Economic academics are busy rewriting their textbooks. They foolishly taught that national prosperity depended on how well a country used its resources to produce goods and services to meet the wants and needs of its citizens. They used to use gross domestic product to measure the annual output of a country. They are struggling to incorporate this new paradigm of national prosperity into their textbooks as it unfolds on a daily basis in the suburbs of Auckland.
New Zealand has been blessed with a tax system that has encouraged the emergence of this successful form of wealth creation. Other nations have tended down the path of less profitable industries such as software development and pharmaceuticals. New Zealand has had a strong dairying sector but there is little point in getting up early to milk cows when there is such wealth to be had from owning a bungalow in Kelston.
New Zealand has benefited from a deregulated banking system. Without the financial support of this sector it is doubtful the country would have unlocked the secret to economic prosperity. The banks have been the conduit to peoples' dreams of material nirvana through housing inflation.
Other parts of the country have been less successful in applying the lessons learned in Auckland. This is largely attitudinal. People in these regions often regard their houses as dwellings to be lived in, rather than wealth-creating money machines. They regard houses as homes rather than ATMs. Many gaze with bemused envy as millionaires proliferate in this great city.
Apart from attitude, there are several other key ingredients that economists have identified that have allowed this massive paradigm shift in economic thinking that is unfolding in Auckland. Fundamental ingredients include support from politicians and bankers and the real estate industry and media to allow the new reality to emerge. The market conditions that helped create the new reality include severe supply constraints and liberty of demand.
It cannot be overemphasised just how seismic the shift in economic thinking has been. Human history has been plagued by the necessity of work. There have been untold writings on the curse of human labour as a necessity of our existence.
What has occurred in the suburbs of Auckland has the potential to render this blight on humanity obsolete. Wages and salaries will be redundant concepts buried by the beauty of capital gains. It is so simple it is amazing it has taken millennia to discover.
Peter Lyons teaches economics at St Peter's College in Epsom and has written several economics texts.
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