Philip Ferguson

In the past couple few weeks the Reserve Bank governor Alan Bollard, prime minister John Key, and other commentators have been talking about the recession, or at least the worst of it, being over. 

 Bollard is a fairly level-headed and reasonably sophisticated bourgeois economist and Key is a fairly level-headed, reasonably sophisticated capitalist political manoeuvrer. So their view of the current state of the recession is worth some consideration and can’t just be dismissed as capitalist propaganda.

 The evidence, such as it is, that has been presented to suggest NZ is coming out of recession is pretty flimsy, however. A news item that featured what they were saying on the subject showed a case of one house that had been sold in five days, whereas last year the same house hadn’t sold in months. That is hardly evidence for much at all.

 Harcourts’ real estate blue book in early July contained an ‘informational’ sheet in which Harcourts declared the recession, or at least the recession in house prices, over. Their evidence was improved house sales for the past two months. This verdict on their part seemed rather unconvincing – especially since it came in a blue book that was at least 1/3 smaller than the size of the blue books last year. If the housing market was really jumping back up, then the Realtor and the Harcourts blue book wouldn’t be the slimmed down volumes that they are at present.

 More importantly, a real recovery couldn’t be judged from house prices. No new value is created in the sale of houses – all that is involved is prices going up and down. If they go up, above the actual value of houses, these boosted prices simply draw money from elsewhere in the economy – and, usually, also involve the extension of more credit. [Read more…]