At least it’s somewhat comforting that the Savings Working Group doesn’t just assume compulsory saving will help “address New Zealand’s dismal savings record.” Although, it’s possible that mandatory saving requirements would improve the rate of savings, that doesn’t mean the overall economy would be better for it. In fact, the inevitable unintended consequences of all government interference in the market points to the opposite being true. That is, a government mandate for individuals to under-consume and save would almost certainly be detrimental to the overall economy.

Of course, all things being equal, under-consumption leads to investment which leads to prosperity. But all things are not equal. This is just another example of the endless tinkering that planners engage in to undo the problems they caused with their last round of tinkering.

So how about savings? Me being the simple-minded fool that I am imagine that the best way to encourage savings is to raise interest rates (or more specifically, releasing the central bank’s strangle hold on rates and allow the market to determine them). This will make it more attractive for individuals to under-consume and realize some legitimate gains on their savings. Surely, Savings Working Group will find some merit to this solution:

“The group estimates interest rates are 1.5 to 2.5 percentage points more than they should be.” Interest rates are too high? …Not exactly what I had in mind.

Looking at the entire passage we can see how they arrived at this conclusion.

The group has met twice so far and has taken a wide macro-economic look at the issues facing New Zealand, putting much of the blame on the poor performance of the tradeable export sector over the past decade, he said.

This has encouraged foreign investment and local reliance offshore debt, which in turn lifted interest rates and the strength of the kiwi dollar, which fed the imbalance further, he said. The group estimates interest rates are 1.5 to 2.5 percentage points more than they should be.

Ok, so basically what this group has concluded is that New Zealand’s export sector is struggling due to a strengthening currency. This implies a reduction in income, which of course makes it difficult to save.

First of all, the numbers on household income do not support this. Income has significantly and consistently been on the rise in New Zealand over the last decade–the same time frame where savings has been in an apparent free-fall.

It’s true that this rise in household income is purely nominal. Don’t be confused by the claim that “the Kiwi dollar has increased in value.” It hasn’t. What has happened is that New Zealand’s currency is losing (or winning, depending on how you look at it) the global race towards currency debasement. Relative to other currencies, the Kiwi dollar has generally been strengthening, but it still buys less goods and services than it did a decade ago due to the Reserve bank’s inflationary policy. That is, against other inflated currencies it has strengthened, but against commodities and actual goods it has weakened. Governments and central banks all over the world are addicted to currency debasement, and New Zealand is no different, except that we are slightly more intelligent by engaging in debasement slightly more conservatively.

This brings us right to the second problem with the group’s findings which has to do with an overarching fallacy that is so pervasive in this world of Keynesian nonsense. I hear all the time how New Zealand monetary policy needs to be geared towards a weak currency in order to support the export market, and that that would be great for the overall economy. This is absurd.

Why would any nation desire a weak currency? Why would any nation choose to diminish the purchasing power of their money? Admittedly, there are certainly a few special interests who would benefit, or think they would benefit, from such an arrangement–namely, some exporters and their supportive industries who are too lazy, unwilling or incapable of adjusting to new market conditions by improving their products, moving into different spaces, or finding new customers. But what about importers? What about retailers? What about households? Why are we supposed to automatically assume that high incomes can only be achieved by propping up the export industry? And I don’t want to hear this garbage about how “New Zealand is an export country.” That doesn’t even mean anything. All countries are “export countries.” All economies, all markets are in search of buyers. Nobody, save for the hermit hiding away in the mountains, produces a good or service solely for their own consumption.

So the question for New Zealand to answer is, “what goods and what services does New Zealand produce that others may want?” Cheap labor seems to be the immediate answer spewed by the supporter of the aforementioned export-friendly monetary policy. It is wrong. It is a cop-out. It is unimaginative. It is completely devoid of any real economic comprehension. It is just regurgitation of Keynesian nonsense. Besides, if cheap labor really were a competitive advantage to pursue then why don’t we devalue our labor completely by abandoning our factories and discarding all our tools and capital equipment. Then our labor will be so cheap that prosperity will be endless!

Taken to this extreme we can see how nonsensical our ideas about the economy have become. But these are the very fundamentals that neo-Keynesianists want you to take as gospel! They are insane!

A strong currency means that that currency is desirable. Plain and simple. Why would New Zealand not want their dollar to be desirable? A desirable Kiwi dollar means that foreigners want to hold that Kiwi dollar. How do they get their hands on it, then? Answer: they sell New Zealanders goods and services. New Zealanders, equipped with ample purchasing power, will experience a standard of living that no weak currency could provide. What do foreigners do with the Kiwi dollar once they get their hands on it? What can they do with it? Answer: they invest it in New Zealand! Sweet! This investment leads to capital expansion, better products manufactured in New Zealand, better services offered, and ultimately a higher income.

This is starting to sound much better than propping up an inflexible export industry with a weak currency policy. And all it took was some reasonable economic understanding, and the impetus to challenge the half-truths shat out by Keynesians.

Stop talking about the desirability for a weak Kiwi dollar. I am sick of hearing it.