Forum Archive Index - December 2000

["Talacek, Philip " <pjt57@elec.canterbury.ac.nz>]

The simple course of action when some ones states something you disagree
with is to refer to him us uneducated and/or stupid.  I'm not interested in
getting into an argument over who knows more about economics.  In the same
way inflation does not generate wealth, nor does a low NZ  dollar.  The
currency of international trade is the $US, especially in the case of
commodities of which we export many.  A fall in the NZ dollar granted does
increase the value he value of our exports, our imports increase by a
proportionately equal amount.  Hence we are no better off we are nor worse
off provided the price of the commodities we export are unchanged in $US.  

You mention the current account, the current account will improve if we make
more money selling stuff and spend less buying stuff.  But seeing what we
sell and what we buy are priced in $US the fall in the NZ dollar effects
both equally and hence there is no change as a percentage of GDP.  It is
often thought that a low $NZ will make NZ produced products more competitive
compared with those produced overseas, resulting in a decrease in imports.
NZ products will only be more competitive if they are willing to accept the
same number of NZ dollars after the devaluation as before hand.  But given
that every thing we might sell overseas or import is now more expensive,
that NZ producer is in fact accepting a decrease in their purchasing power.
They don't know it as these adjustments do not happen instantly.  

Now many exporters are doing exceptionally well.   But only if they are able
to purchase services and other goods from NZers who are willing to buy less
beef (the price of which has increased to reflect the NZ dollar) or import a
lesser car.  The result being our exporters are only wealthier by the amount
our domestic sector is poorer.  Some see this as good for the country as for
a brief period of time (until they start charging more) the domestic sector
reduces their consumption of goods.  This is not a good thing, it is the
consumption of goods which provides us with our utility (oh no maybe I have
done ECON 101, you'll never know).  Now I've never read 'The Wealth of
Nations', but as I understand what made it the founding document of
economics is that for the first time it was proposed that the wealth of a
country has nothing to do with how much gold, $NZ or $US it has.  A
countries wealth is a function of the goods (read standard of living) that
its citizen can consume.  

The fact that a section of society decreases its standard of living does not
increase the countries wealth, despite the fact that the current account
deficit many decrease as a result.  Like an individual, any country which
borrows too much money (what is too much is a question in itself) has to pay
it back.  To do this one either consumes less or earns more.  A reduction in
the deficit as a result of the NZ dollar falling, is going down the consumes
less road.  To say that the NZ economy or its people are better off is
incorrect.  The fact the rest of the world calls in its debts does not mean
we are richer.  If the bank demanded instant repayment of your mortgage
(should you have one) would you be better off?  The same way people and
companies can make use of outside capital, so can countries; the fall in the
NZ dollar reflects NZs lenders saying we no longer trust you with our
capital, give it back.  Same way a companies growth in real terms will be
slowed by an inability to borrow money so is a countries. 

Now I have to say NZ agricultural exporters are also enjoying an actual
increase in wealth presently as from all accounts the Uruguay GATT round is
starting to have effect which is providing our primary exporters with
increased access to foreign markets.  

Phil T

PS I'm sorry to bore those others out there who quite rightly thought this
forum was about shares.

PPS We can horde all the NZ dollars in the world but unless we can trade
them for something we actually want (I need a new car actually) we're poor.

> -----Original Message-----
> From: hugh webber [SMTP:hugh.webber@clear.net.nz]
> Sent: Monday, 11 December 2000 18:06
> To:   sharechat@sharechat.co.nz
> Subject:      Re: [sharechat] 2001 - Airlines
> 
> I would have hoped for greater economic literacy in this forum,
> its unfortunately obvious very few have studied economics - I
> used to have hopes that at least Economics 101 would become
> compulsory.
> Item: NZ has a large and persistent Balance of Payments deficit
> on Current A/c. (groan, I suppose I have to explain what that is).
> Item: The lower the NZ $ then the lower the price to travellers from
> overseas to take a holiday here including the airfare to them of getting
> here.
> 
> There is currently a promising export led expansion in NZ which is also
> starting to correct our balance of payments problem - its actually due
> to the lower NZ $ and not to exogenous independent magic.
> 
> I suspect Philip T and I must be talking at cross purposes and he didn't
> really meant what he seemed to say, at least not without some
> qualifications.
> 
> If we are going to have a succession of economic bushwoodsmen
> telling us that the solution to NZ's problems is a higher NZ $ then I 
> really do despair.
> I recall Muldoon used to claim his hobby was economics and that he
> was very good at it....
> In 1984 he was asking NZ diplomats to use their personal credit cards
> to pay for overseas Embassy expenses as he had stuffed it up somewhat
> and continually overruled Treasury advice.
> 
> It is necessary for NZers to be flexible and inventive to adjust to the
> lower
> $ NZ import costs - the old cost plus mentality is no longer tolerated by
> our 
> customers. There are short term freaks when the NZ dollar falls before the
> 
> adjustments come through e.g. in the first months following an NZ currency
> fall when you measure NZ imports they are higher because of the currency 
> measurement effect while exports are lower due the same currency 
> measurement effect. This doesn't mean the devaluation is a failure; it
> means
> there is a lag before overseas customers start buying more of our cheaper
> goods and services and a lag before importers stop bringing in so much
> of the more expensive imports.
> 
> If Air NZ thinks it will compete on a cost plus mentality in this day and
> age -
> its doomed. Sell now.
> 
> 
> 
> ----------
> 
> 
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