Tuesday, October 27, 2009

Spending on welfare - "...engine of the domestic economy."

Did you know that, according to Gordon Campbell;

It seems to have eluded Federated Farmers economic spokesperson Philip York at least – just as it eluded Ruth Richardson – that spending on welfare is one of the engines of the domestic economy. Beneficiaries spend the money that they get from the state in local shops – not on overseas trips or on luxury imports.

So if we want a strong and growing economy, what we need is more spending on welfare. If that were so than during the rapid growth period of welfare (last 40 years) NZ's per capita income would have climbed relative to the rest of the developed world. It hasn't.

Or perhaps he means we just need to maintain current levels of spending, at the very least, to prop up the economy.

But the money being redistributed to beneficiaries is money that cannot be spent in investment and job creation.

It is no good talking up a group's collective consuming power if, eventually, there isn't a commensurate producer. This isn't chicken and egg stuff. The production has to come first. And production requires labour.

Same story with the low paid. It has been estimated for instance, that 2/3 of this year’s wage rise to staff at Progressive’s supermarkets will be spent back at Progressive, on groceries. The money circulates back through retailers, and government gets some of it back in tax.

No. It is not the same story with the working low paid. They add value to the economy with their labour. Their earnings are not taken away from the productive sector with no return. Wealth redistribution through voluntary means - paid employment - is entirely different from redistribution through government coercion.

I do not, and never have, advocated cutting benefit payment levels. However, and I am sorry to repeat myself, a stop to the ongoing inflow of new beneficiairies is urgent. That, and a progressive raising of the qualifying age for Super would see a steady decline in welfare spending. That would drop the proportion of government spending as a percentage of GDP. That will make NZ a wealthier country.

It is impossible to estimate the social cost in crime, marital breakdown and mental health problems that have resulted from this ongoing pressure on benefit levels and entitlements.

Almost as impossible as trying to estimate the cost in crime, marital breakdown and mental health problems that have resulted from benefit dependency itself. Again all of those aspects of life have become more commonplace on the back of the growth in the welfare state. They may have worsened in the early nineties but they were already well-entrenched compared to life before the culture of entitlement and hand-outs arrived.

I am not an economist but this claim is as nutty to me as the one that goes, I may be a beneficiary but I still pay tax. I make my contribution.


Anonymous said...

And here comes the future:

McDonald's is pulling out of New Zealand next week, in a fresh blow to the island nation a year on from a financial crash that nearly left it bankrupt.

The closure of the fast-food giant's three restaurants on Monday means New Zealand will become one of the few Western countries, including Albania and Bosnia and Herzegovina, without a McDonald's.

John Ockerson, managing director of McBrands, holder of the McDonald's franchise in New Zealand, said the rising cost of importing ingredients and no sign of economic recovery meant the business was no longer financially viable.

He said the cost of McDonald's ingredients, most of which are sourced from Australia, had doubled in the last 18 months as a result of severe depreciation of the New Zealand Dollar and high marginal tax rates.

A Big Mac in Auckland sells for NZD10 (£3.22), but the 20% price rise required to make a decent profit would have increased it to NZD12 (£3.86), which would have made the New Zealand version of the burger the most expensive in the world.

"I've sold more hamburgers in the last few months than ever before, but the cost is prohibitive. It just makes no sense," Ockerson told Reuters.

McDonald's opened in Auckland in 1993. The company said in a statement that it would not seek a new partner in New Zealand owing to the state of the economy and the complexity of doing business in an island nation of just 4,000,000 people.

New Zealand's government deficit exploded at the height of the global credit crisis, borrowing $1bn per month, devastating the country's economy and leaving it dependent on a $10bn aid package led by the International Monetary Fund.

It is not the first time that McDonald's, which operates in more than 119 countries on six continents, has pulled out of a country. In 2002 it withdrew from seven countries, including Bolivia, which had poor profit margins, in a cost cutting exercise.

after http://www.guardian.co.uk/world/2009/oct/27/mcdonalds-to-quit-iceland

Lucy said...

The mans mad.

Lucy said...

The 'man' of course is Gordon Campbell.

CB said...

Ahh, this is the economic theory I was taught in high school in the 80's. It was referred to as circulating money through the economy.

They did not mention that it was actually stealing from the productive.

I read an article recently from an Ethiopian women where she said the worst thing the western world can do for Africa is keep throwing money at it.


Also, a good story from the UK on the poverty of spirit so ofter found in beneficiaries. We are doing no one any favours with all of these handouts:


Oswald Bastable said...

"that spending on welfare is one of the engines of the domestic economy"

That is as dumb as standing in a bucket and trying to lift it up!

Anonymous said...

Burglary is actually a very important engine of the domestic economy.
Insurance companies, privately funded, replace the stolen goods.
This maintains a bouyant retail sector.
The stolen goods are distributed to those on low incomes and benefits, raising their standard of living.
There are no real losers.
Retailers maintain a healthy turnover, good for profits, good for employment.
The burgled get new stuff.
The poor get better stuff than they had before.
The crims get cash for beer and drugs.
The insurance companies get more business (they make a profit).
The rich pricks pay less for premiums than the difference in the cost of their new stuff.
And the cops don't have to get out of their cars.
National needs to think again about reversing Labour's soft stance on criminal activity.


Sus said...

Very good, Mervyn. :)

Presumably the same Gordon Campbell who used to spout the same eco-trash in 'The Listener'?

And if so, perhaps he still does ...

James said...

The Broken Window fallacy is alive and kicking it seems....kicking the crap out of the productive.


But the most damming reply to this nonsense is that its immoral....it enslaves one person to another.No ones "need"...really or imagined justifys the violation of the natuarl,individual rights of another to their person or property.

What is immoral is also impracticle...reality makes it so...there are no contradictions in objective reality.

plainblinglish said...

30 cents of each welfare dollar goes where?