The top 10 trends TOP's Geoff Simmons sees driving change in the public sphere

This week's Top 10 is a guest post by Geoff Simmons, economist and leader of The Opportunities Party. 

As always, we welcome your additions in the comments below. If you're interested in contributing a Top 10 yourself, contact gareth.vaughan@interest.co.nz.

See all previous Top 10s here.

When I look at the private sector, change seems to be happening faster than ever before. Although the global economy is hitting clear resource and environmental constraints, technological advances continue to develop at an exponential rate.

Contrast that with the public sector where the pace seems to remain a steady glacial plod. The current administration has promised much and is talking a great game, but actual results still seem a long way off.

I wonder how sustainable this dichotomy is. Will the public sector either reform the way it works to keep up with private sector developments, or will the private sector simply leave it for dust? Or will the public sector instead do things differently, undertaking a radical simplification in recognition that it simply can’t keep up?

Here are the Top 10 long term trends that I am watching because I think they will eventually drive change in the public sphere. The future is coming: the only question is whether we prepare to work with it, or whether we wait for it to be done to us.

1) Financial Fragility.

Debt levels are back above Global Financial Crisis levels, and asset bubbles abound in the west. It seems to be a matter of when, not if, another financial crisis will hit.

The global trading and financial system has no doubt brought prosperity and smoothed out small fluctuations, but this seems to have come at the price of greater fragility overall. The risk of large, unpredictable shocks or Black swan events seems to have risen.

I recently spent a month in the south of Italy and was dismayed by the seeming inevitability of a Greek style debt crisis there. Italy has run a budget deficit for 20 years and government debt is now 132% of GDP. The newly elected populist government have proposed another 2.4% budget deficit this year, which the European Commission have recently rejected as too high.

Such crises seem an inevitable result of currency unions in areas with vastly different productivity rates. Germany is booming with the Euro, but Europe’s south will have to continually drop wages to stay competitive. Nobody likes to do that forever.

Talking to people in the south of Italy they seem resigned to the inevitability of a crisis. They shrug their shoulders and focus on enjoying their pasta and beaches. Why pay taxes when nobody else does?

2) Should We Be Worried About Our Debt?

While Europe struggles with excess debt, there have been calls for our Government to take on more debt to increase their infrastructure investment.

Certainly by international standards our public debt levels are pretty low, and ratings agencies have signalled that an increase in debt wouldn’t hurt our credit rating. Should we get out there and spend up big on infrastructure? Given current conditions if the business case justifies it, the answer is clearly yes. But what risks exist if the global situation suddenly flips?

Firstly, we have risky levels of private debt that are back up to pre-GFC levels. This would no doubt garner close scrutiny if another shock hit. This debt is largely due to speculation on the housing market, which is in turn driven by the supply of easy credit and tax incentives to invest in this asset class. With the Government excluding the family home from any possible tax changes, such speculation is unlikely to change much.

The other big concern is the off-balance sheet risk of our superannuation. This is already the biggest welfare expense we have and will continue to rise from under 5c in every dollar of income now to 8c in 2060. 

If we reformed NZ Superannuation and our tax incentives for housing speculation, I would feel a lot more comfortable with the Government piling into an infrastructure spending spree.

3) What happens when we hit the limits of monetary policy?

Interest rates in developed countries seem to be ratcheting ever lower with every successive financial crisis, never returning to the peaks before. It has been a decade since the last crisis and interest rates are only now starting to rise above zero.

What happens when the next crisis hits? Has monetary policy run out of juice? Central banks will argue that when interest rates get to zero they can always revert to quantitative easing. However, the rise of the positive money movement suggests that the public appetite for that approach is wearing thin.

We need to be debating the details of our Plan B rather than waiting for the crisis to hit. These debates are starting to happen overseas but I don’t get a sense that anyone in New Zealand is seriously thinking about these issues.

4) The Politics of Low Growth.

In his new book Alan Greenspan highlights the importance of productivity growth in the economic history of America. He credits the economic dynamism provided by creative destruction (the “natural selection” of the business sector where new businesses rise and replace the old) and immigration as a key in their past success. Sadly, this is no longer the case – recently productivity has plateaued.

In his view this is the reason behind the rise of populism. Lower productivity means there isn’t a growing economic pie to share around. As a result, everyone turns on each other trying to increase their share of the pie.

Of course, populism could make things even worse in terms of productivity by scaring off skilled migrants and protecting sunset industries. Given the huge challenges that could be looming, the United States looks like it is heading down the path of Argentina. Tango and steak sound fun, but the reality is more populism and poverty.

Of course, Japan shows the limit of Greenspan’s thesis – their economy has been relatively stagnant for some time, but they are not showing signs of social decline. That might be due to Japan’s very high social capital, or alternatively that the United States didn’t do a very good job of sharing the gains from growth during the good years.

Greenspan lays the blame for low productivity in recent years with two factors. Firstly, the burgeoning pension problem is weighing down the productivity of public spending. Secondly the obsession of banks with lending for speculation (first in houses, more recently in stocks) rather than productive investment.

Does that sound familiar? Poor productivity growth driven by private sector speculation and pensions weighing down public spending? None of this bodes well for our political future in New Zealand.

5) Inequality in Education.

Another worrying United States like trend was highlighted by a recent report from UNICEF, which points out that we have some of the most unequal education outcomes in the world. This is partly explained by our higher than average rates of poverty, but also by our education system.

According to Stuff:

Aotearoa ranked 33rd of 38 for educational inequality across preschool, primary school and secondary school levels in Unicef's Innocenti Report Card, which looked at the gaps between the highest and lowest performing pupils in OECD countries.

This is seriously concerning for our own productivity. Inequality of outcomes is inevitable in a capitalist economy, but inequality of opportunity means that we are not making the most of the talent that we have as a nation.

Even worse, this sort of intergenerational inequality breeds a discontent that lies at the heart of what Trump has tapped into in the United States. Education is a key way to break that cycle.

The answer, as pointed out by Dr Jess Berentson Shaw, is to invest early. Free, full time, high quality Early Childhood Education is a far better investment in our children’s future than, say, free tertiary education. Tomorrow’s Schools is also part of the problem through encouraging “white flight” and creating ghetto schools.

6) Drones and the Unconditional Basic Income.

Our education system is also struggling to service the skill needs of the future.

Drones were the subject of huge debate a few years ago when they first appeared as killing machines. Then for a while we were afraid of them getting into the hands of some idiot who would end up flying them into a plane. Now, like many military advances, they are rebranding themselves as friendly neighbourhood delivery vehicles. Amazon are using drones and even floating warehouses to get packages to customers within 30 minutes of purchase.

How do we deal with the shock this sort of technology will have on the workforce in coming years? The World Economic Forum predicts that by 2022 everyone will need an extra 101 days of learning to cope with these changes.

In the face of this uncertainty and upheaval, complex, punitive and bureaucratic welfare systems are struggling to cope. The world continues to awaken to the idea of the Unconditional Basic Income; the idea that everyone gets a certain amount of money every week, no questions asked. It is simple, unbureaucratic and could help people smooth out the fluctuations of the gig economy and the re-training that goes with it.

There is an independent candidate running for President of the United States on this platform. Sadly, he may struggle for media oxygen against his opponents.

7) Terminator & Skynet.

I have long engaged in a debate with friends about which Arnold Schwarzenegger science fiction movie would come true first. I always thought it would be Running Man, especially with the success of the rip-off Hunger Games. Incredibly, it looks like it will be Terminator.

Not only are stair climbing robots well on the way, but an arms race in the progress of Artificial Intelligence is developing between the United States and China. Experts are predicting that within the next decade smart phones will be able to make as many calculations as the human brain. Given exponential progress, the possibilities for both good and evil seem endless. It seems only a matter of time before machine learning sparks into some form of intelligence.

When this silicon intelligence wakes up, what will they think of us and our legacy on the planet? We’d better hope they are truly “Woke”.

8) Biodiversity & Water.

One risk is that if our new robot overlords value all life equally, they might figure humans are the problem.

The latest WWF report shows that we have lost 60% of global species since 1970. Some are calling this the 6th great extinction event. By 2050 it is predicted that only 10% of the world’s land area will be free from the impact of human activity.

Here in New Zealand I am heartened by the success of the Predator Free 2050 goal. This is not only a massive scientific and logistical undertaking, but an incredible community effort as well. I am really excited by all the predator free communities that are springing up around the country.

The more worrying aspect close to home is our fresh water. Some 74% of our fresh water species are threatened or at risk. The key driver here is the way we use our land; in some areas it is erosion and in others it is intensive farming. This story is essentially one of privatising profits (particularly untaxed capital gain in land values) and socialising losses.

The new Labour-led Government is talking about dealing to this problem, but we haven’t seen any action yet. This presentation from Landcorp’s Alison Dewes shows the scale of the problem that needs to be tackled now that the horse has well and truly bolted. In some parts of Canterbury there are risks to some of the humans that drink the water let alone the animals that live in it.

9) Climate & Energy.

Of course, globally the big concern is climate change. The recent IPCC report about achieving 1.5 degrees of warming depressed a lot of people. Personally, I don’t think the world will get its act together in time to achieve this target, which means we need to be thinking about adaptation as well as mitigation. We have to start thinking about the low-lying communities in New Zealand (such as South Dunedin) as those are inevitable disasters on a par with the Christchurch earthquake.

On the mitigation front I have been heartened by attending the Business NZ Energy Council’s Asia Pacific Energy Leaders Summit. Given the current scale of technological change, the transition to renewable energy seems doable without having to return to living in caves.

Of course, considerable debate remains over how this will be achieved. Renewable energies are generally unpredictable sources of supply. The wind doesn’t always blow (except in Wellington), the sun doesn’t always shine, and even the hydro lakes aren’t always full. Yet people expect electricity when they want it, so electricity demand is very lumpy. At the moment most of our fossil fuel use peaks at 6pm in winter when everyone gets home and puts on the heat pump and kettle.

How do we deal with this? Do we get industry (looking at you Tiwai) or people to demand less energy at the peaks, either by putting on a jumper or perhaps by using smart technology to automatically shut off their hot water tanks or fridges? Or do we build much more renewable generation than we need, and use the excess capacity off peak for recharging batteries or creating new “green fuels” such as hydrogen? Realistically we will probably need to do a bit of all of these.

10) Mental Health.

The big trends in health include dementia (ageing), diabetes (cheap junk food), and mental health. As just one measure this year suicide rates were higher than ever before. Research shows that mental health has a huge impact on our productivity, and our workplace has an impact on our mental health.

Of course, the big mental health stories lately have been in Parliament, with senior MPs on both sides of the house having their share of struggles. From my experience in last year’s election campaign, I can see why. We demand an awful lot from our top politicians, and from what I saw most politicians and media got through the election on a delicate blend of adrenaline, caffeine, sugar and alcohol. Being in government is probably no less stressful. It’s not a healthy lifestyle, and it is not conducive to making good decisions. Perhaps like most workplaces we need to give our politicians a bit of space for reflection and relaxation if we want them to be productive and not burn out. A four-year term would probably help too.

As with all things health, prevention is always better than cure. It was heartening to see more people talking about their own mental health struggles during this year’s Mental Health Awareness Week. On that note I’m really impressed to see initiatives spring up like Wellington’s CoLiberate which is running mental health first aid courses in the community and business here.

All in all, the future looks to be bringing its fair share of challenges and risks. I am confident that if we start facing them head on now, our lives will continue to improve.

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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20 Comments

https://www.squirrel.co.nz/blogs/housing-market/storm-clouds-or-fog-the-...

I really enjoy JB's newsletters, he's knowledgable, smart and his views are, in my opinion, well balanced

I like his style too. ""New Zealand’s egalitarian values resonate strongly with younger generations and make us an attractive country for talent. The world is rudderless and full of corrupt self-serving leaders, which is getting worse. We could use our attraction and genuine talent to transform our economy. We should not be selling citizenship for money or bringing in low skilled immigrants to support legacy low-growth low-wage industries. ""

And the sentence after that quote:

If ever there was an opportunity for us to change our future, and improve incomes it’s now, but we won’t.

Interesting list, cheers.

Re 5) I'm not sure we're as smart as we think we are. Education standards have been slipping for 40 years & funnily enough, we have a lot of poor people in our society as well as jails full to the brim. Getting people to want to learn is, for me, the big issue. Some parts of our culture simply do not want to learn. They hate everything it stands for. This is a problem getting bigger not smaller. We can sell our education to offshore clients for good money but there's 20% of the local population who refuse to engage. This creates baggage & bitterness on both sides of the equation. Someone much smarter than me may have the answer, but until we address this key failing within our own culture, we're stuffed. If we're unable to move forward on this, then there's a big future for the jail builders.

I'm sure there are a lot of people who want to learn, but not everyone can take a massive reduction in income for a few years to study to come out the other end with a sizable loan and a shit pay.

There are two problems here. One is poverty. The other is pedagogy. Poor kids need school to fill in the gaps for them that home life fails to do due to the myriad of issues that come with low incomes. It's their big chance to better their lot in life (though doing something about incomes would help obviously). But school doesn't use effective pedagogy. Middle class kids get the reading, writing and maths skills at home that school these days fails to provide due to its emphasis on cooperative and inquiry learning fads and the lack of direct instruction. Poor kids don't get these skills as a result. The solid foundation isn't there and home can't provide it. And so the gap widens and widens as kids can't read well enough to engage at high school with academic subjects. The pedagogy we have adopted is well-meaning but it does the opposite of what it should. It exacerbates inequality rather than "closing the gaps". As a parent, I know the extra work I do with my child to make sure he learns good basics - like solid basic facts and timestables in maths - stuff my parents never had to do for me cause old-fashioned knowledge-based, disciplined, direct-instruction based school did it back in the day. Today's teachers mistake activity for learning. Hence social mobility via education is pretty much dead.

I get that knowing basic timetables is useful - but our grandkids are also learning long division and multiple integer multiplication - but why? Do we foresee a future without calculators? I am forever impressed however with their level of skills in terms of my Windows interface - able to amend settings, troubleshoot problems etc. I see these are far more relevant skills - as they demonstrate really good logic in figuring out such problems for themselves. What also amazes me is the speed with which they read text on screen. Way faster than me.

""long division and multiple integer multiplication"" I can remember learning them at school 60 years ago aged about 8. Can still manage both but it is a skill like riding a bike or catching a ball with each hand - some have it and some don't and it doesn't matter if they don't. I'm sure everyone my age learned their division and multiplication too but most of us have forgotten it.
You need to distinguish between learning that "long division and multiple integer multiplication" as something that is possible and actually developing the skill. I love numbers and arithmetic but would be happy to see my grandchildren doing more playing outside and less maths at school. Introduce the ideas when young and then develop the concepts when they are teenagers. In modern life a feel for numbers is useful but you would get more from playing darts and gambling on horses than you do from the way it is taught in schools.

Those algorithms are very useful later when you have to do algebraic long division say. They also require fluency with times tables. The very process of doing them encourages that fluency. You have to know your tables well and that is vital for all later maths where searching for common denominators needs to be automatic. Cognitive load - we need to reduce it through automatic knowledge. Reliance on tech slows mathematical thinking.
The evidence is there. Outcomes are becoming more unequal not less. The middle classes protect their off-spring with tutoring and help at home. The poor flounder when school doesn't teach effectively in the small window of time they have each day with those kids.
STEM requires good maths. So many of our bright NZ kids can't go into STEM fields at university because their maths is so poor. Because it is poorly taught. So we leave STEM to Korea, Japan and China where they teach maths properly. They use direct instruction and controlled practice and whole class instruction ensuring no child is left behind.
Maths also is the foundation for clear logical analysis. . I believe a solid foundation in maths is essential for participating in democracy. How to understand economic concepts without solid maths? Trust me, I've seen the level of maths our Year 9 students often come to school with. It is scary. And I believe it is getting worse. To my mind, a lot of people think they are being really progressive when they say "oh I'd rather kids were playing outside than learning maths" - but they take for granted the massive advantage they've had in life by getting a solid basic education. They then deny it to the poor in the name of being "progressive". It's well meaning hypocrisy.

I agree with almost everything you say. But apply some maths - at best 50% of adults require maths and logical thinking so why make 100% suffer at school? Times tables - yes I agree learn it parrot fashion with no thinking - that is the proven best way. But long division and long multiplaction using paper and pen - teach them it can be done and where to search for the required algorithm on the internet don't waste their time with excessive arithmetic. Now maths is a different beast - like languages it suits some kids and it torture to others - every child should be exposed to both a foreign language and maths and then let them choose whether to spend their teenage years doing serious maths (do we have any teachers??), aquiring language fluency or doing technical subjects - carpentry, cooking etc (they will require that extra arithmetic).
Meanwhile for those who have a modest aptitude teach them maths as part of a problem solving course.
Despite maths to uni level it took me 60 years to learn that the concept of prime numbers is explained by arranging groups of marbles into rectangles.

I am not schooled enough in the theory, but am curious about the Social Credit perspective on the national debt and their view that our government should not be borrowing from private sources. Can some of the more erudite members offer their opinions here?

Murray86 - get thee to Bill Mitchell's Modern Monetary Theory blog and find much better answers to the concerns Geoff Simmons raises (for example, why does private debt seem to keep rising despite our falling public debt... hmmmm? Why are the dots not joined???).
Our government doesn't need to borrow to spend. It is not financially constrained as it issues its currency. It is constrained by real resources. Government bonds are just private sector savings. Risk free returns for savers.
I fully recommend modern monetary theory to you. It explains why monetary policy and QE etc don't work and why we live in delfationary times.
http://bilbo.economicoutlook.net/blog/
Also go and read Warren Mosler's short book about where mainstream macro goes wrong. And Simmons - despite having a good heart - is mainstream macro.
https://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

"Free, full time, high quality Early Childhood Education" - isn't this just 'free' babysitting while both parents go to work? Wouldn't it be better to encourage one parent to stay at home with the kids by not giving away free babysitters?

Kind of. I think the problem is that what a young child experiences at home varies so much that the inequality has already started. So much reasesrch now points to our need to break these poverty cycles and that the earlier that begins in a child’s life the much greater chance of success. Let’s all start thinking long term.

Great top10.
We'd go a long way to find someone inside politics who covered this span.

Education on the assumption that technology (designed and built by someone else) will always be there, is not education, it's teaching reliance. The way the world is going, I'd rather people who learned to do the math. I still do these things in my head just to keep in practice.

Living with renewable energy is a matter of budgeting and fitting in with nature - no bad approach anyway, considering what we're doing to ourselves. As off-gridders we do the washing, sew, and charge everything when the sun shines. We don't when it isn't. The assumption that we could do everything at whim and on-demand, was a temporary arrogance.

I still do these things in my head just to keep in practice.

And I still go to the library to check out/read books in their physical form. But wouldn't it have been so much better for the planet if books (and magazines and newspapers) in their physical form were banned, now that we have a lower-energy means of providing that information and undertaking that leisure activity?

When I started uni in my first year, we had to learn how to use a slide rule because calculators were banned from use in exams. That archaic nod to the past was amended in my second year, thankfully.

As I see it, one of the problems we face is that when technology improves productivity, we don't regulate out (i.e., ban) the less productive and more energy-consuming past products/services.

I doubt that cloud computing is less energy-consuming than book-production. A book, once produced, is energy-neutral forever. It has the disadvantage of only beeing available for one reader at a time, of course.

https://www.tech-pundit.com/wp-content/uploads/2013

Pays to check before assuming.

No comments about the 'productivity growth' article, I notice.

Law of diminishing returns, is what hamstrings productivity growth. It was once measured against labour (per head) but labour is really energy, and energy efficiencies are a thermodynamic issue - with real unalterable limits.

So productivity gains inevitably tail off - despite the 'free-marketeers' using public wealth to attempt to push it artificially (the Commission). They not only approach zero, they drop below it - it it quite possible to invest more energy into something than you can extract (you probably lost it as low-grade heat).

#9 Solar: Overbuilding capacity is one thing but as in California and Oz, leads to the dreaded 'duck curve' whereby the ramp rate for generation needed when El Sol Sets, requires much more conventional dispatchable capacity than would otherwise be the case. Solar should be accompanied by battery storage, to spread and lower the evening peak. As a working example, my home rig, with 4.8 kw of capacity and 9.8kWh of battery, means no grid needs until the wee smalls and night rate. But just subsidising panels and inverters without storage is the road to perdition, as SA discovers each summer.....