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Auckland Council's Shane Martin says we need to trade off the resources we have for the best societal outcomes we can achieve. This requires us to use the best tools available to make economically-sound decisions

Auckland Council's Shane Martin says we need to trade off the resources we have for the best societal outcomes we can achieve. This requires us to use the best tools available to make economically-sound decisions

By Shane Martin

• Economics is, among other things, the study of how to make people and society as well-off as possible given the limited resources available.

• Human behaviour demonstrates that generally we want the best of everything and would prefer not to pay for it.

• But because individuals’ resources (finances, time, clean water and so on) are limited, we have to make trade-offs.

• Trade-offs are also real for government, like Auckland Council, where property rates and user charges cannot feasibly be at a level where everyone gets everything they’d like.

• We are left to trade off the resources we have for the best societal outcomes we can achieve. This requires us to use the best tools available to make economically-sound decisions.


Misunderstanding the dismal science

Ask someone what economics is, and they will often respond with words like “the stock market” or “money” or “something that multi-national companies study to avoid paying taxes.” While economics certainly plays a part in these things, these are at best an incomplete understanding. Regrettably, textbooks often describe economics in a way that puts people to sleep and makes them think it is an esoteric concept that doesn’t apply to real life or concerns of the modern world.

In reality, all of us (even you – you’re doing it right now by reading this paper instead of doing something else) make economic decisions all day, every day. For individuals, economics is basically the idea that we try to improve our overall wellbeing by as much as we can each time we make a decision. Whether one is content with how the world works or thinks we need to fundamentally shift how world economies operate, the fact that people make decisions to try to maximize their happiness is inescapable. In fact, this is the precise motivation of those who advocate for a shift to an alternative economic paradigm, as they’ve decided they (and they believe others) would be happier under a new system than under the current system.

Everything is a trade-off

One of the fundamentals of economic decisionmaking is that people have unlimited wants and limited budgets. Our most obvious budget constraints are the amount of time and money that we have. We would like to have a nice house, reliable transport, get our kids the best education, have easy access to shops and services like libraries and pools, a short and traffic-free commute to work (where we only have to work as much or little as we feel like), and enough money to do whatever leisure activities strike our fancy – all while living an environmentally-friendly lifestyle. We’d also like to save for retirement so we can enjoy our later years with a minimum of worry.

Unfortunately, financial constraints and time limits dictate that most of us can’t do all the above – we must make trade-offs between all the things that we could do and the things that we actually get to do. Further, we must also make trade-offs between when we do things. Because there are finite resources to satisfy our infinite desires, we make the choices that we think will make us the happiest. Sometimes we get it wrong (I’m thinking of my purchase of an old convertible that was so much fun to drive… when it ran… which turned out to be about 15% of the time), but that was never the goal.

Government isn’t exempt in a trade-off world

Governments don’t do things primarily to earn a profit, the way private businesses do. Governments exist to provide goods and services that residents value but that would not be adequately produced by private businesses. These goods and services typically have social, environmental, cultural or other non-financial benefits (grouped together, this is wellbeing), and a financial cost.

Auckland Council and its subsidiaries are not exempt from having to make trade-offs. There are literally thousands of things that the council family could do to improve the wellbeing of Aucklanders both now and in the future if resources were unlimited.

These run the gamut from road upkeep, cycle paths, providing port services, monitoring water quality, animal management, building and maintaining playgrounds, kauri dieback prevention, collecting rubbish and recycling, providing public transport, promoting community cohesion, building infrastructure in greenfield areas, to ensuring that the building code is met. And naturally, every Aucklander would love to have the best of all of these and pay less in rates. This is not a criticism – this is something that we’d all love to be possible. We all want to maximise our benefits and minimise our costs, to zero where possible.

Even in normal times, we should spend every dollar of ratepayer money doing the as much good as possible for Auckland with that budget. This means making difficult choices between projects that, in an ideal world, might all get done. Exacerbating the challenge now is the fact that Council cashflow was down around $450 million because of coronavirus in the 2019/20 year. Even tougher decisions have to be made as we look toward the Long-Term Plan about what gets funded and what doesn’t.

Everything is important to someone

In the three years I’ve lived in Auckland, housing unaffordability, congestion, climate change, homelessness, the City Rail Link, drought, wealth inequality, and Covid-19 (among other things) have all been “the most important challenge facing Auckland/NZ” at various times, according to various people. The truth is that all these things are big challenges to our region and country, and none of them can be tackled with singular focus.

By way of example, if we were to pour all our resources into combatting climate change, other issues like storm water system maintenance or a lack of rubbish pickup would spiral out of control. So even though climate change is a very important issue, it cannot be dealt with at the expense of everything else. Similarly, if the absolute best healthcare was our goal, at all costs, we’d have to close schools, stop providing public transport, disband police, and get rid of libraries, museums, the military, and the SuperGold card. So again, even though healthcare (especially in the time of Covid-19) is very important, it cannot be the only place we direct our resources. The same logic applies to every need.

We can’t have our cake and eat it too

The Auckland Council family provides so many things that Aucklanders value, even if most of us don’t think about them all that often. Some recent examples where this has been shown empirically can be found here.

We know that, even with the council’s relatively small rates rises and some increased borrowing capability, we will have to limit service growth and delay some infrastructure spending. There will be no way to do everything we’d like to do in an ideal world.

The trade-offs we make between what we do now, what we do later, and what we don’t do at all will affect Aucklanders now and in the future. It’s important that we use the best available tools to make these trade-offs to get the most wellbeing we can with our available resources.


*Shane Martin is a senior economist at Auckland Council. This article was first published here. It is here with permission.

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29 Comments

And here is his problem..
Economics is, among other things, the study of how to make people and society as well-off as possible given the limited resources available.

- rather its about choices and comparing things. The limiting bit is garbage.

Mind you Sydney has real problems with amalgamation, its knocked productivity back to the stone age.
https://www.smh.com.au/national/nsw/rates-will-have-to-rise-council-merg...

The NSW government's controversial council merger policy is in crisis, with the 20 amalgamated councils losing $1.03 billion in three years and ratepayers facing hikes in rates and cuts in services.

Back to Auckland, just check out the Twitter of several of the Council higher ups....
California here we come.

So frustrating. An entire article explaining to us that there is only one ethical approach to decision-making. And my guess is he doesn't even know what it is called or its basis in moral philosophy - let alone that their are other ways of addressing our moral dilemmas.

I think giving more money to local boards would help the decision making. There are so many things that could be done in our area for not much money, but unless it’s a billion dollar project the “super” council don’t want to know.

Another thing they could do is make sure that everyone is paying the full amount on time. No million dollar home owner needs a subsidy.

Thanks to David and Gareth for re-publishing Shane Martin. A bit flowery in places. But, it's a welcome step down from the lofty macro-economic epistles by high-priests of the "Church of the Squiggly Line" on growth, flattening the curve, graphs, and cross-country-comparisons.

What's not discussed are costs borne by the council arising from inbound-immigration and returning expats while the revenue dividends are obtained by Central Government 107,570 NZ citizens have fled Australia since March this year, according to Australian Bureau of Statistics (ABS) provisional data on international travel. That's a lot of people. Wonder where they returned to.. AKL?

Government is making a trade-off using its immigration policy. The benefits of more people, such as more taxes collected on sales and incomes, predominantly accrue to central government whereas the debt incurred to build infrastructure that supports housing development accrues to local government.

And may I add that the negatives such as miserable GDP per capita growth (if any), poor productivity, more crowded infrastructure etc is borne disproportionately by the common person.

"The Auckland Council family provides so many things that Aucklanders value"

I can't stand this sort of talk. 1) Auckland Council are not a family - more like the local mafia who charge extraordinary amounts of money to do very little and 2) Auckland Council constantly make it seem like it is they who are doing lots of things for us, providing us with services etc. And they make it sound like they're spending their money doing so. They are in fact, spending OUR money. And very often not doing what the public want, but what they want e.g. the 'upgrades' of K Rd and Quay St to try and eliminate cars because that's what council staff believe in.

Yep, it is now quicker to beam your way round Queen Street, the traffic is a car park, while walkers play dodge-im with said beamers.

Haha - agreed. Meanwhile the council controlled provider of water in Auckland can't get it's sh1t together enough to keep Auckland watered. As you say - who actually voted for the K'road/Quay street upgrade? Unlikely it was the rate payers in greater Auckland. District Councils in NZ are void of accountability. Time it changed

Are you getting what you want confused with what the public want? There has been a lot of surveys done with overwhelming support for better walking and cycling, particularly in the city. 4 lane roads running through the city centre are so last century.

Yes but these surveys some how always produce the result that council wants. Funny that.

And often objections are just ignored anyway. Just look at the recent referendum where 75% of people voted for a 2.5% rate rise or less. What was the outcome? A 3.5% rate rise, of course. And the numbers were skewed (with all the submissions via Auckland Ratepayer Alliance put to one side) to make it seem that "It was basically 50/50".

You can't take on board any of these survey results.

Hmm... could it be that "the best societal outcomes" are at odds with economic beliefs/values? Do we have any clarity as to what best societal outcomes are? Are they only measured in material terms? It's akin to saying more economic growth will give us higher living standards with no concept of what these standards are. Sounds rather delusional really.

We think we know human behaviour without ever questioning the overarching societal and economic beliefs - as dictated by the rulers of the time - that influences human behaviour to the point it's normalised as truth.

The best societal outcome we've followed for the past few thousand years is that "wealth" should be held by a few and the rest should be enslaved, believing they're on the path to wealth and freedom. The story's been so engrained that the peasants choose enslavement. Maybe the real trade off required is to focus on the present issues rather than some false sense of future "values". Could it be that our desire for freedom is actually born out of past enslavement and the majority of people are in fact seeking security, including the already wealthy?

Ha, "civilisation" is the wealthiest it's ever been, has the highest living standards in history, yet no one has enough and we keep demanding more. Mankind is driven by pathological insecurity and fear.

Councils should not be in the business of manipulating "societal outcomes" - that is the responsibility of Central Govt.

...."even with the council’s relatively small rates rises and some increased borrowing capability...."
Small rates rises? Keh?
Some INCREASED borrowing capability... Yep because Goff ignored public feedback and went for broke with the last rates rise.
So now we have an AK council with huge rates/water rates and absolutely huge debt. With more debt to come.
And where I live very little to show for it...

NZ city administration & governance should not be in the hands of ex wellington politicians on the decline. Major mayoral position need be a stepping stone to nation politics.
We get worst of both worlds, inexperienced novices in Wellington, and dogma driven declining party operatives crushing the cities.

The most salient point in article is to highlight to numpties there are trade offs in deciding to go down a certain path. These I think are not often enough explored, communicated and incorporated before action.

Mr Martin in particular and councils in general(Regional and District) across NZ actually need to get their heads around the one pillar of their existence - they are there to provide, maintain and manage core infrastructure and it's effects as per their remit. No artyfarty loveydovey pet projects, no grandiose signature buildings, no expensive "sister city" arrangements. Just build the stuff people need and keep it maintained - end of story.

Two things:
Firstly, NZ has now become a "fairweather country", that is, a country that former citizens are scrambling to return to after initially leaving NZ for greener pastures with, in many cases, no intention of ever returning. One must also wonder why so many Indians are still arriving in NZ so long after Covid first appeared, and who must already be NZ citizens or permanent residents to do so; have they just acquired NZ residency as a bolt-hole, or perhaps just to retire to?
Secondly, I think Auckland City Council should 'cut its cloth' and just expect to do the basics (sewage, water, waste collection, parks and maintenance, and building consents) over the next few years and actually give the citizens a rate cut for this period; the prevailing cost-plus regime must stop. We can then return to providing the 'frills' when the economy and employment pick up again.

What things do you propose they cut? Maybe things like events are a waste of money to you, but to many businesses (that also pay a lot in rates) they are very important (probably even more so right now).

Anyone with even half a brain would have seen the perserverance and waste of taxpayer and ratepayer money being spent on the Americas cup underCovid as folly. There's your first one. It wouldnt be hard to make a very long list of Council wasted ratepayer funding of events and activities that bring negative returns. Your second one would be Skypath. A white elephant that went from 29 million to 360 million and counting, and the first contractor has yet to be on site. Even going by Council's own studies, there will be less than 500 people use it per week and if you look at the stats for Sydney bridge which has better year round weather, 5x the population, and a lesser gradient, even those figures are being generous. Put your thinking cap on, there'll be plenty more wasteful ego projects that should be canned..

Skypath is not a council project, cancelling it, even if it was in their power, would not save them any money and instead we would miss out on it's econominc benefits.

where did you get your 500/week patronage from? That's missinformation, the forecast is for 4500 trips daily. https://www.nzta.govt.nz/projects/northern-pathway/frequently-asked-ques...

It's a mistake to approach articles like this with the thought that Deep and Serious Insights are gonna emerge. Such articles have one and only one purpose: like academics - Publish or Perish. It matters not what is Actually Published.....it's enough to Get Noticed.

I won't shed a single tear if we get rid of the SuperGold card.
In fact I'll celebrate the victory of sanity over politics.

It's nothing more than a cynical reward for the most venal demographic in the country.

Now that Winston appears to be gone maybe your wish will come true. On the other hand Labour will loose votes if its withdrawn. In addition perhaps some small crumbs need to be kept on for retirees like myself who are being subject to TD interest rates of <1%.

"crumbs"

If you're a retiree in Auckland who owns a median sized house then in the last 12 months your house value just jumped by twice the median income.
All courtesy of the Reserve Bank.

"crumbs".

Only a fool would confuse asset value with cash flow. The value of a person's home is completely irrelevant to their income and cash expenditure. Think.

I wonder what your venal envy stems from?