THE COMING INFLATION

Inflation is now with global warming, the big international news story to worry about post Covid. Most commentators see it as a one-off burst which I believe will be the situation in America, Asia and Western Europe. But in the developed world no country will cop it as bad as New Zealand in the next few years. Here’s why.

First however, let’s clear one thing up. The approach taken to fighting inflation by the Reserve Bank in the 1990s was spectacularly stupid and caused immense harm. Then Governor Don Brash bought into the nonsense it had a monetary source. It didn’t but certainly has had in countries like Zimbabwe, Venezuela and others running amok with the printing press without any matching productivity of goods and services.

Inflation is no more or less than demand exceeding supply for goods and services. Demand existing logically assumes the ability to pay.

Don’s approach was to crush demand, rather than to promote supply. Before him in the early 1980s, Muldoon’s strategy was equally idiotic, namely price controls which compounded the problem by thwarting increased supply.

The world has changed dramatically this century. It has to various degrees embraced the market economy system and thus boomed. However, trouble looms.

First, all western nations and many others such as China, Korea and Japan are no longer reproducing themselves. To date they have compensated with migration from poorer Asian countries and in Western Europe, mainly from former Soviet east European nations and the Arab world. That will continue post Covid.

The failure to reproduce their populations in the advanced economies is singularly attributable to female education. When I was young most girls were married by the age of 20 and commenced baby production. Today, they understandably don’t want a bar of that, instead footing it with males in careers. Some opt for a single child in their late 30s, many others for none. Who can blame them?

Add to that, health advancements now have people living longer than any time in history. Supporting this burgeoning retirement sector will be an ever diminishing ageing work force.

So emerging from the Covid hiatus will be a huge work force shortage. It’s already here in New Zealand. Talk to any builder about the difficulties in obtaining skilled labour and materials. As a result construction costs are soaring. The same situation applies in numerous other activities.

Here’s why New Zealand will cop it worst than other developed nations.

Because our nearest neighbour Australia is much richer than New Zealand and is facing the same shortage crisis it will drain New Zealand’s professions, trades and even semi-skilled activities such as shearing and such-like, with wages and salary that will seem like a pipe-dream to Kiwis. Add to that Australia’s lower cost of living and let’s face it, more exciting life-styles appealing specially to the young and frankly, we’re in big trouble in the years ahead with a large-scale exodus across the Tasman.

The Productivity Commission has come out with a vision-less proposal to limit future immigration. In fact, opening our doors to Asian migration while the going is good before they’re lured elsewhere, is critical. But the “going is good” period won’t last as the current Australian government has openly said it intends targeting them and the Middle East and eastern European states, all huge sources of migrants across the Tasman for the past two decades, in its open ambition to build a much bigger population. We can never compete.

It’s conceivable that by the end of the decade our population could dwindle to four million with a relatively small workforce struggling to support a huge retired sector plus the parasitical welfare careerists now seemingly a permanent part of our landscape. If so it will certainly solve the housing supply problem, but otherwise it’s not a happy outlook.