Is Ayn Rand at work in the Southern Pacific? At least one local commentator is wondering that New Zealand businessmen will 'shrug,' or perhaps even go on strike? "The danger is they simply put their cheque books away, they stop investing in capital, they stop hiring people and we could get to a point where we have a very good and very resilient economy that just stops." So says ANZ chief economist John McDermott, as quoted by a worried Chris Trotter, a lifelong socialist worried at the loss of those who really keep the country running -- and I don't mean the politicians. "To hear the idea of tax cuts dismissed [by the Finance Minister] as an 'ideological burp' was almost certainly the final straw for many [local] business people," says Trotter.

And why wouldn't that be enough to break a camel's back? As economist Gareth Morgan points out, the impact of 'ideological burps' has been to radically change the behaviour of taxpayers. And as I argued here at the time, cutting envy taxes makes us all rich. Keeping the shackles on the highly-productive only hampers the productive and the entrepreneurial -- who could blame them if they decided to go on strike.

Whatever the case with local producers, it's clear from a record-high NZ dollar that foreign investors clearly aren't shrugging at all in their enthusiasm to invest in the New Zealand economy-- they're positively frothing at the mouth to get a piece of the local action. High interest rates and confidence in the local economy are attracting foreign investment by the boatload, and pushing up the NZ dollar to record highs. Gareth Morgan points out that investor's enthusiasm for the New Zealand economy is in contrast to the pessimism of Reserve Bank Governor Alan Bollard. Worse: Bollard's pessimism-fuelled interest rate hikes are in fact fuelling the investment/borrowing orgy that has Bollard so worried, and at the same time revealing as illusory the idea that the governor has the tools with which to control inflation.

To sum up. If those supplying capital to this debtor nation do not concur that there are serious economic imbalances to worry about, the central bank is extremely limited in its ability to control inflation. This limitation is all the more severe if there are lending institutions beyond the sphere of influence of the Reserve Bank.

No amount of piecemeal interventionist distraction will overcome that reality Dr Bollard – a bad workman blames his tools.

(And if you're wondering what I mean by 'shrug,' I'm referring to Ayn Rand's novel 'Atlas Shrugged' (right) in which the people who move the world decide to go on strike, just as Trotter and McDermott are worried they will here.)

Linked Articles: Stop signs
Graphing 'idological burps'
Cutting envy taxes makes us all rich
A bad workman blames his tools.