Just heard a report on the radio about the economic literacy of
New Zealanders. To sum up, it's generally dismal. This may explain
why they think raising minimum wages and increasing welfare benefits
is a good idea. The people polled were being asked to define
"inflation". Only one person even came close, and to top it
off, the definition given by the reporter-"inflation is an
increase in the cost of goods" was incorrect! Inflation is a
decrease in the value of a currency, usually caused by printing too
much of it. For instance, if the price of petrol increases due to an
increase in the price of crude, this is not inflation, this is an
increase in the price of an increasingly rare commodity. Since oil is
a major input into other goods and services, these prices will also
increase, but this still is not inflation. When all goods and
services in aggregate increase in price because vendors don't want to
accept increasingly devalued dollars as currency this is inflation.
There is a big difference between these two definitions. The
government creates inflation by printing money to pay its bills, thus
increasing the pool of money available. Thus if you have savings -
and smart people increasingly don't the government is slowly
ripping you off, soon your saved money will be worthless. Unless
people understand these differences New Zealand is economically
doomed.
