Here's my politico-economic blogroll for the week. It's nice being able to write about the economy from Parliament while the rest of the Gallery is going gaga over the Hughes affair. If Goff is rolled I'll cover that. What are your views on Goff holding to the leadership? Should Cunliffe take over? What about Parker or Jones?.
From the left
1. Winston is back. The man Phil Goff won't rule out-working-with-because-it's-arrogant-to-rule-people-out (except Goff-will-rule-out-Hone) Winston Peters, gave a very strong 'left-wing' speech this week. And it seems none of the media covered it (including me - I'm sure I was on their speech/release list, but I'll have to ask again) except the NBR.
The mainstream media just don't want to give him air-time.
The Standard has Winston's comments and hailed it "A hell of a speech". It touched on everything you'd expect from a proper left-wing party - a go at capitalism, bankers and globalisation, the cost of healthcare, as well as opposition to state asset sales. And not wanting to seem like he was going soft, Winny threw in some 'nasty foreigner' remarks about China looking to buy us up.
I've quite liberally picked a few of the best bits.
The worldwide recession is not your fault. It was caused by the greedies in the banking and finance industry. To make extra profits and to earn huge bonuses, US financiers created a scheme by which they packaged shonky mortgages and sold them as prime investments.
As well, banks and finance houses in many parts of the Western world went on a lending spree that pushed up property prices, creating a big bubble that burst. Governments and ordinary people were left to clean up the mess.
Not content with crashing the democratic world’s financial systems, the greedies are back in action gambling on the price of commodities. Food, oil, whatever you can think of is being bought and sold many times before it even gets to the factory that processes it. It’s a new way for the greedies behind computer screens to suck billions out of the pockets of ordinary people.
You are at the bottom of the food chain. It’s called “globalisation” and you’ll hear just about every so-called financial expert saying what a good thing it is.
Every day the Prime Minister and senior cabinet ministers tell the nation how bad things are. And every day a new figure of ten, fifteen, twenty billion is thrown about as the amount of extra money the government will need. This is a clear signal that more state assets will be sold than the government is letting on.
If our power stations are part of a public share float they will end up owned overseas. Probably by China because China is one of the few countries that are in the black. Why are they in the black?
Because they are a one party state with a planned economy, a strictly controlled workforce and a forest of factories handed over by industrial leaders in the West. They’ve gone to China because manufacturing is cheaper where the workers get paid a few dollars and a bowl of rice a day.
People in powerful places have decided that our party stands in the way of their grand designs so they have tried to take us out. If we were gone your pension would be reduced tomorrow and your SuperGold card would be worthless. As well, the age of eligibility would be lifted. We are your insurance so don’t forget to pay it!
And remember we are extending the SuperGold card into senior medical care next year when we get back. There will be a free medical; check each year for over 65s and doctors visits will be capped at ten dollars.
The wealthy people at the top – the people this government looks after did very well. Look for example, as the boss of the Australian bank Westpac in New Zealand. His salary is $5.6 million dollars. When John Key handed out his tax cuts – the bank boss got more than $5,000 a week extra.
2. Dangerously below inflation. Rob Carr at Political Dumpground blogs about how the previously proposed NZ$800 million increase in government spending for Budget 2011 was already well below inflation.
Now government is talking about a 'zero budget' with no extra spending.
The government announced this year they would limit new spending in the budget to an increase of $800 million. This is less than inflation at only 1.25% of spending compared to 5.9% predicted for 2011 in the last budget meaning in real terms a cut in the budget.
After I have just blogged on how that would not be enough to even cover health I find out they are going even lower. The plan now appears to be to have no new spending and take money from other areas of the budget. This could mean some serious cuts to services in the upcoming budget and I am not looking forward to it.
Government spending needs to keep pace with inflation.
3. We need the budget cuts, just don't use the quake as an excuse. Keith Ng at Public address points to Treasury comments that nominal GDP would be NZ$10 billion worse off than it expected over the next four years due to the situation before February 22 quake.
The quake would add another NZ$5 billion to this.
Guess “two-third of everything changed since Treasury realised their forecast for recovery was wrong” doesn't have the same oomph. What's changed is that we haven't come out of the recession as well as we'd hoped; what hasn't changed is that we are still stuck in the same hole – indebted, underperforming and aging fast. The earthquake was an additional kick in the nuts, but even if it didn't happen, we'd still be in the same position today.
This is why the “how do we pay for the rebuilding” debate makes no sense. On one hand, English pooh-poohs the Greens' proposals for a levy because we shouldn't take money out of the economy while it's so fragile. Yet, as No Right Turn points out, spending cuts have exactly the same effect as new taxes. The only way to inject money into the economy is to use money from outside the economy. In this context, that means taking on debt.
But ah, there's another difference. Cutting spending is permanent, while a levy is temporary. It doesn't make sense to pay for a one-off event with a permanent spending cut – unless they're not doing it to pay for the one-off event. And this is where I get horribly torn. I started off this year wondering how we'd ever get the political will to make the necessary cuts, and now I know: By pretending it's for the quake.
I feel filthy for supporting this sort of spin doctoring. This kind of public deception is why we are constantly unable to enact policies that are clearly necessary. But here we are. We know we need to reduce our deficit, National has been presented with the opportunity, and the prospect of us arriving at the same place through rational public debate is slim. It stinks, and it's not free either – the most immediate cost is a more depressed economy, since we would be deliberately not inject money into the economy, when it's the best time to do so.
But if we are completely unable to compromise, the deficits will eventually bury us all.
I am glad that we'll get to have this argument. At the last Budget, I complained that English got his massive debt reductions from committing future governments to cutting spending – thus avoiding having to do much himself. This time, he's taking it on the chin.
4. Earthquake excuse for class warfare. Here's No Right Turn's view on the government turning down the levy proposal.
there is no effective difference between sucking $800 million out of the economy through increased taxation, and sucking $800 million out of the economy through reduced government spending.
The question thus becomes purely distributional: who pays, and how? And on that, an earthquake levy wins hands down. National's cuts would put the costs of the earthquake squarely on the poor, through reduced government services and rotting infrastructure. An earthquake levy puts it on those most able to pay. And that is unquestionably the fairer solution.
As for the government, its clear now that their response to the greatest natural disaster to affect new Zealand in living memory is to use it as a cynical excuse to wage class warfare against ordinary New Zealanders. That is absolutely despicable. And hopefully they will be paying for it in November.
From the right
5. Look out for Winny's spending demands. David Farrar at Kiwiblog warns if Labour were to form a coalition with Winston Peters and NZ First, we better watch out for all of Winston's promises which will mean one thing - more govt spending.
Even worse is Labour’s preferred coalition partner – Winston. He’s just come out promising it will cost no more than $10 to visit the doctor for oldies. National has ruled Winston out, but Labour would be forced to agree to his demands as the price of forming a Government. So you can add hundreds of millions of extra spending to the deficit.
6. The day it all began. Homepaddock points out in her daily 'What happened on this day' that on March 25, 1957, the European Economic Community was established, consisting of West Germany, France, Italy, Belgium, the Netherlands, and Luxembourg. As the 1960s passed, Britain pressed to join but were refused, meaning New Zealand, 'Britains farm', became the 'Switzerland of the Pacific'. When Britain joined in 1973 (ironically the last year before NZ started running its permanent current account deficits), so marked the beginning of the end of that dream.
But don't worry, it's alright now because we've got China, with India waiting in the wings.
7. Create a 'super policy ministry'. Busted Blone at Roarprawn thinks government should create a ministry for policy in its efficiency and amalgamation drive.
Life in the public service is going to change - because it has to.
We say - make a super policy Ministry - so out with Ministry of Women's Affairs, Ministry of Maori Affairs, and the Ministry of Veterans Affairs and the Families Commission Pacific Island Affairs.
One of the drivers of this government is to get the public service to act like a well oiled machine - So housing all policy under one umbrella is sensible. At the moment the development of policy requires endless hours of consultation with other departments about their thoughts and feelings on various initiatives. Putting it all into one big melting pot is just common sense. So any department where the core aim is to increase the economic and social well being of people should be housed together.
I (Alex - not Busted) did my own list of possible amalgamations for the latest issue of IN-Business magazine:
1. Treasury and Creative New Zealand. Just imagine how beautiful the charts would be! No more boring boffin-speak and articles about Market Equity Risk Premium or critical reviews of Asymmetric Information, Financial Intermediation and the Monetary Transmission Mechanism – just nice big pictures.
2. The Court of Appeal with Sport and Recreation New Zealand. Anything to get our cricketers back on track for the World Cup.
3. Department of Labour and Maternity Services, to help push the country forward.
4. The Crown Health Financing Agency with the Inland Revenue Department, to get the government’s books looking healthy again after tax revenue took a dive during the recession.
5. Department of Corrections with the New Zealand Qualifications Authority. Would make marking essays a sight easier.
6. NZ Film Commission with the National Screening Unit. Seems natural, really.
7. The Takeovers Panel with . . . er . . . well, they could have anyone they wanted, actually.
8. Leadership Development Centre with the Department of Prime Minister and Cabinet. Enough said.
8. NZ should become more like Singapore. Roger Kerr (Business Roundtable) is an admirer of the Hong Kong and Singapore economies. He picks up on an article in the Economist, and asks if NZ were to adopt the framework of these economies, why would we not overtake Australia?
Today, Singapore’s per capita income (PPP basis) according to World Bank figures is US$47,940, roughly on a par with Hong Kong ($43,960), well ahead of Australia ($34,040) and nearly twice that of New Zealand ($25,090).
Some New Zealanders think of Singapore as a country that reflects the state paternalism of Lee Kuan Yew who ran the island from 1959 to 1990. It is true that there are dirigiste elements in the Singapore model, such as mandatory contributions to the Central Provident Fund which finances much of Singaporeans’ housing, pensions and health care. Also some outsiders dislike Singapore’s limited political democracy, proselytising of ‘Asian values’ and attitudes that they find somewhat stifling, including of entrepreneurial vigour.
But to regard Singapore as an essentially statist country is to miss the wood for the trees. It consistently rates behind Hong Kong as having the freest economy in the world. As Micklethwaite notes, Singapore’s success owes far more to laissez-faire than to industrial policy
Government spending is around 19% of GDP, the top income tax rate is 20%, the top corporate rate is 17%, Singapore has been at free trade for years, and its labour market is highly flexible with no burdensome rules on dismissals and work hours.
Neither Hong Kong nor Singapore have significant natural resources. Their geographical position has not altered: Hong Kong grew rich while China was still poor. They do not have great natural environments but there’s not much they can do about that. Their prosperity underlines the lesson that the institutions and policies a country adopts basically determine its success in the modern world. Singapore has an admirable focus on its own interests; one hears little about ‘leading the world’ on climate change, for example.
Many New Zealanders are sceptical about the idea that New Zealand could catch up with Australian living standards. I have put the question the other way round: would any competent economist not think that New Zealand could overtake Australia if it moved towards the kind of economic framework of Hong Kong and Singapore? So far none has come forward to take this position.
9. Public may have more risk than private in partnerships. Anti-Dismal has a look at the risks around Public-Private Partnerships (PPPs), a path government here (and the Opposition) is looking at going down.
Public-private partnerships (PPPs) seem to offer a solution to a common problem for economies which have been hampered by the poor quality of their infrastructure. PPPs mean, it is argued, that private capital would be used to fund much-needed projects, whether it be in transport, education, health or whatever. Better still, it was further argued, private companies could build and operate the new infrastructure, bringing large cost savings.
[But] When they involve essential infrastructure that government will not allow to fail (too big to fail?), it is clear that a high proportion of a project’s risk remains with the public sector. But such an acknowledgment undermines one of the major rationales for having PPPs in the first place, that they are good value for money despite apparently higher financing costs, because of their ability to transfer risk to private investors. A transfer that doesn't appear to have taken place.
So overall, there are warnings from the UK experience of PPPs for countries like New Zealand who may be thinking of going down this route. PPPs do not always work and much thought must go into when and why they are used. Hopefully these warnings will be heeded. If they are there is no reason that PPPs could be a good model for some projects.
10. Economists putting their money where their mouths are. This is fun, in a nerdy economics kind of way. TVHE blogger (and Infometrics economist) Matt Nolan has a bet with Motu and University of Otago economist Andrew Coleman on price growth over the next five years.
For fun, Offsetting Behaviour blogger and University of Canterbury economist Eric Crampton joined forces with Coleman. Check out the comment stream on TVHE. This is how economists have fun people ;)
If the CPI grows by more than 15% between its December 2010 level and its December 2015 level (excluding any changes to the GST rate), Matt pays Andrew $100 (in Dec 2010 prices)
If CPI grows by less than 15% during this period, Andrew pays Matt $100 (in Dec 2010 prices).
We put down this bet just to show that we believe our own positions enough to stake money on them. He believes there is some probability that the Reserve Bank will allow prices to grow at more than 2.8%pa during the next five years, and that this probability is sufficiently high for him to be willing to make this bet. On the other hand, I do not think this will happen.
Update: Eric Crampton has also joined the bet, sitting on Andrew’s side. So it is my $200 against $100 from each of them. Confirmation here – combined with an explanation why. I use the same explanation if I ever bet against the All Blacks in the work pool.
11. Totally relevant video. These High School kids from the US put Mankiw's Principals of Economics to music for a class project. Here's principal two on opportunity cost.