Thursday's Top 10 at Midday: Is there sugar in our manuka honey exports to China?; NZ's GINI coefficient since 1982; Why the 2nd quintile is struggling; Paul Krugman and the zombie fallacy; Smart nappies; Dilbert

Here's my Top 10 links from around the Internet at midday today.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is the MSD report with #3 and #4 showing how income inequality has changed in New Zealand over the last 30 years or so.

1. Food quality - The kerfuffle over New Zealand's meat exports being stuck on the docks in China and the kerfuffle over baby formula export quality standards show how sensitive Chinese consumers and its government are to the issue of food quality, even from good old New Zealand.

Now Hong Kong has tested the quality of our Manuka honey exports and found sugar.

This could be a problem in that it suggests we've been juicing our honey with sugar, so to speak.

Or the tests wrongly find sugar in a 'false positive' way...no one is really sure yet. 

Either way, it reinforces the need to New Zealand to be hyper-sensitive and careful about food quality issues.

It explains, also, why Fonterra announced last month it would stop collecting milk from Taranaki 'land farms', where oil drilling waste is spread on pastures to help the grass grow, even though the evidence is not clear it makes milk less safe.

Here's TVNZ explaining the latest kerfuffle over Manuka honey testing positive for sugar in Hong Kong.

The Hong Kong Government-funded Consumer Council says that when people buy natural pure honey the last thing they expect is syrup.

"This is the shocking revelation of a recent Consumer Council test on 55 samples of honey," it says in a media statement. "The results indicated that as many as 14 samples, or up to one-quarter of all samples, were adulterated with sugars."

The South China Morning Post published a list of the offending samples and all but one of the manuka brands were from New Zealand. The (Hong Kong) Consumer Council says the problem was "more prevalent" with the more expensive manuka honey samples.

2. 'The efficient market hypothesis' - FT commentator John Kay has written a nice piece available here on his site (ie not paywalled) about the problem of marking assets to market in the absence of a liquid market. It's a real problem for banks during a financial crisis... 

There is a deeper economic issue here. A contradiction lies at the heart of the efficient market hypothesis: if market prices did incorporate all available information about the value of an asset, no one would have an incentive to obtain that information in the first place. The perverse implication of asserting that the market price of one’s assets measures their fair value is that the people best placed to supply information about fair value – the owners – abandon the attempt to make such an assessment in favour of the judgment of traders. And this is not an academic quibble: what happened at Enron, and in the banks, was that trading assets were marked to values that had been established not by people who knew about the contracts or the loans, but by the biased and ill-informed assessments of the traders.

A principal purpose of corporate accounts is to provide data on business activities that might inform the judgment of the market. To use the judgment of the market as a basis for corporate accounts is to get things the wrong way round. Pursuing the logic of mark-to-market accounting to its extreme would allow the lazy chief financial officer to compile the annual accounts by looking at the company’s share price, which determines what it is worth; and measuring the total investor return over the year, which would represent the profit or loss.

3. Inequality in New Zealand - The Ministry of Social Development has produced a useful analysis of income equality in New Zealand from 1982 to 2012, focusing on the last four or five years. Here's its conclusion and the chart of the longer term history of the GINI coefficient, which is the widely accepted measure of inequality. The higher the number the more unequal the society. It seems it hasn't worsened in the last five years or so, but is, of course, vastly worse than it was in the early 1980s.

Income inequality has been very volatile in recent years with the GFC shock impacting on investment returns, employment and wages over the three years from mid 2008. From HES 2011 to 2012, inequality as measured by the Gini fell significantly, following a large rise from HES 2010 to 2011 and other ups and downs before that. The trend-line is flat. There is no evidence of any general rise or fall in income inequality since 2007.

4. Housing cost stress by quintile - The same MSD report also looks at the parts of the population experiencing the most housing stress, which is where more than a third of their income is spent on housing costs such as rent or mortgage payments.

It finds the bottom quintile or fifth are doing OK, largely because they are either retired and own their own homes, or are receiving an accommodation supplement, or are in a state house.

The second quintile are really struggling though because they're not getting any subsidies and don't own their own home. They are the blue line in the chart below.

Here's MSD again: 

Half of households in the bottom quintile are mortgage-free (mainly older New Zealanders) or are paying only the subsidised income-related rent while living in HNZC houses. This is keeping the Q1 trend line reasonably flat. On the other hand the bulk of second quintile households (75%) rent privately or have mortgages and are therefore more affected by rising housing costs.

5. Cheap at the price - I've linked previously to something similar to this, but here's another excellent variation of that chart tool from Bloomberg that allows you to compare petrol costs in NZ dollar and litre terms around the world.

Bloomberg points out that petrol costs for New Zealand are quite expensive relative to incomes, not necessarily because petrol is more expensive, but because we are highly ranked as having lots of cars per people and using lots of petrol per person (and of course having relatively low incomes too). 

We are ranked 8th in the world in terms of petrol costs as a percentage of income and we're 4th in the world for the number of cars per 100 population.

6. Paul Krugman and the zombie fallacy - Here he is at the NYT with another piece talking about why inflation is not a problem and neither is money printing. Japan is the contestable territory in the debate, as per usual.

7. Making unconventional monetary policy conventional - This is not something that the current National Cabinet is up to speed with yet (it continues to talk about QE as if it was still the 1990s and early 2000s), but here's Adam Posen writing an FT Op-Ed (again at his non-paywalled site) about how the new Federal Reserve chairman will have to spend a lot of time talking about unconventional monetary policy. 

The Reserve Bank (and the government and opposition for that matter) are now finding themselves doing a lot of just this at the moment -- explaining and understanding unconventional policy (in the form of LVR limits). The RBNZ would argue this is not monetary policy and is instead all about financial stability. But it is hard to separate the oil from the water in an economy that depends on a stable banking system...

The great lesson of the financial crisis for monetary policy is that there is no one interest rate that determines or even represents credit conditions in the modern economy. For the past 30 years, both monetary economics and policy making have made the comforting assumption that movements in the central bank’s main policy interest rate would affect the whole economy in a predictable way. This allowed academic and market analysts to try to explain central bank behaviour in terms of simple rules.

More important, it allowed central bankers to maintain the fiction that – because decisions were cast in terms of a public sector interest rate, and the whole economy rather than specific sectors – their policies did not have different impacts on different groups, such as bondholders and the unemployed. Combined with the lucky outcomes of the Great Moderation – that quarter-century of reasonable growth and low inflation starting in 1984 – this gave the illusion of relatively precise control of inflation and growth outcomes through monetary policy.

Public debate has also been allowed for too long to stigmatize "unconventional" monetary policy, and wax nostalgic for the days of a simpler Fed mission. The Fed has, perhaps understandably, let this happen for fear of provoking further political interference. But such defensiveness and self-limitation is based on a mischaracterization of the past and creates a dangerous vulnerability for the US economy.

8. An economic crisis in the (Chinese) summer of 2013 - Bill Bishop produces an excellent daily summary of Chinese news at Sinocism and writes a regular column for NYT's Dealbook. Here he writes about the risk of a hard landing in Beijing's summer of 2013, which right about....now.

Last week’s column discussed the 2011 prediction by Li Zuojun, an economist at the Development Research Center of the State Council, that China would face a economic crisis in the summer of 2013. Xia Bin, a colleague of Mr. Li’s, said at a forum over the weekend that the G.D.P. fixation was misplaced and that China was already in a financial crisis:

Arguments about whether China will grow at 7 percent or 7.5 percent are “pointless” because the economy is already in a financial crisis which may only worsen if the government doesn’t address the country’s crippling debt problem…

We need to find ways to let the bubble burst and write off the losses we already have as soon as possible to avoid an even bigger crisis…

Deep adjustment means economic growth slows as costs are paid, it means hard days, it means the bankruptcy of some companies and financial institutions and it means reform.

9. A bit of fun - We've got smart phones. How about smart nappies? These are embedded with sensors that analyse moisture, bacteria and sugar levels and report back to the parents via their smart phones.

It's all part of this trend towards the 'Internet of Things' where there's a sensor in everything from the walls to roads and nappies.  Here's the Time report.

10. Totally John Oliver explaining the not guilty verdict for George Zimmerman, who admitted pursuing and shooting Trayvon Martin dead. I hadn't really understood the heat around this case. Until Oliver explained it. The detail at the end is telling.