Making Matters Much Worse

When Solutions are the Problem

One of the reasons Western capitalist societies are struggling is due to a bizarre approach to supply and demand.  We say, "one" of the reasons, for there are legion.  Nonetheless the deliberate skewing of supply and demand is a significant impediment.

Let's consider some of the ways the productive economy is inhibited and made inefficient by inappropriate interference with the buying and selling, investing and producing populace.

The first is a relentless compulsion to restrict the supply of resources useful for constructing and delivering goods and services.  This is largely driven by the notion that natural resources are finite and are running out.  Oil, gas, energy, land, timber, coal, steel, water, etc. are all limited.  Consumption will reduce their supply.  Therefore, it is prudent to restrict their use and application to make them last longer.  But rumours of the disappearance of natural resources are greatly exaggerated.  Remember the shrill, siren calls of the looming, dooming devastation of "peak-oil" about to wreak havoc upon us all.  The Sirens began shrieking in around 2008; "peak-oil" was supposed to hit in 2012.  Now, world oil supply is such that we presently have a glut.  Go figure.    

A second inhibition comes from the various ideologies of Greenism.
  We are not thinking now so much of a responsible environmental approach which seeks to reduce destruction or poisoning of the environment wherever possible, but the religious commitment of most Greens to oppose all human activity because of its environmental impact.  For such Greens, any human activity is bad.  The most glorious environment is the one which is pristine--by which is meant, no human interference or impact whatsoever. 

A third distortion, this time to demand, rather than supply is the penchant of governments to re-distribute income.  This has the effect of artificially distorting market demand, thereby pushing up prices, ultimately making the poor poorer.

In New Zealand, particularly in our largest cities, we have a shortage of housing.  The supply of housing has not met market demand.  House prices are rising.  The poorer amongst us cannot afford to buy or rent houses.  Therefore they are forced into renting sub-standard dwellings, or clustering together into overcrowded living conditions, leaving them exposed to diseases and viruses.  Diseases once thought extinct are now making a come-back--particularly those spread in damp, overcrowded living conditions such as rheumatic fever and whooping cough.

Why has this happened?  It has come about because of a prejudice against supply.  All three factors referred to above have been at play.  Local councils are imbued with Greenist ideology.  Town planners rule councils.  They exist solely to add impediments to housing development, driving up costs not only by the specifications they insist upon for new housing, but by restricting land for residential development.  They have grand ideas for luxuriantly endowed cities because they read about them in their textbooks at university.  The end result is a severe restriction of the supply of housing, buried under a mountain of costly red-tape--but all for our good, you understand.

Central government rules and regulations also inhibit the supply of housing.  Successive governments have laid claim to the property of citizens for "environmental" reasons.  If someone wants to develop land for a housing estate, anybody in the country is entitled to register an objection--which is then considered in an Environment Court.  National environmental pressure groups often join the list of objectors.  The "consenting" process to get permission to proceed is long, arduous, and costly.  Often the environmental objections are little more than covert sabotage from business competitors.  There are infamous cases of supermarkets not being able to open because competitor supermarkets have used the objection provisions of the Resource Management Act to contest the new development in the courts.  Often-times this can drag out for years, even decades.  The end result for residential housing is that supply is restricted and those houses which are built are far more expensive than they might otherwise be because they include the dead, hidden costs of gaining development approval.

Finally, the politics of guilt and pity seeks to seize income and re-distribute it to the poorest families, thereby artificially stimulating demand for houses, driving up rents and house prices.  Since the supply of houses remains restricted, the end result is that the poor become poorer.

Eric Crampton, writing at the blog Interest.co.nz explains how this has worked out.  Firstly, the income of the poorest families amongst us has risen in aggregate for the past fifteen years.

Even more surprisingly, data from the Ministry of Social Development shows that real household income growth in the lowest deciles has been very strong, both from 1994 to 2013, and from 2004 to 2013. The poorest decile in 2013 has real household income 40% higher than the poorest decile in 1994. And from 2004 through 2013, real household income growth was strongest for the lowest four deciles than for the richest six deciles.

But the Ministry's figures are produced before the impact of housing costs is taken into account.  Because housing costs have risen faster than the incomes of the poorest deciles, in actual terms, poorer families have made less progress.

Housing unaffordability is consequently a substantial part of New Zealand’s child poverty problem. When poor households have to spend 30%, 40%, or even 50% of their incomes on housing, there simply is not much left to pay for anything else. And so spots of bad luck, like a car breakdown or an unexpected expense, can quickly become major issues.

Precisely--and merely dolling out more expropriated, re-distributed money to the lower income deciles is like pouring gasoline on a fire.  It ratchets up demand for limited housing, thereby driving up both housing prices and rentals.  Very quickly, the poorest are back to spending higher amounts on housing.  They have slid back down the greasy pole--often to a position worse than when the latest government handout increase was first dolled.

When the Resource Management Act was first passed, its intent was to facilitate the use of resources in a managed way.  It rapidly fell into the crevasse of  artificially restricting and constricting the supply of goods and services.  Its impediments to the supply of goods and services are incalculable.  It has made us all poorer--the worst impact falling on the most vulnerable.  And every attempt to mitigate the unintended outcomes of restricting the supply of goods and services by dolling out expropriated income has resulted in exacerbating the situation.