Election Economic Misconceptions (11) Government Expenditure causes Inflation

Politicians (mostly on the right) frequently claim that increased government expenditure causes inflation. This is simply not true.

If the economy is overheated, then additional government expenditure can cause inflation if the government has to compete for scarce resources and staff by getting into a bidding war with businesses to obtain them. Unfortunately, New Zealand has seldom been overheated in the past few decades, so inflation caused by government spending has not been an issue. So it is mischievous to claim that government spending is the cause of the inflation experienced in the past few years.

The claim made by some politicians is that the government overspent during the Covid crisis, which caused inflation. They also claim that government spending had to be cut to bring inflation back in line. This narrative is not true.

During the Covid shutdowns of the economy, the government increased spending to pay subsidies to struggling businesses. At the time, they were screaming for help. Looking back, it can be argued that the government spending was too much, or too little, but most businesses were quite happy to take the money. Ironically, Air New Zealand was the single largest recipient of the Covid wage subsidy scheme, and Christopher Luxon has never suggested that Air NZ should pay the money back.

It can be argued about whether the Covid subsidies were good for the economy, but it is clear that the subsidies kept thousands of businesses open that otherwise might have closed down. More important, they did not cause inflation because the economy was struggling, so there was no bidding war for scarce resources.

What did happen was that the central bank kept interest rates low to stimulate the economy. In hindsight, they have admitted that they kept interest rates low for too long, which fed into a residential property boom when households realised that cheap mortgage finance was available. This property boom was not caused by government spending. Too late, the central bank increased interest rates sharply to calm the housing market, but they probably kept them too high for too long, which has resulted in a stagnant property market.

About the same time, the Ukraine war pushed up food prices. And more recently, the US war on Iran has pushed up fuel prices, which is causing the price of all goods that need fuel to rise. This is imported inflation that the government can do nothing about. It has nothing to do with government spending.

The narrative that the government had to cut spending to reduce inflation does not make sense.

The New Zealand economy is still sluggish, so it is unlikely that government spending could cause price inflation in the near future.

Election Economic Misconceptions (10) Hard Business

I suspect that the critics of the supermarket chains have no idea how difficult it is to operate a supermarket. Managing a supermarket/supermarket chain is an incredibly difficult task. I am amazed by the service that the supermarkets provide and am glad that people are willing to take it on. Here are just a few of the challenges involved.

• Customers expect convenience. All the things that I need for daily life are ready to purchase when I need them. That is a huge benefit. If I want to go to see a doctor, I have to make an appointment, often days in advance. The same is true if I want to have my car serviced. In contrast, I can go to a supermarket any time, day or night and purchase everything that I need.

• The supermarkets have to offer their customers an amazing array of choices. If I go into the breakfast cereal aisle, there are a dozen different brands to choose from. And within each brand, there are numerous types and flavours of cereal available. The situation is the same for most of the products that I might want to buy. I am not limited to a few choices that someone decides would be good for me, but can choose which brand and type of product I want. Having all the choices available on display for customers to choose from is a real benefit, except for those who hate making decisions.

• Looking at the available food products, I see products that have come from all over the world. I don’t have to organise the delivery of products from the other side of the world, because the supermarket has done the ordering and organised the delivery before I have even realised that I want the product.

• The supermarket organisations have to deal with powerful multinational conglomerates that control the supply of many products. They are powerful and very difficult to deal with.

• Supermarkets make sure that the food and grocery products that people want are always available when they want them. Even when supply chain disruption occurs, most of the products that I want are available when I want them. We just take this for granted, but a huge amount of organisation goes on behind the scenes to make it happen.

  I remember a few days after the Christchurch earthquake when we had no water and electricity at our house. We went to a nearby supermarket and at the back found three big pallets of bottled water. We were delighted to get some drinking water, but I was amazed to see the amount of stock available at the time and wondered how it had got there when many of the transport links into the city were still disrupted. I presume that the supermarket chains had stocks of drinking water in their warehouses that they were able to bring out.

• People can buy some products from other, more specialist providers. This applies to bakery, meat, fruit and vegetables, beverages, frozen foods. Of course, it would take a huge amount of time and effort going around them all. Most people don’t have spare time for this, so being able to purchase everything needed at one site is a huge benefit.

• Supermarket/supermarket managers have to order goods from all over the nation and many other parts of the world and ensure that they are delivered when they are needed. They manage delivery chains across the nation, not an easy task when fuel is expensive.

New Zealand is a small island nation, a long way from everywhere, so most of the groceries that we buy have to be brought in by ship. Not only does this make them more expensive, but it makes the logistics more difficult to organise.

• If I make an order online, the supermarket will gather up my groceries and have them available when I want to pick them up. Alternatively, I can get them delivered to my home if that is more convenient.

• Supermarket managers have to ensure that their store is open seven days a week and most hours of the day, with staff there to serve customers when they choose to come, and they don’t always know in advance when that will be. They have to ensure that the shelves are stocked at times when their customers won’t be inconvenienced.

• The owner or manager of a supermarket has to manage a large number of staff and organise logistics to keep food and groceries available when people want them. They have to respond quickly to changing consumer preferences and changes in the most efficient supplier.

• Many of the products that supermarkets stock are perishable or have a short shelf life. If the supermarkets over-order, they can easily be left with unsaleable product that they have already paid for. Excessive losses can quickly cut into their profits.

• Some products are only saleable for a short season. They have to be ordered well in advance. If the Easter goods arrive too late, or too many are ordered, they will be hard to sell.

• The managers of supermarkets and their various departments tend to be recruited from inside the organisation. You don’t hear of them being recruited from the finance sector, because supermarket operation is a very specialised set of skills.

• Shoplifting is a huge problem that supermarkets have to manage at considerable cost and with no benefit.

• Some supermarkets are not profitable. In our city, one shut down a few years ago, after being rebuilt just a few years earlier, because it ran at a loss. I presume that the owners lost a significant amount of money. Like all businesses, the profit of supermarkets will vary according to the site and level of competition faced.

• Loyalty to supermarket brands tends to be quite weak. Most consumers drive a car to buy their groceries. They have a choice between several supermarkets near where they live, so owners that are not on the top of their game can lose customers quickly.

I hope that supermarkets that I purchase from continue to be profitable because I want them to continue investing so that they are resilient for the future. I want them to be well organised if the disruptions to supply chains that the world is currently experiencing become worse.

Over the last decade, property developers and property speculators have made enormous profits without providing any service at all. The owners of supermarkets have had to work far harder to get their profits. They will have to continue working even harder in an unsettled and inflationary climate to remain profitable.

The price inflation that people are currently experiencing is real and painful. The supermarkets are an easy target, but I am not sure that they are the main culprit.

Election Economic Misconceptions (9) Supermarket Competition

In the current general election, the cost of living crisis has become a major focus for all of the contending political parties. The major culprit they are targeting is the so-called supermarket duopoly. Politicians claim that supermarkets are ripping off their customers.

These claims do not make sense. Increases in food prices over the last few years are mostly the result of the Ukraine war and the hit on fuel prices caused by the US war against Iran. These increases are beyond the control of the government, and the supermarket chains have no choice but to pass them on to consumers.

Here in New Zealand, two big supermarket chains dominate the market. One is a cooperative with most of its supermarkets being owner-operated (Foodstuffs) and the other is a subsidiary of an Australian chain (Woolworths). Critics have learned the word duopoly and are blaming the supermarket chains for rising prices.

Some are claiming that the supermarkets are making excessive profits at the expense of their customers. They have become an easy target for politicians, but there is not much evidence for these excessive profits. The New Zealand branch of Woolworths made a loss in 2024 and 2025, but returned to profit in 2026 after undertaking a massive restructuring to bring costs under control. They had to make significant write-downs of the value of their assets in New Zealand. This does not sound like an industry where earning massive profits is easy.

Various politicians with blind faith in the power of competition are suggesting ways to make the industry more competitive. Some want to split one of the chains into two and make them compete against each other, even though they currently operate in different parts of the market. Another wants to split the wholesale operations off from the retail operations. There is no evidence that either of these actions would make the sector more competitive, and even less evidence that they would reduce the price of groceries. In the current world situation, that is probably a pipe dream.

Splitting up supermarket chains will require duplication of infrastructure and increase overheads, which could easily lead to increased prices in the long term.

Some commentators are suggesting that we need a state-owned grocery wholesale operation that all supermarkets could go to for their stock. I doubt that government bureaucrats with “no skin in the game” could ensure that the products we need are always available in the same way as the supermarket chains do.

Rising food prices are not a problem that increased competition can solve. Even if there are more competitors, they will not engage in ruthless price wars, because that would undermine the profitability of their businesses. They would just compete in different ways (as explained in my previous post) and would track each other's prices.

The big elephant in the room that is ignored in the debate about supermarket competition is that most of the processed food consumed in New Zealand is imported by big multinational companies and their subsidiaries. The vast majority of imported branded processed foods (cereals, packaged snacks, confectionery, sauces, and shelf-stable goods) come through the local New Zealand subsidiaries of global corporate manufacturers:

• Nestlé (confectionery, coffee, pet food, and processed food brands e.g. Maggi).

• Mondelez ( biscuits and confectionery, e.g. Cadbury).

• Unilever (packaged sauces, dressings, tea, and ice cream products, e.g. Continental).

• Mars ( confectionery, packaged meals, and pet care products, e.g., MasterFoods, Whiskas).

• PepsiCo/Bluebird Foods (chips, snack foods, soft drink concentrates, and cereals, e.g Quaker Oats).

• Kellanova (breakfast cereals and packaged snacks, e.g. Coco Pops).

• Kraft Heinz (canned goods, sauces, and infant formula, e.g., Watties).

• Goodman Fielder (bread, dairy, oils, margarine).

These businesses have massive market power and make huge profits, so they are not working in the interests of the New Zealand consumer. When dealing with these global conglomerates, New Zealand is a price taker. We need strong supermarket organisations to deal with their massive monopoly power, but politicians worried about food prices just ignore this issue.

Election Economic Misconceptions (8) Electricity Competition Failure

Politicians continually gripe about the lack of competition in the electricity sector, despite this being an artificial market that the government created. Half a dozen electricity providers compete with each other to supply electricity to businesses and households. The government has set up tools that make it easy for consumers to switch providers, but electricity prices continue to rise, and electricity retailers continue to make massive profits. This is another market where competition has not brought benefits to consumers.

When I grew up in the 1950s and 1960s, electricity supply was not an issue. New Hydro and Geothermal power stations were constructed by the Ministry of Works. They were operated by the Electricity Department. It managed the operation of the power stations and the grid to ensure consistency of electricity supply. Supply to households and businesses was managed by local-authority-operated power supply units. They managed the construction and maintenance of electricity lines and operated the metering and billing system of customers. This system functioned very effectively, and new generating capacity was planned well in advance.

Much later, the government decided to privatise the electricity sector. They sold the electricity generating companies to private, profit-making companies. They set up an artificial market, where electricity supply companies were supposed to compete with each other. They established profit-making lines companies to build and maintain power lines. This change was ideologically driven. There was no evidence that the existing system was not working, or that a system managed by profit-seeking companies would be more efficient. The main reason for the change was that the government wanted to extract some money from the electricity system that had already been paid for by New Zealanders.

The privatisation of the electricity industry has not made things better. Big generation companies have been able to manipulate supply to increase their profits. Electricity has become expensive, and many people cannot afford their power bills. Sick people have had their electricity supply cut off because they are unable to pay their electricity bill.

The reason is that electricity generation and distribution is an engineering problem. Generation needs to be constantly adjusted, so that it exactly meets demand, which is constantly changing. If electricity demand falls because people have turned off their electric heaters, someone has to decide which generation will be cut back to match. If a surge in demand occurs, because people turn on their air conditioning on a hot day, someone has to decide which generation can be quickly brought back online. This is a difficult engineering problem that constantly needs new solutions. Failure to get it right can cause burnouts or dangerous power surges.

Back in their day, the Electricity Department and the Ministry of Works were managed by engineers. They skilfully managed the generation and supply of electricity so that it was available when needed.

The modern electricity companies are managed by financial experts and corporate managers who are skilled in making profits. Not surprisingly, if you put the wrong people in charge of an industry, they control it to achieve what they are skilled at doing. The government is constantly changing the market rules in order to make the electricity market more efficient, but consumers are not seeing the benefits.

French Riots - Lost Hope

Aurelien writing about the riots in France describes a world where young people have lost hope. For a long time, each new generation has expected to live better than their parents. The generation that is now middle-aged did not expect to live better, but they hoped they would not be much worse off than their parents. Many in the youth generation have no hope at all. They expect the world to get worse and worse.

Neoliberalism has given these people nothing: no hope, no future (ah, the Punk years), no qualifications they can actually use; no jobs, no status other than that of consumer. And now they are not patiently calling the AI Chatbot to protest, they are smashing windows and taking things directly. Who can be surprised?

A generation of neglect has created a credentialed but semi-educated class without hope and without prospects, just raw material used in obscure battles between identity theorists. They have anger but do not know how to channel it. They have no system of values to refer back to, no experience or even concept of what a better life would consist of.

But these days, nobody really believes that negative change can be stopped: the forces involved seem to be too powerful, and indeed with the passage of generations, the idea that there were societies where public services worked, where the streets were safe and everybody had a job, seems more and more like some kind of utopian fantasy. So the violence today has reached a third phase: that of revenge and nihilistic destruction for its own sake. The progress towards an ever-worse society and an ever-worse life cannot be arrested: all that can be done is to carry out acts of revenge against those who are bringing it about. Nothing positive can be anticipated from smashing up town halls and shopping centres, true, but then nothing positive can be expected from anything anyway.

Election Economic Misconceptions (7) Banking Competition Failure

Various examples show that competition does not lead to a significant reduction in prices. The best example is the banking sector.

New Zealand has four major banks competing with each other, and several smaller financial businesses also offering residential mortgages to households. The government established government-owned Kiwibank to bring more competition to the sector. The results have been disappointing. The banks tend to watch each other, and their mortgage interest rates tend to track each other. There is very little evidence that the additional competition pushed mortgage interest rates down.

The big Australian-owned banks continue to make big profits. This is not surprising, given the way that businesses behave. The banks compete on service, but they rarely compete seriously on price. That is rational behaviour in a free market.

Election Economic Misconceptions (6) Competition

Modern political parties seem to have an obsession with “competition” as a solution to economic problems. They are all announcing policies that they claim will increase “competition” in different sectors of the economy, as if that would solve the cost of living problem. However, they give no evidence that these policies would be effective.

University lecturers who teach Economics like “perfect competition” because it can be demonstrated that this produces economic efficiency. Unfortunately, their proofs only work under particularly restrictive assumptions about the structure of the economy. The problem is that these assumptions are usually missing in the real world. There are almost no markets that experience perfect competition.

When the restrictive assumptions required for perfect “competition” are removed, the models become unstable, and the outcomes produced are uncertain.

The reality is that “more competition” is rarely a solution to rising prices or high prices.

Businesses are not stupid. They realise that getting into a “price war” with their competitors is a lose-lose option. If one business cuts its price to increase market share, its competitors will have to match the lower price. But if that happens, the business that initiated the price-cutting will lose any benefit it gained, and every business will lose some of its margin. They are all worse off, and their market shares will remain the same.

Most businesses will assume that serious price competition would make them worse off, so they refuse to take the risk. They tend to watch the prices of their competitors, and they change their prices to match them. This is the safe option. Very few businesses will rock the boat by getting into serious price-cutting.

Businesses find it more productive to compete on issues other than price. There are numerous ways to increase sales that are less risky than a price war.

• Provide better quality products
• Provide a better range of products
• Provide better support services.
• Operate from a more convenient site.
• Adopt better advertising techniques.
• Offer short-term sales and price specials.
• Operate loyalty schemes
• Target specific customer segments.

All these are common and effective ways for businesses to compete with each other.

If competition does push prices down, it tends to be a one-off effect. Once the competition is in place and market shares have stabilised, future increases in price will need to be passed on by all competitors. The business with the lowest price might try to minimise the size of the increase, but the difference will be marginal.

Various examples show that competition does not lead to a significant reduction in prices. The best example is the banking sector. (I will explain in my next post.)

Blackrock

Blackrock is the new East India Company.

Election Economic Misconceptions (5) Debt is Always Bad

Listening to many politicians, I get the impression that they believe that debt is the great evil of our time. However, debt is not always bad. Borrowing can sometimes be useful. The important distinction is between productive borrowing and unproductive borrowing.

A household that gets into serious debt to fund consumption is foolish. However, getting a mortgage to buy a house might be sensible, if the long-term benefits outweigh the interest costs.

People establishing a business will need to have some savings to get started, but most businesses will need to take on debt to develop to their full potential. Borrowing to purchase productive plant or capital equipment makes sense if the extra production will cover the interest costs.

A government is different from a business, as it does not sell what it produces. It does not have a savings account that it can draw on to fund infrastructure projects. A government’s only source of income is taxation, and if it has taken money from businesses and households, it has a responsibility to use it straight away. Saving up for many years to build a new power station would upset the people whose money the government has taken.

If the development of an economy needs capital equipment or infrastructure developments, it makes sense for the government to borrow money to fund them, provided the extra production outweighs the interest costs. During the 1950s and 1960s, the New Zealand government built a series of Hydro Electric Power Stations on the Waitaki River in the South Island. These assets have brought massive benefits to the economy.

Rather than treating debt as a great evil, politicians would be better off discussing what types of assets and infrastructure the economy needs. They should decide which of these can be provided by businesses and which would be better provided by the government. They should be assessing which infrastructure projects would be sufficiently productive to cover the interest costs of the required debt.

Government borrowing to build infrastructure or investment in capital equipment that would make the economy more productive makes sense, as the economic benefits easily cover the interest costs. The government that does not borrow to build infrastructure is holding back the development of the nation. Too much debt can be a problem, but debt in itself is not bad.

The New Zealand economy is currently underdeveloped, so increasing productive debt to fund infrastructure and capital assets might be a sensible policy. I would like to see more discussion about the quality of debt, and less about the volume of debt.

Election Economic Misconceptions (4) Government is Different

The government has a balancing role in the economy. When the economic situation gets tough, a household needs to cut back on its expenditure and reduce its debt. When sales decline, a business needs to cut back its expenditure to match.

The government is different from households and businesses. When the economy is sluggish, the government needs to increase expenditure to compensate for the households and businesses that are cutting back. If the government cuts its expenditure at the same time as households and businesses, it will exacerbate the economic situation. The employees who lose their jobs will stop spending, and the businesses they purchase from will lose sales. They will need to cut their expenditure to compensate, and the economic downturn will deteriorate.

In a robust economy, spending goes round and round. If the government stops spending when the economy deteriorates, the economic situation will be made worse.

The other way that a government is different is that it gets most of what it spends back. If it spends more money on wages and salaries, the employees pay income tax, which means more than 30 percent of what they receive goes back to the government, even before they spend it. When they spend the remainder, they pay GST on the goods and services that they buy, which sends more of it back to the government.

But it does not stop there, because money circulates around the economy. The businesses that they have bought from pay wages and salaries to their employees. Some of this goes back to the government in income tax. And what is spent is charged GST. As the money circulates around the economy several times, the government gets back more and more of the initial spending in tax.

Election Economic Misconceptions (3) Back to Surplus

Politicians from most parties seem to be obsessed with getting the country’s books back into surplus. This might be necessary at times, if debt has become too large and there is a problem with paying the interest, but this is not the current situation in New Zealand. Compared to most similar countries, our government debt is not that large, and the interest is affordable.

If the debt level is too high, then recovering the situation by getting the government books back into surplus might be sensible. But the time to do it is when the economy is overheating, because contracting it will do no harm.

The current season, when our economy is limping and facing the headwinds of rising fuel prices, is the very worst time to attempt to get the government books into surplus. Cutting government spending will weaken the economy, which tends to increase the deficit, so the policy has an effect that is opposite to what was intended.

A big chunk of what the government spends goes on wages and salaries and benefits. So the main way that government can reduce spending is to reduce salaries, cut jobs. or reduce benefits. The problem with all these options is that cutting people’s incomes also cuts their ability to spend. So, a reduction in government spending makes life tough for businesses, as they lose sales. They have to cut back their spending to compensate for it, so cutting government spending tightens the entire economy.

The other thing that a government can do is to provide fewer services to society. But this makes people feel worse off, and they may have to pay for things themselves that the government used to provide. People who feel worse off tend to spend less, so the entire economy is negatively affected.

Another thing that the government can do to reduce its deficit is to increase taxes. But that also means that people will have less money to spend on things that businesses sell, which also dampens the economy.

To make matters worse, if the economy is struggling, the government will get less revenue from taxation, so policies that cut back economic activity can make its deficit worse.

Tightening the economy is sensible if it is overheated, but it is the very worst thing to do if the economy is already struggling. That is the situation now.

Setting a date for getting into surplus is foolish, without reference to the economic situation. Decisions about surpluses and deficits should be based on the economic conditions, not the calendar.

The politicians are arguing about how quickly they can get the books back into surplus, but that is the wrong policy for the current season. It could crush the economy at a time when it is already fragile, and the international situation is uncertain.

Election Economic Misconceptions (2) Wage Restraint

The business people who support government policies that keep wages and salaries down like these policies, because they make it easier for them to keep their businesses profitable. However, they forget something important.

Their employees are their customers, or the customers of other businesses. So, when the wages and salaries of employees are screwed down, they have less to spend on the products and services that businesses produce. So tightening wages and salaries might temporarily increase their profit margin, but it tends to reduce their sales, which makes it hard to make a profit,

But worse still, when businesses are finding it hard to make sales, they tend to stop spending too. This can be good for them, but it makes it harder for the businesses that they buy things from, because they will find it harder to make sales. A few struggling businesses will need to put off staff too. They have to cut back their spending, so it becomes even harder for businesses to make sales.

The overall consequence is that the economy spirals down as everyone stops buying to save money, which means that every business finds it hard to sell their products.

Most politicians and many business people don’t understand that the economy is circular. Spending goes round and round from business to business, household to business and so on. Spending on wages and salaries goes round too, from employees to businesses to businesses to employees, and so on. One business’s spending is another business’s sales. The wages and salaries that businesses pay to employees are the income that they use to buy products from other businesses.

Money flows round the economy, and if one part is squeezed, the squeeze spreads out to other parts of the economy. An economy cannot be grown by cuts and squeezes.

Election Economic Misconceptions (1) Cost of Living

I don’t believe in political power, so I am not invested in the general election that is coming up in New Zealand at the beginning of next month. However, I am interested in economics, so I get frustrated with statements by politicians that don’t make economic sense. These are getting more and more common.

Cost of Living

The biggest issue in the upcoming general elections seems to be the “cost of living”. All political parties are announcing policies to reduce the cost of living for New Zealanders.

Unfortunately, this concern is misguided and producing political suggestions that will not be effective. The real problem faced by New Zealanders is not the so-called “cost of living”; it is “stagnant incomes”.

Increases in the cost of things that people need to buy are not unusual. The attack on Iran by the United States and Israel has pushed up the price of fuel, especially diesel, which has pushed up the prices of many goods that we buy.

In a normal economy, people’s income will usually be rising. As people become skilled in their work, they should be paid more. Many people will be promoted to more responsible roles that are better paid. People will be free to move to better jobs for which they can get better pay. If incomes are rising gradually, most people will be able to handle increases in the cost of living.

The real problem in New Zealand is that governments have been screwing down incomes, creating suffering for people when the cost of living increases. Here are just a few of the things that the government have done to hold down incomes.

• Changing employment laws to make it difficult for unions to operate effectively and push for higher wages.

• Undermining the process for female employees to obtain pay equity with males.

• Keeping increases in the minimum wage as minimal as possible.

• Reducing the size of the public service by disestablishing roles

• Preventing cost-of-living adjustments to wages and salaries.

• Fostering immigration to keep wages for unskilled work low.

• Minimising increases in benefits.

• Pausing infrastructure spending after the last election to review the benefits created unemployment in the construction sector, which put downward pressure on wages.

• Via Central Bank policies, governments have used unemployment to control inflation.

• Keeping unemployment at 4 to 5 percent of the workforce, ostensibly to control inflation, puts massive downward pressure on wages and salaries.

• Making employment precarious by encouraging triangular employment through labour-hire companies and staffing agencies.

• Encouraging zero-hours employment contracts

• Maintaining unemployment and uncertainty makes it risky for people to move to better-paid jobs, because they are scared of being made redundant as the last person in.

• Fear of unemployment or redundancy makes it difficult for employees to ask for an increase in their wages and salaries.

If incomes had been rising over the past decade, as should happen in a healthy economy, people would be able to cope with the rising cost of living.

Rising prices are not a problem that governments can solve, but if they had allowed benefits, wages and salaries to increase as they normally would, we would not be facing a cost of living crisis. People would be able to cope with the change.

The political parties like this mischaracterisation of the “stagnant income” problem as a “cost of living” problem, as it turns it into a problem that they cannot solve and allows them to push responsibility for the difficulties faced by New Zealanders onto someone else. They prefer to rant against the “evil supermarket duopoly”, the “greedy banks” and the “colluding fuel companies. The politicians direct the anger of the people who are suffering against these companies, so they don’t get the blame for the real economic problem that they have caused.

Governments are responsible for the stagnant income problem. Unfortunately, the election process is enabling them to shrug off their responsibility and pass it off to various companies by calling it a “cost of living problem”.

New Zealand does not have a cost of living problem. We have a stagnant income problem. Solving the latter problem requires a completely different set of policies, but none of the political parties is interested in them.

katallasso (3) Intensified Form

In Colossians and Ephesians, an intensified form of the verb is used. — ἀποκαταλλάσσω (apokatallassō). This word does not seem to have an "everyday" meaning because, it doesn't really show up in ordinary secular Greek writing — it appears in Paul's letters to the Ephesians and Colossians, and barely anywhere. It seems to have been a rarer, more emphatic meaning rather than common marketplace vocabulary.

This is how the word is built up:

apo- ("away, back, fully") + kata- (intensifying) + allassō ("to change")

The prefix stacking suggests something like

• to change back completely
• to restore fully to a former state
• to thoroughly patch things up
• to fully restore the relationship, leaving nothing outstanding.
• completely made up — like nothing ever happened

The three occurrences of this form of the verb occur in Ephesians and Colossians, which deal with cosmic-scale reconciliation (all things, the universe) rather than the more relational/interpersonal reconciliation language typical of καταλλάσσω in Romans and Corinthians.

Ephesians 2:16 – "and might reconcile them both in one body to God through the cross, by it having put to death the enmity."

Colossians 1:20-21 – "and through Him to reconcile all things to Himself, having made peace through the blood of His cross... And although you were formerly alienated and hostile in mind, engaged in evil deeds, yet He has now reconciled you..."

katallasso (2)

I think that katallasso was a strange word to choose for what Paul was describing in these verses. Several things stand out.

• Unlike barter or money changing, the exchange is not equal. God had very little to gain from the transaction, and humans had everything to gain.

• When two people have fallen out, the one who was in the wrong has to eat humble pie in order to put things right. Yet in both Romans and Corinthians, it is God who takes the initiative. He is the subject of the verb, whereas humans are the object. God takes action, and humans are the recipients. That is not the normal process of katallasso.

• The reconciliation took place while we were still enemies of God. This is unusual, because the usual first step towards reconciliation between enemies is for both sides to let their enmity go. In contrast, God did not wait for us to give up our enmity towards him. He took decisive action without waiting for humans to seek peace.

• In normal usage, katallasso is used when two estranged parties (friends, spouses, business partners, even warring cities) made peace and restored normal relations. For that to happen, both sides have to concede and give up things that they had been hanging onto. God did something quite different. The difference was Jesus. He died, acting as a human, to put things right and restore the relationship between humans and God.

• People reading Paul’s letter would have been jarred by the use of katallasso for what happened, because it is so different from the usual exchange/putting right. They would get a sense of how shocking God’s actions were. In contrast, we assume that the word is a perfect description of our reconciliation of God.

• Paul said that we are ambassadors for Christ. This is consistent with the diplomatic meaning of katallasso. We are envoys for God, proclaiming the diplomatic settlement with the world that Jesus established to end hostilities between the parties.

Katallasso (1)

The New Testament was written in the Greek language as spoken by ordinary people in everyday life. A problem that faces readers of English translations is that many key Greek words are translated by English words that have become religious words. These religious words are an obstacle to understanding what the writers of the New Testament were saying.

One example is the Greek word καταλλάσσω, which is translated as “reconcile”. This word now has a religious meaning, which English readers assume they understand.

katallasso was actually a common commercial and social term before it picked up any special theological weight. Its ordinary senses:

• To exchange money or change currency
  This was probably the most basic, literal use — like exchanging one currency for another, or exchanging coins for goods. It is a money-changer's word.

• To exchange or barter goods
  More broadly, swapping one thing for another in trade.

• To make up/patch things up after a quarrel
  This is the extended, very natural everyday sense — used of friends, spouses, or business partners who had fallen out and then settled their differences and were on good terms again. Like two people "made up" or "patched things up" after a fight.

• Diplomatic/political reconciliation
  Also used of cities, states, or factions ending hostilities and restoring normal relations —a peace-treaty sense.

So in plain, secular Greek, if you heard someone say a version of katallassō, you'd most likely think of:

• a money-changer at a market stall, or
• two people who'd had a falling-out and were now friends again.

Understanding this made me ponder why Paul chose to use this word to describe our relationship with God.

One commentator said, “The word carries the everyday logic of 'swapping something for its opposite' — enmity swapped for friendship, one currency swapped for another. The New Testament writers borrowed this ordinary 'settling accounts / making up' language to describe humanity's relationship with God being switched from hostile to friendly — but the underlying word itself was just common marketplace and social vocabulary, nothing inherently religious”.

Apart from Romans 7, where the reference is to a broken marriage, the word katallasso and the related noun are used intensively in two passages.

Now all these things are from God, who reconciled us to Himself through Christ and gave us the service of reconciliation, namely, that God was in Christ reconciling the world to Himself, not counting their wrongdoings against them, and He has committed to us the word of reconciliation. Therefore, we are ambassadors for Christ, as though God were making an appeal through us; we beg you on behalf of Christ, be reconciled to God (2 Cor 5:18-20).

For if while we were enemies we were reconciled to God through the death of His Son, much more, having been reconciled, we shall be saved by His life. And not only this, but we also celebrate in God through our Lord Jesus Christ, through whom we have now received the reconciliation (Rom 5:10-11).

Born Again (8) What Happens

Jesus was conceived when the Holy Spirit overshadowed his mother Mary. This broke the line of the flesh from Adam. He did not inherit the corruption of the flesh that troubled the rest of the human race.

When a person trusts in Jesus and is born again of the Spirit, the harm to their flesh/brain is restored. The Holy Spirit restores the damage to our flesh (including the brain) that was inherited from the first man, who was attacked by the powers of evil.

Those who belong to Christ Jesus have crucified the flesh with its passions and desires (Gal 5:24).

When we are born again to become a new creation, the harm done to Adam that we inherited is restored. The Holy Spirit changes who we are. We are born again with a restored brain.

• Our Spirit is brought to life. We become intensely aware of God's voice. We can perceive the power of evil at work around us. This is huge, but we have to learn to understand clearly all that we are now perceiving. If we are not careful, we can let our perception be deadened by what we learned in the past.

• Our Will is restored, so we are able to seek and do God's will. This is the most important change. However, we are still free and need to listen to the voice of the Spirit and do Jesus’ will. Although our will is set free, we will still need to learn how to obey gladly. The big difference from the situation of Adam and Eve is that we have spiritual protection through what Jesus has done.

• Our Mind is restored, so that we can think the way God thinks. Unfortunately, we will have taken on many bad ideas in the years before we are born again, so the Holy Spirit will need time to teach us and clear out all the junk. He gradually renews our mind.

• Our Desire for God that was deadened is restored.

• Our Emotions will continue to work as our internal senses, but as we begin to see things as God sees them, our emotions will begin to respond more like Jesus would respond.

• Our Imagination has the capability to receive dreams and perceive visions from God.

• Our Memory continues to retain most of our experiences. A problem is that our memory will be full of bad thinking and lies, and bad decisions and their pleasures from the past. These will keep popping out and leading us astray, even after our mind has been restored. Evil spirits will stir these memories up if they get a chance. By giving thanks, we fill our memory with positive experiences.

Being born again reverses the damage done that we inherited from Adam and Eve, but that is the first step. While living with corrupted flesh, we have picked up a lot of junk that we have to learn to let go of by putting the old life to death and learning to walk in the Spirit. That is the purpose of discipleship.

This full series is at Born Again.

Born Again (7) Serious Consequences

Being expelled from the presence of God and sent into a world controlled by the powers of evil without any spiritual protection was a disaster for the first humans. The powers of evil hated God and wanted to destroy his earth.

Humans had been given authority on earth, but they had surrendered it to the powers of evil by obeying them. If the powers of evil could keep humans hostile to God, they could retain their stolen authority forever. They were not able to destroy humans, because this would destroy the basis of their authority on earth. If there were no humans, God would be free to take back his earth again, because it would release him from his covenant that gave authority on earth to humans without recourse.

To cement their authority on earth, the powers of evil set about doing their best to modify the brains (flesh) of the people created in God's image, so that they would never escape their clutches and turn back to him. They achieved this by making subtle changes to human flesh, and particularly the brain, which is made of flesh. They could not change them too much, or modify them to be sub-human, because they would cease to be human, and they would lose their authority on earth that came through God's covenant with humans.

The corrupted flesh that has been inherited by all human descendants affects us in a variety of ways. See more at What is a Person.

• Mind - the human mind still operates in the same way, but is vulnerable to deception and can sometimes miss the truth (2 Cor 11:3; 2 Tim 3:8).

• Emotions - emotions still operate in the same way, but good feelings now have a distorted form: rage, dread, melancholy, horror.

• Imagination - human imaginations remains powerful, but they are drawn to evil.

  The imagination of man's heart is evil from his youth (Gen 8:21).

• Will - the human will has been distorted, so that it is difficult to please God and hard to make decisions that align with his will. (Rom 5:8).

• Desires - these have been biased away from God and towards evil.

  The flesh lusts against the Spirit (Gal 5:17).

  Corrupted by its deceitful desires (Eph 4:22).

• Memory - still operates in the same way, but the spiritual powers of evil make sure that it is filled with bad/evil experiences that corrupt our mind and imagination.

• Spirit - this is the faculty that seems to have sustained the most damage. Humans still have the ability to perceive spiritual things, but it has been significantly weakened. They are not aware of the presence of the powers of evil, even when they are attacking. They also find it really difficult to hear God.

Every human inherits the flesh that manifests these problems.

Born Again (6) Problem to be Solved

To understand what happens if we are born again, we need to know the human problem. We need a clear understanding of what happened when Adam and Eve were deceived by the powers of evil and chose to disobey God.

When Adam and Eve were in the Garden of Eden, they were in unity with each other and with God. They could perceive spiritually, as well as physically. They could talk with God, and they could see him, in a way that was real. They were free to choose how they would behave. God taught them his will, but they were free to disobey.

Adam and Eve committed their first sin well before they ate of the fruit of the tree of the knowledge of good and evil. They could hear God's voice, but they chose to listen to other voices and decide if they really were evil. This was an insult to God, who is good and perfectly wise. Deciding not to trust God was their first sin. When they made this decision, God's presence left them.

He was already gone when the serpent approached them, because he could not have come near to do evil if God had been there. The serpent could not tolerate God's glory, even when he was planning to do evil.

Born Again (5) Work of the Spirit

Modern Christians makes it seem as if being born again is something that we can choose and do for ourselves. That is misleading, because the new life is a work of the Holy Spirit. It is beyond our power.

Nicodemus was a Pharisee and a member of the Jewish ruling council. Jesus was explaining to him that his career as a Jewish religious leader was a waste of time. He would need to begin again and serve God with the help of the Holy Spirit. This was something that was beyond Nicodemus’s power on his own.

People cannot choose to be born again. They cannot make themselves “born again”. This is something that the Holy Spirit must do. Rather than just focusing on his role in delivering salvation, we must also take account of what we need to do to open the way for the Holy Spirit to do his work.