(a) If we want new housing, we can always get it, with government investment (as per JM Keynes: do we have the builders the bricks and the blueprints?). It is a political decision, not a financial decision. This spending funds the tax payer, not the other way around, a win-win.
(b) Some of your examples are not beliefs in imaginary things.
"To have money, companies, and organisations requires beliefs in things that only exist in our collective minds. Trade and investment run on beliefs about the future and the reliability of trading partners."
— these are not all imaginary, because humans also set up institutions to organize such affairs, sometimes at the point of proverbial and metaphorical guns (the tax collector). Pretty real stuff, unless you think time in a jail cell or on unemployment row is all in the mind.
It's amazing how important the belief that "men with guns will shoot me if I don't do X" is for maintaining the superstructures of economy and society. Without state violence there's nothing.
Are you aware of prof Richard Werner’s work Cameron? He agrees with you, and he proved the mechanism for us to achieve it has been hidden by cartel economics.
I think this a great article and it focuses attention on long forgotten set of factors. Different cultures often have different beliefs which have different economic consequences. Long and deeply held beliefs eg religion influence economic performance just as short term contingent beliefs discussed above.
Ha! Trust is next week's article ;-) Just kidding. I think trust is just part of beliefs and I've been thinking much broader about the fragility of beliefs these days.
Thought-Provoking: "Economists already think of cycles as waves of optimism and pessimism. So the basic principle of the power of beliefs to determine economic outcomes seems widely accepted. We just don’t know much more."
I speculate that there are five big beliefs that are responsible for political decisions and people’s individual responses to economic phenomena and personal decisions:
1. Debt is bad (best for government and homeowners to repay quickly)
2. Rising property prices are unequivocally good (even if you only own one property)
3. Lower taxes are better (which assumes all else is equal which it never is)
4. Lower prices are always better than higher prices (even if it suppresses employment, growth and wages)
5. The money I have in my bank account is fairly ‘mine’ that I ‘earned’
This is a great comment (and a great post for provoking such comments).
I think the language and metaphors we use to describe and understand our world do a lot of work in shaping our economic actions. (Which is basically Cameron's point, but taken one level further: yes, it's our beliefs that matter, but the words we use as tools to express our beliefs shape the beliefs themselves).
On your last point (point 5), consider how many beliefs are embedded in the idea of "income". We think of income as an immutable concept. But it's tricky to define. The best definition (Haig-Simons income) relies on yet another concept, which is "wealth", and is equally hard to define.
Income might include wages, dividends, interest payments, land rents, proceeds of theft, gambling winnings, profits from slave-owning, non-cash services provided by assets like houses, and more.
Any time our reasoning and our discussion employs this single blunt word, "income", as it does often in discussions of income tax, we lose the ability to reason about both the science of these different concepts (eg when and why incomes grow) and the morality of different sources of income or how they're treated by policy. Of course, we can choose to use more specific words (such as those I listed) to regain that ability, but if most thinking that informs politics employs the single blunt concept (income), our politics will be shaped by the implied belief "all sources of income are equivalent in science and morality, and differences are uninteresting".
That's an example of language shaping belief shaping politics shaping the economy.
An example of metaphor shaping belief (etc) is in the common concept of "the property ladder". I use this as a quick litmus test for whether a housing market commentator has any idea what they're talking about.
Why is the housing market always and necessarily a "ladder"? Why are we ignoring all the times is acted like a "snake"?
Ah, how everything edges towards philosophy. Unfortunately there is no answer to be found. Better to deal with the world as it is, not useful to try to understand it.
There are a few beliefs that should cause us to question how people vote and what therefore shapes government policies. 90% of people/analyses primarily assume that people vote according to their narrowly defined material interests. I doubt that level of rationality. A more ideational/beliefs framework considers that voters are confused about what is in their interests. Consider the below four beliefs that most people have:
1. Lower taxes are better (even if it means less social spending)
2. House prices going up is purely good (even if you only own one house and you have your children to think about)
3. Government needs to repay its debt, in a relatively timely manner (resulting in acceptance of austerity)
4. The best way to financial success is paying off your mortgage as quickly as possible (rather than purchasing investment properties).
These beliefs, which are questionable, severely impact the property market and voting decisions.
Fiscal – monetary coordination: A retrospective” - as per ‘beliefs’ it’s blind to the consequences of giving control of credit creation to commercial banks who lend for uneconomic uses (real estate/asset inflation).
“Window guidance” for credit creation, or direct rbnz credit creation, could solve this.
1. Core framing: price of money vs quantity and allocation of credit
The Note defines monetary policy as “pricing” the NZD via one interest rate while “leaving the allocation of credit…to the commercial banks” and treats that as desirable neutrality. This is the central blind spot. Werner’s empirical work shows banks create new deposit money when they lend; they are not mere intermediaries (BoE says the same) — which means who gets credit (households buying land vs SMEs investing) is macro-critical, not a side issue. In short: allocation is the mechanism that determines whether new money raises productive capacity or just asset prices. See Werner (2014) on bank money creation, and the Bank of England’s primer (2014).  
Implication for NZ: if the state abdicates credit allocation to universal banks whose business model favours property collateral, the macro mix will skew to housing/land speculation, chronic CA deficits, high private leverage, and weak tradables — exactly the path the Note itself documents in the 1990s–2000s upswings (strong house prices, widening current-account deficit, exchange-rate issues).
2. “Consensus assignment” locks in the problem
The Note affirms the post-1990s consensus: monetary policy is the main stabiliser; fiscal policy focuses on “sustainability/structure,” with automatic stabilisers doing the cyclical work. It later notes (correctly) that 2013 added a statutory principle to “have regard to the interaction” of fiscal and monetary policy. But the paper never confronts the interaction that matters most: in a banking-money system, interest-rate tweaks cannot steer bank credit toward productive uses. Werner’s Japan work (BoJ “window guidance”) demonstrates that sectoral/quantitative credit guidance can — and did — channel credit to investment during high-growth eras, and that removing/relaxing guidance fuels asset bubbles and stagnation.  
In NZ terms: without tools that shape what banks lend for, the OCR ends up fighting housing booms with blunt force (via exchange-rate overshoot and tradables damage) — a pattern the Note itself acknowledges as a longstanding concern.
3. Neutral-rate/Wicksellian anchor: an assumption that smuggles the conclusion
The Note leans on an unobserved “neutral” interest rate as the yardstick for stance. But if bank credit creation is quantity/allocative and collateral-driven, the neutral-rate concept cannot be the master switch. Werner’s “Quantity Theory of Credit” separates credit for GDP transactions from credit for asset purchases; the inflation you get depends on that mix, not only on a single policy rate. Interest-rate-only frameworks therefore miss the structural driver of NZ’s asset-heavy cycles. 
4. “Bonds and central bank money are the same liability” — only up to a point
The Note rightly says both are state liabilities on a consolidated balance sheet, with bonds defaultable and central bank money not. But it then uses this to recast inflation mainly as a fiscal phenomenon (citing “money printing to fund deficits”). That’s incomplete on three counts in NZ’s context:
a) Most broad money is created by commercial banks when they lend — largely independent of whether the Crown is in deficit (BoE 2014; Werner 2014).  
b) NZ’s booms were credit/land-price booms during periods of fiscal surpluses too (late-1990s, mid-2000s), which the Note documents.
c) Inflation dynamics differ if credit growth is concentrated in non-GDP asset purchases (housing) vs productive capex — again an allocation point, absent from the Note’s model.
5. Exchange-rate “misalignment” is a feature, not a bug, of the OCR-only regime
The paper concedes repeated episodes where OCR settings plus open capital flows lift the NZD, shifting income from tradables to non-tradables and widening the external deficit. It also recounts the 1990s MCI misstep and later attempts to soften exchange-rate/output volatility. But the structural fix isn’t better communication or a different summary index — it’s complementing the OCR with credit-allocation tools (e.g., binding sectoral LVRs/DTIs by loan purpose, SME lending targets via wholesale funding facilities, or a NZ variant of “window guidance”). That’s the Werner-consistent route that many high-performing economies historically used to grow tradables without serial CA blowouts. 
6. QE/LSAP is treated as a technical footnote; the distributional reality is larger
The Note boxes QE/LSAP as pandemic-era “alternative monetary policy” when the OCR hit its lower bound. But the important question is who benefitted. The Note itself recognises monetary policy’s income/redistribution channel (savers vs borrowers). In practice, LSAP raised asset prices and bank liquidity without reliably lifting bank credit to SMEs — again because no allocative steering existed. That omission weakens the paper’s retrospective on “coordination” in the 2020s: fiscal did the heavy lifting; monetary transmission inflated assets.
7. Ricardian equivalence and “fiscal multipliers” — context matters
The paper recites the usual caveats (offsets via expectations, leakages via imports, monetary offsets). Fair. But in a slack economy with a large import share and a bank system biased to property, well-targeted fiscal outlays (local content, procurement, patient capital vehicles) plus a funding backstop can crowd in productive private investment even if “multipliers” look modest in headline GDP. That’s precisely why a coordination frame that includes credit direction is essential.
8. What a NZ-specific, capture-aware coordination would add
• Recognise banks create most money and that allocation determines macro structure (BoE; Werner).  
• Make the statutory “have regard to interaction” real by adding credit-allocation tools alongside the OCR (e.g., quantitative guidance bands for non-housing business credit growth; differentiated funding costs for banks hitting SME/export targets; counter-cyclical LVR/DTI by purpose).
• Use fiscal to build public balance-sheet capacity (regional development banks/guarantees) so productive credit has pipelines to flow into — reducing the system’s default to land collateral.
• Measure success by tradables share, CA position, non-housing credit growth, and productivity — not just CPI and a modelled “neutral rate.”
Bottom line
AN 24/07 is a clear, good-faith history inside the 1990s consensus. But by treating credit allocation as exogenous and the OCR as the primary stabiliser, it explains — without solving — the recurring NZ pattern the Note itself chronicles: housing-led cycles, exchange-rate overshoot, external deficits, and tepid productivity. A Werner-informed, capture-aware upgrade would put what bank credit funds at the centre of fiscal–monetary coordination, not at the periphery.
Interesting article.
(a) If we want new housing, we can always get it, with government investment (as per JM Keynes: do we have the builders the bricks and the blueprints?). It is a political decision, not a financial decision. This spending funds the tax payer, not the other way around, a win-win.
(b) Some of your examples are not beliefs in imaginary things.
"To have money, companies, and organisations requires beliefs in things that only exist in our collective minds. Trade and investment run on beliefs about the future and the reliability of trading partners."
— these are not all imaginary, because humans also set up institutions to organize such affairs, sometimes at the point of proverbial and metaphorical guns (the tax collector). Pretty real stuff, unless you think time in a jail cell or on unemployment row is all in the mind.
It's amazing how important the belief that "men with guns will shoot me if I don't do X" is for maintaining the superstructures of economy and society. Without state violence there's nothing.
Are you aware of prof Richard Werner’s work Cameron? He agrees with you, and he proved the mechanism for us to achieve it has been hidden by cartel economics.
Short explanation:https://youtu.be/sClLrobRNXg?si=shIyWD7K6k0s7Iay
Long (better) explanation: https://youtu.be/StTKHskg5Tg?si=tLuh1pEYSXLR4YLS
I think this a great article and it focuses attention on long forgotten set of factors. Different cultures often have different beliefs which have different economic consequences. Long and deeply held beliefs eg religion influence economic performance just as short term contingent beliefs discussed above.
You did well Cameron not to use the word "trust".
Ha! Trust is next week's article ;-) Just kidding. I think trust is just part of beliefs and I've been thinking much broader about the fragility of beliefs these days.
I'm not sure it is possible to form a belief without trust.
Thought-Provoking: "Economists already think of cycles as waves of optimism and pessimism. So the basic principle of the power of beliefs to determine economic outcomes seems widely accepted. We just don’t know much more."
I speculate that there are five big beliefs that are responsible for political decisions and people’s individual responses to economic phenomena and personal decisions:
1. Debt is bad (best for government and homeowners to repay quickly)
2. Rising property prices are unequivocally good (even if you only own one property)
3. Lower taxes are better (which assumes all else is equal which it never is)
4. Lower prices are always better than higher prices (even if it suppresses employment, growth and wages)
5. The money I have in my bank account is fairly ‘mine’ that I ‘earned’
This is a great comment (and a great post for provoking such comments).
I think the language and metaphors we use to describe and understand our world do a lot of work in shaping our economic actions. (Which is basically Cameron's point, but taken one level further: yes, it's our beliefs that matter, but the words we use as tools to express our beliefs shape the beliefs themselves).
On your last point (point 5), consider how many beliefs are embedded in the idea of "income". We think of income as an immutable concept. But it's tricky to define. The best definition (Haig-Simons income) relies on yet another concept, which is "wealth", and is equally hard to define.
Income might include wages, dividends, interest payments, land rents, proceeds of theft, gambling winnings, profits from slave-owning, non-cash services provided by assets like houses, and more.
Any time our reasoning and our discussion employs this single blunt word, "income", as it does often in discussions of income tax, we lose the ability to reason about both the science of these different concepts (eg when and why incomes grow) and the morality of different sources of income or how they're treated by policy. Of course, we can choose to use more specific words (such as those I listed) to regain that ability, but if most thinking that informs politics employs the single blunt concept (income), our politics will be shaped by the implied belief "all sources of income are equivalent in science and morality, and differences are uninteresting".
That's an example of language shaping belief shaping politics shaping the economy.
An example of metaphor shaping belief (etc) is in the common concept of "the property ladder". I use this as a quick litmus test for whether a housing market commentator has any idea what they're talking about.
Why is the housing market always and necessarily a "ladder"? Why are we ignoring all the times is acted like a "snake"?
Ah, how everything edges towards philosophy. Unfortunately there is no answer to be found. Better to deal with the world as it is, not useful to try to understand it.
Haha! Yep. It's all philosophy in the end.
Thanks for this great article.
For something a bit different, you might enjoy this interview with someone living a life to challenge our belief in money: https://www.youtube.com/watch?v=ogNPbDRimF8
Ties in to housing policy as well - he ran for mayor twice with a platform to tax anyone who doesn't have a garden.
Anyway, I found this interview strangely uplifting in the same way as your article, so thought worth sharing.
There are a few beliefs that should cause us to question how people vote and what therefore shapes government policies. 90% of people/analyses primarily assume that people vote according to their narrowly defined material interests. I doubt that level of rationality. A more ideational/beliefs framework considers that voters are confused about what is in their interests. Consider the below four beliefs that most people have:
1. Lower taxes are better (even if it means less social spending)
2. House prices going up is purely good (even if you only own one house and you have your children to think about)
3. Government needs to repay its debt, in a relatively timely manner (resulting in acceptance of austerity)
4. The best way to financial success is paying off your mortgage as quickly as possible (rather than purchasing investment properties).
These beliefs, which are questionable, severely impact the property market and voting decisions.
Hi Cameron, please note rbnz doc
“Analytical Note
August 2024
Fiscal – monetary coordination: A retrospective” - as per ‘beliefs’ it’s blind to the consequences of giving control of credit creation to commercial banks who lend for uneconomic uses (real estate/asset inflation).
“Window guidance” for credit creation, or direct rbnz credit creation, could solve this.
1. Core framing: price of money vs quantity and allocation of credit
The Note defines monetary policy as “pricing” the NZD via one interest rate while “leaving the allocation of credit…to the commercial banks” and treats that as desirable neutrality. This is the central blind spot. Werner’s empirical work shows banks create new deposit money when they lend; they are not mere intermediaries (BoE says the same) — which means who gets credit (households buying land vs SMEs investing) is macro-critical, not a side issue. In short: allocation is the mechanism that determines whether new money raises productive capacity or just asset prices. See Werner (2014) on bank money creation, and the Bank of England’s primer (2014).  
Implication for NZ: if the state abdicates credit allocation to universal banks whose business model favours property collateral, the macro mix will skew to housing/land speculation, chronic CA deficits, high private leverage, and weak tradables — exactly the path the Note itself documents in the 1990s–2000s upswings (strong house prices, widening current-account deficit, exchange-rate issues).
2. “Consensus assignment” locks in the problem
The Note affirms the post-1990s consensus: monetary policy is the main stabiliser; fiscal policy focuses on “sustainability/structure,” with automatic stabilisers doing the cyclical work. It later notes (correctly) that 2013 added a statutory principle to “have regard to the interaction” of fiscal and monetary policy. But the paper never confronts the interaction that matters most: in a banking-money system, interest-rate tweaks cannot steer bank credit toward productive uses. Werner’s Japan work (BoJ “window guidance”) demonstrates that sectoral/quantitative credit guidance can — and did — channel credit to investment during high-growth eras, and that removing/relaxing guidance fuels asset bubbles and stagnation.  
In NZ terms: without tools that shape what banks lend for, the OCR ends up fighting housing booms with blunt force (via exchange-rate overshoot and tradables damage) — a pattern the Note itself acknowledges as a longstanding concern.
3. Neutral-rate/Wicksellian anchor: an assumption that smuggles the conclusion
The Note leans on an unobserved “neutral” interest rate as the yardstick for stance. But if bank credit creation is quantity/allocative and collateral-driven, the neutral-rate concept cannot be the master switch. Werner’s “Quantity Theory of Credit” separates credit for GDP transactions from credit for asset purchases; the inflation you get depends on that mix, not only on a single policy rate. Interest-rate-only frameworks therefore miss the structural driver of NZ’s asset-heavy cycles. 
4. “Bonds and central bank money are the same liability” — only up to a point
The Note rightly says both are state liabilities on a consolidated balance sheet, with bonds defaultable and central bank money not. But it then uses this to recast inflation mainly as a fiscal phenomenon (citing “money printing to fund deficits”). That’s incomplete on three counts in NZ’s context:
a) Most broad money is created by commercial banks when they lend — largely independent of whether the Crown is in deficit (BoE 2014; Werner 2014).  
b) NZ’s booms were credit/land-price booms during periods of fiscal surpluses too (late-1990s, mid-2000s), which the Note documents.
c) Inflation dynamics differ if credit growth is concentrated in non-GDP asset purchases (housing) vs productive capex — again an allocation point, absent from the Note’s model.
5. Exchange-rate “misalignment” is a feature, not a bug, of the OCR-only regime
The paper concedes repeated episodes where OCR settings plus open capital flows lift the NZD, shifting income from tradables to non-tradables and widening the external deficit. It also recounts the 1990s MCI misstep and later attempts to soften exchange-rate/output volatility. But the structural fix isn’t better communication or a different summary index — it’s complementing the OCR with credit-allocation tools (e.g., binding sectoral LVRs/DTIs by loan purpose, SME lending targets via wholesale funding facilities, or a NZ variant of “window guidance”). That’s the Werner-consistent route that many high-performing economies historically used to grow tradables without serial CA blowouts. 
6. QE/LSAP is treated as a technical footnote; the distributional reality is larger
The Note boxes QE/LSAP as pandemic-era “alternative monetary policy” when the OCR hit its lower bound. But the important question is who benefitted. The Note itself recognises monetary policy’s income/redistribution channel (savers vs borrowers). In practice, LSAP raised asset prices and bank liquidity without reliably lifting bank credit to SMEs — again because no allocative steering existed. That omission weakens the paper’s retrospective on “coordination” in the 2020s: fiscal did the heavy lifting; monetary transmission inflated assets.
7. Ricardian equivalence and “fiscal multipliers” — context matters
The paper recites the usual caveats (offsets via expectations, leakages via imports, monetary offsets). Fair. But in a slack economy with a large import share and a bank system biased to property, well-targeted fiscal outlays (local content, procurement, patient capital vehicles) plus a funding backstop can crowd in productive private investment even if “multipliers” look modest in headline GDP. That’s precisely why a coordination frame that includes credit direction is essential.
8. What a NZ-specific, capture-aware coordination would add
• Recognise banks create most money and that allocation determines macro structure (BoE; Werner).  
• Make the statutory “have regard to interaction” real by adding credit-allocation tools alongside the OCR (e.g., quantitative guidance bands for non-housing business credit growth; differentiated funding costs for banks hitting SME/export targets; counter-cyclical LVR/DTI by purpose).
• Use fiscal to build public balance-sheet capacity (regional development banks/guarantees) so productive credit has pipelines to flow into — reducing the system’s default to land collateral.
• Measure success by tradables share, CA position, non-housing credit growth, and productivity — not just CPI and a modelled “neutral rate.”
Bottom line
AN 24/07 is a clear, good-faith history inside the 1990s consensus. But by treating credit allocation as exogenous and the OCR as the primary stabiliser, it explains — without solving — the recurring NZ pattern the Note itself chronicles: housing-led cycles, exchange-rate overshoot, external deficits, and tepid productivity. A Werner-informed, capture-aware upgrade would put what bank credit funds at the centre of fiscal–monetary coordination, not at the periphery.