Posts by BenWilson
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Hard News: A Big Idea, in reply to Bart Janssen,
I can see your point but you are arguing semantics for the sake of it.
No more than anyone else is in this. But yes, what a pointless argument. If you don't want to see it as a tax, no one can make you. And you won't be able to stop most people seeing it as one. They will, because that's exactly how it will present in their pay packet.
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Hard News: A Big Idea, in reply to Rob Stowell,
How much effect you’d get from an equivalent “VSR” hike is moot. But I think the 20:1 ratio you use is on the high side. One of the bank economists on MR guessed 10:1. I’d imagine in a compulsory scheme (which might well include the self-employed) it could be considerably more effective. But I don’t think we really know.
The thing is, we know the effect of the VSR hike. It would be very straightforward, much like hiking income tax is. But the OCR is a totally different thing. 10:1 might be the case for the OCR at it's current rate. But there is NO guarantee that the OCR stays at this rate. If it goes down, then the ratio would go up. It could bust 20:1. It could even bust 100:1. If the OCR goes up heaps, then each percentage movement becomes less significant.
Just as a straightforward example. If you're paying 20% on your debt and that percentage moves down by 1%, how much more debt can you afford? Much the same amount, right? A little bit more. About 1/20th more. Now, if you're paying 2% on your debt and it goes down by 1%, how much debt can you afford? Twice as much. If it goes down 1% again, how much debt can you afford? All the money in the bank because it costs nothing. Do you see why an economist picking a number out of their arse about how to compare OCR and VSR movements might be starting to annoy me?
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Hard News: A Big Idea, in reply to Rob Stowell,
I agree with cathy – it’s silly to call compulsory retirement savings a tax.
No, it's really not. It will have exactly the same impact on you, until the day you retire. For a young person, that can be 40 years into the future. In other words, the money is benefiting you in 40 years, but right now, you can't pay the bills. That's just like when they take 7% off you so that in 40 years you can get a government pension. The main difference is that you can probably trust the promise that you'll get your super fund more than you can trust the promise that the government will still be paying a generous super.
If you're 60 already, then OK, it's like putting money in the bank in a term deposit for 5 years. Much less like a tax. But the longer that horizon is, the more like a tax it feels, and acts. You won't be spending that money and stimulating the economy with it for 40 years, if you're 25 years old.
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Hard News: A Big Idea, in reply to Idiot Savant,
Because stock market bubbles are so much better than property market bubbles.
They certainly are. We've lived through many stock market bubbles over the last 50 years, and the effects have not devastated the economy. A property bubble, however, if it actually popped, would be far more catastrophic. And before it pops, the effect is also really negative too, because it's rampant inflation on an unavoidable expense. You don't have to buy any tech stocks, but you do have to live somewhere.
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Hard News: A Big Idea, in reply to Paul Campbell,
While this is not ‘years’ it will mean that the RB can announce “the OCR goes up today” and it has an immediate effect in some areas (like exchange rates), saying “kiwisaver will go up in 2 months” just wont have the same immediate effect as raising the OCR.
See my entire discussion on comparing the use of a linear lever and a exponential one. The OCR moves in basis points. Hundredths of a percent. They're not even going to bother changing a VSR by 10 basis points, like they do with the OCR. Changing how much people are saving from 7% to 7.1% isn't going to have any impact. The reason the OCR moves in basis points is because it is very low and any move has a very much magnified impact on the real incomes people have. So of course an announcement that the OCR is moving 25 basis points sends a massive movement through the market. To get that from the VSR, you'd have to so something like putting it up by 5%.
It could be implemented in a number of ways, though, so you could be right that changes would take time. Since it's like a tax, I'd hope it wouldn't be getting dicked around with on a monthly basis. But the very moment that the changes came into effect, they would begin having an impact proportional to their magnitude. That is quite different to the OCR, which is buffered by the intermediary mechanisms. Sometimes banks don't even respond to OCR changes. There's no law that says they have to. Sometimes they put their rates up just because they're greedy, or down because they're losing customers. Or up because they did a really successful advertising drive.
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Cracker: The Colorado Experiment, in reply to Russell Brown,
Was part of our mistake guaranteeing the chancers who already sold synthetic cannabinoids a continued living?
We never guaranteed that. Thousands of retailers had to stop stocking it. My corner dairy guy was bitter because it was a good earner. It hit him right in the pocket to give all that trade to the dodgy place next to the brothel in New Lynn, which I think might be the closest place I could now go to get a legal high, 2km away. Good place to go if I want to get a glass pipe or a dildo, though.
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Cracker: The Colorado Experiment, in reply to Russell Brown,
Could you even replicate that in New Zealand?
Well, we did actually have a much more wholesome environment when synthetics were sold in dairies, right next to tobacco. But we stopped that. It wasn't even that long ago. I don't recall hordes of stoners hanging around my corner dairy at 9am.
Could you even replicate that in New Zealand? Is the market the same? Is society the same?
If we went back to selling it in dairies, I'd say those sleazy places would dry up overnight. You'd still be able to go to one, but who would bother?
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Cracker: The Colorado Experiment, in reply to Moz,
“Gummie bears” could easily be made, say, green and leaf-shaped rather than bear-shaped, so that it’s at least obvious what’s inside.
You mean like those sweets we used to call mint leafs, long before we'd ever even heard of Gummie Bears :-)
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Hard News: A Big Idea, in reply to Gareth Ward,
But there's no VSR now. That's its neutral position - zero. If you introduce it, every single taxpayer will start getting it taken out of their pay. It will mean they will have less money in their pockets, in direct proportion to the rate. In that respect, everyone will feel it like a tax. Hell, it is a tax, it's just one you get back later, like we're meant to with all taxes, one way or another. Why even not call it a tax, other than that the word sounds bad? That's precisely how contributions to the Ozzie scheme came across to me. A tax I had to pay, which I might get back in 40 years.
The OCR is not at all like that. My parents don't give a stuff about it, because they're freehold. My friend with $800,000 loan on his million dollar house will crap himself because even with 2 incomes, a rise in the rate could mean he can't pay the mortgage. The minimum wage person will have 7% less money to subsist on with the VSR, but changes in the OCR might mean their rent changes, eventually. Maybe. Maybe not, if the landlord locked in a long fixed term loan.
They're just different mechanisms.
The OCR is designed to increase or decrease the money supply – the fact it affects mortgages is just a by-product of the way it’s implemented, not a feature or specific goal in itself. A VSR will do the same, just via adding another channel to that mechanism.
Sort of. I think it's a good idea, I'm just saying it's not some natural mirror of the OCR. They're very different beasts. Its primary effect on money supply would be to reduce it, as it increased. In pretty direct proportion. The OCR has a non-linear effect. As the cost of debt approaches zero, the amount of debt people can afford increases exponentially. If you halve the cost of debt, then you can borrow twice as much on the same income. So it's most certainly not a case of putting one up as much as you put the other down, for a net zero effect. If interest rates doubled, went up to 12%, say, then most families would have to spend all of their money paying the mortgage. But a 12% rise in the VSR would cost them exactly 12%.
There is also a huge lag in effects from the OCR. Changes take years to settle in, because people have huge chunks of mortgage on fixed terms. I have most of mine that way. It's going to be years before I feel the bite of this weeks changes. But if a VSR was implemented, then the moment they make a change, you'd feel it in your next pay packet and retailers would notice it by the end of the month.
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Hard News: A Big Idea, in reply to Gareth Ward,
but that’s only true if you believe the OCR also is “imposing a tax”
It's a bit hard to see the OCR as a tax. It's a far more complicated mechanism. But the variable savings rate is pretty much an identical mechanism - you take an amount out of people's pay, and put it aside. They can use it later, sure, but at the time, it acts like a tax. Exactly like one. It will be administered by the payroll staff and checked by the IRD.
Perhaps you could argue that in a roundabout way the OCR works like that, but if so, you'll have to explain the mechanism. Do you mean that raising it raises the interest people are paying on their loans? That only affects people who have loans. People who have net positive balances get more returns on their savings so it works the other way around. That's not like a tax at all. Furthermore, the government doesn't get to take it in as revenue. Banks collect the interest on the loans. All of this is why it's such a weak lever to control inflation. Clearly so, because it really hasn't worked, and it's been as at historic lows for a long time.
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