Print some money for Christchurch

The debt problems of the Christchurch and Auckland City Councils have been in the news of late. Now I’m not going to defend the records of the last few administrations in those cities. In Auckland in particular there seems to be a meglomaniac desire to become a “global centre” with all the trappings, to play with the big boys, whether or not Aucklanders want to be much bigger, with all the associated congestion, pollution and house inflation; or to pay for it with ever growing rate demands to fund the expansion of accompanying infrastructure. For those who believe in the agglomeration benefits of a much larger city, ask yourself where the agglomeration benefits from amalgamating the regions councils have gone. Rodney Hide?

Christchurch however is a compelling case for central government expenditure. In a scenario seemingly plucked from a Naomi Klein book the Christchurch Council is faced with selling assets such as the airport to the private sector to plug the gaping hole in its accounts. Klein called the opportunist grab of public assets at often knock down prices in desperate circumstances Disaster Capitalism. The Mayor and council believe their only two options are selling assets or raising rates by close to 20%. They’re not.

The other options are the CCC and the government renegotiating the division of the reconstruction bill, with central government picking up more. Allied to this and avoiding the requirement for the government to take on more debt (as opposed to the council) is Green Party leader Russel Norman’s proposal to print money for Christchurch. He explained it rather badly and backed down quickly in the face of misinformed ridicule, but the Reserve Bank could easily generate $5 billion dollars for the government to spend on critical reconstruction (and that doesn’t include a covered stadium or convention centre). The important caveat here, to placate all the cries of German hyper inflation, is that this public credit is offset by an equivalent reduction in private credit from the trading banks.

In a recent post I confirmed how most of our “money” comes into existence – as interest bearing bank credit. Limited public credit or what Adair Turner called Overt Monetary Finance, is no more inflationary than bank credit, indeed less so as it has no interest requirement. It can be created by the Reserve Bank, given to the government to spend in Christchurch (or anywhere else for that matter)  for critical new infrastructure including public housing, sanitation and transport. As long as it is spent on new stuff and at a pace that the reconstruction can handle ie without inflationary bottlenecks around suppliers and labour, it is an ideal solution. To this end it could be combined with a retraining package to utilise the unemployed and joint ventures between the government and business to supply construction materials, just as Labour worked with Fletchers and others to build state housing in the 1930’s.

It is a disgrace that the government’s first priority after the quakes was not facilitating housing reconstruction on a wartime like footing. That they left it to the market, including foot dragging insurance companies and an over whelmed EQC, was a tragedy and has left thousands in sub standard living conditions for years. State intervention in support of commercial rebuilds but leaving the rebuild of domestic dwellings to the vagaries of the market was negligent, as was not intervening to bang the insurance companies heads together. Perverted priorities.

A curious footnote is that recently elected councilor and Chairman of its Finance Committee, Raf Manji, has a website that advocates monetary reform including public credit. He has either changed his mind or decided to avoid controversy by not advocating for its use in Christchurch.

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