The previous Labour government bestowed a legacy upon NZ that included the first ever review of broadcasting regulations.
Essentially the question being asked in this review is: does the current market situation warrant government intervention?
Excellent article by Tyler Cowen in the New York Times. (ht Economists View, Marginal Revolution).
Paul Walker at Anti-Dismal has also covered this issue heavily (here, here, here, here, here, and here).
Fundamentally, for New Zealand, there appears to be no reason for any change to fiscal policy to help deal with the slowdown – something we have discussed here.
Show me the actual “market failure” – then we can figure out how the government can improve outcomes. If there is no market failure, then government action to “stabilise” the economy will simply make matters worse.
Note: This is different to government actions to try and help cushion the impact of a sharp change in fundamental economic conditions. Although a change in the economic situation may change the optimal allocation of resources, a labour market that allows people to upskill and gives them firm institutions to rely on in the bad times will help to reduce the welfare cost associated with the change. This is subtly, but importantly, different from a simple “fiscal expansion”.
It appears that the UK wants to spend their way out of a recession. The US has a plan too, as does New Zealand, Europe, and Australia. Governments all across the world want to spend their way out of a recession – however, there is only three ways they can get the money together.
Assume that monetary policy will act to constrain any excessive “money printing” that will be going on this leaves us with borrowing.
If all the governments in the world want to increase their borrowing, this will increase demand for global credit, which will push up interest rates – won’t it? This will lead to an increase in private savings, and will just move around the allocation of resources rather than creating wealth.
There is no free lunch when it comes to “getting out of a recession” – give me the “market failure” we are facing, then we can talk about improving outcomes!
Sorry for linking to the Standard twice in one day, however they have written about a couple of things I wish to touch on recently. In a recent post Irish Bill states that:
One of the things I like about being left wing is how often the best moral decision is also the best economic decision.
Take economic stimulus for example.
Now, on the first point I would state that the best policy decision and the “morally right” decision always match when you are a utilitarian like me. Getting the two to separate in anyway involves making some pretty specific assumptions and what a “economic decision” is and what a “moral decision” is.
Still this isn’t the point I was interested in discussing – I was interested in Irish Bill’s belief that a stimulus package is good policy in the New Zealand environment. In a credit driven slowdown like the one we are facing a stimulus is not the way to fix things as we are not suffering from a “demand deficiency” – or at least not the type that cannot be solved with monetary policy.
CPW has requested that we cover the Standard’s coverage of the National-Act coalition agreement, specifically this section:
National/Act agree to close the ‘income gap’ between Australia and NZ by 2025, requiring ‘3% productivity growth per year’. Which is just economic techno-babble. What ‘income gap’ are they talking about? GDP per capita or wages or what? And how would a faster rate of productivity growth close this gap? Anyone who knows what productivity is (the amount of wealth produced in a unit of work) knows that merely increasing productivity doesn’t necessarily boost GDP or wages. GDP = productivity x work done. So, GDP not only depends on productivity it also depends on how many people are in work. And boosting productivity doesn’t lead automatically to higher wages – wages are determined by supply and demand in the labour market, nothing to do with productivity. In fact, productivity grows faster when employment drops because it’s the low quality workers that lose their jobs first and lower quality capital that sits idle first, but wages don’t go up because there is more slack in the labour market.
After reading it we felt that a non-biased explanation of the “economic techno-babble” was in order.
The more I read political blogs in the lead up to the election, the more I realise that media and politicians like to paint issues in a way where they have arbitrary goals – such as “increasing the domestic sale of New Zealand made goods”.
However, there is no reason to presume that these goals should be the purpose of policy – after all we do not know how or why these goals were formed. The overall goal of policy should be to improve net happiness in society – a broad, and also relatively arbitrary goal.
Now there is no way that people would agree on the set of policies that would do this. But if we set ourselves up to achieve a certain “goal” then we are implicitly taking into account the costs and benefits of the policies that will achieve this goal. In current media and political analysis the focus appears to be on the “good” of a policy or the “bad”, which is fine. However, they don’t directly try to weigh the two before making a conclusion deciding to either go with one or the other. This is irritating because it is the weighting of costs and benefits that is the primary purpose of the political party – which implies that the functioning of political parties and the media is not transperant.
Ultimately, it is important to remember that whatever party is in power will have certain value judgments surrounding the weight of these costs and benefits, which will be revealed by the way they discuss certain policies. We cannot trust a single political party or media organisation to give us these weights and as a result the “goals” that they focus on are misnomers – reducing carbon emissions has a cost, getting people to buy domestic products has a cost, there is no free lunch.