Monday, May 3, 2010

The Cullen Nudge and the need for more stupidity….

Join KiwiSaver and become a living part of a process which will…

  1. Instantly capitalise a $3,000 gift (or $5,000) after two years into the price of housing. The cheaper the house price the greater the proportional impact. Those not getting the gift still face the increased price as they house hunt.
  2. Divert yet more money into the overheated housing market while taking out of the hands of job creating employers with the worst hit employers being the smallest and facing the biggest threat from cost increases at the margin… great for job seekers this is.
  3. And of course, If $3,000 makes the difference, then as Cactus points out, the house likely cannot be afforded. So the gift generates a nice little bit of sub prime risk…. which in spite of 50 finance companies falling, someone will be keen to lend on.

KiwiSaver author Mary Holm says the grant is "terrific" news….

and that:

“Every first-home owner in New Zealand is a bit stupid if they haven't been in KiwiSaver,"

To be fair she is reflecting the widespread notion that “you’d be a mug not to take the governments free money”. Understandable sentiment and maybe it works for the individual – it certainly works for the providers….

But policy wonks are supposed to understand these collective action problems which generate long run harm for society as a whole.

Ironic that the Cullen nudge favours short term gain for individuals at the expense of the collective good.

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