I See Red

Obama's instincts

If you would like to learn a bit more about the next President of the US (why he is winning and the kind of President he will be) then you should read this Time article.  

Do you trust John Key?

In case you haven't seen this yet!

Radio NZ debate on the economy

I went to the Radio NZ debate on the economy on Sunday.  It was a lot of fun.  I thought the eight speakers did a very good job at presenting their different parties positions on a range of issues.  I think we should be very grateful that we have a democracy where eight parties can have a  1 1/2 hour policy focused debate on important issues.

I did feel kind of sorry for Roger Douglas.  While many of us can disagree with him, at least once upon a time he could string a sentence and argument together for the liberal right.  Most of the debate people were laughing at him.  I think ACT should have left him in retirement.

Some of the highlights for me are below.

The first round of applause of the debate went to Jim Anderton in response to this:

The thing that most concerns me is people who need the most help in difficult financial times are the poor and most vulnerable.  They're the ones who get the least help out of tax cuts actually.  And no'one around this table should be getting tax cuts.  We should actually be giving all the help we can do to supporting families on low incomes.  We still have 13% of children in NZ who live in poverty.  We've been successful in lifting a lot out of poverty but when we've got that level of poverty the last thing we should be doing is giving tax cuts to the richest NZers and taking money off the poorest.

And anther loud round of applause for Michael Cullen on National's tax and consume policy:

The National Party has come clean on its tax cuts because its promising to pay for them by savaging Kiwisaver and removing the research and development tax incentive.  So in a situation where the world is saying to us do not become heavily indebted nations (and Mr Key is no longer saying we don't have a debt problem, he's finally found out NZ does have a debt problem) in a time when we're really having to say to ourselves its time to start saving more and investing more and less emphasis upon consumption - we have a tax proposal from National which says consume more, don't save and don't invest in innovation.  That is a dumb plodding old fashioned approach.

There was also this interesting interchange between English and Cullen:

English: The issue with Kiwisaver is this - only a quarter of the working age population are in it.  And you ask yourself why are the other 3/4 not in it when it offers such a 200% plus return on capital.

Cullen: After only 18 months over 800,000 people are in the scheme.  This is the most successful private savings scheme in NZs history.

Jeanette: We don't think it makes sense to cut Kiwisaver to fund tax cuts.  We know what people have done in the past with tax cuts.  They've not gone into savings.  They've gone into consumption and that's what we don't need at the moment.

And two comments from Michael Cullen got huge rounds or applause:

Do we want to be a smart economy or do we want to be a dumb economy with a low tax rate?

Roger, my good friend here, I've got to say.  Roger's great at destroying things that need destroying, but he's never been any good at building things that need building.

Cullen also made English look a little foolish when in response to English claiming businesses were rorting the R&D tax credits:

This came into force 1 April.  Nobody has actually yet applied for the R&D tax credit and got an aye or a nay.  So to say there's rorts going on is a remarkable achievement.  It reminds me of that sort of polishing your shoes and what it might lead to in terms of sex somewhere down the track.  It's that kind of argument.

The credit crunch

I've been meaning to post this excellent article on the credit crisis for a while. Will Hutton argues that it is time for the world to build a new financial system based on fairness instead of greed with long-term commitment to building businesses and supporting investment. 

The first part of the articles provides an analysis of how the problem was created:

This is a crisis that has been 30 years in the making - a Gordian knot of libertarian free-market fundamentalism, unregulated globalisation, the collapse of social and political forces committed to fairness, the explosive impact of financial innovations such as 'securitisation', and sheer greed. Each has contributed to the fiasco - and all now need to be unravelled if the economy is to have a sustained recovery.

He criticises the lack of opposition to the market fundamentalism:

There was no effective opposition. The left and organised labour collapsed as intellectual, social and political forces; there was no conviction that any alternative to this shareholder value-driven, financial, 'securitised' capitalism existed, or any political muscle to support it even if there were. Mainstream culture moved away from public purpose and fairness; the new priorities were individual self-fulfilment, personal experience and loyalty to self.

He then explains the consequences of the past 30 years:

And now the roof has fallen in, setting up potentially the most dangerous vicious circle since the Great Depression - and it could be most vicious of all here in Britain. The belief that securitised loans could always be sold or insured has proved illusory. Worse, too many have junk assets as security - commercial property, buy-to-let property, junk American loans and overstretched buyers in the residential property market. The debt will stay toxic until the economy recovers again. But worse, the margins on any new loans the banks could offer are tiny or non-existent. They have dried up, and as a result the price of property is collapsing, so that the debt is becoming even more toxic. Because everybody knows this, and nobody trusts anybody else, the banks are in a trap.

And then he outlines some possible solutions:

Talking of making bankers pay for the mess they have created, as they do in America over the Paulson plan, is pointless. The task now is to survive without a slump – and create a new financial system that moves decisively away from the mores of super gentlemanly capitalism.

We have to mimic the Paulson plan and set up a so-called 'bad' bank, with up to £100bn of purchasing power. We must buy toxic loans from all British-based banks, with the object of selling them in better market conditions. Most such operations, as in Sweden in the Nineties or Britain in the Seventies, end up losing no money whatever. This will stop the banks becoming zombie institutions.

Second, we have to reopen the markets in securitised assets. This requires two initiatives. The taxpayer will have to find £50bn-plus to invest in the shares of our leading banks so there is no doubt they are solvent and can support both the existing level of debt and the new issue of more. The taxpayer should also give an additional stimulus by running a temporary insurance scheme so that overseas and domestic buyers of securitised loans know there is no risk of losing any money – in other words, a form of targeted and temporary deposit insurance.

...

The regulatory regime must be overhauled; never again should regulators turn a blind eye to off shore banking and wild ratios in which lending can reach 30 or 40 times a bank's capital. EU and American regulators need to work much more closely – and Britain needs to be part of the process. The UK taxpayer does not have the firepower to support a bust international system – one of the reasons that Brown's reluctance to consider a joint European initiative is shortsighted. We may even have to consider joining the euro to get the necessary financial power behind London.

"I have no intention of breaking my word"

It seems Dunedin Young Labour got under Mr Key's skin yesterday with their mock National Party auction selling off our state assets.  Key responds in his bland blog by saying:

One of the guarantees on my "key commitments" card is not to sell Kiwibank or any other state-owned company.
...

I have no intention of breaking my word.

The problem, Mr Key, is which of your words do we trust?  Do we trust your word during the leaders debate when you told over 1 million New Zealanders:

Shane Taurima: “…Pita Sharples said that you told him privately that you would not abolish the Maori seats without Maori consent. Now since saying that you have denied saying that, are you calling Dr Sharples a liar?”

John Key: “Look I have never given that assurance. We have had many meetings with the Maori Party…”

Mark Sainsbury: Why would Pita Sharples say that then?

Key: “Well I think he’s got that wrong, I’m sorry but he’s got it wrong, there is no formal agreement.” (note - Key was not being asked about whether there was a formal agreement).

Or your new position today that you did have that conversation and make that assurance.

The problem is, Mr Key, that you have not held a consistent policy position for more than a day.  So which of your words should New Zealanders trust?

KEEP IT KIWI

Labour has launched its billboard for the election campaign: "Keep it Kiwi".  It ties in with the launch of additional economic policy detail today, including issuing long-term infrastructure bonds and consulting with the Guardians of the NZ Super fund and KiwiSaver providers to encourage increased investment in New Zealand by their funds.

The record so far.

Campaign day 1: Labour announces bank deposit security scheme, and education and skills policy as part of broader economic management package.  National announces Labour is about style not substance.

Campaign day 2: Labour announces Universal Student Allowance by 2012.  National announces they think that is an "interesting idea in principle".

Campaign day 3: Labour announces additional economic policy focused on growth and security, and launches its campaign billboards encouraging NZers to "Keep it Kiwi".  National announces it will fund Plunketline, a rehash of a policy announced earlier in the year.

Electoral Impact of International Financial Crisis

Have a look at the below graph.  It indicates the impact that the International Financial Crisis is having on the US election (of course Obama is also performing better in the debates and has a stronger ground game).

And now think about the impact that this International Financial Crisis is or could have on our own campaign here in New Zealand.  In that context, the Roy Morgan and 3News polls could be telling the start of an interesting story.

A story of contrasts - National versus Labour

The election campaign has taken a radical shift in the past 2 weeks.  National's strategy of running a bland campaign and being Labour-lite has been found wanting in an environment when people are feeling anxious about the International Financial Crisis and their own jobs and wellbeing.

National's campaign launch offered no new ideas and no new policy.  Ironically Bill English said Labour was about style not substance.  Well the media consensus is that it is the other way around.  John Armstrong sums it up nicely:

If actions speak louder than words, Labour was the winner on Day One of the official election campaign - game, set and match.

In the fight over which of the two major parties is best at running the economy, Labour scored a significant tactical victory.

After nine years in opposition they have no real economic plan for our future.  The policy (although I don't know if you can call slogans and bullet points policy) National has announced is no different from what they've been arguing for more than a decade - tax cuts, gut the RMA, cut red tape.  Their other policy points are nothing more than shallow endorsements of Labour's 1999-2008 policy.  And the rest is just scary.  Jordan Carter labels their plans "economic vandalism".

Labour has shifted up a gear, and is about to launch a series of meaty policies that deal with the economic crisis in a holistic way - including savings, infrastructure, skills and training, jobs and economic growth.  Labour's launch was about substance.  In addition to the bank deposit announcement to reassure people to not take their deposits out of our banks Labour announced policy on education and skills training.  In the new few days Michael Cullen will be announcing more detailed policy on the "six drivers of economic growth" innovation, boosting our export trade, sustainability, infrastructure, and savings.

Plus there will be policy on housing and health and more.

They dynamics of the 2008 have dramatically changed.  It is Labour that is showing the leadership to deal with the economic crisis.  It is Labour that is and will be offering bold new detailed policy to lead New Zealand through these difficult economic times.  It is Labour that has the record of delivering bold popular policies that New Zealanders support.  It is Helen Clark that has a record of making the right calls on the difficult decisions.  This election is about trust.

UPDATE: Another contrast is given by Audrey Young "Dull National vs energised Labour". 

If you had arrived in Auckland from another planet and gone to both launches, you'd probably have thought that National was the tired old Government and that Labour was the fresh invigorated party on the brink of power.
It was that stark: dull vs energised.

Cartoon: Carving up KiwiSaver

 

Why the poll gap is closing: "good in a crisis"

The latest Roy Morgan poll has the gap between National and Labour closing from 11% to 3% and the left block at 47.5% (Labour, Progressive, Green) to the right block on 45% (National, Act, United Future). 

The 3 News poll also has the gap closing from 14% to 6% with the left block at 46% to the right block on 47%.

The polls are extremely similar and I am inclined to believe them; particularly the 3 News poll.  I believe them because in the phone canvassing and door knocking I've been doing over the past two weeks I've detected a notable softening of National's support and a slight increase in Labour support.

But why the significant turnaround?  The conventional wisdom (Colin James talks about it this week here, and Therese Arseneau here) is that people turn against Governments when the economy goes bad.  Certainly the increased petrol, food and power prices is a significant part of Labour's bad polling over the past 12 months.  In the US the public are blaming the Republican's for the economic crisis.  They look set to be punished in their elections.

So why has the reaction been so very different here in NZ?  This is not a conventional domestic economic downturn.

Firstly, Labour (mainly Michael Cullen) built up a reputation over the past 9 years of being a prudent manager of the countries finances, running large surpluses and reducing debt.  In fact many saw Cullen as being too much of a Scrooge McDuck and not giving tax cuts soon enough or big enough.  This partly explains why National will now find it hard to claim Michael Cullen was too loose with the countries finances.  That reputation came through in today's 3 News polls with more people trusting Labour and Michael Cullen to deal with the countries finances.

Secondly, most people are not blaming Labour for the International Financial Crisis.  They rightly believe we are sailing into difficult waters domestically because of the global storm, independent of what Labour has or hasn't done in Government.

Thirdly, look at the 3 News poll from May 2008.   Even when Labour was polling at its very worst in the 3 News poll (National on 51% and Labour on 36%), 80% thought Helen Clark was a capable leader to John Key's 63% - a 17% gap.  And 75% though Helen Clark would be good in a crisis to John Key's 49% - a 26% gap.

The world is in crisis - an economic crisis.  Has this helped Helen Clark and Labour?  If the question of this election is "who do you trust to manage us through this global financial crisis" we know that Helen Clark rates very highly against Key.  Is that what we're seeing in the polls this week?

Finally, my gut instinct is that National's "Economic Management Plan" has gone down like a led balloon with the public.  Will this show through in subsequent polls?