Alex's politico-economic blogroll: Govt's min wage advice; Brownlee's 'making it up'; Weldon's fundraising abilities; Chaplin's bricks

Alex's politico-economic blogroll: Govt's min wage advice; Brownlee's 'making it up'; Weldon's fundraising abilities; Chaplin's bricks

Here's my politico-economic blogroll for the week. Have a good weekend all.

From the left

Starting with a couple from Idiot Savant at NoRightTurn. He's been busy with some Official Information Act requests to Government ministers and has some fantastic responses.

1. Seems it would be better to raise the minimum wage to NZ$13.50 instead of NZ$13. In the first OIA release (I've also nicked it from his site here), I/S has the advice given to Labour Minister Kate Wilkinson on raising the minimum wage. From the advice, I/S doesn't think raising the wage by 50 extra cents would have made much of a difference, and could even have been more beneficial overall.

Given the background of all this hoohah of getting people off benefits and into work, the Department of Labour told Wilkinson this could increase work incentives, seeing as the rise would likely be higher than any rise in benefit payments.

You can read the full documentation here [PDF]. It consists of a number of reports from the Department of Labour laying out the options and assessing the costs and benefits of each. Wilkinson was presented with four options - no change, and increases to $13, $13.50, and $15 per hour. The first and last of these were clearly salmonella - options designed to be discarded, used to frame the issue; in practice the decision was between option 2 ($13 / hour) and option 3 ($13.50 / hour).

These options were assessed for their impact on employment, wages, and inflation. $13 / hour was assessed as having no impact on economic criteria, as it "does not constitute a real increase" (10/98801, paragraph 20). $13.50 / hour was expected to reduce employmentgrowth by between 480 to 640 people. That's against an expected increase of 22,000, and the effect is regarded as "negligible in terms of total employment". Likewise, inflationary effects are expected to be negligible. A higher minimum would result in higher costs to government - an extra $6 million a year for $13 / hour, an extra $30 million a year for $13.50 - but that's not a significant difference. On the economic analysis, there's no real difference between the two options.

The options were also assessed against principles of fairness, protection, income distribution, and work incentives. And here the difference really shows:

$13.00: This option will maintain existing levels of fairness and income distribution and existing work incentives as it is an increase in line with the change in consumer prices and average wages. It may erode existing levels of protection.

$13.50: This option will increase existing levels of fairness and income distribution. It may increase or maintain work incentives, as it is likely to have a higher percentage increase than benefits. The size of the increase is greater than movements in average minimum wages in collective agreements so it is likely to improve current level of protection.

2. Brownlee made catching Aussie milestone talk up. Idiot Savant also blogs how he's had a drawn out OIA battle with Economic Development Minister (well, he was before the quake) Gerry Brownlee that had to be taken to the Ombudsman because Gerry's office wasn't playing ball. This OIA request was for advice on comments Brownlee made in the house about 'milestones' for catching up with Australia.

Last year, when the government was making a lot of noise about its goal of "closing the gap" with Australia, we were confronted with the odd sight of Economic Development Minister Gerry Brownlee claiming in the House to have targets and milestones for this goal, but refusing to say what they were. When later pressed on this, he claimed that his targets and milestones were

to remove the millstones from around the neck of the New Zealand economy placed on it by the previous Labour Government [...] to assist the Government’s programme to undertake comprehensive economic reform of the New Zealand economy [and] to rebalance the economy towards export-led growth.

The Ombudsman has formed the view that Brownlee should have refused my request, on the grounds of section 18(g) of the Act - basically, that it does not exist. Why? Because the Minister had admitted it:

My investigator met with the relevant officials from the Ministers office. She was advised that the answer given in the House was not based on specific advice received by Mr Brownlee either from the Ministry of Economic Development, or from the advisors in his office. It was developed by Mr Brownlee and the relevant advisor. The answer in the House was drawn from the Minister's political career and his understanding of National Party policy. While documents were provided to the Minister to assist him with the line of questioning in the House, those documents are not relevant to the targets provided in his answers of 27 July and 5 August 2010.

[...]

It has become apparent during my investigation that there are no source documents for the answers given in the House on 27 July and 5 August 2010.

(Emphasis added)

So there you have it. Confronted with a tricky line of questioning in the House, Brownlee sat down with his political hacks and made up policy out of whole cloth without advice or Cabinet authority. But its not just mildly embarrassing - this is supposed to be a core government policy, the heart of their economic programme. And yet they have no targets, no milestones, and when you get down to it, no plan except to keep doing what we've always done (which hasn't closed the gap in the past, so why will it in the future?).

3. US pressuring us to change our intellectual property rules for the Trans-Pacific Partnership. Greens MP David Clendon is worried the US is pressuring New Zealand to alter out intellectual property rules if we want a free trade agreement with them. He says he's going to watch the patents bill very closely now.

The NZ-US Partnership Council meeting was held in Christchurch and finished the day of the earthquake.  Understandably given the earthquake news of what occurred as this meeting was wrapping up is only now just filtering out.  According to a report from Radio NZ a (nameless) United States congressman was happy to tell delegates that if New Zealand wanted to get anywhere with the Trans Pacific Partnership agreement then we may need to alter our intellectual property laws.  Apparently it is quite common at events like this for the media to gain access to important information so long as they pay attention to Chatham House rules.

However it doesn’t really matter who this particular United States representative was.  What matters is their message.  And, that is, if New Zealand doesn’t start changing our laws to suit the needs of big business in the United States then we won’t be able to sign up to the Trans Pacific-Partnership.

John Key himself has come out and stated that there will be aspects of this deal that won’t sit well with the New Zealand public.  The trouble is we won’t know what exactly these aspects are until Ministry of Foreign Affairs officials ink the deal on the TPP.

What we do know though is that players in the United States want New Zealand to tailor our legislation to suit their needs.

Here's a video of Key in the Beehive saying there were issues around the intellectural property area.

4. The Greens Party's call for a tax on banks' financial transactions is also picking up steam after the European Parliament gave its support for the implimentation of a Tobin tax.

From the right

5. How to deal with Christchurch landlords who hike rents. David Farrar at Kiwiblog thinks someone should set up a website and publish the names of landlords who hike rents over a certain amount.

I am not a fan of rent control. But I do have a “market” solution.

Someone should set up a website where you can report landlords who have hiked their rental prices by more than x%.  They have every legal right to do so, but the community has the right to scrutinise what is being done and make sure their friends and neighbours are aware that while 98% of residents are doing what they can to make life easier for those affected by the earthquake, a small minority are trying to exploit the disaster.

It is inevitable that rental prices will increase over time as the supply is reduced. But overnight increases of 150% are very exploitative.

6. Cactus Kate has a go at Mark Weldon's 'fundraising abilities'. She also thinks the PM's 'funds hub' idea should be revisited in light of the Christchurch earthquakes.

I am as you all know, a firm critic of his, but not for this benevolent act which will see him take 4-6 weeks of his own annual leave to we can assume, run around leads for funds created by politicians that they cannot be seen to be closing.

The best thing Speedo could have done for New Zealand is instigate more listings on the NZX and bring more business to New Zealand. With just three listings in 2010 and three others delisting his net gain was zero.

Anyway I am a great believer that any solution should kill two or more birds with one stone for efficiency so I wish to discuss Speedo's contribution to the future of Christchurch now the Prime Minister is down the financial markets line of thinking.

Here is the Prime Ministers pet project in the finance industry. The Super fund hub. It seems to have been forgotten about. So let me briefly revisit it. Forget all the pinkos, nothing will change for them, they can keep their high tax welfare state of Aotearoa to themselves.

Why not dovetail this idea into the rebuild of Christchurch and create a special economic zone consisting of Christchurch whereby this industry would be solely regulated to be located?

John Key states 3-5000 jobs would be created in this industry. But why stop there?

New Zealandis often tagged "the Switzerland of the South Pacific". Not just for its scenery. Try as you like to hate the offshore industry, New Zealand ALREADY has a booming offshore industry that foreigners are using to structure their affairs. I have blogged about this before. That's right, while you are all subject to tax, an entire industry in New Zealand exists whereby foreigners can use it and New Zealand's OECD status to in many cases, not pay a bean. And it is all perfectly legal.

QAR - Queenstown Administrative Region and a CAR - Christchurch Administrative Region should be created. New Zealand politicians should have as little to do with both as possible. Christchurch should host the Funds industry and the offshoots of the Offshore industry, Queenstown should host the wider more advanced part of the offshore industry. That is all the current offshore industry located all through New Zealand should be made to relocate there.

7. Stock prices soar, but all for a good cause. Homepaddock blogs about a North Otago Young Farmers fundraising event for Christchurch. 240 sheep and 72 cattle were donated and the event raised NZ$68,000. One angus steer sold for over NZ$1,300.

My farmer has been going to that sale for more than 40 years and said this was the first time he didn’t mind paying well above market price for stock.

8. How to get Christchurch building work underway quickly. Not PC has a few ideas for the Christchurch City Council so that builders raring to go don't have to sit around waiting for Fletchers to phone them.

  • Immediately release land on the city fringe to allow affordable housing and temporary housing to accommodate those 10,000 home-owners,and show them the council means business in helping them.
  • BUILDING CONSENTS: a proposal already exists in the Department of Building and Housing to take work off hard-pressed council building inspectors (and risk from Christchurch ratepayers) and make use of the expertise of the building and insurance industries instead. 
    Insurers would study the plans, issue their own consents, and indemnify the builder for any problems that occur. And if a problem did occur, the insurer would deal with the homeowner and fix the problem—without sticking their hand in the ratepayers’ pocket. 
    All the council would do would be to identify where the house would go, how high and wide it would be, and what services would hook up to it (or what on-site provisions would be built). 
    And the average $15,000 per new house currently spent in council inspections and applications (not to the mention the time involved) would be spent much more efficiently than it is now.
  • RESOURCE CONSENTS: Instead of the present process that will see town planners holding up home-owners for months (a process that would test the patience of Sisyphus and the money bags of Croesus), council (or Brownlee) could set up “Small Consents Tribunals” for all work requiring Resource Consents valued at less than, say, $400,000. Tribunals that would be as informal and efficient as Disputes Tribunals, able to issue a decision immediately based on simple “no bullshit” principles.
    It would be very easy to get this ball rolling. 
    First, enact a codification of basic common law principles such as the Coming to the Nuisance Doctrine and rights to light and air and the like. 
    Second, register on all land titles (as voluntary restrictive covenants) the basic “no bullshit” provisions of District Plans (stuff like height-to-boundary rules, density requirements and the like).
    The Consents Tribunals would consider your small project on the basis of the codified common law principles and the voluntary restrictive covenants on your title, and home-owners should be able to reach agreement in an afternoon.

Economics blogs

9. The Reserve Bank's eroded credibility. Eric Crampton reckons the RBNZ lost a bit of credibility when it cut the OCR yesterday.

The Reserve Bank cut rates by a half point. That doesn't bother me as much so long as Nolan's right that they strongly signalled its being temporary and that their tightening will also go half a point tighter than otherwise.

But the RBNZ eroded an awful lot of credibility on the "will tighten when we're legally and quasi-constitutionally required to do so" front back in '05-06 when they were experimenting with notions of the natural rate of unemployment maybe being negative seven percent.

There, they seemed in collusion with Michael Cullen in ignoring the Policy Targets Agreement and the Reserve Bank Act. This time, they were under pressure from Key to cut rates. Hopefully it'll be credible that they'll start raising rates when they're supposed to.

10. Matt Nolan at TVHE also discusses the RBNZ's decision to cut the OCR:

I recognise there are papers that say that you should tighten policy following a natural disaster – I have read them.  They make sense.

However, they are generally premised on the economy being in “equilibrium” to start with – the New Zealand economy is currently very depressed.  When an economy is depressed a negative “demand” shock carries a greater risk of leaving the economy is a poor state (corridor hypothesis).  As someone that grew up learning microeconomics, I find this view appealing – although it is subjective.

This is why the Bank needs to respond to new information – I agree with Bernard here that if it turns out the confidence effect doesn’t exist they need to respond.  However, ex-ante their justification for cutting makes sense (I am bound to say that, as I felt that this would be the given justification).

Furthermore, I would have expected rates to be HIGHER further out – giving us a much steeper yield curve.  However, even with this and my inherent hawkishness I felt today’s decision by the Bank was sensible – demand is a nebulous concept, and when domestic demand is already very weak the downside risk associated with another decline is substantial.

Trust me – this “hysteresis” type path is one of the two main paths to stagflation.  The Bank’s actions reduced the likelihood of this possibility – they didn’t increase it.

11. Video. Get him down to help in Christchurch. Charlie Chaplin's brick laying skills could be used in Christchurch.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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3 Comments

TPP, dogs ear....so the US insists....so why dont we walk away? I keep saying this, just why do we need the USA?

NZ has a rep for inovation....the US's IP laws will screw us over....

Pharmac keeps our drug bill down.....changing it will screw us over.....

regards

Did you hear what he said Steven? about " liberalizing the agricutural sector" Here comes Monsanto via the back door! He talks about Pharmac only to hide the other dirty deals going on

Fed Farmers better start waking up to this!