The Dim-Post

February 26, 2009

Under the Volcano

Filed under: Politics — danylmc @ 9:25 pm
This years budget will be paid by my VISA card and my VISA bill will be paid by my American Express card.

This years budget will be paid by my VISA card and my VISA bill will be paid by my American Express card.

More interesting than Obama’s big speech about the economy (he’s got another one coming up in a few days about Iraq) was the Republican response delivered by Louisiana Governor Bobby Jindall. A lot of the commentary has been focused on his poor performance and similarity to a sit-com character (Kenneth the Page from 30 Rock), but I was more interested in this excerpt in which Jindal attacks Obama’s stimulus bill on the grounds that:

Their legislation is larded with wasteful spending . . . It includes … $140 million for something called ‘volcano monitoring.’ Instead of monitoring volcanoes, what Congress should be monitoring is the eruption of spending in Washington, D.C.

Conservatives believe in smaller government but even the most die-hard libertarian accepts that there are basic services for which there is no market based solution and the state must play a limited role. Monitoring volcanoes to warn people when they’re about to erupt falls pretty firmly into that category so its fascinating to see the Republican Party take a stand thats more extreme than the wild-eyed fringes of the political far right. Conservative columnist David Brooks from the New York Times summed it up pretty well:

I think Bobby Jindal is a very promising politician, and I oppose the stimulus because I thought it was poorly drafted. But to come up at this moment in history with a stale “government is the problem,” “we can’t trust the federal government” – it’s just a disaster for the Republican Party. The country is in a panic right now. They may not like the way the Democrats have passed the stimulus bill, but that idea that we’re just gonna – that government is going to have no role, the federal government has no role in this, that – In a moment when only the federal government is actually big enough to do stuff, to just ignore all that and just say “government is the problem, corruption, earmarks, wasteful spending,” it’s just a form of nihilism. It’s just not where the country is, it’s not where the future of the country is. There’s an intra-Republican debate. Some people say the Republican Party lost its way because they got too moderate. Some people say they got too weird or too conservative. He thinks they got too moderate, and so he’s making that case. I think it’s insane, and I just think it’s a disaster for the party. I just think it’s unfortunate right now.

I had a similar feeling when I heard Phil Goff speak out against the suspension of payments into the Cullen SuperFund; a lot of people have pointed out the vacuousness of Goff’s argument but I don’t think there’s been enough of a focus on how utterly fucking insane it is for the leader of the Labour Party to be demanding that the government borrow money to invest it in the stock market during a catastrophic  financial crisis.

Were the positions reversed and National were advocating the policy its not hard to imagine the howls of outrage from the left-wing blogs: ‘Slippery John Key wants to mortgage this country’s future so he can dish out the cash to his rich stockbroker mates’. Repeat at high volume until election day.

Not only is Labour’s policy bad economics it’s also very bad politics. The Cullen fund will almost certainly lose money again this year, and possibly again the year after, the Nat’s look set to suspend payments so each time a loss is announced the government will be able to crow about how much more we would have lost if Phil Goff were in charge.

Labour’s instincts here are essentially correct – superannuation IS going to be a huge political issue for the forseeable future, and someday it might be a vote-winner for them. But until then they need to keep their heads down and formulate some intelligent policy, because trying to win news cycles against a wildly popular government three years out from an election with half-witted ideas like this one is not going to be a winning strategy. I was filled with optimism when Goff and King took over the party, now I just have the same kicked-in-the-balls feeling Conservatives in the US must have.

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21 Comments »

  1. I don’t think there’s been enough of a focus on how utterly fucking insane it is for the leader of the Labour Party to be demanding that the government borrow money to invest it in the stock market during a catastrophic financial crisis.

    Quite honestly, it makes me want to lay my keyboard aside and bang my head repeatedly on the desk. That doesn’t happen often because I expect foolishness from politicians, but this example of it really does cry out for some kind of special attention.

    Comment by Psycho Milt — February 26, 2009 @ 10:07 pm

  2. David Brooks is a conservative columnist? What universe are you inhabiting?

    But on this: its fascinating to see the Republican Party take a stand thats more extreme than the wild-eyed fringes of the political far right.

    I heard him. He says tax cuts are the answer. What’s wrong with that? With tax cuts people have more money to pay their mortgage, right?

    Comment by Berend de Boer — February 26, 2009 @ 10:47 pm

  3. You should go for a job in Parliament or the Gallery. You would be great, until we took your scrawny Karori ass out into the backrooms and cut you until you screamed. Don’t mess with the politics of the mothers when you just a kid. (just a joke for those who may take it seriously)

    Comment by Ian Llewellyn — February 26, 2009 @ 11:38 pm

  4. One problem with the tax-cuts-solve-all theory is that the USA has a giant amount of national debt right now, and lowering – again – the amount of income the government is receiving is not going to help matters. They need to stop wasteful spending, pay down some of that debt, and then maybe look at lowering taxes. But not until they are out of Iraq and Afghanistan and the economy is back from the brink of collapse.

    Comment by radar — February 27, 2009 @ 7:24 am

  5. “David Brooks is a conservative columnist? What universe are you inhabiting?”

    I suspect, Berend, the universe that the vast, vast majority of the world lives in. Which is clearly not the same one as your own private universe.

    Comment by Eddie Clark — February 27, 2009 @ 10:13 am

  6. To call it “utterly fucking insane” is rather one-eyed, not to mention the fact that you then show a lack of deeper understanding by referring to *gasp* stock markets (they run an asset allocation model that puts money across many classes, including fixed interest, commodities, private equity, property…)

    There are arguments for continuing to put money in, even in a deficit – although I’ve probably come down on the side of reducing the allocations in the current environment.
    But here’s a few reasons on the pro-side:
    – The alternative (we don’t pre-fund it at all) just means that we have to *gasp* borrow the money in a decade or two to pay for our huge Super shortfall – a. borrowing now and having fund managers generate some kind of return is better than straight debt funding at the time, and b. its better to borrow in small chunks over time rather than a huge lump when our shortfall comes due.
    – The returns on the fund for the next couple of years don’t matter. We aren’t drawing on it until 2020 at the absolute earliest. Non-cashed-up returns don’t matter if we’re buying into asset classes on the cheap such that in 11 years time they will have appreciated substantially
    – Non-politicisation of the Fund is important – by reducing the payment they are funding their “projects” (which at the moment are core services but they are effectively putting other political priorities over funding the Super gap). So they should really be kept out the decision. I believe Treasury have a model for how much should be paid each year and that should be used to ensure non-politicisation.
    – We’re back into the “we’re not borrowing for tax cuts, but we are for Super” falsity of allocating the funding. I’m not convinced that if we cut $1.5b in payments each year for the next few years that the debt level won’t start to creep back up to fund other little projects.
    – A long-term “commitment momentum” to Super funding could be considered key.

    By not paying up, we’re just delaying the debt pain – the fund was setup specifically to smooth and minimise that pain. As I said, I’ll probably agree with reducing the payments this year to avoid a really bad credit rating impact, but would rather Treasury provided an analytical view on the maximum we can go to without triggering these significant negative side effects.
    This meme that’s been developed (perhaps by one of their highly-paid new media advisers?) that “we’re borrowing money to then lose on the stockmarket” is such a simplification of the reality as to be a lie.

    Comment by Gareth — February 27, 2009 @ 10:41 am

  7. But yes, Goff et al are fucking this up politically…

    Comment by Gareth — February 27, 2009 @ 10:50 am

  8. “until we took your scrawny Karori ass out into the backrooms and cut you until you screamed.”

    No offense cuz, but you’re calling someone else scrawny??

    Comment by llew — February 27, 2009 @ 11:03 am

  9. I wonder if everyone who is encouraging the government to keep borrowing money to invest in the future is also doing the same with the own personal finances.

    Comment by Thomas Beagle — February 27, 2009 @ 11:38 am

  10. I say adopt the Geoffrey Firmin approach to superannuation… now where’s the mezcal…?

    Comment by pbmcbeth — February 27, 2009 @ 11:54 am

  11. Danyl. If you don’t understand Dollar Cost Averaging, you probably shouldn’t be calling other people’s economic views insane.

    It’s not the loss this year or next year that matters. It’s the long term return on the investment compared to the cost of borrowing. Unless we are at the end of global capitalism, the return from a diversified fund will exceed the cost of issuing bonds over the long-term and that is the only timeframe that matters with the Cullen Fund. If we are at the end of global capitalism, then we’ve got other things to worry about.

    And, no, we can’t hold off contributing now then magically put all our deferred contributions back in as soon as the market starts climbing again. If we could do that, we wouldn’t need the Cullen Fund cause we’ld be a nation of billionaries already.

    Comment by Clinton Smith — February 27, 2009 @ 12:15 pm

  12. Danyl,

    Bobby “stop borrowing/spend less” Jindal = stupid.

    AND?

    Phil “start borowing/spend more” Goff = same kind of stupid.

    At first I was going to comment something critical of your apparent inconsistancy, but actually y’know what I totally agree with both of those statements. The world economy needs liquidity, but borrowing is going to be problematic in the medium to longterm. I absolutely want the American taxpayers to spend us out of this recession and if they have to go to the wall to do it – so be it, I am not an American. Any American politician who suggests they should be borrowing less deserves to be called an out-of-touch stupid fool and any Kiwi politician who says we should borrow more is likewise deserving.

    Comment by unaha-closp — February 27, 2009 @ 12:45 pm

  13. The Cullen fund allied with National Super is a COMPULSORY SUPER SCHEME. That is, you pay high (opinion) tax now, the gummint throws it at the stock market and you get a pension when you turn 65 (actually 68, no wait, things are bad, let’s say 70. Oh, you are a manual worker? Look it’s not the gummint’s fault you die without seeing any of your money back). It’s like a contract…without the enforceable contract part.

    If we are going to have compulsory superannuation, I’d rather have control over the money, not those politicians and the gummint.

    So, make KiwiSaver compulsory:
    – 5% (or 6 or 8%, let us have a debate) of all your income over $10,000 is placed into a personal KS account.*
    – When you reach 65 (or 68, or 70), if required, the gummint tops up your savings to $xxx,xxx, and you buy an annuity (pension) somewhat like the current National Super. (This will help if you are not able to work/earn much during your work years.)
    – After purchasing the annuity, any remaining money is available for you to spend how you wish (overseas trip to visit grandchildren in Aussie, child in London, etc).
    – If you pop your clogs before age 65/68/70, then the balance in your KS account goes to your estate.

    I’m not normally “for” compulsion, but I’d rather have some distance between a gummint and my money.

    *One flaw that may require “tighter regulation” is that you may choose to place your $millions KS savings into a high risk fund which tanks, then you get a get-out-of-jail-free card from fellow taxpayers when your account is topped up to buy an annuity. Needs further thought.

    Comment by Clunking Fist — February 27, 2009 @ 12:57 pm

  14. Clinton, as usual you come across as someone who has read half a book on economics. Dollar cost averaging is a nice idea when you have the money to invest, but borrowing to do it is crazy. In normal times there is a chance that you will make your money back, but betting on a recovery of that magnitude in the next decade using borrowed money is casino capitalism.

    Comment by Dave — February 27, 2009 @ 1:50 pm

  15. The other thing to bear in mind is that dollar cost averaging works really well when applied to the bull-bear markets of the last sixty years; but if you bought stocks in 1929 or 1930 then you had to wait until the mid 1950’s until you even broke even, let alone made a profit on your investment.

    Comment by danylmc — February 27, 2009 @ 4:07 pm

  16. Berend, you forgot to write about why the market would provide competitive volcano monitoring far more effectively than the nanny state ever could…

    Comment by helenalex — February 27, 2009 @ 5:01 pm

  17. Is that Yellowstone super volcano still swelling upwards?

    Comment by unaha-closp — February 27, 2009 @ 5:20 pm

  18. helenalex: I imagine insurers would be quite interested in these things. Except that the government is picking up the tab in these cases, so the market is not interested. Or in other words: I agree, given the current market conditions, no one is. But that is because of government intervention.

    But I hope we can agree that it is open to discussion whether the government should or should not do these things, and if it does them, it would do a better job, or a good enough job and a lower price than private citizens/companies would do on their own. That might well be, I’m not preconceived, just fairly sceptical of the powers of government.

    Comment by Berend de Boer — February 27, 2009 @ 8:47 pm

  19. Still, it has been fun listening to Bobby Jindall (and other Republican governors) explain how the billions of dollars in “stimulus” money flowing into their states — most of which are in deep fiscal shit themselves — isn’t the bad stimulus. Like watching a teenage boy explain that blow-jobs aren’t really sex, and when you’re getting them from the captain of the football team (when you’re both really drunk) they don’t make you queer either.

    Berend@18: I agree with you that it should be open to discussion. The problem is, in the American context, there’s not many Republicans left who didn’t spend the last eight years trashing any credibility they once had on the subject.

    Comment by Craig Ranapia — February 27, 2009 @ 10:13 pm

  20. We do need to distinguish between good fiscal stimulus and bad fiscal stimulus. I see the aim of current deficit financing as something like a methadone programme – the world is addicted to easy credit, and needs to be weaned off it slowly.

    Comment by kahikatea — February 27, 2009 @ 10:53 pm

  21. Labour’s instincts here are essentially correct – superannuation IS going to be a huge political issue for the forseeable future, and someday it might be a vote-winner for them. But until then they need to keep their heads down and formulate some intelligent policy, because trying to win news cycles against a wildly popular government three years out from an election with half-witted ideas like this one is not going to be a winning strategy.

    Comment by Jane — February 28, 2009 @ 5:41 am


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