Grocery Receipt – A Depressing Read

Explore how wages, productivity, and a weak NZD drive New Zealand’s cost-of-living crisis. A clear, bold economic argument wrapped in everyday reality.

Let us begin with the unbearable lightness of a bag of groceries. You enter a shop. You pick up a bottle of milk, a bag of onions, a slice of cheese, and at checkout, you flinch. It is not hunger that haunts the average New Zealander but the ghost of the receipt. The question becomes unavoidable. Why has everything become so expensive? This is not merely a question of numbers. It is a question of systems, of ideologies, of the silent machinery behind everyday life. When we speak of the cost-of-living crisis, we are not merely naming a phenomenon. We are diagnosing a pathology.

Friedman once said inflation is always and everywhere a monetary phenomenon. But what if inflation has a structure like a symptom? What if the symptom, like Lacan’s “objet petit a”, is not a distortion of reality but a window into its very functioning? To understand why a loaf of bread costs what it does, one must gaze into the economic abyss.

Let us begin with a deceptively simple formula: P = W / MPL (see also addendum below). Price equals wage divided by marginal productivity of labour. It looks harmless, like a child’s toy. But do not be fooled. This equation is radioactive. It condenses into three variables the essence of a capitalist system. P, the price of the good. W, the wage paid to labour. MPL, the additional output generated by one more unit of labour. This is not an equation for economists. This is an ontological map of reality.

When wages rise, that is W increases, and productivity stays flat or falls, MPL remains constant or decreases, the only variable left to adjust is P. Prices rise. The cost of living rises. The individual worker is not to blame. The entrepreneur is not to blame. The mathematics is to blame. Or rather, the refusal to respect it. The system works not by morality, but by mechanics. If you insist on paying more for each unit of labour without extracting more output per worker, then each unit of product costs more to produce. That is not injustice. That is arithmetic.

Now, consider the conditions under which wages rise without productivity: when labour becomes scarce not due to demographic collapse or plague, but because it is hoarded by an ever-expanding public sector. Not all government work is parasitic. But not all of it produces things you can eat, drive, live in, or export. When government grows, when it absorbs talent into compliance, consultation, and committees, it competes with the productive sector for labour. This pushes up W. But if these workers do not produce anything tradable or build anything tangible, then MPL does not rise. P rises. And the consumer, who never voted for this equation, pays it at the checkout.

Armen Alchian warned that scarcity is not an absence of things, but a mismatch between desires and constraints. William Allen added that all costs are opportunity costs. A man inspecting regulatory frameworks in Wellington is also the plumber who didn’t show up, the teacher who never entered the classroom, the builder whose hand never touched timber. We are misallocating human energy, locking it into Kafkaesque cycles of intra-ministerial review. The problem is not the individual bureaucrat, who is often skilled and conscientious, but the logic of a system that multiplies process rather than output. Friedman again: you can never spend yourself into prosperity.

Now let us move beyond the domestic and stare into the global matrix. In an open economy, local prices are shaped not only by local wages but by global forces refracted through the exchange rate. Let E be the NZD price of one unit of foreign currency. A dismal (i.e. high) E, that is, a weak NZD, acts as a multiplier on all tradable prices. For exported goods like butter, meat, fruit, the domestic price becomes P^NZ = E * P^*. When E rises, even if world prices stay constant, the local price rises. Butter becomes a luxury not because cows have vanished but because Shanghai bids higher and the NZD exchange rate translates that bid into domestic pain. For imported goods, the same logic applies. Electronics, fuel, fertiliser, are all priced in foreign currencies. A weak NZD makes everything more expensive.

So how is E determined? Here the spectre of risk enters. In models from Mundell to Dornbusch to Rodrik, the exchange rate is not just a function of interest rates but of perceived risk and expected future growth. E = f(i_NZ - i_world, risk, growth_expectations). And what is risk? It is the politics of regulation, the performance of Parliament, the chaotic dance of parties tearing up frameworks not for utility but for theatre. Here we must pause and consider the fairytale of the spindle. In it, three little fairies fight over the colour of princess Aurora’s dress, oblivious to the real danger: the spindle that lies waiting. Our Parliament has become such a stage. The parties of various colours fight over the hue of this or that regulatory clause, sending unstable signals to the market. Markets do not care whether the dress is pink or blue. They care whether the dress will exist in ten years.

This political theatre manifests as regulatory instability. Investors demand a risk premium. The NZD weakens. E rises. P_T = E * P^*_T rises. Again, the cost of living is not just inflation. It is the mirror in which our institutional immaturity stares back at us from a price tag under supermarket lighting.

Let us now return to CPI, the consumer price index. Let α be the share of tradables in a household’s basket. Then:

CPI = α * (E * P^*_T) + (1 - α) * (W / MPL)

Here we see both the domestic and international vectors of pain. On one hand, a bloated public sector drives up W and traps MPL. On the other, a chaotic political economy signals risk to markets, weakening the dollar and lifting E. This is not ideology. This is a matrix. It is therefore insufficient to call for price controls, subsidies, or scapegoating of supermarkets. These are symptoms of a deeper structural condition.

So, what is to be done? First, we must acknowledge that the current public employment structure is unsustainable. We are not firing people. We are freeing them. The same young graduate who spent three years optimising consultation frameworks could, in a different world, optimise supply chains, improve logistics, or design timber frames. We must offer them that world. And so, I propose this: a Wellington tax-free production zone. A special economic zone where private firms are incentivised to absorb transitioning public employees into productive roles. Zero company tax for ten years. Accelerated depreciation. Export bonuses. The old capital of bureaucracy becomes the new capital of value. Let the keyboards that once drafted strategy now operate CNC machines. Let MBIE be reborn as a tool-and-die cluster.

Second, we must impose discipline on ourselves: a bipartisan agreement on regulatory frameworks that cannot be rewritten on a whim. Let Parliament agree, as adults, to fix the foundations. This is not ideological surrender. It is institutional signalling. It tells the world: we are credible. We are stable. We are safe for investment. We do not change the rules mid-game. This reduces perceived risk. Lower risk reduces E. Lower E reduces P_T. Lower P_T reduces CPI. And CPI is the mirror in which the nation judges its comfort.

Friedman told us that inflation is taxation without legislation. Alchian told us that cost is the shadow of choice. Allen told us that price is a language. Then let us speak clearly. Let us write fewer memos and build more machines. Let us stop worshipping process and begin producing value. Let us end the fairy-fight and remove the spindle.

The cost-of-living crisis is not a mystery. It is the logical result of choices made over decades: to expand government faster than productivity, to regulate faster than we build, to politicise every framework, to ignore every risk premium, to prefer the spectacle to the system. But if the crisis is a construction, then so is the solution. It requires courage, discipline, and perhaps most importantly, boredom. Boring regulatory stability. Boring bipartisan agreements. Boring long-term incentives for real work.

That is how the milk gets cheaper.

That is how the nation finds its way back to dignity.

Not through noise. But through production.

Addendum: Key Economic Formulae Used

1. P = W / MPL
   Where:
   P = price of a good or service
   W = wage paid to labour
   MPL = marginal product of labour (extra output generated by one more worker)
   This captures how prices rise if wages grow without productivity gains.

2. P^NZ = E * P^*
   Where:
   P^NZ = domestic NZD price of a tradable good
   E = exchange rate (NZD per unit of foreign currency)
   P^* = world price of the tradable good (in foreign currency)
   Used to explain how weak NZD makes both exports and imports more expensive locally.

3. E = f(i_NZ - i_world, risk, g^e)
   Where:
   E = exchange rate
   i_NZ = domestic interest rate
   i_world = world interest rate
   risk = perceived political, regulatory and fiscal risk
   g^e = expected long-term economic growth
   Used to explain why policy credibility and regulatory stability matter to the NZD.

4. CPI = α * (E * P^_T) + (1 - α) * (W / MPL)
   Where:
   CPI = consumer price index (cost of living)
   α = share of tradables in the consumption basket
   P^_T = global tradable prices
   E = exchange rate
   W = domestic wages
   MPL = productivity of domestic labour
   Captures how tradables (through exchange rate) and non-tradables (through wages and productivity) both influence living costs.

Each equation builds upon the other, like a skeleton beneath our economic reality. They are not abstract. They are what you see when you look at your receipt and feel the weight of what you cannot afford.