Two recent highly-publicised statements earn Gogs’ Nonsense of the Week Awards.

The first came from a financial “expert” who stated in one of our leading newspapers that Dr Alan Bollard’s high-interest rate policy was at last reining in house price inflation.

The second came from the usual suspect, Dr Michael Cullen, who put on his most miserable face (hover your mouse over the picture and get the caption, while us grey-beards try to figure out how to put a caption under a picture in a blog) and announced that Labour tax cuts would not be large because most people would be better off with lower interest rates.

If Dr Bollard’s stubborn insistence on painfully high interest rates has succeeded in curbing house price inflation, one has to ask: how come such inflation has also been reversed in the United Kingdom and the United States, where interest rates could hardly get much lower (around 5 percent in the UK and a little over 2 percent in the US)?

The answer is, of course, that the interest rate is a blunt instrument that – as far as homes are concerned – only harms people who actually have a mortgage. OK, many foolish owners borrowed against the “new” value of their homes – only to find that it was an illusion – and it’s hard to muster sympathy for those who racked up huge credit card debt; the interest on those has always been ruinous. In both follies, such so-called victims are usually aided and abetted by thoughtless and greedy financiers who know that the punter probably can’t afford the repayments.

But there is no evidence, anywhere, that high interest rates reduce house prices. The market does that by itself, aided sometimes by supply balancing demand (the ideal) but more usually by painful economic setbacks.

It is no coincidence that property prices spiralled in New Zealand during a period of high immigration (often involving people who – having sold up in the UK or the US – had far more disposable wealth than the locals. They set the benchmark for all homes. It happens whenever rich people move to less expensive places. They have so much cash in hand that local yokels don’t get a look in).

Now that the flood to New Zealand has turned to an exodus from it, supply is exceeding demand, the economy is in severe downturn and the banks – scared stiff by what happened in the US sub-prime market and the failure of local finance companies – have become much more cagey about lending (despite their obscenely high mortgage rate rewards). It all went pear-shaped in Britain when a big building society failed, the UK’s financial services took a big hit from US fallout, and growth stopped dead. Interest rates had no influence at all. Property prices there have dropped by 10 percent and are headed downward.

The fact is that Dr Bollard keeps borrowing rates high because otherwise there would be an exodus of foreign-owned money from New Zealand. What he and Cullen refuse to admit is that high interest rates damage everyone, through higher true domestic costs and sharply reduced international competitiveness because our exchange rate is kept artificially high.

It’s foreign money borrowed at high rates that has kept Cullen’s false consumer boom afloat for so long. If the money floods out and the currency drops to something like its genuine value, we’ll all be paying more for almost everything.

That’s the price for living in a fool’s paradise for too long but it has the advantage of making our exports more attractive, leading to a genuine increase in trade-based prosperity and higher disposable incomes that have been honestly earned. It also leads to more honestly earned taxes.

Cullen must be worried because any cut in tax rates will not help the 30,000-plus new jobless who will be on unemployment benefit before long, thanks partly to his neglect. Somebody must pay for that.

But it is impossible to find any thread of logic in the Cullen argument which implies that small tax cuts somehow lead to lower interest rates. He would much prefer to construct a new set of clunky State benefits for “poor” people who apparently can’t afford electricity or petrol, after the booze and fag bills have been paid, further distorting the picture.

What he will be remembered for is that cynical withdrawal of promised paltry tax cuts, after Labour scraped home last time. What many people may be blind to, however, is the way he has failed to keep tax bands in line with wage inflation. The result is that years of modest pay increases, intended to offset inflation, have put thousands more families into the 39 percent tax bracket and led to State coffers bursting with cash that is either wasted or sits there doing nothing.

That is the single compelling reason why large tax cuts – mostly in the form of much higher thresholds – are good for everyone.

Except, of course, for Dr Cullen, who will hopefully be sent packing soon - along with a pension and benefits package that would make most people’s eyes water - as well as National’s John Key and Bill English, who either have no idea what to do, or are saving it all up for election month because they think that voters have the memory span of an ant, or fear that Labour will steal what are actually very old and sensible ideas.

*Pictures from NZPA