I sometimes lie awake in bed working through arithmetic problems.

Admittedly, there must be better ways to put one’s mind to sleep but this is me; I enjoy doing sums.

Recently, I was remembering how, years ago, regarding a potential solution to the New Zealand ‘child poverty epidemic’, I believe it was a naive young Green MP by the name of James Shaw who maintained something along the lines of, ‘The reason the poor are poor is because they have no money, therefore, the best way to make them not poor is to give them more money – hey, why not give everyone more money? Across New Zealand, financial woes will be no more – we’ll fix it – we’ll just get the Reserve Bank to print more money, everyone in New Zealand’ll be rich!’

That memory went back to better times, when John Key’s National party were in power and, perhaps understandably, with transcendent financial revelations as aforementioned, James Shaw’s Green party along with Andrew Little’s Labour were in Opposition; also, this was seemingly at a time before people understood that ‘epidemic’ is a term to be used not only in metaphors.

The thing is, from my perspective, lying in bed, pondering, calculating; idealistic as Mr Shaw’s plan was and, to the less educated economist, maybe, viable as this concept may have appeared, I was aware that it would not work – I had enough financial knowhow to understand this is not how money works.

The mathematical difficulty increased, and I recall feeling that heat of frustration; I recall at one point almost falling asleep and having to snap my mind back into focus.

Task at hand and all that.

I knew MP Shaw’s idea was nonsensical, I just wanted to work out specifically why; how?

How, if the New Zealand Government handed out money across the populous thereby rendering every person wealthier, why, would it not work?

What was the rudimentary logic that I was missing – where was the folly?

Truth is, I have attempted in the past to perform this very kind of logical reasoning, often in bed, sometimes while half asleep; usually resulting in an immovable mental block…

Not tonight.

Start simple; person A provides a service for person B, person A is then paid by B and B subsequently receives money from the company above them, C.

This is the basis of economy; currency is awarded value, where it is then given in return for goods or services.

The amount of currency given obviously depends on the value of the goods or services; the value of goods and services is determined by people, in relation to comparable factors.

This value can also vary, though, according to supply and demand; a good or service will become more valuable when supply is less and similarly, more valuable if demand is more.

One hypothetical day, one wayward political leader had a brilliant idea; a short time later, New Zealand’s Reserve Bank began printing an excess of money and the Government started distributing it to the people via supplementary package; household income across the nation increased by around 5% and the people were overjoyed.

Few weeks later, person B calls back person A to perform a similar task but, when the bill comes, B is surprised to see, reportedly due to increased cost of related supplies, A has had to raise their prices by 3.5%; fortunately, B’s company has recently given them a 4% wage increase though, so they can easily afford to pay the increased bill.

Person C, at the company, is currently struggling under another Government-imposed minimum wage increase, which has forced them to effectively raise wages across their entire employee base to maintain wage equality, costing them millions of dollars annually, leading to a general rise in commodity prices to cover the company’s financial shortfall.

Under Government instruction, the nation has been flooded with new money from the Reserve Bank of New Zealand and, in the beginning, the people are loving it.

Six months later, particularly in the impoverished regions of the country, the people’s excess of money doesn’t seem to be going as far as it once did; everything costs more now and, ultimately, nobody is any better off than they were six months ago.

With people again struggling, this misguided and terribly short-sighted political leader instructs the Reserve Bank to print more money and prepares the people for another cash injection.

Few months later, money comes in, people are elated; prices go up, everything costs more, new money becomes devalued, people are again demanding wage increases.

A short time later, precipitated by yet another Government-imposed minimum wage increase, wages across all sectors are increased; retailers are forced to raise the cost of commodities to cover their increased wage bill while, of course, producers are also suffering under the burden of increased expenses, so now, everybody is paying more for everything and again demanding more money.

Meantime, official inflation figures are out of control.

Interest rates have become similarly high and even house prices are increasing steeply; despite exorbitant interest rates, financially astute people can appreciate, with national inflation having risen to over 4%, money in the bank is rapidly losing value thus property investment is the only prudent option.

The above (strictly hypothetical) scenario will only deteriorate, leaving the above nation in financial disrepair; yet there is a solution.

Rather than behaving like a short-sighted ignoramus and, in the hope of reducing national poverty, doing something as misguided as printing more money or worse, mandating repeated minimum wage increases, which will only result in inflation thus the devastation of a nation’s economy, if a government genuinely wants to eliminate poverty it needs to shift its focus to domestic business; it needs to support the prosperity of those businesses and remove the obstructions impeding a business’s success.

The intention here is to gradually restore or to boost a nation’s economy which will, in turn, increase overall national wealth; in the future every other sector will benefit from a prospering business sector – health, education, transport etc – without lifting inflation terribly.

Thriving local business leads to stoic consumer confidence resulting in financial fluidity and a strong stock market; as any competent financier will agree, ‘A healthy stock market is a healthy economy’.

The National party have always employed the above strategy, it’s just that many of New Zealand’s voting public appear more interested in immediate results, subscribing to the old Labour strategy of money-in-pockets now; the above is a long-term project which John Key was in the process of accomplishing – global recession notwithstanding – when he stepped down to be succeed by the Labour party.

The other facet to this issue is that in New Zealand we have a comparatively small population (less custom per capita) of whom, over half expect to be wealthier than the rest; do the math, that does not compute.

This next bit’s important, so please pay attention.

Simply raising prices to make more money than the rest is never going to lead to success; money needs to be earned – if you are receiving more for doing no more, you are doing nothing but contributing to inflation.

Ultimately, anyone who claims that ‘printing more money’ is the best way to remedy poverty, clearly has not given the issue enough thought.

…I should really get some sleep now.

 

 

Article by Tim Walker

Edited by Prinda Money

Photography by Ian Flate/E C’Namy