Alex's politico-economic blogroll: Crampton's take on paying for quake; PSA fail; 5 tips for Labour election success; Cactus defends Hotchin?

Alex's politico-economic blogroll: Crampton's take on paying for quake; PSA fail; 5 tips for Labour election success; Cactus defends Hotchin?

Here's my blogroll for the week. I'm off now to ask the Finance Minister if I can get a letter of support from the government before my next trip to the bank to discuss my credit card.

Have a good weekend all.

Economics blogs

1. Debt, spending cuts and future taxes. Economist (and Christchurch resident) Eric Crampton at Offsetting Behaviour has a look at the Green Party's call for an immediate temporary levy on income taxes, and comes to a slightly different conclusion of how things could be done. Interestingly, no one has really talked about increasing taxes in the future (once the economy's back in good health) to pay for the quake. There's some good economics speak about deadweight losses and Laffer curves, but here's the essence of the argument.

If you're targeting tax hikes on high income folks, you've gotta remember that those are the ones who are internationally mobile and, if they live in Christchurch, are probably already weighing up exit options. If labour becomes more elastic because folks are happier about leaving, the deadweight costs of taxing them has also gone up. Maybe you could build some argument about patriotic fervour reducing the deadweight costs of taxation post quake, but I wouldn't believe it; if anything, it's more an argument for things like war bonds for reconstruction paying relatively low interest rates.

Finally, we have to think about the optimal mix of tax increases and debt. If the prior mix of spending and taxes were optimal, then we'd likely be looking for a big increase in debt now to be paid off by a mix of future tax increases and cuts to non-earthquake programmes. Why future tax increases rather than current? The quake was a massive negative productivity shock for the region, so it's just more expensive to raise a dollar's worth of taxes today than it will be in four years. It makes sense to take on debt during a negative productivity shock to pay off later on when the production function's gotten back towards normal. 

So even if you reckoned the ex ante mix of spending and taxation was optimal, the best response to the quake seems likely to involve cuts to non-quake programmes, increased debt, and future tax increases. If you figure, like the Greens, that the ex ante mix had way too little government spending, you'd push for smaller cuts to non-quake spending and larger future tax increases; it's beyond me why they're averse to debt to fund a massive capital reconstruction project.

Matt Nolan at TVHE has a similar view on why we shouldn't be imposing a levy now.

So if we have to have a levy, why don’t we do it when the economy is on an even keel – rather than during a point in time when we are in a historically potent recession.  Unless the people claiming that we need a levy don’t actually think the recession is particularly large … in which case a lot of other things that have been said about NZ’s economic performance by these people would be inconsistent

2. 'Insurance run' Telling the government to tell it as it is with AMI. Matt Nolan says he's also surprised that no-one has mentioned the idea of a “bank run” in the AMI case. He also makes some good comments on New Zealand's 'left' that no one touched upon yesterday.

Surely the justification for government action is that, without it, non-claimants would pull out of AMI due to concerns about AMI’s stability following the quake.  If AMI was still SOLVENT but lacked sufficient LIQUIDITY to get through this period, they may fail for seemingly no reason.  As a result, the government comes in, provides liquidity, then disappears for no cost!

Now this is the ideal situation and justification that SHOULD have been provided.  All this crap (yes, I’m using a strong word ;) ) about “giving certainty to the people of Christchurch” is politics in my opinion – they are selling an idea about the bail out being to support a community in an attempt to numb criticism as to whether this is the most appropriate way to help.

I am surprised to see the left come out in support of this. What about the poor people who were living on the breadline and couldn’t afford insurance – the left is happy to support the middle classes who could afford insurance and are unwilling to take on the risk associated with it, while simultaneously not helping the genuinely poor.  This is the type of left wing view point I grew up hearing.

3. Five steps to election success for Labour. This isn't an economics blogsite, but by a Political Science student at Otago Uni (and of course all polsci students are apolitical, right...). James Meager was dared to write the five steps without the first being to 'roll Goff'. He says it's impossible for Labour to win without rolling Goff, but he gave it a good go. HT his lecturer Bryce Edwards. Here's a couple of James' comments.

It may pain the Labour caucus to admit this, but the Whale pretty much has an ideal campaign sewn up for them: are you better off under National than you were with Labour? What Whale has actually done here is cunning, by giving Labour a sensible campaign platform and message, if they adopt it he can then exploit them as not having a clue on their own and needing the help of the VRWC. But who cares, it is a simple and effective message – simply asking every voter, no matter their background, if they are better off now under National than they were with Labour.

And lay off the ‘rich pricks’ angle. Class warfare will only get you so far. Labour shouldn’t be targeting the poor voters – they already have them, for various reasons. They need to target those middle voters, and they are the ones who actually aspire one day to become ‘rich pricks’. You don’t tread over the dreams and ambitions of those you wish to court. Don’t try to spin lines that corporate giants are ruining the NZ dream, or that the rich are bludgers too, because a lot of the voters you aim for do know those in the top tax bracket, and they know the amount of tax they do actually pay, and they recognise the value in having big business in NZ. And by running a rich prick angle, you leave it open for the opposition to run a bludging welfare angle. Refrain from the negative class warfare and the opposition will look like unjustified in attacking the bottom tier of society.

From the left

4. Keeping track of NZ vs Japan. The Standard has a go at Earthquake Minister Gerry Brownlee for the time it has taken to introduce temporary accommodation in Christchurch compared to what is happening in Japan.

Christchurch. Quake + 45 days and counting: Homeless may have access to campervans“within a week”, with costs starting at $190 per week. Temporary houses are planned, with a decision to be made on who to be awarded the contract expected “within a week”.

Japan. Quake + 28 days: Homeless had access to special heavy duty ShelterBox tents within two weeks of the quake. Construction of temporary houses was underway within two weeks and is proceeding with remarkable speed. The first families should move in to completed units this weekend. It is expected that these homes will be rent free for two years.

5. Co-ed vs single sex schools. This is a bit off track, but this story in The Herald this week really got on my nerves. A dad in Auckland's (rather exclusive) St Mary's subburb is annoyed that there are no boys-only schools in the zone they're in, although co-ed Western Springs, which he believes is "quite a good school", is nearby.

I get quite worked up about this one (and yes, I went to a co-ed high school). For the first 12 years of a kid's life they learn in an environment with both sexes. Then some are shut in with only their sex for five years, before being let loose in the world again (where, as it happens, you have to be able to deal with both sexes). What's so important about those five years that you shouldn't be learning with the opposite sex?

"The only school we are zoned for is Western Springs [College], which I believe is quite a good school, but it's co-educational. I think it's important, particularly for boys, that they learn in a single-sex environment," the dad says in the Herald article.

He wants to send his kids to Auckland Grammar, where he went, and where they have a chance of getting in because he was an old-boy.

"We believe a public school education is very important," he said. "Unfortunately we can't achieve what we wanted in our local area."

Fundy Post has a go.

Yes, that would be it. It's all about getting ahead, getting advantage. If Harry can get to Grammar because daddy is an Old Boy, then Angus will get to Grammar because Harry is a current boy. Of course, there is a school nearby which Mr Chisholm understands to be quite good, but it doesn't have the advantage, does it?

What's more, it has girls. And girls overachieve, excelling at all that girly-swot academic stuff, which is bad for boys' self-esteem. It is better for boys to go to a sporty school, one with built-in advantage. That way, they'll always be ahead.

6. How far will the bailout psyche go? Labour MP Chris Hipkins brings the privatisation of ACC into the bailout debate. He supported the AMI bailout.

But it highlights the risks involved in another National government policy – the privatisation of ACC. Under National’s privatised model of accident cover (they try to dress it up by calling it ‘competition’ but it’s privatisation by any other name) a private accident insurance company, faced with an unforeseen influx of claims due to a disaster such as an earthquake, could find themselves in the same boat as AMI does now.

I asked Nick Smith in Parliament a few weeks ago whether or not the government would guarantee Kiwis that if their private ACC insurance provider collapsed they would still be covered. Naturally he evaded the issue. He had no choice really. If he’d said no, he’d basically be saying that privatisation would mean thousands of New Zealanders could find themselves without cover. If he’s said yes, he’d basically be writing a blank cheque to the insurance industry.

From the right

7. Oops. The PSA (the Public Service Association, not the Kiwifruit disease) started up an on-line billboard campaign in reaction to Finance Minister Bill English's 'nice to have' comments. It seemed quite a good idea, except for the fact it was rather easy to hijack. David Farrar at Kiwiblog picked up on some of his favourites (which have been removed from the PSA site, due to 'malicious hacking', funnily enough).

Here's a version of a good left wing one that the PSA were looking for:

And here's a version by a malicious haker attack:

8. Poor Mark Hotchin. Cactus Kate has a long go at the judiciary over the fact Hanover Finance Director Mark Hotchin has had his NZ assets frozen for four months, yet no charges have been laid.

The SFO investigation into Hanover was meant to be well completed at Christmas. As was the Securities Commission's as to whether to lay criminal charges. It has dragged on and on. Regardless of the reasons it is now becoming ridiculous.

Hotchin has even claimed that he hasn't been told what is being investigated. That is there is no specific reference to what he is being investigated for other than a general poke and feel around based on HUtu (Hanover Utu) and sensationalism running rampant in the media and in the public along with all other finance companies. A "fishing expedition" as we call it.

S60G of the Act broadly allows freezing in three situations:

- criminal prosecution have begun
- civil proceedings have begun
- where securities commission are carrying out an investigation into acts or omissions by the defendant.

While Hotchin isn't the favourite public figure in New Zealand, this case is making for ridiculous precedent. In the meantime Hotchin has had to pay bills, sort creditors and keep businesses moving and progressing. He also owes money to the IRD. I wonder what the IRD feels about the freeze order and whether they will apply to have it lifted themselves to be paid? The taxman waiteth for no one.

And Cactus also has some of those malicious PSA billboards.

9. Labour and Cunliffe are grasping at straws. Keeping Stock has a go at Labour Finance spokesman David Cunliffe for calling the South Canterbury Finance news this week a disaster of epic proportions.

No; it's not good that the Crown had to bail out South Canterbury Finance. But in the greater scheme of things, how does $300 million stack up against the thousands of lives lost in three humanitarian tragedies in barely the last year? The bottom line; it doesn't.

To call the South Canterbury Finance bailout a "disaster of epic proportions" is the worst kind of hyperbole, especially when it was the Labour Government that first conceived the Retail Deposit Guarantee Scheme. Labour and David Cunliffe are grasping at straws in an increasingly desperate battle for relevance.

Perhaps John Key should call Phil Goff's bluff and have the Government resign en masse, forcing an early election; giving the opposition turkeys an early Christmas seems like a pretty good idea right at the moment ...

10. Video. Good fun in Parliament yesterday. Shane Jones...Linda Lovelace...Tau Henare

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11 Comments

Comment Filter

Highlight new comments in the last hr(s).

#1 "it's beyond me why they're averse to debt to fund a massive capital reconstruction project." Where has he been for 3 years? My understanding of the situation is that NZ, and the rest of the world, are already in a heap of debt! And hasn't the govt taken on more since the quakes (subsidy packages, possible AMI bail out etc)? I'd hardly call that being adverse to debt.

#2 'the left is happy to support the middle classes who could afford insurance and are unwilling to take on the risk associated with it". Errr, excuse me, what risk associated with it?? When I took up insurance, I was under the impression that I was protecting myself from risk, not taking it on! If I wanted risk I'd gamble all my savings on the sharemarket and with a dodgy finance company...and I wouldn't be paying for home, contents, life and car insurances. Gosh it seems I've got everything backwards. Either that or I really am too naive.

#4 Wouldn't it be nice if the NZ authorities were half as quick as Japan at actually doing something to get things back to some kind of normality...

#5 "And girls overachieve, excelling at all that girly-swot academic stuff, which is bad for boys' self-esteem." That's a good one :)

It's started and it's not going to stop any time soon......!

 "The European Central Bank will raise interest rates again in July as it battles to push inflation below its 2 percent ceiling, a survey of economists shows.

Policy makers will follow yesterday’s increase with 25 basis-point steps every three months, taking the benchmark rate to 1.5 percent in July and 1.75 percent in October, according to the median of 20 estimates in the Bloomberg News survey. The pattern will continue in 2012 with increases every quarter, so that the key rate reaches 2.75 percent before the end of next year, the survey shows."

http://www.bloomberg.com/news/2011-04-08/ecb-might-raise-rate-to-1-5-in-july-in-trichet-effort-to-tame-inflation.html

Meanwhile down here in ponziville our Bollard has gone all out with cheaper for longer, handing a short term suger boost to the indebted in an effort to jibe some "confidence" into the market...fat bloody chance of that. All he has achieved is to rob savers of returns. The ocr is below the inflation rate! ....go figure....Take a look at how the poor policy is pushing up fuel prices...our dollar ought to be over 80US to counter Bernanke's mousemoney madness that is the froth in the commodity markets.

Post the election Bollard will have to set a bomb off under his ocr number. Then we will have some fun to see.

 "...the early signs aren't good. It's worth asking again: what was it all for?" BH in the herald.

Bernard expected what the spin promised....never mind Bernard, there's always more spin to come.

As I expected, the peasant population has taken a good two years to wake up to the reality of recession...the bubble downside...made worse by the finance sector thieving losses...the two quakes....the rotting buildings fiasco...pisspoor govt...greedy councils in a grab for money...rising commodity prices thanks to Bernanke....creaping inflation eating at any savings...made worse by Bollard's confidence ocr pre election political move....

Of course not everyone believes we are in a recession and needing to reduce the splurge...just ask the governor general.

And there is pork to buy Pita's vote in Parliament.

Now the survival of the ponzi economy depends on Bernanke not ending his mouseprinting games because if and when he does, you can kiss bye bye to the fatter export returns...'crump' goes another revenue stream for English...and we all know it is the current account deficit figures which will see the liar ratings agencies pull the support from under the govt....hello higher cost of credit...deeper recession...less revenue for English...where to from there?

Think that's all?.....it aint....you have to factor in the piigs farce and european debt mountain.....the Japanese disaster and what it will do to the price for building materials...and the Chch quake building sector pricing scams to come...bashing the crap out of any building in the other regions....oh it will happen...count on it...all of the following will cost a bloody sight more once we get to 2012..: Wood, steel, freight, labour, plastics, aluminium, glass, concrete, council fees grab, the list includes everything you would need to build a house. Plus gst on top.....!!!! And I didn't mention oil....

excellent summing up there dear wolly

And despite all that, the Wankers, sorry bankers, think NZ will rebound strongly later in 2011

YEAH RIGHT!!!!!!!!!!!!!!!!!!!!!

 

The RWC will not bring a rebound...the Chch building activity will not 'kick off' until late in 2012 and will bring a rush of price increases and higher labour charges and council fees and oh feck everything else.

Bernanke will face the boot come the end of 2012 because Obama will get the bums rush. That will mean Bernanke will begin to switch sides and start talking up the dangers of poor fiscal govt management...never mentioning his pisspoor monetary policies...so we will get the return to depression usa because the mousemoney will stop..the debts will remain...the corporate splurge will end...unemployment will push higher...interest rates will explode higher and the bond market will be trashed.

Enter Bill English..wearing a massive debt outfit and looking gloomy...which is not surprising as he will know but refuse to say, that the economy is well and truely in the shite. The once talked about export commodity prices will be gone as the world markets do an 08 back to the future collapse. Who will be able to afford to buy the 'stuff' when so many are stuffed!

Here in NZ the difference between the salary bloated civil servant 'cream' ( who can count on never going without a pay rise and perks of their positiions) and the mob of low paid whom English is now suggesting will represent a plus to attract foreign companies ( yes he is serious)...well the difference will become so stark you can expect the bricks and rocks to start flying.

Again the warning...stay away from bank debt...get out of debt...become self sufficient every which way you can.......it's set to get a whole lot worse.

 "He( thompson) believed buyers had reached the conclusion that values were at the bottom of the price cycle, the economy was looking likely to rebound in the next year and interest rates were historically low." herald...]

He is wrong on all counts......buyers with the money reached the conclusion that investing it anywhere else risked a loss on capital as the Kiwi$ is debased or losing capital in an equity collapse as the economy worldwide wakes up to the downside of trillions more to be lost. For them property looked safer because they know bloody well the govt will in the final stages of this crisis, open the immigration gates and flood the place with migrants, rich ones of any ilk...even the Gardarfi's of this world will be asked to come.....The goal to pork the property and building sector ....back to the future we go.

The economy is looking to get worse as rates are expected to rise..activity to decline...labour to exit for aus....the fiscal hole to become Bill's black hole...

Finally the hint that rates will not rise...how could they do so from an historically low level....how indeed. ....Do you think rates will not rise...well do you!

For just about the first time in my life I found myself enjoying and agreeing with a Michael Laws article in the Sunday Star Times

It's well worth a read

Basically its about how incompetent corporate NZ is, and how it was a mistake to bail out AMI  

My faith in NZ "Inc" was finally broken last week, its been teetering near the edge. I am now actively looking for opportunities in Aus, I have totally lost faith in this country, sadly, and see little future for myself or my children

Matt, I think you have a lot of company regards your lost faith in NZ "Inc".

All those efforts by our political and economic elite to "maintain confidence" are resulting in the opposite effect.

Colin, yes I think you are right. the tone of much of the written media in recent days has been quite sombre, I think many are at the end of their tether with this place and its incompetence

Its very depressing when the front page of today's Herald proclaims the rise in Auckland house prices, we have not leanrt a F%^&&en thing these past few years have we

very very sad 

"The Labour Party has put at least seven newcomers into winnable slots on its list - released this afternoon - most of them with a union background. Former party president Andrew Little secured the highest spot for a newcomer…' herald

Harrrrrrrrr hahahaha   what else but Union bosses...just as it is across the ditch...let that lot get to the pig trough and all bets on any sort of recovery will be off. It'll be 'back to the future' with slices of benefit pork  dished out by the ton....imagine Little have controlling power over a Labour govt....forget catching aussie..we would find it hard to hold our own with Cuba.

 

 

Obama to Propose New Deficit-Cutting Plan, Plouffe Says

 

U.S. President Barack Obama will announce a long-term deficit cutting plan, said White House adviser David Plouffe. Photographer: Olivier Douliery/Pool via Bloomberg

President Barack Obama, following up on the budget deal he reached with congressional leaders that averted a government shutdown, will announce long-term proposals this week for cutting the federal deficit, White House adviser David Plouffe said.

The president will set specific deficit-reduction targets and a timeline for reaching them, Plouffe said on CNN’s “State of the Union.” Obama will use a “scalpel, not a machete” and take a “balanced approach,” Plouffe said on “Fox News Sunday.”

The tense negotiations between Obama and congressional leaders that produced a last-minute deal two nights ago to keep the government operating underscored the difficulties to come. Within weeks, the government may be forced to increase the $14.3 trillion federal debt ceiling to ensure the U.S. will meet its financial obligations. Republicans said they will demand major concessions on spending before agreeing to raise the debt limit.

House Majority Leader Eric Cantor, a Virginia Republican, said on “Fox News Sunday” that Republicans will demand guarantees on cutting entitlement spending. The American people “don’t want spending to spiral out of control,” he said.

He also questioned Obama’s sincerity as a budget cutter. “For the past two months, we have had to bring this president kicking and screaming” to accept spending cuts, he said.

A Second Recession

A failure to raise the debt limit “will spin us into a second recession,” Democratic Senator Dick Durbin of Illinois said on CNN. Senator Charles Schumer, a New York Democrat, said on CBS’s “Face the Nation” that failing to raise the debt ceiling would be “playing with fire that could actually have the credit markets stop taking U.S. debt.”

Republican Representative Jeb Hensarling of Texas, on CNN, emphasized the need for spending cuts over increased borrowing.

“At some point, you just got to quit spending money you don’t have,” he said. “I do not want America to default on its debt. But the president is going to have to start the process of cutting up the credit cards, pure and simple.” bloomberg