Here's my Top 10 items from around the Internet over the last week or so. 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 is #6 on longevity, inequality and public investment in health. New Zealand has so many good things going for it (compared to many others), and our public health system is one of them.
1. Helicopter money - Our Reserve Bank has yet to talk about the idea of Helicopter Money, which is taking off (geddit) in Europe at the moment.
But Glenn Stevens of the Reserve Bank of Australia has had a few things to say. He's not a fan, as The Australian reports.
Governments should focus on infrastructure projects rather than dropping “helicopter money” into individuals’ bank accounts in order to boost growth and inflation, according to Reserve Bank of Australia Governor Glenn Stevens.
“The main complication is surely that it would be a lot easier to start doing helicopter money than to stop, if history is any guide,” Governor Stevens told a Credit Suisse conference in New York. “Governments have found that a difficult decision to get right.
“Desperate times call for desperate measures, perhaps. Are we that desperate?” he asked, pointing out that central bank financing of governments is frowned upon or illegal in many countries and overturning such taboos “would be a very large step”.
That's all fair enough for New Zealand and Australia, which have half-way functional Governments and polities, and who have relatively low debt and aren't genetically opposed to infrastructure investment. But it is a problem in America and Europe where voters and politicians seem determined not to borrow and invest, either because they are up against debt limits or older voters won't allow it.
When young voters finally work this out and take their revenge through the ballot box (hopefully this way rather than others) then we will be in for some political drama. We are already seeing this a bit in America and Europe, where youth engagement in politics is beginning to rise.
2. The 'new nothingness' - Saxo Bank Chief Economist Steen Jakobsen is always worth reading and his latest on the malaise in Europe and Japan in particular frames the issue of negative interest rates in an interesting way.
We have zero growth, zero inflation and zero hope. That combination has left the countries of this circumstance in total apathy as zero rates are being interpreted as meaning that no reforms are needed. No inflation means no new margins as well as no new wage bargaining, and zero hope means politics and elections may change the affiliation of countries’ leaders, but not their politics and certainly not their vision for the future.This is one of the unintended consequences of zero-bound economies and policies. This apathy has, however, reached a zenith-point that needs to be addressed. Media and policymakers continue to talk about what we can’t do, leaving no room for talk of we can do and characterising dreams as mere fantasies, things best left to children.This new nothingness is creating a youth, a political system and an economic outlook which is based more in peoples’ heads and minds than it is in reality.Every country I visit has terrible macro policies, and features a political class who are mainly interested in maintaining the status quo (as well as a dynamic micro economy). There are always business people and students who are willing to do more and better – to go higher, longer and further – but they are drowned in this "nothingness reality".
3. 'Things could be worse' - I hear myself saying this a lot these days when people talk about some sort of coming catastrophe in global markets and global banking systems. I've heard these claims so many times before and the 'grown ups' have always come up with a response that avoids argmageddon. Banks were rescued and money printed. There are no limits to this sort of response given our fiat money system so there's a lot of relaxation and complacency around, but very little ambition.
New Zealand seems to be doing OK, albeit thanks to record high net migration and two building booms, but real per capita GDP and productivity is going nowhere, much like the rest of the developed world. Luckily, we have some conventional 'ammo' left to respond to a downturn in the form of lower interest rates and government borrowing to fund deficits. Other Governments are not so lucky or well run (in relative terms).
Here's Steen:
My travels prove to me that the world is stuck in neutral. Everyone, in a sense, wants to be “half-pregnant”, wallowing in the idea that “things could be worse” while not dealing with reality.
The consequences for markets are manifold: Companies can’t continue to grow top-line earnings when their customers – the 80% – have less to spend. At this point, a zero-rate environment is one in which “financial engineering” has reached its inbuilt maximum, the pinnacle of the Excel spreadsheet maker's art (discounted cash-flow close to zero = infinite valuation).In addition? Zero expected returns for equity markets, a normalisation of interest rates – not based on growth but instead on the need to “normalise” zero bound – and a tectonic shift from investing in “paper money” to doing so in productivity and jobs among the 80%.
4. The social contract - Steen Jakobsen writes well here about the breaking of a social contract in Europe and the United States. The polling here suggests we're not close to the same breaking point in New Zealand, but we can't ignore the rest of the world.
How do we explain Donald Trump’s rise, the risk of a Brexit, the fact that Marie Le Pen stands a good chance of becoming France's next president, and the general situation of a political world in which all incumbents appear ready to be knocked off their stools? Simple, Dr. Watson! It is the social contract, which is not only being broken but is also being tossed out! Meanwhile, the political elites are losing their hair trying to analyse why someone like Trump, a four-times bankrupt, immoral, profane, self-promoter of a candidate can win the GOP election.
The point is that this has nothing to do with Trump’s policies (or lack thereof) but has everything to do with the fact that he is anti-establishment. We need not fear that the US is turning towards Trump's policies, but the political elite needs to recognise that voters are turning away from the “social contract” and its elitist political judgments.
5. Inequality and life expectancy - Michael Specter writes in this New Yorker piece about the growing gap in life expectancy in America (not globally) between the rich and the poor.
It will surprise nobody to learn that life expectancy increases with income. Coming, however, in the midst of a Presidential campaign in which the corrosive effects of income inequality have been a principal debate topic, the data and its implications for public policy are particularly striking: the richest one per cent of American men live 14.6 years longer on average than the poorest one per cent. For women, the average difference is a just over ten years.
The gap appears to be growing fast. The researchers, led by Raj Chetty, a professor of economics at Stanford University, analyzed more than 1.4 billion federal tax returns, as well as mortality data from the Social Security Administration, from the years 2001 to 2014. In that period, the life expectancy of the richest five per cent of Americans increased by roughly three years. For the poorest five per cent, there was no increase.
6. Life expectancy and location - Specter also finds that in America where you live can have a big impact on life expectancy, regardless of income. It seemed public investment in health made a big difference.
To the surprise of many experts, including those who did the research, the study found that the poorest Americans live considerably longer in some cities than in others. In New York, Los Angeles, and Miami, for example, the lowest quarter of income earners lived, on average, until the age of eighty-one. That’s only a few years less than the richest one per cent—and far longer than poor Americans in other regions. The cities with the shortest lifespans for the poor include Las Vegas, Tulsa, and Indianapolis.
The reasons for the difference are not clear, although the authors point out that cities like New York often have aggressive anti-smoking policies and make it harder for people to eat trans fats, and drink sugary sodas—which are implicated in common diseases like obesity and diabetes.
The findings are sure to offer ammunition to those who argue for greater investment in community and public health. “Amid the excitement over personalized medicine,’’ Steven H. Woolf and Jason Q. Purnell wrote in an accompanying editorial, “the fact remains that a patient’s zip code may be more useful for targeting therapy than his or her genotype."
7. Declining social mobility and restrictions on land use - Alex Tabarrok writes at Marginal Revolution about falling social mobility (the ability for poor kids to become richer adults) and the potential connection with land use restrictions (ie zoning rules and metropolitan urban limits). It used to be that poor people could move to a rich city for a higher wage to get richer. That's much harder now in restricted cities with insane housing costs. (I'm looking at you Auckland). All this helps explain falling productivity growth.
Indeed, there is now a slight trend for poor people to move to poor places because even though wages are lower in poor places, housing prices are lower yet.
Ideally, we want labor and other resources to move from low productivity places to high productivity places–this dynamic reallocation of resources is one of the causes of rising productivity. But for low-skill workers the opposite is happening – housing prices are driving them from high productivity places to low productivity places. Furthermore, when low-skill workers end up in low-productivity places, wages are lower so there are fewer reasons to be employed and there aren’t high-wage jobs in the area so the incentives to increase human capital are dulled. The process of poverty becomes self-reinforcing.
8. Solar? Really? - Former Meridian Energy CEO Keith Turner said an amazing thing this week on RNZ which hardly anyone picked up. He said power prices would fall to a third of their current levels in little over a decade because of the spread of solar power and batteries.
Really?
Vox's Brad Plumer is not so sure in this useful explainer.
Thanks to a little-discussed phenomenon known as "value deflation," the electricity generated by solar panels gets less and less valuable as more panels come online. The corollary is that over time, solar panels continuously need to get much, much cheaper if we want them to scale up significantly.
How cheap? Sivaram and Kann argue that the industry should set a goal of pushing the installed price of solar to 25 cents per watt by 2050 — down from around $3 per watt today. That's a mind-bogglingly low number, and it could require thinking about solar innovation in a radically new way. The industry's current approach to cutting costs might not get us there. We may need experimental new technologies. Or novel ways of integrating solar into our walls and windows. Or robot installers.
9. Totally John Oliver on the US electoral system and who is allowed to vote there. Sounds boring, but he makes it enlightening and entertaining.
10. Totally Clarke and Dawe - Lou Poles is very informative too on international tax planning...
33 Comments
1) https://www.youtube.com/watch?v=rMGUveWr7Fg
if you accept a grow for ever model on a finite planet then, someone has to spend, the Q is how best. If its on needed infrastructure that should mean a) a productivity gain while throwing $100k at each person is just consumerism gone wild. b) jobs where it is really needed in the un-skilled and semi-skilled taking them off WINZ a win / win. the danger is ending up with bridges to nowhere which also then saddles on going costs suggesting a productivity loss which is plain stupid.
#8 Solar power may become less valuable I guess means the buyback rate. However a fag packet calc suggests I produce it for 10c/kwhr, but buy it at 35c/kwhr when I import. So back to using every drop you make. Still makes sense to me at current prices. Power used to increase at around 6-7% per year. Not sure what it's projected to be.
Only if supply exceeds demand surely? Not sure where you get 10cents or 35cents from? 25cents is a more usual retail cost? 10cents probably is grid tied no battery? As the last good data I saw on batteries is their TCO adds up to around 17cents per Kwh, ie not economic. My view would be solar panel heated hotwater, then charging the EV then selling it into the grid might make sense, but I think you have to have the EV to charge to stand a chance.
#2 "Every country I visit has terrible macro policies, and features a political class who are mainly interested in maintaining the status quo" Of course they do, they'r rich, powerful and influential. Any change will challenge that. Look at property investors in AK and ask how the Government should regulate the market, and they all turn while and start shaking. Same thing, don't want regulation.
#4 Sorry Mr Steen, you're several decades to late. The "social contract" got thrown out when Milton Friedman's " Free Market" theories became policy across the western world. Watch the Shock Doctrine.
3. Things could be worse... "Call it shortage porn. In the past few years, there have been hysterical reports about the world running out of sugar, single-malt whisky, limes, Lego, oil, bananas, soybeans, coffee, wine, olive oil, avocados, chocolate, cauliflower, bacon, sriracha, water, tungsten, sand, Velveeta, Internet, and in just the last month, hops and vanilla, to name only a few. What’s behind the insatiable appetite for panicky warnings?
This is the economic cycle in progress—one decade’s shortage becomes the next decade’s glut and so on. It’s always hard to keep perspective. So whether it’s because we like to revel in seeing others scolded for their greedy ways, or because they appeal to our apocalyptic tendencies in this era of global warming, you can expect stories of shortages to keep on coming. There’s clearly a demand."
http://www.macleans.ca/economy/economicanalysis/time-to-panic-the-world…
7. Declining social mobility? The US middle class is shrinking but hardly declining social mobility to "blame".
http://www.aei.org/wp-content/uploads/2016/04/incomeshares2.png
It is good that Stevens of the RBA has at least addressed helicopter money, and admitted that the only reason he can think of not to do it is that it would be difficult to turn it off. Better he says, for governments to borrow from financial markets to fund economic activity.
So, to start with he has no good reason against helicopter money, when demand is low and inflation negligible. I would accept that if tax cuts are given, they can be difficult to turn off, but regardless of whether they were funded by government borrowing or printing. If it is spending on infrastructure, then that is relatively easy to plan, and turn on or off. If in fact it can be funded by printing, the populus may more easily accept it than if it were funded by tax increases.
In his "borrow from financial markets" preference he has not addressed what in game theory a small country (like NZ, or Australia come to that) should do. When we borrow from foreigners (through our commercial banks) to fund government expenditure, we clearly have to pay for that cost, and probably are borrowing their printed money. Our currency increases in value as a result, which as consumers we may like, but it is wealth and trading industry destroying at a current account deficit level (where we have been for 50 years). We end up in a debt trap, like Greece, if we consider that process to be our only option. Or we end up with decrepit infrastructure, or very sub optimal social outcomes.
In terms of how much if any should be printed to pay for government expenditure, the amounts should be up to an independent central bank, looking to meet inflation targets, and a current account target. If inflation is over target, then any amounts would be limited, down to nil or even negative if need be.
Mr Stevens is stuck in a very old school paradigm, and frankly by his poor arguments, has reinforced the counter argument, for central bank funded government expenditure when demand is low, and a country's resources are considerably under utilised.
As you say, nothing wrong with it principle, it just needs the institutional arrangements to manage it. It seems much fairer than the current system as the benefit of currency debasement (euphemistically called "inflation" in very serious tones) is spread throughout society. Currently it is the high earning lawyer in Auckland who benefits disproportionally by borrowing at rates subsidised by the modest savings of the low income pensioner in Nelson.
There is helicopter money in Australia - property investors are standing under the down draft...
"Research by the Australia Institute think tank found a third of the rebates from negative gearing went to richest 10 per cent of households. More than half went to the wealthiest 20 per cent."
http://www.news.com.au/finance/money/tax/the-truth-about-negative-geari…
Helicopter money, govt. infrastructure projects, NIRP, ZIRP, declining productivity and jobs, inequality, declining social mobility are not the real issue. They are all symptoms of an economic growth model with a finite life span.
When do we consider addressing this issue?
#8 Solar. So electricity price will decline to about one third of the current (pun? sorry) price. And that makes solar difficult to justify. Seems to me all the current (sorry again) technologies will be challenged.
Also it's questionable that the price of electricity will fall. It should fall, but the industry has a track record of defying gravity with prices.
#1. There are lots of ways to do helicopter money. For instance the trucking industry could solve it's driver shortage by paying $5 an hour more, with no need for an immigrant drivers scheme.
That extra money would trickle up into the economy via retail and other expenditure.
"... it is a problem in America and Europe where voters and politicians seem determined not to borrow and invest, either because they are up against debt limits or older voters won't allow it."
Which is simply not true. Spain was reported yesterday to have yet again produced a huge deficit, France is in eternal deficit, Italy likewise. Interest.co.nz ran stories just few weeks ago about the staggering blow-out in debt levels in the Western world, including the US and Europe.
Debt in itself is not the answer to all questions. To invest, you need something to invest into. Drive through Spain which has and keeps investing in a freeway network that due to sparse population is hardly used in large parts of the country. This kind of "investment" is a shortterm make-work scheme which only creates costs and does not drive growth.
If you want growth, you need to look at dysfuntional immigration policy that is continuously lowering our productivity and at dysfunctional education policy that is charging obscene fees for training people for jobs that will be digitized away soon anyways. We need innovation to create opportunities for investment. We do not need education and immigration policies from the 1990s.
Gosh, Hickey, you really don't understand the world outside New Zealand.
#1 - Helicopter money is not new and has been in use for a number of years now. Yes right here in New Zealand.
Of course it does not go by the name "helicopter money" it goes under a number of different names.
Names like
Working for families
Accommodation Supplement
and so on
Has it worked?
Would giving the people more money work when it has been failing for years?
Ask yourself
And
How can you have an economy and economists in a world where people have to be given money to spend.
This is the ultimate admission that Capitalism has failed and a last ditched attempt to prop it up with "Funny Munny"
Backing up Keith Turners point. Well partially anyway. Prices in NZ are ridiculous currently. Without boring you all with the arithmetic, currently on a cost of energy basis, it is economic to generate your own power with a diesel generator. The ownership and maintenance costs would likely be offset by not having to pay the fixed daily charges if you disconnected from the network. One of the aspects about a diesel motor generator is that they are pretty inefficient and about 2/3rds of the fuel energy is wasted as heat. In a home situation this waste heat can be used for space and water heating. Given that the power generated from the diesel generator is about a break even proposition the waste heat recovery is your profit. The benefit of this set up is that if you have some solar panels (particularly with batteries), then the time when you want the supplementary diesel power is in the winter and at night which coincides nicely with when the waste heat recovery will have most value. Accordingly the current power price is not supportable long term.
Personally from an environmental standpoint I would not like to see widespread use of home diesel generators. I suggest that there needs to be some very careful long term planning on pricing and how to restructure our power generation and distribution assets so that they are able to best compliment solar power and in future, electric cars. I.E. we probably need a lot more hydro water storage so that energy can be stored for times when wind or solar production is low. Similarly the tariff structures are going to need to be carefully considered so that we do not get silly capital investments in the sort of scenario that I have described. I believe that currently the power generators have been given far to free a reign to raise prices to a point that they are far too high as described (because they are largely Govt owned and the idea of a competitive market is a myth), and the lines companies are under unduly tight control.
When electric cars become more prevalent (which is not that far off), the generation and distribution system will have another whole set of factors to consider. This will impose a large load on the generation and distribution system and so compensate for some of the solar generation. The fact that cars will store their power in batteries means that, through the tariff structure, these power loads can be moved to times that will best suit the network and thereby enhance the effectiveness of the whole system.
This whole reorganisation process is now going to be very difficult because we have restructured all these players in the power system into private entities. (Incidentally, in my view, this has not delivered the promised benefits because, while free enterprise and competition is generally a good thing, there are some cases where it is not the answer.)
..I understand a mini gas turbine combined with a tesla type battery and some solar and off grid is prertty feasable. They tell me NZ has banned the mini gas turbine (as we have wth micro grid inverters), but this is third hand info. You might know more about such?
Chris-M - Blockchain-based microgrid gives power to consumers in New York
Something odd is happening on President Street in Brooklyn. While solar panels on the roofs of terraced houses soak up sun, a pair of computers connected to the panels quietly crunch numbers. First, they count how many electrons are being generated. Then, they write that number to a blockchain. Welcome to the future of energy exchange.
Transactive Grid aims to enable people to buy and sell renewable energy to their neighbours. To deal in energy at the moment, you have to go through a central company like Duke Energy in the US or National Grid in the UK, or one of their resellers.
https://www.newscientist.com/article/2079334-blockchain-based-microgrid…
Specifically, I pointed out that: "New Zealand's regulatory regime to date has been spectacularly lax by the normal standards of regulation in other countries, and any investor taking up shares in the pending floats of electricity SOEs will have to bear in mind the likelihood of a future policy shift that will more effectively remedy the obvious failings of the industry to date."
I drew the committee's attention to more than $10 billion of asset revaluations that the generator-retailers had credited to their books by 2010-11.
That sum, which had risen to $12b by June 2012, represents the present value of the amount by which those companies' profits are above what would have been needed to give them a fair return on all the money they have paid out, both to acquire their generation assets in the late 1990s, and to install new assets since then.
I pointed out that if one of the standard models of regulation used overseas had been applied here at the time ECNZ was broken up in the 1990s, most of those asset revaluations would have been prevented, because the industry's ability to price-gouge its captive customers and capitalise the resulting profits as "fair value" would have been blocked.
The central reason for regulating the New Zealand industry would have been to hold prices and asset values down to the lowest levels consistent with security of supply. Read more
I wouldnt be bored, show me please. "likely" etc, looks to me like you are guessing.
Ive never seen a CHP make economic sense for a house, for a hotel, yes maybe barely. Yes the current price is obscene and needs fixing, but both main parties want the income too much to stop the gravy train, HC/Cullen could have easily but it was easy money.
This was only an argument to illustrate how ridiculously high our power prices are. However the arithmetic is.
1 Kwhr =3.6 mega Joule (mj) (1000 j/sec x 3600 sec/hr)
1 litre diesel = 36 mj
Therefore the raw energy content of 1 litre of diesel is equivalent to 10 kwhr
1 litre of diesel pump price 85 cents per litre less farmlands 12 cent discount = 73 cpl
Therefore the raw energy cost of diesel is 7.3 cents per kwhr
Efficiency of diesel motor converting diesel to electricity 25-33%
Therefore the energy cost of power produced by a diesel generator is 22 - 29 cents per litre i.e. less than current power prices before you add fixed and line charges
The other 67%-75% of the fuel energy rejected as heat is available for water and space heating for free.
As I said I wouldn't like to see this sort of development for environmental reasons and while there is some hope that the system could be re-jigged to work sensibly with solar. However if they continue on the stupid path in which they are headed (high power prices and trying to undermine the value of solar power) AND storage battery technologies and costs develop to be an economic proposition, I may very well be tempted to install a small diesel generator to make up the shortfall and turn my back on the network.
Good post Chris M. Yes, electricity will change and the grid system and it's financial structure will need to change to make it work the best. The grid is a utility and thus it's thinking should be about how to benefit the changing picture, not how to maximise it's income. We can't afford that millstone.
"Distributed generation" is a feature of the future. We need a grid that promotes it.
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