Tag Archives: Poverty

THIS TIME IS NO DIFFERENT. IMF’s dire warning on global economy – Liam Dann * Why a New Multilateralism Now? – David Lipton.

Merry Christmas and happy new financial crisis.

History suggests we are due for another financial crisis and right now the world is in no shape to cope with one.

With ingenuity and international cooperation, we can make the most of new technologies and new challenges, and create a shared and sustained prosperity.


With interest rates still low, central banks simply don’t have the firepower they did in 2008 to deal with a deep recession.

The official outlook for New Zealand’s economy remains solid with GDP growth expected to stay safely north of 2.5 per cent.

But these kind of forecasts will mean little if the world heads into a serious financial crisis.

NZ Herald

Why a New Multilateralism Now

David Lipton, IMF First Deputy Managing Director

Good morning.

Thank you for the introduction.

I appreciate the invitation to speak here today. This conference is tackling issues that have a great bearing on the stability of the world economy. Having just passed the 10th anniversary of the start of the Global Financial Crisis, and now looking forward, I’d like to address what I see as this morning’s key topic: the next financial crisis.

History suggests that an economic downturn lurks somewhere over the horizon. Many are already speculating as to exactly when, where, and why it might arise. While we can’t know all that, we ought to be focusing right now on how to forestall its arrival and how to limit it to a “garden variety” recession when it arrives, meaning, how to avoid creating another systemic crisis. Over the past two years, the IMF has called on governments to put in place policies aimed at just that goal, as we have put it, “fix the roof while the sun shines.” But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete.

Before asking what should be done, let’s analyze whether the international community has the wherewithal to respond to the next crisis, should it occur. And here I mean both individual countries, and the international organizations tasked to act as first responders. Should we be confident that the resources, policy instruments, and regulatory frameworks at our disposal will prove potent enough to counter and contain the next recession? Consider the main policy options.

Policy Options for the Next Recession

On monetary policy, much has been said about whether central banks will be able to respond to a deep or prolonged downturn. For example, past U.S. recessions have been met with 500 basis points or more of easing by the Fed. With policy rates so low at present in so many places, that response will not be available. Central banks would likely end up exploring ever more unconventional measures. But with their effectiveness uncertain, we ought to be concerned about the potency of monetary policy.

We read every day that for fiscal policy, the room for maneuver has been narrowing in many countries. Public debt has risen and, in many countries, deficits remain too high to stabilize or reduce debt. Now to be fair, we can presume that if the next slowdown creates unemployment and slack, multipliers will grow larger, likely restoring some potency to fiscal policy, even at high debt levels. But we should not expect governments to end up with the ample space to respond to a downturn that they had ten years ago. Moreover, with high sovereign debt levels, decisions to adopt stimulus may be a hard sell politically.

Given the enduring public resentments borne by the Global Financial Crisis, a recession deep enough to endanger the finances of homeowners or small businesses would likely lead to a strong political call to help relieve debt burdens. That could further stress already stretched public finances.

And if recession once again impairs banks, the recourse to bailouts is now limited in law, following financial regulatory reforms that call for bail-ins of owners and lenders. Those new systems for bail-ins remain underfunded and untested.

Finally, the impairment of key U.S. capital markets during the global financial crisis, which might have produced crippling spillovers across the globe, was robustly contained by unorthodox Fed action supported by Treasury backstop funding. That capacity is also unlikely to be readily available again.

The point is that national policy options and public financial resources may be much more constrained than in the past. The right lesson to take from that possibility is for each country to be much more careful to sustain growth, to limit vulnerabilities, and to prepare for whatever may come.

But the reality is that many countries are not pursuing policies that will bolster their growth in a sustainable fashion. The expansion actually has become less balanced across regions over the past year, and we are witnessing a buildup of vulnerabilities: higher sovereign and corporate debt, tighter financial conditions, incomplete reform efforts, and rising geopolitical tensions.

Five Key Policy Challenges

So, let me turn to five key challenges that could affect the next downturn, areas where governments face a choice to take proactive steps now, or not, and where inaction would probably make matters worse.

The first challenge is the simple and familiar admonition: “First, do no harm.” This is worthy advice for doctors and economic policymakers. Let me mention some examples.

In the case of U.S. fiscal policy over the past year, the combination of spending increases and tax cuts was intended to provide a shot of adrenalin to the U.S. economy and improve investment incentives. However, coming at a time when advanced recovery meant little need for stimulus, this choice runs the three risks of increasing the potential need for Fed tightening; raising deficits and public debt; and spending resources that might better be put aside to combat the next downturn.

Another example is the recent escalation of tariffs and trade tensions. Fortunately, the U.S. and China agreed in Buenos Aires to call a ceasefire. That was a positive development. There certainly are shortcomings in the global trading system, and countries experiencing disruption from trade have some legitimate concerns about a number of trade practices. But the only safe way to address these issues is through dialogue and cooperation.

The IMF has been advocating de-escalation and dialogue for some time. That is because the alternative is hard to contemplate. We estimate that if all of the tariffs that have been threatened are put in place, as much as three-quarters of a percent of global GDP would be lost by 2020. That would be a self-inflicted wound.

So it is vital that this ceasefire leads to a durable agreement that avoids an intensification or spread of tensions.

Now to the second challenge, which is closely tied to the trade issue: China’s emergence as an economic powerhouse. In many ways, this is one of the success stories of our era, showing that global integration can lead to rapid growth, poverty elimination, and new global supply chains lifting up other countries.

But as Winston Churchill once said of the U.S. during World War II, “the price of greatness is responsibility.”

China’s Global Role

Chinese policies that may have been globally inconsequential and thus acceptable when China joined the WTO and had a $1 trillion economy are now consequential to much of the world. That’s because China now is a globally integrated $13 trillion economy whose actions have global reverberations. If China is to continue to benefit from globalization and support the aspirations of developing countries, it will need to focus on how to limit adverse spillovers from its own policies and invest in ensuring that globalization can be sustainable.

Moreover, China would likely gain at home by addressing many of the policy issues that have been contentious, for example through stronger protections for intellectual property, which will benefit China as it becomes a world leader in technologies; reduced trade barriers, especially related to investment rules and government procurement procedures, which will produce cost-reducing and productivity enhancing competition that will benefit the Chinese people in the long run, and an acceleration of market-oriented economic reforms that will help China make more efficient use of scarce resources.

This notion of global responsibility applies to Europe as well, and this is the third challenge. Our forecasts show growth in the euro area and the UK falling short of previous projections, and modest potential growth going forward.

The future of the European economy will be shaped by the way the EU addresses its architectural and macroeconomic challenges and by Brexit. The recent EMU agreement on reforms is welcome. Going forward, the Euro area would gain by pushing further to shore up its institutional foundations.

The absence of a common fiscal policy limits Europe’s ability to share risks and respond to shocks that can radiate through its financial system. And crisis response will be constrained because too much power remains vested in national regulators and supervisors at the expense of an integrated approach across the continent.

All of this prevents Europe from playing a global role commensurate with the size and importance of the euro area economy.

The Task for Emerging Markets

The fourth challenge is in the emerging markets. For all of their extraordinary dynamism, we have seen a divergence among emerging markets over the past year: between those who have not shored up their defenses against shocks, including preparation for the normalization of interest rates in the advanced economies; and those that have taken advantage of the global recovery to address their underlying vulnerabilities.

Capital outflows over the past several months have shown how markets are judging the perceived weaknesses in individual countries. If global conditions become more complicated, these outflows could increase and become more volatile.

The fifth and final challenge is the topic you will take up this afternoon: the role of multilateral institutions.

We know that these institutions have played a crucial role in keeping the global economy on track. In the nearly 75 years since the IMF was set up, our world has undergone multiple transformations, from post-war reconstruction and the Bretton Woods system of fixed exchange rates to the era of flexible rates; the rise of emerging economies; the collapse of the Soviet Union and transition to market economies; as well as a series of financial crises: the Mexican debt crisis, the Asian Crisis, and the Global Financial Crisis.

At each stage, we at the IMF have been called upon to evolve and even remake ourselves.

Now, we see a rising tide of doubt about globalization and discontent with multilateralism in some advanced economies. Just as with the IMF, it is fair for the international community to ask for modernization in its institutions and organizations, to seek reforms to ensure that institutions serve effectively their core purposes.

This applies to groupings such as the G20, as well as international organizations.

So, it was heartening to see the G20 Leaders to call for reform of the WTO when they came together in Buenos Aires. This reform initiative, which has the potential to modernize the global trading system and restore support for cooperative approaches, should now go forward.

The policy challenges we face are clear. As I have suggested, governments have their work cut out for them and may have to contend with less potent policy tools. It is essential they do what they can now to address vulnerabilities and avoid actions that exacerbate the next downturn.

The Multilateral Response

But we should prepare for the possibility that weaker national tools may mean limited effectiveness, and thus may result in greater reliance on multilateral responses and on the global financial safety net.

The IMF’s lending capacity was increased during the global financial crisis to about one trillion dollars – a forceful response from the membership at a time of dire need. One lesson from that crisis was that the IMF went into it under-resourced; we should try to avoid that next time.

From that point of view it was encouraging that the G20 in Buenos Aires underlined its continued commitment to strengthen the safety net, with a strong and adequately financed IMF at its center. It is important that the leaders pledged to conclude the next discussion of our funding, the quota review, next year.

But the stakes are bigger than any one decision about IMF funding. IMF Managing Director Christine Lagarde has called for a “new multilateralism,” one that is dedicated to improving the lives of all this world’s citizens. That ensures that the economic benefits of globalization are shared much more broadly. That focuses on governments and institutions that are both accountable and working together for the common good. And that can take on the many transnational challenges that no one government alone, not even a few governments working together, can handle: climate change, cyber-crime, massive refugee flows, failures of governance, and corruption.

Working together, we will be better able to prevent a damaging downturn in the coming years and a dystopian future in the coming decades. With ingenuity and international cooperation, we can make the most of new technologies and new challenges, and create a shared and sustained prosperity.

Thank you.

Education Impossible, Poverty and Inequality, New Zealand’s Neoliberal Legacy – Principal of one of NZ’s most challenging schools.

‘I shut my door and burst into tears’.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

Very few of our kids were actually functioning as they should. It broke my heart every single day.

Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators.

These are beautiful kids, they can be anything they want to be, they just need to know we believe in them.

At 9am on my first day as principal of a small primary school, I shut my office door and burst into tears. After just 30 minutes on the job, I’d been sworn at by a child, abused by a parent, and a teacher had threatened to walk out. It only got worse. I had kids breaking windows. There were four or five fist fights a day. The police were on call.

I’ve travelled the world. I have seen hard and I have done rough. But this was something else. It was not how a school should function.

The behaviour issues meant there was no such thing as learning. For six weeks, I went home crying every night and said ‘I’m not going back.’ But I did. Because nothing has ever beaten me, and I was furious that this was happening to our children.
I wrote a list of every child in our school. We identified all of their needs. Seventy five per cent of our kids had high-level health, wellbeing, behaviour or academic issues. Very few of our kids were actually functioning as they should. It broke my heart every single day.

So our staff meetings weren’t about appraisals or the curriculum, they were about survival. How do we get to day two? How do we get to day three? We had to go back to basics before we could even start teaching.
I began to understand what was going on in the community. In one family, the kids’ clothes were dirty because they had no power. In another, the fridge didn’t work, there were rats in the walls, and the ceiling leaked. Their kids were constantly sick. It was clear the landlord didn’t care: I suspected in his eyes they weren’t “good enough” people to have the house repaired.

Some kids weren’t at school because their parents had no money for petrol. The stress was immense, and there were a lot of mental health issues. Tough, then, to bring your child up with a lust for life.

When I realised that this was bigger than me, I reached out to everyone who could help. The kids lacked resilience. If someone said “boo” to them in the playground there was a fight, or someone was crying. So we ran programmes about friendship and anger management. The kids have learnt to brainstorm, and problem solve, and communicate. Now we don’t have fights. It meant that in term two, we could start teaching the curriculum.

We realised the other big issue was hunger. When you get to the bottom of why a kid is acting up, it’s often because they haven’t eaten anything that day. Now, with KidsCan’s help, I watch 15 to 20 kids sitting around the school’s breakfast table every morning, chatting over a hot meal of baked beans. It’s a really positive start to the day. They know there’s no shame in needing food, if anyone is hungry they can go into the kitchen and help themselves to snacks too.

The change is huge. They have energy. In term one we struggled hugely with exercise. Everyone would opt out. Now, every morning we pump the sound system and everyone walks or runs laps of the field to ready us for learning. They go for it! We don’t have a single kid that opts out of exercise now, because they’ve got food in their bellies, and that makes them feel happier and more secure.

The day we handed out KidsCan’s jackets and shoes was incredible, the kids couldn’t believe that someone would give them something. I’ve never seen them that excited. They said, “oh Miss, this is the coolest thing I own.” They literally walked higher and taller and prouder. The parents were gobsmacked; many said they just couldn’t have afforded them. And because they have that extra money, it seems the families’ out-of-school lives are better too.

In term one we were too terrified to take the kids out of school. But in term three I took them out to the zoo. We all wore our jackets and I said to them, “we’re a team, we’re a unit”. I could not have been more proud. It was an amazing day with not a single behaviour issue. I hardly see students in my office in trouble anymore. I see them for stickers, and pencils for good writing, and for a hug if they need it.

But caring for these kids does take its toll. Our teachers are doctors, psychologists, counsellors, behavioural therapists, and, for a small part of their day, educators. My biggest fear for our kids is that their needs are far greater than the Government recognises. They don’t understand what’s really happening in our schools. They’ve just been setting standards for kids, and comparing them as if they all arrive at school on an equal footing. They don’t.

These are beautiful kids. They just need to know we believe in them. Sometimes I’ll purposefully leave my class and put a child in charge. Once, one boy said “Miss, he’s the worst person to put in charge!”
I said, “No he’s not, I’ve picked him, and he’s going to do it, just you watch.” I came back in and everything was perfect.
We built that child up. He sat there with a full tummy, feeling warm, with us supporting him, all those things together create success. Many of the kids recognise they don’t have as much money as others, so they think they’re not as good as them. I want them to throw all that away and know they can be anything they want to be.

Stuff.co.nz

To sponsor a Kiwi kid in need for $20 a month, visit KidsCan

HOW SHALL WE LIVE? How Universal Basic Income Solves Widespread Insecurity and Radical Inequality – Daniel Nettle.

Answering the four big objections from critics of UBI.

“A host of positive psychological changes inevitably will result from widespread economic security.” Martin Luther King Jr.

Security is one of the most basic human emotional needs.

Contrary to the predictions of mid-twentieth century economists, the age of universal wellbeing has not materialised.

We are washed up on the end of one big idea, failed Neoliberalism, waiting for something else to come along. At best we are dealing with one symptom at a time. Each piecemeal intervention increases the complexity of the state; divides citizens down into finer and finer ad hoc groups each eligible for different transactions; requires more bureaucratic monitoring; and often has unintended and perverse knock-on effects.

Each conditional government welfare scheme generates a bureaucracy of assessment and the need for constant eligibility monitoring, at vast expense.

Something more systemic is needed; an idea with bigger and bolder scope. That big, bold idea just might be the Universal Basic Income.

For UBI to go mainstream, a positive case will need to be made that also draws on easily available simple social heuristics. If we can’t make it make intuitive sense, it will be confined forever to the world of policy nerds.

The health and wellbeing benefits observed in trials of UBI and minimum income guarantees, even over quite short periods, have been so massive that it is hard not to conclude that security does something interesting to human beings, out of all proportion to the monetary value of the transfer, just as Martin Luther King predicted.

Daniel Nettle is Professor of Behavioural Science at Newcastle University. His varied research career has spanned a number of topics, from the behaviour of starlings to the origins of social inequality in human societies. His research is highly interdisciplinary and sits at the boundaries of the social, psychological and biological sciences.

“Can we not find a method of combining the advantages of anarchism and socialism? It seems to me that we can. The plan we are advocating amounts essentially to this: that a certain small income, sufficient for necessaries, should be secured to all, whether they work or not.” Bertrand Russell

Today should be the best time ever to be alive. Thanks to many decades of increasing productive efficiency, the real resources available to enable us to do the things we value, the avocados, the bicycles, the musical instruments, the bricks and glass are more abundant and of better quality than ever. Thus, at least in the industrialised world, we should be living in the Age of Aquarius, the age where the most urgent problem is self-actualisation, not mere subsistence: not ‘How can we live?’, but ‘How shall we live?’.

Why then, does it not feel like the best time ever? Contrary to the predictions of mid-twentieth-century economists, the age of universal wellbeing has not really materialised. Working hours are as high as they were for our parents, if not higher, and the quality of work is no better for most people. Many people work several jobs they do not enjoy, just to keep a roof over their heads, food on the table, and the lights on. In fact, many people are unable to satisfy these basic wants despite being in work: the greater part of the UK welfare bill, leaving aside retirement pensions, is spent on supporting people who have jobs, not the unemployed. Thousands of people sleep on the streets of Britain every night. Personal debt is at unprecedented levels. Many people feel too harried to even think about self-actualisation.

Twin spectres stalk the land, and help explain the gap between what our grandparents hoped for and what has materialised. These are the spectres of inequality and insecurity. Insecurity, in this context, means not being able to be sure that one will be able to meet one’s basic needs at some point in the future, either because cost may go up, or income may fluctuate. Insecurity is psychologically damaging: most typologies put security as one of the most basic human emotional needs. Insecurity dampens entrepreneurial activity: one of the big reasons that people don’t follow up their innovative ideas is that these are by definition risky, and they worry about keeping bread on the table whilst they try them out. Insecurity deters people from investing in increasing their skills: what if they cannot eat before the investment starts to pay off? It encourages rational short-termism: who would improve a house or a neighbourhood that might be taken away from them in a few months’ time for reasons beyond their control? It also increases the likelihood of anti-social behaviour: I would not steal a loaf of bread if I knew there was no danger of going hungry anyway, but faced with the danger of starvation tomorrow, I would seriously consider it. Insecurity is a problem that affects those who have little to start with especially acutely: hence the link between insecurity and inequality.

Big problems require big ideas. Our current generation of politicians don’t really have ideas big enough to deal with the problems of widespread insecurity and marked inequality. Big ideas come along every few decades. The last one was about forty years ago: neoliberalism, the idea that market competition between private-sector corporations would deliver the social outcomes we all wanted, as long as government got out of the way as far as possible. Interestingly, neoliberalism was not such an obviously good idea that politicians of all stripes ‘just got it’. It took several decades of carefully orchestrated deliberate communication and advocacy, which was not at all successful at first, to eventually make it seem, across the political spectrum, that the idea was so commonsensical as to be obvious. I don’t think any of the early advocates of neoliberalism could possibly have dreamed that after thirty years of implementation of their big idea, available incomes would have stagnated or declined for the median family; public faith in corporate capitalism would have seeped away; even the UK Conservative party would have to concede that market mechanisms did not really work as envisaged; or that the major UK political parties would both be advocating government-imposed pricecaps in an area, the supply of energy, where the neoliberal market model had been followed to its logical conclusion. It feels like we are washed up on the end of one big idea, waiting for something else to come along.

Our current politicians propose to deal with symptoms piecemeal, a minimum-wage increase here, a price cap there, rent-control in the other place; tax credits for those people; financial aid to buy a house for those others. At best we are dealing with one symptom at a time. Each piecemeal intervention increases the complexity of the state; divides citizens down into finer and finer ad hoc groups each eligible for different transactions; requires more bureaucratic monitoring; and often has unintended and perverse knock-on effects. For example, helping young people to buy a house with government financial aid only maintains the high levels of house prices. Vendors can simply factor into the price the transfer from government that they will receive. The policy would be much less popular if millions of pounds of taxpayer money were just given directly to large property development corporations, but that might as well be what the policy did. No, something more systemic is needed; an idea with bigger and bolder scope. That big, bold idea just might be the Universal Basic Income.

A Universal Basic Income (UB1) is a regular financial payment made to all eligible adults, whether they work or not, regardless of their other income. People can know that it will always be there, now and in the future. It should not be a fortune, but it should ideally be enough that no-one ever needs to be hungry or cold.

All developed societies agree on the need to protect citizens from desperate want that may befall them, usually for reasons beyond their control. However, the ways we currently make these transfers are incredibly complex. Guy Standing reports that in the USA, there are at least 126 different federal assistance schemes, not to mention state-level ones. In the UK, individuals have had until recently to be separately assessed for unemployment support, ill-health support, carer support, working tax credits (which amount to low-income support), and so on. The new Universal Credit system only partly simplifies this thicket. Each conditional scheme generates a bureaucracy of assessment and the need for constant eligibility monitoring, at vast expense.

Moreover, conditional transfers always generate incentive problems. If you go back into work after being unemployed, you lose benefits. If you are a carer and the person you care for recovers, you are financially penalised: you do better by keeping them ill. If your wages or hours go up, you lose out in benefit reductions. Under the UK’s new Universal Credit system, the marginal tax rate (the amount you lose of every extra pound you earn in the job market if you are a recipient) is around 80%, and that scheme was a reform designed to increase the incentive to work! Moreover, the 80% figure does not factor in the fact that if you move briefly out of eligibility, for example for some seasonal work, you are uncertain about when and whether you would be able to get back in afterwards, should you need to. This is a disincentive for taking the work.

It is very hard to eliminate these perversities within any system of conditional, circumstance-specific transfers.

The UBI, then, seems like a good idea. It is far from a new one. It has fragmentary roots in the eighteenth and nineteenth centuries. In the twentieth century, there was one wave of enthusiasm in the 1920s, and another in the late 1960s and 1970s. The second wave generated a positive consensus, specific policy proposals, and a certain amount of pilot activity, but other paths ended up being taken. The idea has never quite died, though. It is now back in political consciousness in a very big way.

Why, when the UBI seems such a good idea, when it has been cognitively available to us for so long, when so many very clever people have modelled it and found it desirable, is there no developed society on earth in which it has been fully implemented? Partly this is because democratic governments, indeed societies in general, are poor at farreaching systemic reform, instead finding it easier to tinker with and tune existing systems. It’s only the political outsiders who dare propose massive change, they have less to lose. But it is also because human psychology is an obstacle to the UBI, and this is what interests me in this essay. As Pascal Boyer and Michael Bang Petersen have recently argued, when we (non-specialists) think about how the economy ought to be organized, we don’t derive our conclusions from formal theory, simulations, or systematic research evidence. No, we generally fall back on simple social heuristics, like ‘if someone takes a benefit, they ought to pay a commensurate cost’; ‘more for you is less for me’; or ‘people should only get help when they are in need’. These simple social heuristics are all well and good for the problems they developed to solve, basically, regulating everyday dyadic or small-group social interactions. But they don’t automatically lead us to the right conclusions when trying to design optimal institutions for a complex system like a modern capitalist economy.

Certain aspects of the UBI idea violate one of these simple social heuristics. In fact, the UBI sometimes manages to violate two different and contradictory simple social heuristics simultaneously, as we shall see. These violations are like notes played slightly out of tune: they just seem wrong, before one has had to think much about it. Politicians are afraid of these reactions; they don’t like going out to campaign and meeting the same immediate objections all the time. If you want to build a consensus for the UBI, you have to analyse these jarring notes with some care, and develop a counter-strategy. For UBI to go mainstream, a positive case will need to be made that also draws on easily available simple social heuristics. If we can’t make it make intuitive sense, it will be confined forever to the world of policy nerds.

Fortunately, the challenge can be met. Our simple social heuristics do not constitute a formally consistent system, like arithmetic (why would they?). Instead, they are a diverse bunch of often contradictory gut feelings and moral reactions each triggered by particular contextual cues. For example, we do have strong intuitions that people should not take a benefit without paying a commensurate cost, but these intuitions only get triggered when certain sets of features are present in the situation. These features include: the resource is scarce enough every additional unit of it is valuable to me; the resource was created by deliberate individual effort; the person taking the benefit is somehow dissimilar to me, so their interests are not closely tied in to mine; and it is feasible to monitor who is getting what at reasonable cost.

The features do not always obtain: the resource might be more plentiful than anyone really needs; its acquisition might be mainly due to luck; the other people might be fundamentally similar to me, or their interests closely bound up with mine; or the cost of monitoring who got what might be prohibitive. In such situations, humans everywhere merrily and intuitively sign up to the proposition: the resource should be shared out somehow. There are a number of ways this can happen: pure communal sharing, where each qualifying individual just takes what they like, or equality matching, where every qualifying individual is allotted an equal share as of right. Every society has domains in which communal sharing or equality matching is deployed in preference to market pricing (the rule ‘you should only take a benefit if you pay a commensurate cost’).

Hunter-gatherers deal with large game, chancy and producing a huge surfeit when it comes, by communal sharing. Even in the more private property focussed Western societies, communal sharing is ubiquitous. Households, for example. If I buy a litre of milk, I don’t give my wife a bill at the end of the week for whatever she uses. Su casa es mi casa. Communal sharing or equality matching happens beyond households too. It is anathema to suggest that the residents of Summerhill Square might charge passersby for the air they breathe whilst walking through. Very few people think that those who pay more taxes should get more votes. When proposals are made to move a resource from the domain of the communally shared or equality matched to the priced, there is outcry: witness the response that greets proposals for road tolls in places where use of the roads is currently free; or to charge money at the gates of the town park. The case for the UBI is the case for moving part, no means all, of our money the other way, out of conditionality and into the domain of the equality-matched. Getting your head around it involves framing your understanding of our current economic situation in such a way as to trigger the appropriate equality-matching intuitions. Here as in many other political domains, those who determine the framing of the problem get to have a big influence on the outcome.

Whenever one talks about the UBI, one hears the same objections, including:

– How can we afford such a scheme?

– Why should I give my money to people for them to do nothing in return?

– Why would anyone work if they were given money for free?

– Why should we give money to the rich, who don’t need it?

The first of these objections is the easiest to dispose of. There have been detailed recent costings for the UK, which vary in their assumptions, but the consensus is that introduction of a modest initial UBI scheme would require surprisingly little disruption to our current tax and expenditure system; perhaps modest tax rises, perhaps no change, perhaps tax cuts. If this surprises you, let me give you the following back-of-an-envelope calculations. There are around 65 million people in the UK, of whom 63% are aged between 16 and 64. Assuming that the over 65s will continue with their current pension arrangements instead of the UBI, that gives us at most 41 million adults to cater for, plus about 12 million under-16s. Let’s say we want to give £80 per week to each of the adults. This would cost £171 billion per annum. And let’s further say that we want to give £40 per week, to the mother or other caregiver, for each child under 16. That’s another £25 billion, giving a nice round £200 billion in total.

Of course, £200 billion a year is an eye-watering sum. But UK government expenditure in 2017 was £814 billion, so we are only talking about one quarter of what the government spends anyway. Increasing government expenditure by one quarter might be a rather rash move, but this would not be the net increase, because the UBI would produce savings elsewhere. The welfare bill for 2017, less retirement pensions, was £153 billion. It’s unrealistic to expect a UBI scheme to reduce this to zero: most UBI advocates argue for retaining some extra provision for the disabled, and also retaining, for the time being, means-tested benefits to pay housing rental in some cases (the cost of housing is so high in parts of the UK that many people would become homeless if this disappeared overnight). But certainly, we might hope to eliminate up to £100 billion, or 2/3, of the non-pensions welfare bill, including a very large part of the administrative cost. So we are already half-way there.

At present, most UK adults are taxed at a zero rate on the Iirst £8,164 of earned income, 12% from £8,164 to £11,500, and 32% above £11,500. What this means, in effect, is that anyone earning £11,500 or more is effectively being given a freebie from the state of £3680, compared to being standardly taxed at 32% from the first pound. This figure, £3680 per year is, you will note, not so very far off my proposed initial UBI of £4160 anyway. Personal tax allowances cost the government around £100 billion per annum in foregone revenue. If my proposed UBI were to be introduced, it would be reasonable to ask people to pay their taxes from the first pound. For people like me who earn more than £11,500 per annum, the introduction of the UBI would then be largely neutral, my tax bill going up by around £4000, offset by £4000 coming separately into my bank account as UBI.

So, if you will allow me very broad approximations, moving to a modest UBI would cost about £200 billion per annum, to be funded by about £100 billion of welfare savings, and about £100 billion from abolishing personal tax allowances, so pretty much fiscally neutral.

And this is just a business-as-usual analysis of the likely financial consequences. What advocates believe is that there will be positive knock-on effects: people will be able to move to more productive and enjoyable jobs, or start entrepreneurial activities; people have no financial disincentives to take casual work or increase their hours; the expensive negative psychological consequences of insecurity (anxiety, depression, addiction, maybe even crime) will improve. Thus, what you end up with will be a net saving for the government, not a net cost.

The initial scheme discussed above, and other proposals like it, are not immediately very redistributive. Those currently receiving full Universal Credit would only end up with about the same as their current entitlement; and, as I mentioned above, for well-off people like me, the UBI would be almost exactly offset by the increase in my tax bill. So what is the point of such a reform? The answer has to do with security. I see UBI not so much as an immediate solution to inequality (you would have to set it very high to have a big direct effect on the inequality figures), but as a prophylactic against insecurity. For a wealthy person such as myself, there’s not much financial difference between getting a personal tax allowance and receiving a UBI, until my life is hit with a shock. I am well-off now, but I might not always be. Say I suddenly lose my job, or need to care for my wife. I know the UBI will continue to be there, every week, without any action required of my part. I can factor it into my worst expectations. The same is not true of the transfer effected by my personal tax allowance. And this, briefly, is the best response to objection 4, ‘Why should we give money to the rich, who don’t need it?’ Well, as long as they remain rich, then they are net payers into the system, since their tax bill exceeds their UBI, so we are giving them money only in an accounting sense. But it is still better to have them make a large tax payment in and concurrently take a small UBI payment out, rather than just make their tax rate a bit lower, because they might suddenly become non-rich at any moment. The UBI is ready for that moment should it come. To counter objection 4, we need to activate the social heuristics: ‘anyone could have bad luck’ and ‘everyone is potentially in the same boat’.

There is a large difference between the knowledge that £80 a week will always come into my bank account, this week, next month, and for the rest of my life; and the knowledge that, if things go badly for me, I can do a complex application process, be subjected to a humiliating and lengthy bureaucratic examination, following which, after a delay of up to six weeks during which I will receive nothing, about £80 per week may or may not start to appear in my bank account, and could be withdrawn at any moment if I am ten minutes late for an interview, or am deemed to not be sick enough or not be trying hard enough to look for work.

It is ironic that the system we often refer to as ‘social security’ provides the exact opposite of that: it provides continual, unplannable for uncertainty akin to a sword of Damacles.

The insecure, such as those waiting for benefits decisions or enduring benefits sanctions, have short term problems of liquidity. They lose their homes and possessions, or end up having to borrow money at very high interest rates. This is expensive and spirals them into abject poverty. Reducing insecurity could have an indirect effect on inequality, by stopping this spiral. And the health and wellbeing benefits observed in trials of UBI and minimum income guarantees, even over quite short periods, have been so massive that it is hard not to conclude that security does something interesting to human beings, out of all proportion to the monetary value of the transfer, just as Martin Luther King predicted.

What about objection 2 (‘Why should I give my money to people for them to do nothing in return?’). The objection has two parts: there’s a part about my money being my money, and a part about giving to other people without them doing anything in return. Both parts are important.

First, the my money part. All societies distinguish between individually owned resources and communal resources, though they draw the line in different places. Across societies, alienating an individually-owned resource from someone is morally wrong; but depriving people of a communal resource is equally so. The kinds of cues that trigger intuitions of individual ownership are: my having transformed the material extensively through deliberate action; the resource having been given to me by someone in return for something specific; or the resource having been in my sole possession and use for some time. The kinds of cues that trigger intuitions of communal ownership are: the resource being very abundant; its use being hard to monitor and police; a little of it being essential for everyone’s survival; and the having of it being mainly due to luck. So I think a first move you need to make in making the UBI make sense is to loosen the hold of the individual ownership schema on the money in your wage packet.

The money in my wage packet certainly feels like a good candidate for individual ownership. I have worked hard to get where I have, and this leads to the intuition that every penny in my wage packet is mine, should not be given away to other people without a specific reciprocal service rendered. I supposed I should grudgingly admit that I have got some help from others in earning my salary as an academic, I mean it’s not quite all my own sweat. Following the logic of individual ownership, I should really have paid for all these inputs at point of use, but somehow I didn’t always do so. There’s the statistical computing language R, the backbone of all my research; developed by people I didn’t know and made freely available without me lifting a finger. Maybe 1p in every pound I earn is really owable to the R Foundation for Statistical Computing.

Then come to think of it there is the computer itself, developed by a mixture of public and private investment mainly before I was born. It’s unthinkable that I could be a productive modern professor without this input available. So really I should attribute 2p of each pound I earn to having had that available. Come to think of it, I could not really earn anything as a professor without the existence of an affluent society in which enough people are freed from daily subsistence activities as to want to spend their time studying behavioural science. So I guess I owe the Industrial Revolution say 5p; and then another 3p to those Europeans who invented a rather good system of universities for students to come and study at. Oh, and I do use the scientific method rather a lot (say 4p distributed across a wide range of people in many countries over the last couple of hundred years, and another 2p specifically for the intellectual work of creating my discipline). And a couple of pence in the pound for the philosophers of the enlightenment; without them to make the world safe for my kind I would at best be a priest with low wages. And then there’s the Romans. What did the Romans ever do for me? Well, there’s the sanitation. And the roads…

As soon as we complete this exercise, we are forced to concede that what seems like my money only partly meets all the triggers for individual ownership (my individual labour produced it). In large part, it is a windfall of cumulative cultural evolution. I just got lucky to be born into a shared cultural and technological heritage. I can’t pay back to all those parties whose cultural activities contributed to my luck, since many of them are long gone (and besides, they are innumerable and diverse). But accepting that what I earn is partly due to an abundant social windfall created by a whole society over time, whose use and scope is hard to monitor, and I acquired by sheer luck, loosens the hold of the intuition that all my money all belongs exclusively to me. It’s a short step from ‘a part of what I receive from society is due to our common, difficult to monitor, abundant social luck’ to ‘a part of what I receive should be shared out’.

So now we turn to the part about why I should give anything to strangers without requiring them to pay any particular cost in return. A popular pro-UBI argument here, which goes back to Thomas Paine, is that people should be recompensed for the natural heritage that has been alienated from them. The land has been enclosed and privatised; the water has been bottled and sold; you can’t just chop down the trees, hunt game or build a house where you want, as you would have been able to do at the dawn of society. The UBI is this recompense, the royalty, if you will, on an inheritance that was once socially shared but has been taken away by civilization. This reasoning is fine, but a bit lofty and philosophical. I prefer a quiverful of different, more forward looking arguments.

First, social transfers of some kind are necessary, and monitoring them under the current system is really costly. The UK government recently announced that it needed to review whether its rules on disability benefit claims had been applied correctly to recent claimants. This review is estimated to cost £3.7 billion. That’s enough to give my proposed UBI to everyone in the town of Hexham for over 8 years. Not the cost of the benefit, not the cost of administering the benefit, just the cost of one review of whether the benefit has in fact been correctly administered, for a benefit that only a small fraction of the UK population claims anyway. Scale that up and you appreciate the madness of how we currently administer social transfers.

Second, I do derive all kinds of payoffs from the welfare of others, even strangers. What are they? Well, I enjoy strolling around my city. I enjoy living in a nice orderly street. I enjoy going to the theatre. If my cocitizens were so hungry and desperate that they turned to assaulting their fellows, smashing property, not tending their yards, and abandoning the arts, my personal wellbeing would be directly reduced. I like writing books and giving lectures. It’s therefore in my direct interest that as many people as possible have the resources to read or attend these. Businesses can only flourish if there are people well enough off to be customers. This was the great insight of Henry T. Ford: he realised he could really make a lot more money once he paid his workers enough that they would be able to buy his cars. It’s the kind of reverse Ponzi scheme trick, or perpetual motion machine, of modern consumer capitalism: those at the top of the pyramid need enough money to get down to those at the bottom of the pyramid that those people can buy goods and services, which means that the money comes back up to them again. Otherwise the whole thing grinds to a nasty halt.

One way of thinking about this is to say that, in a community, because of the fundamentally social character of human life, the wellbeing of each individual creates a spill-over benefit for the others. It’s what economists call a positive externality. Because of the changes in behaviour that will follow from my neighbour not being in completely dire straits, my life improves a tiny little bit as theirs does. This improvement is very real and substantial, but hard to tie to any one act my neighbour does, and hence hard to monitor or account for in a ledger.

Third, the marginal wellbeing returns to keeping all of my money are diminishing. Diminishing marginal returns mean that if the first few hundred pounds of income massively improve my well-being, then the next few hundred improve it slightly less, and so on. A few years ago, Karthik Panchanathan, Tage Rai, Alan Fiske and I produced a simple model of what resource distribution a selfish actor should prefer when there are positive social externalities, and diminishing wellbeing returns. We imagined a simple world where there are two actors, me and someone else. We put a value 5 on the positive externality that flows to me as the other person’s well-being increases by one unit. Now we ask: if I can decide how all the available resources get divided up, what allocation should I prefer? The exact numerical answer depends on the value of s and the degree to which marginal returns diminish, but generally, the result is the following. I should want to keep everything up until the point where I myself have got off the steepest part of the increasing wellbeing curve. Above that, it becomes rational for me to want the other actor to have the next chunk of resource, since the positive social externality coming to me from their large increase in wellbeing (they are still on the steep bit of the curve, remember) outweighs the rather small increase in my wellbeing I get from keeping it (since I am on the flatter bit of the curve). There is no ‘problem of cheating’ in this model, since we assume that the positive externalities arise from behavioural changes that the other party will simply want to make anyway as their state improves. It’s a model of mutual benefit, or interdependence, rather than tit-for-tat.

This is the reasoning I would use with a well-off person to advocate funding a UBI from their taxes. The money you put into other people’s UBIs will directly increase your individual wellbeing, because in a society where no-one is desperate, it’s easier for the things you really value and derive benefit from to flourish. Furthermore, as already discussed, UBI offers security to you too. You may not need it right now, but you could do in the future. Both of these are self-interest arguments, where selfinterest is construed sufficiently broadly. You have to be careful about basing all policy arguments on self-interest: it can end up signalling that self-interest is the only normal reason for action, which could become a self-fulfilling prophecy. Nonetheless, perhaps here having self-interest on side helps buttress nobler motives. Experience shows that the long-term success of social policies is tied to the relatively well-off seeing themselves as getting something from them. Where schemes are perceived to benefit only an ‘underclass’, different in kind from the people footing the bill, support is easily driven away in the next downturn.

Objection 3 (‘Why would anyone work if they were given money for free?’) is based on the reasonable intuition that conditionality is important in motivating others to do something. One does not generally say to the plumber: ‘Here’s £100. I’m hoping that at some point you will fix my tap’. However nice the plumber might be, the incentives are a bit wrong here. And if people withdrew their supply of labour, the very affluence that can fund the UBI would be undermined.

The best way to loosen this objection is to remind one’s interlocutor of two things. First, the UBI is only ever going to be basic, and people want more than basic out of life. If people’s life ambitions were limited to gaining some modest level of income of £5000 or £10000 per annum a year and then stopping, then frankly, the behaviour of the vast majority of people in western societies for the last century would be completely incomprehensible. Lottery winners almost universally continue to work, though often not in their previous jobs. Academics don’t work less when they become full professors: they work harder. The very same critics who say that people won’t do anything if given money for free also often advocate the awarding of huge salaries, millions of pounds per annum, to CEOs and other leaders. Admittedly, those huge salaries are conditional on working, whereas the UBI is not. But the fact that the salary allegedly needs to be so huge to attract candidates implies that people are motivated not just by getting a little bit of money, but by getting a lot. So those who advocate large salaries must believe that the motivation for more money holds up at levels of income way above the basic (at least for the right sort of people, but hey, maybe all people are the right sort).

Second, more important than the amount of labour people supply is the productivity of that labour. By this, I mean people choosing to do activities that are socially useful, in which they are happy, and that they are good at. That has to be key to maximising social wellbeing as well as economic stability in future. There is plenty of evidence from pilot schemes of the effect of the UBI (or similar policies) on labour supply. In the 1970s North American schemes, reductions in work hours were real but very modest. No-one stopped working altogether (and these were minimum income guarantee schemes, which provide stronger disincentives for work than a fully unconditional UBI). The slight reductions in labour supply overall were mainly explained by the behaviour of specific groups: parents took more time out of the labour market to look after their children; and young people were more likely to stay on in education, to improve their skills. Need I point out that these are all things that the state currently subsidizes people to do, at considerable cost, because they are felt to be socially desirable? In short, as Michael Howard has put it: ‘In the pilot schemes people withdrew from the labour market, but the kind of labour market withdrawal you got was the kind you would welcome’.In more recent trials of a full UBI in India and Namibia, overall economic activity actually went up, as more people were able to afford to access job markets, or began entrepreneurial activities on their own accounts. I believe that under a UBI scheme, work would continue, and become better: innovation, worthwhile work, scholarship, and the arts would flourish, whilst degrading or miserable jobs would have to pay people more or treat them better. Hardly the end of civilization as we know it then.

If people persist with their intuition that UBI incentivizes people to do nothing, then the argument of last resort is the following: If you think it is stupid to give money to people even if they do nothing (UBI), then you ought to think it really stupid to give people money only on condition that they do nothing (the current means-tested benefits system). How much sense does that make?

There is one other great obstacle to acceptance of the UBI. People can’t figure out whether it is a left-wing idea, or a right-wing one, so neither side takes it fully to its heart. At first it seems left-wing: making the welfare system more humane and less conditional, transferring money from those with most income to those with less, is the latest tool to further a long-standing socialist or social-democratic concern with inequality and social justice. The neoliberal big idea has failed. A big idea based on collective action must replace it, and the UBI is part of that idea.

But good UBI arguments have come from the right, too. Freemarket economist Milton Friedman flirted with the idea, and the most serious Federal-level US policy initiative, the Family Assistance Plan (born about 1968, died about 1973) was proposed by a Republican president (Nixon) and largely killed off by the Democratic party. The right-wing (or libertarian) argument is that UBI massively simplifies the state, and could facilitate it relinquishing a lot of its micro-control over our lives. For example, if a UBI is there providing a protective floor for everyone, does the state also need to regulate minimum wages so closely? Couldn’t people protected from dire exploitation by the UBI make their own minds up about what paid labour they wish to do under what conditions? Perhaps, going further down this line, the UBI plus control of law and order, is pretty much all the state needs to do, internally at any rate. We’ve given everyone enough to avoid starvation and be able to participate in economic life in a minimally sufficient way. After that, they are on their own: they can contract for the goods and services they choose in the market. This argument makes UBI the missing piece that completes, not replaces, the neoliberal vision.

In another essay, I have written about the difficulty of inter-disciplinarity. Valuable integrative ideas can languish in the academic uncanny valley, not obviously owned by one discipline or another, and thus fail to have their potential recognized by anyone. Ideas that are quite good from two points of view, perversely, end up being championed by neither side, and thus have less immediate success than ideas that only appeal to one camp or the other. But what happens to the best of these ideas, in the end, is interesting: They go quite abruptly from all parties saying ‘that makes no sense’, to all parties saying ‘well, everyone knows that!’. There’s a similar adage in public policy: Important policy reforms are politically impossible, until just about the point where they are politically inevitable. We’ve seen plenty of examples of this in the slow and halting march of progress. Perhaps that is what will happen with UBI. We will look back and wonder what took us quite so long. Until then, and this is what scholars are uniquely placed to do, we have to keep the idea alive.

Excerpt from Hanging On To The Edges by Daniel Nettle (2018).

Evonomics

Why should someone who is anti-austerity care about debt – Simon Wren-Lewis.

For a country that can create its own currency there is never any necessity to default.

Most of the posts I have written about austerity have been aimed at countering the idea that in a recession you need to bring down government deficits and therefore debt. But what if you accept all that (you are anti-austerity). Why should you care about debt at all? Why do we have fiscal rules based on deficits? Why not spend what the government needs to spend, and not worry that this resulted in a larger budget deficit?

The story often given is that the markets will impose some limit on what the government will be able to borrow, because if debt gets ‘too high’ in relation to GDP markets will start demanding a higher return. You can see why that argument is problematic by asking why interest rates on government debt would need to be higher. The most obvious reason is default risk. But for a country that can create its own currency there is never any necessity to default.

Being anti-austerity does not mean we can forget about debt completely, as long as we are using interest rates rather than fiscal policy to control demand.

. . . Mainly Macro

Modern Monetary Theory. IMF continues to tread the ridiculous path – Bill Mitchell.

Last week, the IMF released its so-called Fiscal Monitor October 2018.

Apparently the British government, which issues its own currency, has ‘shareholders’ who care about its Profit and Loss statement and the flow implications of the latter for the Balance Sheet of the Government.

Anyone who knows anything quickly realises this is a ruse. There is no meaningful application of the ‘finances’ pertaining to a private corporation to the ‘finances’ of a currency-issuing government.

A currency-issuing government’s ‘balance sheet’ provides no help in our understanding of what spending capacities such a government has.

A currency-issuing government can always service any liabilities that are denominated in its own currency.

. . . Professor Bill Mitchell’s blog

New Zealand’s political leadership has failed for decades on housing policy – Shamubeel Eaqub. 

New Zealand’s political leadership has failed for decades on housing policy, leading to the rise of a Victorian-style landed gentry, social cohesion coming under immense pressure and a cumulative undersupply of half a million houses over the last 30 years.

House prices are at the highest level they have ever been. And they have risen really, really fast since the 90s, but more so since the early 2000s and have far outstripped every fundamental that we can think of.

After nearly a century of rising home ownership in New Zealand, since 1991 home ownership has been falling. In the last census, the home ownership rate was the lowest level since 1956. And for my estimate for the end of 2016, it’s the lowest level since 1946.

We’ve gone back a long way in terms of the promise and the social pact in New Zealand that home ownership is good, and if you work hard you’re going to be able to afford a house.

The reality is that that social pact, that right of passage has not been true for many, many decades. The solutions are going to be difficult and they are going to take time.

Before you come and tell me that you paid 20% interest rates, the reality is that, yes interest rates are much lower. But the really big problem is, house prices have risen so much that it’s almost impossible in fact to save for the deposit. People could have saved a deposit and paid it off in about 20-30 years in the early 1990s. Fast forward to today, and that’s more like 50 years. How long do you want to work to pay off your mortgage?

What we’re talking about is the rise of Generation Rent. Those who manage to buy houses are in mortgage slavery for a long period of time.

There is a widening societal gap. If younger generations want to access housing, it’s not enough to have a job, nor enough to have a good job. You must now have parents that are wealthy, and home-owners too. The idea of New Zealand being an egalitarian country is no longer true. The kind of societal divide we’re talking about is very Victorian. We’re in fact talking about the rise of a landed gentry.

For those who are born after the 1980s, the chance of you doing better than your parents are less than 50%.

What we’re creating is a country where opportunities are going to be more limited for our children and when it comes to things like housing, than ourselves. I worry that what we’re creating in New Zealand is a social divide that is only going to keep growing. This is only one manifestation of this divide.

There has been a change in philosophy in what underpins the housing market. One very good example is what we have done with our social housing sector.

Housing NZ started building social housing in the late 1930s and stock accumulated over the next 50-60 years to a peak in 1991.

Since then we have not added more social housing. On a per capita basis we have the lowest number of social housing in New Zealand since the 1940s.

This is an ideological position where we do not want to create housing supply for the poor. We don’t want to. This is not about politicians. This is a reflection on us. It is our ideology, it is our politics. Our politicians are doing our bidding. The society that we’re living in today does not want to invest in the bottom half of our society.

The really big kicker has been credit. Significant reductions in mortgage rates over time have driven demand for housing. But we have misallocated our credit. We’re creating more and more debt, but most of that debt is chasing the existing houses. We’re buying and selling from each other rather than creating something new. The housing boom could not have happened on its own. The banking sector facilitated it. We have seen more and more credit being created and more of that credit is now more likely to go towards buying and selling houses from each other rather than funding businesses or building houses.

One of the saddest stories at the moment is, even though we have an acute housing shortage in Auckland, the most difficult to find funding for now is new developments. When the banks pull away credit, the first thing that goes is the riskiest elements of the market.

Seasonally adjusted house sales in Auckland are at the lowest level since 2011. This is worrying because what happens in the property market expands to the economy, consents and the construction sector.

I fully expect a construction bust next year. We are going to have a construction bust before we have a housing bust. We haven’t built enough houses for a very long period of time. And if we’re going to keep not building enough houses, I’m not confident that whatever correction we have in the housing market is going to last.

New money created in the economy is largely chasing the property market. Household debt to GDP has been rising steadily since the 1990s. People were now taking on more debt, but banks have started to cut back on the amount of credit available overall.

For every unit of economic growth over the course of the last 10, 20 years, we needed more and more debt to create that growth. We are more and more addicted to debt to create our economic growth.

Credit is now going backwards. If credit is not going to be available in aggregate, we know the biggest loses are in fact going to be businesses and property development.

It means we are not going to be building a lot of the projects that have been consented, and we know the construction cycle is going to come down. I despair.

I despair that we still talk so much more about buying and selling houses than actually starting businesses. The cultural sclerosis that we see in New Zealand has as much to do with the problem of the housing market as to do with our rules around the Resource Management Act, our banking sector.

On demand, we know there’s been significant growth in New Zealand’s population. Even though it feels like all of that population growth has come from net migration, the reality is that it’s actually natural population growth that’s created the bulk of the demand.

But net migration has created a volatility that we can’t deal with. A lot of the cyclicality in New Zealand’s housing market and demand, comes from net migration and we simply cannot respond.

We do know that there is money that’s global that is looking for a safe haven, and New Zealand is part of that story. We don’t have very good data in New Zealand because we refuse to collect it. There is a lack of leadership regarding our approach to foreign investment in our housing market.

Looking at what’s happening in Canada and Australia would indicate roughly 10% of house sales in Auckland are to foreign buyers. Yes it matters, but when 90% of your sales are going to locals, I think it’s a bit of a red herring.

Historical context of where demand for housing comes from shows the biggest chunk is from natural population growth. The second biggest was from changes in household size as families got smaller – more recently that has stopped, ie kids refusing to leave home.

There has been a massive variation in what happens with net migration.

New Zealand needs about 21,000 houses a year to keep up with population growth and changes that are taking place. But over the course of the last four years, we’ve needed more like 26,000. We’re nowhere near building those kinds of houses.

This means we need to think about demand management from a policy perspective. It’s more about cyclical management rather than structural management.

Population growth has always been there. Whether it’s from migration or not doesn’t matter. The problem is our housing market, our land supply, our infrastructure supply, can’t keep up with any of it.

While immigration was a side problem it nevertheless was an important conversation to have due to the volatility that can be created. I struggle with the fact that we have no articulated population strategy in New Zealand. We have immigration because we have immigration. That’s not a very good reason.

Why do we want immigration, how big do we want to be, do you want 15 million people or do you want five?

What sort of people do we want? Are we just using immigration as shorthand for not educating our kids because we can’t fill the skills shortages that we have in our industries?

Let’s not pretend that it’s all about people wanting to live in houses.

You’d be very hard pressed to argue that people want to buy houses in Epsom at a 3% rental yield for investment purposes. They want to buy houses in Epsom at 3% rental yield because they want to speculate on the capital gains. Let’s be honest with ourselves.

If your floating mortgage rate is 5.5% and you’re getting 3% from your rent, what does that tell you about your investment? It tells you that you’re not really doing it for cash-flow purposes. You’re doing because you expect capital gains, and you expect those capital gains to compensate you.

The real story in Auckland is that a lot of additional demand is coming from investment.

Land supply in New Zealand is slow, particularly in places like Auckland. But it’s not just in terms of sections, it’s also about density. The Unitary Plan was a win for Auckland. The reality is that if we only do greenfields, we will just see more people sitting out in traffic at the end of Drury.

The majority of New housing supply are large houses, when the majority of new households being formed are 1-2 person households.

Between the last two censuses, most of the housing stock built in New Zealand were four bedrooms or more. In contrast, the majority of households that were created were people that were single or couples. We have ageing populations, we have the empty nesters, we have young people who are having kids later…and we’re building stand-alone houses, with four bedrooms.

We have to think very hard about how to create supply not just for the top end, even though we know in theory building just enough houses is good for everybody, when you’re starting from a point of not enough houses, it means the bottom end gets screwed for longer. We have to think very hard about whether we want to use things like inclusionary zoning; we have to think very hard about what we want to do with social housing.

Right now we’re not building houses for everybody in our community. We are failing by building the wrong sorts of houses in our communities.

Right at the top is land costs. If we think about what has been driving up the cost of housing, the biggest one is the value of land. It’s true that we should also look at what’s happening in the rental market and what was happening with the costs of construction. But those are not the things that have been the majority driver of the very unaffordable house prices that we see in New Zealand today.

The biggest constraint is in land, and that is where the speculation is taking place.

We know we’re not building enough. In the 1930s to 1940s we had very different types of governments and ideology. We actually built more houses per capita back then than we have in the last 30 years.

In the late 40s-early 70s, with the rise of the welfare state and build-up of infrastructure. On a per capita basis, we built massive amounts of houses.

But since the oil shock and the 1980s reforms, we have never structurally managed to build as many houses as we did pre-1980. That cumulative gap between the trend that we have seen in the last 30 years, versus what we had seen in the 40s, 50s and 60s, is around half a million houses.

So there is something that is fundamentally and structurally different in what we have done in terms of housing supply in New Zealand over a very long period of time.

The changes in the way that we do our planning rules, the advent of the RMA, the way that we fund and govern our local government. All these things have changed. So the nature of the provision of infrastructure, the provision of land, then provision of consents, all of these things have changed massively. But the net result is we’re not building as many houses, and that is a fundamental problem.

In Auckland there is a massive gap between targets set by government for house building over the past three years and the amount of consents issued. On top of this, the targets themselves were still not high enough.

Somehow we’re still not able to respond to the growth that Auckland is facing. Consistently we have underestimated how many people want to live in a place like Auckland.

But it’s not just Auckland. Carterton surprises every year, it’s because they’ve got a fantastic train line and people live there, it’s not surprising.

But we are failing. We have been failing and we continue to fail. We have to be far more responsive and we have to have a much longer time horizon to have the provision for housing that’s needed.

There is in fact no real plan. The Unitary Plan is fantastic in that it actually plans for just enough houses for the projections for population. We can confidently say that projection is going to be pessimistic, we’re going to have way more people in Auckland.

Trump and Brexit have marked a shift in politics and a polarisation in the public’s view of politics. In New Zealand I think one of the catalysts could be Generation Rent. In the last census, 51% of adults, over 15 year olds, rented. It is no longer the minority that rent, but the majority of individuals that rent.

I’m not saying we’ll see the same kind of uprising in New Zealand, but what we saw in Brexit was that discontent was the majority of voters. If young people had actually turned up to vote, Brexit wouldn’t have happened. The same is true for New Zealand.

It is strange that there was no sense of crisis or urgency. For a lot of the voters, things are just fine. For the people for whom it’s not fine, they’re not voting and they feel disengaged.

The kind of politics that we will start to see in the next 10 years is something much more activist, the ‘urgency of now’.

The promise of democracy is to create an economy that is fit for everyone. It is about creating opportunities for everyone. Right now, particularly when it comes to housing, we are failing. We are not creating a democratic community when it comes to our housing supply because young people are locked out, because young people are going to suffer, and we know there are some big differences across the different parts of New Zealand.

It’s not going to be enough, when we’re starting from a position of crisis, to simply create more housing that will appease the public. We have to make sure that we’re far more activist in making sure that we’re creating housing that is fit for purpose, not just for the general populous, but for the bottom half who are clearly losing out from what is going on.

We know what the causes are. I’m sick of arguing why we’re here. We know why we’re here, because we haven’t ensured enough political leadership to deal with the problems that are there.

We can’t implement the solutions unless we have political leadership, political cohesion, and endurance over the political cycle. This is a big challenge, but a big opportunity.

Shamubeel Eaqub

***

  • There has been a cumulative 500,000 gap in housing supply over the last 30 years.
  • Eaqub predicted a construction bust next year, led by banks tightening lending.
  • It’s remarkable NZ authorities do not have proper data on foreign buyers. While he estimates 10% of purchases in Auckland are made by foreign investors, he said the main focus should be on the other 90% by local.
  • However, migration creates cyclical volatility that we can’t deal with; it is unbelievable that New Zealand doesn’t have a stated population policy.
  • New Zealand is still not building the right sized houses – the majority of properties being built in recent years have had four-plus bedrooms, while household sizes have grown smaller
  • The majority of New Zealand’s adult population is now renting. This could be the catalyst for a Brexit/Trump-style rising up of formerly disengaged voters – young people in our case – to engage at this year’s election.
  • New Zealand’s home ownership level is now at its lowest point since 1946.
  • We have a cultural sclerosis of buying and selling existing houses to one another.

interest.co.nz

Undoing poverty’s negative effect on brain development with cash transfers – Cameron McLeod. 

An upcoming experiment into brain development and poverty by Kimberly G Noble, associate professor of neuroscience and education at Columbia University’s Teachers College, asks whether poverty may affect the development, “the size, shape, and functioning,” of a child’s brain, and whether “a cash stipend to parents” would prevent this kind of damage.

Noble writes that “poverty places the young child’s brain at much greater risk of not going through the paces of normal development.” Children raised in poverty perform less well in school, are less likely to graduate from high school, and are less likely to continue on to college. Children raised in poverty are also more likely to be underemployed when adults. Sociological research and research done in the area of neuroscience has shown that a childhood spent in poverty can result in “significant differences in the size, shape and functioning” of the  brain. Can the damage done to children’s brains  be negated  by the intervention of a subsidy for brain health?

This most recent study’s fundamental difference from past efforts is that it explores what kind of effect “directly supplementing” the incomes of families will have on brain development. “Cash transfers, as opposed to counseling, child care and other services, have the potential to empower families to make the financial decisions they deem best for themselves and their children.” Noble’s hypothesis is that a “cascade of positive effects” will follow from the cash transfers, and that if proved correct, this has implications for public policy and “the potential to…affect the lives of millions of disadvantaged families with young children.”

Brain Trust, Kimberly G. Noble

  • Children who live in poverty tend to perform worse than peers in school on a bevy of different tests. They are less likely to graduate from high school and then continue on to college and are more apt to be underemployed once they enter the workforce.
  • Research that crosses neuroscience with sociology has begun to show that educational and occupational disadvantages that result from growing up poor can lead to significant differences in the size, shape and functioning of children’s brains.
  • Poverty’s potential to hijack normal brain development has led to plans for studying whether a simple intervention might reverse these injurious effects. A study now in the planning stages will explore if a modest subsidy can enhance brain health.

BasicIncome.org

***

The goal of Dr. Noble’s research is to better characterize socioeconomic disparities in children’s cognitive and brain development. Ongoing studies in her lab address the timing of neurocognitive disparities in infancy and early childhood, as well as the particular exposures and experiences that account for these disparities, including access to material resources, richness of language exposure, parenting style and exposure to stress. Finally, she is interested in applying this work to the design of interventions that aim to target gaps in school readiness, including early literacy, math, and self-regulation skills. She is honored to be part of a national team of social scientists and neuroscientists planning the first clinical trial of poverty reduction, which aims to estimate the causal impact of income supplementation on children’s cognitive, emotional and brain development in the first three years of life.

Columbia University

***

A short review on the link between poverty, children’s cognition and brain development, 13th March 2017

In the latest issue of the Scientific American, Kimberly Noble, associate professor in neuroscience and education, reviews her work and introduces an ambitious research project that may help understand the cause-and-effect connection between poverty and children’s brain development.

For the past 15 years, Noble and her colleagues have gathered evidence to explain how socioeconomic disparities may underlie differences in children’s cognition and brain development. In the course of their research they have found for example that children living in poverty tend to have reduced cognitive skills – including language, memory skills and cognitive control (Figure 1).

Figure 1. Wealth effect

More recently, they published evidence showing that the socio-economic status of parents (as assessed using parental education, income and occupation) can also predict children’s brain structure.

By measuring the cortical surface area of children’s brains (ie the area of the surface of the cortex, the outer layer of the brain which contains all the neurons), they found that lower family income was linked to smaller cortical surface area, especially in brain regions involved in language and cognitive control abilities (Figure 2 – in magenta).

Figure 2. A Brain on Poverty

In the same research, they also found that longer parental education was linked to increased hippocampus volume in children, a brain structure essential for memory processes.

Overall, Noble’s work adds to a growing body of research showing the negative relation between poverty and brain development and these findings may explain (at least in part) why children from poor families are less likely to obtain good grades at school, graduate from high-school or attend college.

What is less known however, is the causal mechanism underlying this relationship. As Noble describes, differences in school and neighbourhood quality, chronic stress in the family home, less nurturing parenting styles or a combination of all these factors might explain the impact of poverty on brain development and cognition.

To better understand the causal effect of poverty, Noble has teamed up with economists and developmental psychologists and together, they will soon launch a large-scale experiment or “randomised control trial”. As part of this experiment, 1000 US women from low-income backgrounds will be recruited soon after giving birth and will be followed over a three-year period. Half of the women will receive $333 per month (if they are part of the “experimental” group) and the other half will receive $20 per month (if they are part of the “control” group). Mothers and children will be monitored throughout the study, and mothers will be able to spend the money as they wish, without any constrains.

By comparing children belonging to the experimental group to those in the control group, researchers will be able to observe how increases in family income may directly benefit cognition and brain development. They will also be able to test whether the way mothers use the extra income is a relevant factor to explain these benefits.

Noble concludes that “although income may not be the only factor that determines a child’s developmental trajectory, it may be the easiest one to alter” through social policy. And given that 25% of American children and 12% of British children are affected by poverty (as reported by UNICEF in 2012), policies designed to alleviate poverty may have the capacity to reach and improve the life chances of millions of children.

NGN is looking forward to see the results of this large-scale experiment. We expect that this project, in association with other research studies, will improve our understanding of the link between poverty and child development, and will help design better interventions to support disadvantaged children.

Nature Groups

***

Socioeconomic inequality and children’s brain development. 

Research addresses issues at the intersection of psychology, neuroscience and public policy.

By Kimberly G. Noble, MD, PhD

Kimberly Noble, MD, PhD, is an associate professor of neuroscience and education at Teachers College, Columbia University. She received her undergraduate, graduate and medical degrees at the University of Pennsylvania. As a neuroscientist and board-certified pediatrician, she studies how inequality relates to children’s cognitive and brain development. Noble’s work has been supported by several federal and foundation grants, and she was named a “Rising Star” by the Association for Psychological Science. Together with a team of social scientists and neuroscientists from around the United States, she is planning the first clinical trial of poverty reduction to assess the causal impact of income on cognitive and brain development in early childhood.

Kimberley Noble website.

What can neuroscience tell us about why disadvantaged children are at risk for low achievement and poor mental health? How early in infancy does socioeconomic disadvantage leave an imprint on the developing brain, and what factors explain these links? How can we best apply this work to inform interventions? These and other questions are the focus of the research my colleagues and I have been addressing for the last several years.

What is socioeconomic status and why is it of interest to neuroscientists?

The developing human brain is remarkably malleable to experience. Of course, a child’s experience varies tremendously based on his or her family’s circumstances (McLoyd, 1998). And so, as neuroscientists, we can use family circumstance as a lens through which to better understand how experience relates to brain development.

Family socioeconomic status, or SES, is typically considered to include parental educational attainment, occupational prestige and income (McLoyd, 1998); subjective social status, or where one sees oneself on the social hierarchy, may also be taken into account (Adler, Epel, Castellazzo & Ickovics, 2000). A large literature has established that disparities in income and human capital are associated with substantial differences in children’s learning and school performance. For example, socioeconomic differences are observed across a range of important cognitive and achievement measures for children and adolescents, including IQ, literacy, achievement test scores and high school graduation rates (Brooks-Gunn & Duncan, 1997). These differences in achievement in turn result in dramatic differences in adult economic well-being and labor market success.

However, although outcomes such as school success are clearly critical for understanding disparities in development and cognition, they tell us little about the underlying neural mechanisms that lead to these differences. Distinct brain circuits support discrete cognitive skills, and differentiating between underlying neural substrates may point to different causal pathways and approaches for intervention (Farah et al., 2006; Hackman & Farah, 2009; Noble, McCandliss, & Farah, 2007; Raizada & Kishiyama, 2010). Studies that have used a neurocognitive framework to investigate disparities have documented that children and adolescents from socioeconomically disadvantaged backgrounds tend to perform worse than their more advantaged peers on several domains, most notably in language, memory, self-regulation and socio-emotional processing (Hackman & Farah, 2009; Hackman, Farah, & Meaney, 2010; Noble et al., 2007; Noble, Norman, & Farah, 2005; Raizada & Kishiyama, 2010).

Family socioeconomic circumstance and children’s brain structure

More recently, we and other neuroscientists have extended this line of research to examine how family socioeconomic circumstances relate to differences in the structure of the brain itself. For example, in the largest study of its kind to date, we analyzed the brain structure of 1099 children and adolescents recruited from socioeconomically diverse homes from ten sites across the United States (Noble, Houston et al., 2015). We were specifically interested in the structure of the cerebral cortex, or the outer layer of brain cells that does most of the cognitive “heavy lifting.” We found that both parental educational attainment and family income accounted for differences in the surface area, or size of the “nooks and crannies” of the cerebral cortex. These associations were found across much of the brain, but were particularly pronounced in areas that support language and self-regulation — two of the very skills that have been repeatedly documented to show large differences along socioeconomic lines.

Several points about these findings are worth noting. First, genetic ancestry, or the proportion of ancestral descent for each of six major continental populations, was held constant in the analyses. Thus, although race and SES tend to be confounded in the U.S., we can say that the socioeconomic disparities in brain structure that we observed were independent of genetically-defined race. Second, we observed dramatic individual differences, or variation from person to person. That is, there were many children and adolescents from disadvantaged homes who had larger cortical surface areas, and many children from more advantaged homes who had smaller surface areas. This means that our research team could in no way accurately predict a child’s brain size simply by knowing his or her family income alone. Finally, the relationship between family income and surface area was nonlinear, such that the steepest gradient was seen at the lowest end of the income spectrum. That is, dollar for dollar, differences in family income were associated with proportionately greater differences in brain structure among the most disadvantaged families.

More recently, we also examined the thickness of the cerebral cortex in the same sample (Piccolo, et al., 2016). In general, as we get older, our cortices tend to get thinner. Specifically, cortical thickness decreases rapidly in childhood and early adolescence, followed by a more gradual thinning, and ultimately plateauing in early- to mid-adulthood (Raznahan et al., 2011; Schnack et al., 2014; Sowell et al., 2003). Our work suggests that family socioeconomic circumstance may moderate this trajectory. 

Specifically, at lower levels of family SES, we observed relatively steep age-related decreases in cortical thickness earlier in childhood, and subsequent leveling off during adolescence. In contrast, at higher levels of family SES, we observed more gradual age-related reductions in cortical thickness through at least late adolescence. We speculated that these findings may reflect an abbreviated period of cortical thinning in lower SES environments, relative to a more prolonged period of cortical thinning in higher SES environments. It is possible that socioeconomic disadvantage is a proxy for experiences that narrow the sensitive period, or time window for certain aspects of brain development that are malleable to environmental influences, thereby accelerating maturation (Tottenham, 2015).

Are these socioeconomic differences in brain structure clinically meaningful? Early work would suggest so. In our work, we have found that differences in cortical surface area partially accounted for links between family income and children’s executive function skills (Noble, Houston et al., 2015). Independent work in other labs has suggested that differences in brain structure may account for between 15 and 44 percent of the family income-related achievement gap in adolescence (Hair, Hanson, Wolfe & Pollak, 2015; Mackey et al., 2015). This line of research is still in its infancy, however, and several outstanding questions remain to be addressed.

How early are socioeconomic disparities in brain development detectable?

By the start of school, it is apparent that dramatic socioeconomic disparities in children’s cognitive functioning are already evident, and indeed, several studies have found that socioeconomic disparities in language (Fernald, Marchman & Weisleder, 2013; Noble, Engelhardt et al., 2015; Rowe & Goldin-Meadow, 2009) and memory (Noble, Engelhardt et al., 2015) are already present by the second year of life. But methodologies that assess brain function or structure may be more sensitive to differences than are tests of behavior. This raises the question of just how early we can detect socioeconomic disparities in the structure or function of children’s brains.

 One group reported socioeconomic differences in resting electroencephalogram (EEG) activity — which indexes electrical activity of the brain as measured at the scalp — as early as 6–9 months of age (Tomalski et al., 2013). Recent work by our group, however, found no correlation between SES and the same EEG measures within the first four days following birth (Brito, Fifer, Myers, Elliott & Noble, 2016), raising the possibility that some of these differences in brain function may emerge in part as a result of early differences in postnatal experience. Of course, a longitudinal study assessing both the prenatal and postnatal environments would be necessary to formally test this hypothesis. Furthermore, another group recently reported that, among a group of African-American, female infants imaged at 5 weeks of age, socioeconomic disadvantage was associated with smaller cortical and deep gray matter volumes (Betancourt et al., 2015). It is thus also likely that at least some socioeconomic differences in brain development are the result of socioeconomic differences in the prenatal environment (e.g., maternal diet, stress) and/or genetic differences.

Disentangling links among socioeconomic disparities, modifiable experiences and brain development represents a clear priority for future research. Are the associations between SES and brain development the result of differences in experiences that can serve as the targets of intervention, such as differences in nutrition, housing and neighborhood quality, parenting style, family stress and/or education? Certainly, the preponderance of social science evidence would suggest that such differences in experience are likely to account at least in part for differences in child and adolescent development (Duncan & Magnuson, 2012). However, few studies have directly examined links among SES, experience and the brain (Luby et al., 2013). In my lab, we are actively focusing on these issues, with specific interest in how chronic stress and the home language environment may, in part, explain our findings.

How can this work inform interventions?

Quite a few interventions aim to reduce socioeconomic disparities in children’s achievement. Whether school-based or home-based, many are quite effective, though frequently face challenges: High-quality interventions are expensive, difficult to scale up and often suffer from “fadeout,” or the phenomenon whereby the positive effects of the intervention dwindle with time once children are no longer receiving services.

What about the effects of directly supplementing family income? Rather than providing services, such “cash transfer“ interventions have the potential to empower families to make the financial decisions they deem best for themselves and their children. Experimental and quasi-experimental studies in the social sciences, both domestically and in the developing world, have suggested the promise of direct income supplementation (Duncan & Magnuson, 2012).

To date, linkages between poverty and brain development have been entirely correlational in nature; the field of neuroscience is silent on the causal connections between poverty and brain development. As such, I am pleased to be part of a team of social scientists and neuroscientists who are currently planning and raising funds to launch the first-ever randomized experiment testing the causal connections between poverty reduction and brain development.

The ambition of this study is large, though the premise is simple. We plan to recruit 1,000 low-income U.S. mothers at the time of their child’s birth. Mothers will be randomized to receive a large monthly income supplement or a nominal monthly income supplement. Families will be tracked longitudinally to definitively assess the causal impact of this unconditional cash transfer on cognitive and brain development in the first three years following birth, when we believe the developing brain is most malleable to experience.

We hypothesize that increased family income will trigger a cascade of positive effects throughout the family system. As a result, across development, children will be better positioned to learn foundational skills. If our hypotheses are borne out, this proposed randomized trial has the potential to inform social policies that affect the lives of millions of disadvantaged families with young children. While income may not be the only or even the most important factor in determining children’s developmental trajectories, it may be the most manipulable from a policy perspective.

American Psychological Association

Abuse breeds child abusers – Jarrod Gilbert. 

Often when I’m doing research I dance a silly jig when I gleefully unearth a gem of information hitherto unknown or long forgotten. In studying the violent deaths of kids that doesn’t happen.

There was no dance of joy when I discovered New Zealanders are more likely to be homicide victims in their first tender years than at any other time in their lives. But nothing numbs you like the photographs of dead children.

Little bodies lying there limp with little hands and little fingers, covered in scratches and an array of bruises some dark black and some fading, looking as vulnerable dead as they were when they were alive.

James Whakaruru’s misery ended when he was killed in 1999. He had endured four years of life and that was all he could take. He was hit with a small hammer, a jug cord and a vacuum cleaner hose. During one beating his mind was so confused he stared blankly ahead. His tormentor responded by poking him in the eyes. It was a stomping that eventually switched out his little light. It was a case that even the Mongrel Mob condemned, calling the cruelty “amongst the lowest of any act”.

An inquiry by the Commissioner for Children found a number of failings by state agencies, which were all too aware of the boy’s troubled existence. The Commissioner said James became a hero because changes made to Government agencies would save lives in the future. Yet such horrors have continued. My colleague Greg Newbold has found that on average nine children (under 15) have been killed as a result of maltreatment since 1992 and the rate has not abated in recent years. In 2015, there were 14 such deaths, one of which was three-year-old Moko Rangitoheriri, or baby Moko as we knew him when he gained posthumous celebrity.

Moko’s life was the same as James’s, and he too died in agony; he endured weeks of being beaten, kicked, and smeared with faeces. That was the short life he knew. Most of us will struggle to comprehend these acts but we are desperate to stop them. Desperate to ensure state agencies are capable of intervening to protect those who can not protect themselves and, through no fault of their own, are subjected to cruelty by those who are meant to protect them.

The reasons for intervening don’t stop with the imperative to save young lives. For every child killed there are dozens who live wretched existences and from this cohort of unfortunates will come the next generation of abusers.  Solving the problems of today, then, is not just a moral imperative but is also about producing a positive ripple effect.

And this is why, In the cases of James Whakaruru and baby Moko the best and most efficient time for intervention was not in the period leading up to their abuse, but rather many years before they were born. The men involved in each of those killing came from the same family. And it seems their lives were transient and tragic: one spent time in the now infamous Epuni Boys home, which is ground zero for calls for an inquiry into state care abuse (and incidentally the birth place of the Mongrel Mob).

Once young victims themselves, those boys crawled into adulthood and became violent men capable of imparting cruelty onto kids in their care.

This cycle of abuse is well known, yet state spending on the problem is poorly aligned to it, and our targeting of the problem is reactionary and punitive rather than proactive and preventative.

Of the $1.4 billion we spend on family and sexual violence annually, less than 10 per cent is spent on interventions, of which just 1.5 per cent is spent on primary prevention. The morality of that is questionable, the economics even more so.

Not only must things be approached differently but there needs to be greater urgency in our thinking. It’s perhaps trite to say, but if nine New Zealanders were killed every year in acts of terrorism politicians would never stop talking about it and it would be priority number one.

In an election year, that’s exactly where this issue should be. If the kids in violent homes had a voice, that’s what they’d be saying.

But if the details of such deaths don’t move our political leaders to urgent action, I rather fear nothing will. Maybe they should be made to look at the photographs.

• Dr Jarrod Gilbert is a sociologist at the University of Canterbury and the lead researcher at Independent Research Solutions.

Preparing Our Economy And Society For Automation & AI – Robert Reich. 

Professor Reich comes to Google to discuss the impact of automation & artificial intelligence on our economy. He also provides a recommendation on how we can ensure future technologies benefit the entire economy, not just those at the top.

Social Europe

Has Income Inequality Finally Got To Top Of The IMF Agenda? – Christian Proaño. 

Outgoing US President Barack Obama has named the reduction of economic inequality as the “defining challenge of our time”. This is true not only for the United States – the richest country and, at the same time, the one with the highest wealth inequality – but also for a large number of countries around the world, independent of their level of economic development. So, for instance, the average Gini coefficient of disposable household income across OECD countries reached its highest level since the mid-1980s, from 0.315 in 2010 to 0.318 in 2014 (OECD 2016).

Extreme economic inequality is undesirable for many reasons.

First and foremost, extreme income and wealth inequality is likely to jeopardize moral equality (“all people are created equal”), undermining the very basis of democratic societies. When a large share of wealth is in the hands of a few privileged people, equal access to nominally public goods such as education or an independent judicial system may not be guaranteed. As economic inequality may exacerbate inequality of opportunity, it is likely to solidify the social stratification and divisions in a country, making its society more prone to extremist political movements, as the recent US elections and other global political developments have shown.

And second, pronounced economic inequality may contribute to the instability of the global macroeconomic system through the buildup of large imbalances either through excessively credit-financed consumption, as in the US, or through deficient domestic aggregate demand and oversized net exports, as in China and Germany.

For a long period, however, and partly due to the emergence of a large affluent middle class in the US and most industrialized countries, economic inequality was a second order issue in them. The emergence of the neoliberal era with Ronald Reagan and Margaret Thatcher, however, not only eroded many social institutions such as trade unions demanding a more equal distribution of income in those countries but significantly influenced the IMF’s perspective of the IMF from then on.

The poor performance of the IMF’s Washington Consensus policy prescriptions during that era is nowadays widely acknowledged.

Social Europe

Making the connection between work and dignity – Noah Smith. 

Economists like to tell a possibly apocryphal story about Milton Friedman. The prophet of free markets, visiting an Asian country in the 1960s, witnessed a public-works project that had people making a road with picks and shovels. When he asked why they didn’t use earth-moving machines instead, a local official responded that the goal was to provide people with jobs. In that case, the economist asked, why didn’t the government just have the workers use spoons instead?

This parable elicits a chuckle from many economists, who use it to contrast the hard-nosed, efficiency-minded thinking of their discipline with the ineffectual mandates of bumbling bureaucrats. But to many outside the profession, the story demonstrates a willful ignorance about the importance of work and human dignity. The government should focus on getting people jobs instead of just mailing them money. Ideas for doing that range from government employment guarantees to public-works programs to tax incentives for corporations that hire more employees.

Inevitably, the people who chuckle at the “spoons” story are going to label these programs as make-work. If the market isn’t willing to pay people to do a job, they’ll say, it isn’t worth doing. People who take these jobs might do it for the money, they say, but they’ll know the work wasn’t really needed, and they won’t derive dignity or self-respect from doing it. Better to just mail them a check.

This kind of thinking is very wrong. Yes, if you gave people spoons to build a road, they would realize it was silly. But it’s absurd to jump from that to the conclusion that any worker who gets paid more than what the market will bear is just a welfare recipient with a made-up job.

People realize that the free market rewards people differently based on things beyond their control. A janitor in the Philippines does the same work as a janitor in Texas, but the latter gets paid a lot more. Recessions, local economic conditions, development policy, the winds of global trade and a million other factors all play a part. That’s one big reason why free-market outcomes aren’t always seen as fair. Most of us want to be valued not just for how much money we can manage to wring out of the system, but how much effort we put in.

As economist Brad DeLong aptly puts it: “We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation…We want to be neither cheaters nor saps.”

If we work hard and produce something of tangible value, we tend to feel a sense of self-worth when society rewards us for it with a decent, middle-class life. This was the essence of Franklin Roosevelt’s New Deal – if you work, you eat.

The continuing power of this idea is visible everywhere. Witness Albuquerque, New Mexico, where the city gave jobs to homeless people and made them feel “human again,” as one job recipient told Politico Magazine. Or look at the Job Corps program, where giving poor people jobs made them more likely to get married. If you give people work with tangible, visible value, you give them dignity. This, of course, is a reason the U.S.’s falling labor participation rate is such a concern – so many Americans are out of the workforce and are missing out on the dignity that comes with a job.

So is there work to be done in the US that produces tangible, visible value? Of course there is. To realize this, just take a one-week trip to Japan. Where American sidewalks are cracked and uneven, Japanese ones are neat and beautiful. Where tables in American Starbucks are littered with crumbs and dirt, Japanese Starbucks tables get wiped down after every customer leaves. Where American cities like Chicago and Detroit are full of broken windows and crumbling facades, Japanese cities are clean and modern, with well-maintained, reliable public transit.

Before we start complaining about make-work, let’s make the US look like that. Let’s fix the sidewalks and renovate – or knock down and rebuild – all the old buildings. Let’s wipe down every Starbucks table, build quality public-transit systems and hire the workers to make them run on time. And let’s take care of our people as well as our cities. Let’s provide child care for working moms, and elder care for old people. Let’s hire more teachers to reduce class sizes.

These are all jobs that produce real, tangible results. When you fix up a building or build a train station, you can see the fruits of your labors. When you take care of an old person, you can see a real human being benefit. The value created by these jobs is a lot more tangible and clear than the value created by a lot of activities that the market rewards much more, such as high-frequency trading.

The free-market age has made the economy more efficient, but it has come at a dramatic price – lost dignity for so many. The US has moved away from the idea of a social compact with work at its core. That’s something that deserves to be reversed.

The Ghost of Poverty This Christmas – Bryan Bruce. 

In 1843 Charles Dickens released his classic tale A Christmas Carol.

Creatives are like sponges. They soak up what’s happening in society and squeeze the gathered material into their work. Dickens was a master of it.

A year earlier he’d read a British parliamentary report on the condition of children working in mines for 10 hours a day – naked, starving and sick. The cause of this misery, he recognised, was greed – a few people getting very rich at the expense of the many. (Sound familiar?)

So, in that magical way it takes a genius to do, Dickens poured all of Victorian Britain’s mean-spiritedness into his fictional character Ebenezer Scrooge, the miserly old man who hates Christmas.
Until, that is, he is visited on Christmas Eve by three Ghosts (Of Christmas Past and Present and Yet To Come) who reveal to him how giving can be much more rewarding than taking.

173 years on a lot of Kiwis have got that message. They help their friends and neighbours whenever they can, they run food banks, free used clothing and furniture outlets, and open their maraes to the homeless.

But none of these things would be necessary if the meanness of Scrooge had not become institutionalised into the Neoliberal economic policies successive New Zealand governments have promoted over the last 30 years.
Yes it’s true that children no longer work in factories or down mines  – but that’s simply proof (if proof be needed) that things can change if we vote to alter them.

What I suspect is that if Dickens could return like one of his ghosts to visit us today, he’d look in dismay at the long lines of poor outside the City Missions this Christmas and tell us that we are going backwards towards the selfish society he railed against – where the poor were dependent on the good will of strangers for food and the essentials of life.

That we have lost sight of what is really important is clear….
85,000 of our children are living in severe hardship
•14 % of our kids (155,000) are experiencing material hardship which means they are living without seven or more necessary items for their wellbeing. • 28% per cent of our children (295,000) are living in low income homes and experiencing material hardship as a result.

So thank you to all of the good people throughout our country who know this widening gap between the have and have-not  isn’t right and do so much to help those less fortunate than themselves.
But let’s also make a new year’s resolution – to encourage our friends and families and everyone we know to vote for a better deal for all our children next year.
10% of New Zealanders now own 60% of the wealth of our country while the bottom 20% own nothing of worth at all.
Let’s make the scrooges of New Zealand pay their fair share.

My very best wishes to all of you this Christmas Eve.
Take care.
Bryan Bruce. 

Global Wealth Inequality – What you never knew you never knew – YouTube. 

Let’s Change The Rules! 

Rich countries give $130 billion annually in development aid to poor countries while sucking $2 Trillion out by various means. Every Year!

YouTube 

Rampant Neoliberalism.  ‘Just about managing’ UK families to be £2,500 a year worse off by 2020. 

Thatcher II Has Arrived. 

The combined impact of welfare cuts will leave struggling working families – the “just about managing” households Theresa May has vowed to help – worse off by more than £2,500 a year by 2020, according to research published days before her government’s first autumn statement.

A study of 187,000 households across the UK found that policies including cuts to universal credit and the four-year benefit rate freeze, coupled with rising rents and higher inflation, would see low-income working families typically lose £48.90 a week by the end of the decade.

The findings have alarmed councils and charities worried that the growing financial burden on low-income families will raise poverty and homelessness levels.

The Guardian 

Investment in the Early Years Prevents Crime. 

Instead of competing in some sort of bizarre race to the bottom with the United States for the most number of people incarcerated per head of population, we need to attend to what works to prevent crime.

While the idea of scaring young people out of crime (boot camps, prison visits etc) might have popular appeal, it is a total failure as it has been found to increase the probability of crime. What does work is reducing the stress on low income families and providing them with sufficient material resources to ensure their kids have opportunities to thrive.

Increasing the incomes of low-income low opportunity parents using unconditional cash assistance reduces children’s likelihood of engaging in criminal activity. Yes giving parents more money, and trusting them to identify where the pressure points in their family life are, improves both the economic position of a family and reduces stress, the key pathway between poverty and poor outcomes for children.

A substantial body of research supports unconditional cash assistance in countries similar to New Zealand.

Jess Berentson-Shaw. Morgan Foundation 

The Police (and pretty much everyone else) Know how to Prevent Crime, Why Don’t the Politicians?

Jess Berentson-Shaw – The Morgan Foundation 

It was nicely done really; Judith Collins neatly deflected the question posed by a delegate at a Police Association’s Conference about when the government was going to start addressing the causes of the crimes, notably child poverty. She repelled that pretty brave question by simply saying child poverty was not the Government’s problem to fix.

The following week the Government announced it will be spending $1 billion to provide 1800 additional prison beds. While that is a one off cost, it also costs $92,000 to house each prisoner per year, so the on-going cost will be over $150m. Labour also announced it would be funding 1000 more frontline police at a cost of $180m per year.

This is all ambulance at the bottom of the cliff stuff. No-one has attended to what that member of the Police force was saying; deal with low incomes and low opportunities in childhood and you don’t need to spend billions on new prisons, or constantly have to fund more frontline police.

It is unlikely that merely lacking money directly leads to a child committing crime. Rather, a child who grows up poor is more likely to be a low achiever in their education with more behavioural and or mental health issues, and it is these factors that influence their likelihood of running up against the criminal justice system.

While the absolute numbers of appearances for all ethnicities have gone down, both apprehensions and appearances in court show a serious overrepresentation of Māori young people. Low income is noted to be a key factor in the criminal offending of young people. 

Morgan Foundation 

How Trump Happened. Joseph Stiglitz.

Why would Americans be playing Russian roulette, for that is what even a one-in-six chance of a Trump victory means?

It is no surprise that Trump finds a large, receptive audience when he says the state of the economy is rotten. Real (inflation-adjusted) wages at the bottom of the income distribution are roughly where they were 60 years ago.

The US economy as a whole has done well for the last six decades: GDP has increased nearly six-fold. But the fruits of that growth have gone to a relatively few at the top – people like Trump, owing partly to massive tax cuts that he would extend. 

At the same time, reforms that political leaders promised would ensure prosperity for all – such as trade and financial liberalization – have not delivered. Project Syndicate

​$1.8 Billion Surplus But At Whose Expense? – Bryan Bruce

Bill English is announcing a $1.8 Billion surplus.
Yet.. We have families living in cars.

Well documented research that shows our Health system is desperately underfunded. We have thousands of school kids being fed by charity.

And what is English talking about? Tax breaks! It’s time to ask…

What’s an economy for? To benefit a select few? Or deliver the greatest good to the greatest number of our citizens over the longest time?

If the National led government also collected the estimated $5 Billion in tax evasion that happens every year we would have plenty of money to provide good housing and health care for everyone.
That’s the kind of break I’d like to see. 

“I’ve seen a lot of death, but not this thing. This is shocking and this is what makes you feel you are not living in a civilized world”

These horrifying pictures are the product of global economic inequality, victims of a world where 71% of the world owns only 3 percent of global wealth. People come from all over Africa. Some are fleeing extremist violence from groups like Nigeria’s Boko Haram or Somalia’s al-Shabaab. Others are simply people without opportunity or any hope for bettering their lives and their families in home countries where jobs are nonexistent and money is funneled to the ruling elites, who guard their wealth jealously. Occupy Democrats 

The reason is “a sense of hopelessness and helplessness of the young people. They believe the sun isn’t going to come up any more.”

Paul Little: What the Dickens is happening?

Dickens was a campaigner – he campaigned against, among other things, pollution, child poverty, poor public health, homelessness and the exploitation of women and children. He died nearly 150 years ago.

Great writer, but he doesn’t seem to have made much of a difference. NZ Herald