Being Lectured

Negative Credit Watch

We have been subjected recently to the Governor of the Reserve Bank, Alan Bollard scolding us over our national love affair with housing. He has excoriated the nation, urging it to think before it splurges on a new house. He explained that increasing housing debt leads to banks requiring more capital to lend, which they need to source offshore, which in turn is driving up our currency, which is choking off our export sector.

The sub-text is that housing is consumption and lifestyle spending. Exports are production of tradeable goods and services. If we are to grow sustainably the export road is essential. The lifestyle spending is deadly. Fuelled by cheap debt, prosperity through trading up one's house is a mirage which will disappear because it is not grounded upon actual economic wealth--which is earning an income based upon producing and selling tradeable goods and services.

Think of the national interest, not your own comfort or extravagant pride. This is the essence of the Governor's scold. Either the Governor is really stupid and ignorant of basic economic and human realities, or he is desperately clutching at straws. The former seems highly unlikely.

Actually, what Dr Bollard is calling for (putting the national interest ahead of one's own) is itself unsustainable. Calls for sacrifices for the public or national good only make headway when people believe their own interests are to be served by supporting the nation's. And this is as it should be.

Within the world-view of the Christian faith patriotism or loyalty to one's country is way, way down the list, if it makes it on to the list at all. The Christian's primary loyalty is to God above. Then his responsibilities and loyalties cascade out to spouse and children, church, extended family, neighbours in need, employers, employees, and so forth. When Christians are redeemed they are delivered out of selfishness into restructured concentric layers of loyalty and responsibility.

But all men retain vestiges of this loyalty structure to one degree another. People maintain a hierarchy of interests: self-interest which involves looking after oneself and one's dependants is usually at the top. Any social or political ideology which denies that fundamental reality ends up crashing and burning, unless it is promulgated and maintained by the barrel of the gun.

Within the Christian frame, loyalty to one's nation is not commanded. Loyalty to one's family is. Whilst obedience to the civil magistrate is commanded when he is punishing evildoers, one is never called or commanded to put the interests of state or people ahead of the interests of those for whom one is responsible. Christians are citizens of Christendom before they are citizens of a nation. A classic historical example of this is provided by figures such as Erasmus and Calvin. Erasmus was born a Nederlander, but he loved first and foremost the Kingdom of God, above all earthly kingdoms. This led him enthusiastically to admire and appreciate Britain, France, Germany and Italy, as well as the Low Countries. A nationalist he was not. A citizen of God's Kingdom he most certainly was. Calvin was a Frenchman, but willingly spent his life in Geneva, expending it for that city, because there his calling lay. Every Christian understands these things. The heavenly city being established through redemptive history is far more important than any earthly city.

Back to Dr Bollard. Because of the created fundamental self-interest of the human soul, the call to think of the nation before the interests of family is a complete waste of breath. It truly is a straw that is being clutched and a flimsy one at that. If people think they can improve their lot and the lot of their family by buying a bigger or better house they will inevitably do so, without the least thought to the "national interest". In principle there is nothing wrong, and much that is right, with their mindset. It is fundamentally congruent with what God has created them to be. Consequently, it is consistent with human nature.

But that does not mean that Dr Bollard's concerns over the NZ economy are alarmist. We have some very real and persistent problems. They have been in the making now for over seventy-five years and will not go away. When socialism introduced the doctrines of demand rights and entitlements to this country it fundamentally distorted the whole matter of self-interest. In economic terms, from that time onward the most efficient and effective way to maximise family utility was to put one's hand out and claim an entitlement. Self-interest was working, but it was suborned into working destructively. The production of goods and services was someone else's problem.

Now we live in an economic system that has the majority of the country dependant to one degree or other upon entitlements--hand outs or government payments. Self-interest says this is vastly preferable to being dependant upon sweat and labour. And if the system lowers interest rates to the point where one can upgrade one's house to a bigger, better, and brighter model for little or nothing of course one would. Even a significant expansion of debt is not a problem in the long run (so people calculate) because the government will always pony up with more entitlements when the next season of election bribery comes around.

No wonder reducing interest rates to such low levels is having the unintended consequence of re-igniting a debt fuelled housing market. What else would we expect? Anything else fundamentally violates human nature and is a non-starter.

But what the regime of entitlements combined with self-interest fails to do will in the end be done to us whether we like it or not. For at the end of the day the piper needs to be paid. Government debt is expanding rapidly (mainly to fund entitlements); personal debt will follow. A credit-rating downgrade is almost inevitable. The real recession will start in earnest. This will be far more effective, albeit it more painful, than Dr Bollard's hectoring.