for them, particularly because they have a certain legitimacy for many Syrians because they fought the government.

But the current government in power or the current, you know, HTS, is not acceptable to large parts of Syrian society, and there’s already warnings that it’s acting as a de facto power, and people are warning against that.

And, of course, there’s the final thing, which is that this is tempered by the regional context, which is the ongoing Israeli genocide in Palestine that is empowered by the US And we’ve seen over the past couple days a complete destruction of what was remaining of Syrian Army military assets by Israel, with complete impunity.

So, all of those, we’re trying to take all those contradictions together — joy for the people, joy for the moment that many millions had dreamed of, which is the departure of the Assad family from power, and the feeling that politics is finally possible in Syria.

Despite all these contradictions, there is a chance for political life to resume. There’s a chance for advocacy for a collectively better future. And this is something that we all have to try and hold and support.

JUAN GONZÁLEZ: Professor, I’m wondering if you could talk briefly about your own family’s history. In the 1990s, your father helped smuggle out names of political prisoners, many of them accused of belonging to the League of Communist Labor, yet the Ba’athist party and the government of your country often talked about being socialist.

OMAR DAHI: Yeah, this was a kind of a spur-of-the-moment post that I did on social media to share these documents that I received after my father passed away three or four years ago. And basically, my father was a lawyer and was among two or three or maybe four lawyers who stepped up in the 1990s to defend a large group of political prisoners, many of them communists, many of them who were accused of being members of the Muslim Brotherhood.

They were basically detained without a trial — or not even just a trial, but without a formal charge. They were accused of belonging to this outlawed party of Communist Labor, which was accused by the government of mounting an insurrection against it in the late 1970s and 1980s. So, most of those who were detained were detained in the 1980s. They had been “disappeared”.

Their families didn’t know anything about them. Most people didn’t know — like many of the people we’re discovering in Sednaya prison today, were not aware whether they were dead or alive or their whereabouts.

So, my father would basically meet with some of those prisoners, when allowed to do so. And really, it was the courage of the prisoners to assemble a lot of this data, to write down their names, their dates of birth, their professions, where they were — when they were arrested, what’s their charge, where they were being held — mostly, in this case, in Sednaya prison — and also if they were in — you know, they needed medical attention, they were traumatised or they were injured in some way.

And I asked my dad why he did this, actually, because, you know, there was no sense that these prisoners would be freed. So, most of them ended up being put on trial en masse and convicted. So, he told me that he had no expectation of justice at that time, but that he felt it was necessary to do it, to use any opening and any chance to expose the hypocrisy of the government, for the same reasons that you mentioned, that he didn’t expect them to actually be — you know, receive a fair trial, which they didn’t, but there has to be a chance to basically put the government’s declared principles against its actions and expose the government.

So, this was a historical document that I was kind of moved to share when the images of the prisoners who were being released from Sednaya. Most of those names in those documents have either, unfortunately, passed away or were released from the prison, so I didn’t expect that there would be some of those people actually there.

But, yeah, that’s why I shared that.

JUAN GONZÁLEZ: Yeah, I wanted to ask you also — you mentioned the foreign presence in Syria. Hasn’t the country, effectively, during this civil war been already partitioned, with Turkish troops creating a buffer zone in the north, the Israelis not only recently, in the past few days, entering Syrian territory, but conducting military operations in the territory previous to that, with the Kurds backed by the US, ISIS still controlling portions of territory, and the Russian bases in the country?

Do you have any sense of the integrity of the country being reconstituted anytime soon?

OMAR DAHI: I don’t think so. I think it’s going to be a long-term struggle, and partly because of the reasons you mention, because this is something that has been happening for a decade, and there are kind of entrenched interests that have developed, not just in terms of a foreign occupation, but in terms of the connection of various parts of Syrian society and their ties to those countries in ways that they’ve come to basically be affiliated or allied with them.

And this is reminiscent, for people who observe Syria, of the post-independence period in Syrian history, when Syria was a site of struggle by external powers because it was weak, it was politically divided, and various regional powers basically came to have significant influence in the country through Syrian political elites.

This was transformed by the Assad family and the Ba’ath Party in ways that actually flipped this around, where Syria consolidated its power and projected its power, at least regionally. But it came at a price, I think, that was high and unsustainable, particularly for Syrian society.

Now this is actually completely shattered. And I think there’s going to be an attempt to rewrite the history of the Syrian conflict in ways that pin the blame completely on the Assad regime, which I don’t think is the case. I think they are primarily at fault for this, not just because of their governance, which was brutal and tyrannical and maintained an exclusive monopoly on power for decades, without recognising any dissent, without recognising any political opposition; not just because of their reaction to the uprising when it first started, where they completely closed down any meaningful political transition; but also because even after they won the war, they spent many years refusing any political initiative to reconcile, after they had, with the help of Russia and Iran, won the war, basically.

So, the frontlines had been frozen for many years.

But all the other international actors also contributed to the destruction of the country. I think there were ways in which, you know, this fragmentation didn’t just imply an obvious loss of sovereignty in the abstract sense, but also destroyed the economy and fragmented the Syrian national economy.

It created kind of perverse war economies in the country. And as you said, Israel has been bombing Syria for the past decade. This bombing escalated after the collapse of the government. They further invaded Syrian territory, and we saw the incursions and the devastation that took place in the last couple days.

AMY GOODMAN: If you can talk about who Mohammed al-Bashir is, the man who’s been appointed the temporary prime minister right now of Syria, and also HTS, its role, listed as a terrorist movement by the US, the EU, the UK and Turkey — the UN special envoy for Syria told The Financial Times that international powers seeking a peaceful transition in the country would have to consider lifting this designation — who Abu Mohammad al-Julani now is — his birth name is Ahmed al-Sharaa?

OMAR DAHI: Yes. Well, I mean, I’m not an expert on Ahmed al-Sharaa’s personal history. Some of that has come out in recent days about his birth in Syria. He claims he was radicalised by the Palestinian intifada, and he joined al-Qaeda in Syria and Iraq.

And Hayat Tahrir al-Sham is basically a splinter group from al-Qaeda that had basically come — it was based in Iraq and then came back to Syria after the uprising started. And there was a period of time, which maybe your audience will remember, when Syria fragmented into various militias.

And there was just as much infighting among those militias, among themselves, between the opposition groups, just as much as they were fighting the Syrian government. So, basically, groups similar to Hayat Tahrir al-Sham were fighting each other. And then there was a period of reconsolidation, particularly in the aftermath of the attack on ISIS, and the kind of permanent or the, you know, more or less, consolidation of Syria into various spheres of influence, with a US presence and Kurdish-led political and military groups in the northeast, Turkish control in the northwest.

Under the areas that were generally under Turkish influence, there were areas that were directly tied to Turkey and areas in which Turkey had influence, and this is the area that came to be consolidated by Hayat Tahrir al-Sham. So, they have a bloody history not just prior to the war, but actually during the war, with respect to even other opposition groups, and kind of, basically, you know, during the time of the rule in the province of Idlib.

Right now and during these past two weeks, there’s been a lot of positive signs in terms of the way they approached the collapse of the Syrian regime, the signs that were verbal, the signs that were actually in actions in terms of trying to protect all government institutions, all public institutions, despite the fact that there have been incidents of looting and sabotage in various ways, but at least they’ve been trying to speak of a national interest in some ways.

That, of course, has to be put to the test. There’s already critiques of their rule, because they unilaterally imposed a transitional government on Syria, which most Syrians would reject as something that they don’t have the authority to do.

It’s also happening in a context where, of course, Syria is still under economic sanctions, so you’ve had devastation from many years of the war, and you’ve had also devastation of Syrian society because of the crippling economic sanctions, primarily imposed by the U.S. and the European Union. So —

AMY GOODMAN: We just have 30 seconds.

OMAR DAHI: So, all of that is really going to be, basically, coming into play over the coming days, basically, and months. And we’ll see how the regional context basically influences what’s happening domestically.

AMY GOODMAN: We want to thank you so much for being with us. Of course, we’re going to continue to follow what happens with Syria. Omar Dahi, Syrian American economics professor at Hampshire College and director of the Security in Context research network.

Coming up, we go to the West Bank to a new report by B’Tselem. As thousands of Syrians are being released from Syrian prisons, we’ll look at a new report on Palestinian prisoners in Hebron, in the occupied West Bank. It’s called “Unleashed: Abuse of Palestinians by Israeli Soldiers in the Center of Hebron.”

This article was first published by Democracy Now! on 10 December 2024 and is republished under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States Licence.

This article was first published on Café Pacific.