Keith Rankin's Notebook 2000



Auto Slaughter

Rival Theories of the Effects of 'Tight Money' Policies

Child Support and DPB Mums

Misreading Articles; Misleading Headlines

Dividend Yields are Interest Rates

Social Cohesion; Cost or Benefit

 Auto Slaughter

 7 June 2000

Why is the car treated differently from other weapons of homicide? If a man were to attack a picket line with a machete and kill someone it would be manslaughter. If a doctor causes death by accidentally putting the wrong stuff in a drip, then its manslaughter. Yet when an intolerant or impatient man rams a picket line with his vehicle and killed Christine Clark - see Driver denies blame for picket death - it's merely dangerous driving; an "accident". It would be interesting to know if the charge would be the same if someone deliberately drove into a group of children, or a group of lawyers.

We've long been ambivalent about loss of life attributable to motor vehicles. In the 1950s and 60s, Detroit carmakers quite openly admitted that loss of life due to a commercially-driven unwillingness to make cars safe was acceptable. After all, it was other people who paid the cost when Ford or General Motors chose to cut corners. It's not clear that business attitudes have changed much since then.

Surely it is multiple murder if someone chooses design A over design B, knowing that say 20 more people will die as a result of that choice. (Perhaps it's OK if you tell the buying public that a product is cheaper than it would otherwise have been because it is dangerous. The problem remains that the person's killed by a dangerous vehicle are often not the purchasers of the vehicle.) Or do you have to know the name or your victim before it is homicide?

Recently, we have heard that big cars are safer than small cars. But that's because the persons inside a small car are more likely to be killed when it collides with a big car. If all cars were small, then small cars would not be as dangerous. (OK, there are still trucks to negotiate.)

Designing cars to not be safe, or to be only safe to the persons inside, is a form of premeditated slaughter by motor vehicle. It is the third parties who pay the cost of dangerous and large vehicles. Christine Clark might have survived if she had been struck by a Daihatsu instead of a 4x4.


 Rival Theories of the Effects of 'Tight Money' Policies

 3 May

Monetary orthodoxy sees a tight monetary policy - read a policy by the Reserve Bank to cause interest rates to be higher than they would otherwise be - as a means to slow down an economy. Both monetarists and Keynesians see it that way, although monetarists deny that the long-run rate of growth is slowed by such policies.

Orthodoxy assumes that a slowdown - including a slowdown induced by monetary policy - means reduced economic growth, reduced inflation, reduced employment, and a reduced balance of payments (current account) deficit. An article by Brian Fallow in yesterday's Business Herald (Import demand pushes trade deficit to $3.5b) reflects such orthodoxy on the part of bank economists.

The alternative view, that I've expressed on a number of occasions (see my op-ed page and Rankin File commentaries), is that inflation is directly aggravated by additional interest costs, and that in an open (ie trading) national economy with a floating currency, higher interest rates aggravate a balance of payments deficit. This is because higher interest rates cause a net inflow of foreign capital, which pushes up the exchange rate. A higher surplus on the capital account of the balance of payments is necessarily accompanied by a higher deficit on the current account.

I suggest that the balance of payments is the litmus test that proves my theory right and the banks' orthodoxy theory wrong. The New Zealand balance of payments got out of control whenever (since 1985) the Reserve Bank tightened its policy. Fallow's article suggests that it's happening again.

It's not just a short-term deterioration of the balance of payments. The loss of international competitiveness caused by high interest rates and an overvalued exchange rate means that when both rates eventually fall, there remains a higher deficit than there would have been had the tight money policy not been implemented.


 Child Support and DPB Mums

 12 Apr

Muriel Newman's sympathy to the plight of fathers' difficulties with the Family Court system doesn't extend to the compulsory child maintenance ("Child Support") system. (See Let's balance the access when families fall apart and Fighting a custodial sentence.)

She is now trying to find why some many fathers avoid their financial responsibilities on account of beneficiary mothers not naming the father. (See Thousands of fathers getting off scot free in today's NZ Herald)

The obvious reason why mothers do not name the fathers is not mentioned in the Herald article. It is that fathers want to support their children, but that the compulsory Child Support system prevents them from doing so.

For beneficiary mothers, the father's "child support" money goes to the government and not to the mother or the children. By not declaring the father's name, the father has that money to spend on the children.

Child Support, in most instances, is nothing more than a tax on secondary caregivers, or would-be secondary caregivers. (Some fathers cannot afford to have access to their children because of the burden of the Child Support that they pay to the government.) When the parents conspire to avoid that tax, their children become better off where fathers' direct contributions exceed the $22 pw fine imposed on beneficiary mothers who do not identify the fathers of their children.


 Misreading Articles; Misleading Headlines

 28 March

Grant Gillon (Herald letters, March 28) is wrong to claim that I suggested North Shore pay half of the cost of Motat. Mr Gillon appears to have misread the headline the Herald gave to my article; namely Auckland, Shore should gift museum to region.

In my March 20 article, I argued that Auckland City should have recognised its privileged position within the region and funded the Motat subsidy as a gift to the region. I also noted that North Shore City is affluent relative to, for example, Manukau City, and that therefore a contribution to Motat from North Shore would have been appropriate.

Mr Gillon is right to note that there is poverty in North Shore City, as indeed there is in Auckland City. Nevertheless, the average household income on the Shore is considerably greater than it is in Manukau or Waitakere. It would be unfortunate if North Shore were to assume no regional responsibilities.

I would also like to refute John Mihaljevic's claim (Herald letters, March 27) that rates are not a proportionate tax. Of course rates are not exactly proportionate to household incomes. Nevertheless, people on higher incomes tend to pay higher rates. Further, imputed rentals paid by home owner occupiers to themselves are recognised in the national accounts as a component of household income.


 Dividend Yields are Interest Rates

 18 March

Brian Gaynor, in today's Weekend Herald Investment column (Vital need to replace foreign money with local savings), notes that the New Zealand sharemarket is at a disadvantage vis-à-vis other countries' markets because it pays higher dividends. He says, "the high yield indicates that investors perceive greater risks and require compensation".

The real reason for higher yields is the higher interest rates imposed by New Zealand's Reserve Bank on account of its "orthodox" commitment to fighting inflation.

Gaynor notes further that "the high yield makes new equity expensive as companies have to pay a higher dividend to attract capital". The truth is that high rates of interest are just as much a cost to equity investment as they are a cost to loan investment, or as they represent the opportunity cost of reinvesting profits, which is what business savings means.

Whatever high interest rates may do to quell demand-pull inflation, they constitute an increasingly important component of cost-push inflation.


 Social Cohesion; Cost or Benefit

 5 March

Patrick Smellie in today's Sunday Star-Times says (This European clique builds tall trade walls):

The term 'multifunctionality' means that farming in Europe is not about making a living. It is about governments staying elected. It is about paying dearly for social cohesion by deciding it is nice to have people living in the countryside.

A successful economy, as measured for instance by GDP per person, is supposed to be the means to high living standards, including high standards of public health. Yet, as Richard Wilkinson demonstrated in his 1996 book Unhealthy Societies, it is "social cohesion far more than GDP that leads to longevity and other public health outcomes.

Economic growth without social cohesion is worthless. Social cohesion without economic growth is not worthless. So even if the European Union is giving up some GDP for social cohesion, they are making the correct choice if they wish to maximise the economic wellbeing of Europeans.

Actually, as social capital theory suggests, social cohesion is an important input into economic growth. So, giving priority to social cohesion raises rather than diminishes GDP.



1999 Short Items

© 2000

Rankin File