Matt Nolan

The spectre of unemployment

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For me, there are two categories where the costs of rising unemployment fall (ignoring any indirect costs through taxes and benefits):

  1. The costs of an unemployed person/resource (so their pain, and the fact that we have a market that isn’t clearing),
  2. The costs to those who become scared that they are going to become unemployed.

Often when we think of recessions we think about people who become unemployed – as it is hard for them. If you are an economist you probably also think about how much the under-utilisation of resources vexes you (I know I do).

However, the cost of fear, and the uncertainty that comes with it, can be just as devestating – just ask 1 in 5 New Zealander’s.

As we have mentioned before – the costs of a recession fall disproportionately on those that lose their jobs. However, the very human attribute of fear ensures that some of the psychological cost is indeed spread around.

Update:  Although this does mean that 4 out of 5 people aren’t scared of losing their jobs at present.  Are we that safe, or is their more fear to come.  I think that the economic situation could be much stronger than some economists are stating (stronger than the NZI 11% UR call, or ANZ’s 8%) AND we could still have more households becoming fearful.

Matt Nolan

NZX at a five year low

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So the New Zealand stock exchange is at its lowest level in five years.  So what’s going on?

  1. Has the market been over-valued this whole time?
  2. Has the value of our capital (the implied future earnings of that capital) really fallen levels unseen in five years?
  3. Is the market over-reacting?
  4. Or finally, is the NZX-50 just massively unrepresentative of the actual performance of New Zealand capital?

However, to put our fall in perspective, the US S&P has just hit a 12 year low – and that is a much broader index.  I find it hard to believe that the value of capital in the US is down to its 1997 level …

Matt Nolan

Unemployment over 11%?

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NZI has suggested that unemployment may go over 11%.  Now although it sounds like this estimate is no more than random conjecture (the countries in the Rogoff study are not comparable to the New Zealand case), it is still worth putting what this means in some historical context.

unemploySource (Infoshare)

The time axis above gives us the “number of quarters”.

So during the recession of the late 80’s in NZ, when we suffered a massive shock to wealth (falling stocks), bank failures, threats of a credit downgrade, tightening fiscal policy (because of our high sovereign debt), tight monetary policy, a falling terms of trade, structural adjustments in the economy (as we dumped tariffs etc), and we had relatively inflexible labour and goods markets – unemployment peaked at 10.9%.

Now even if we believed the situation in NZ is as dire now (I think it is in some places overseas – but not here) it is important to note that it took five years for unemployment to get from 4% to 10.9%.  Even in a worst case scenario I think we can expect the adjustment to be similarly elongated this time.

Will Taylor

Why Black?

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You may be wondering why our website is black today, we have joined the New Zealand internet blackout protest against the new Guilt Upon Accusation law ‘Section 92A’ that calls for internet disconnection based on accusations of copyright infringement without a trial and without any evidence held up to court scrutiny. This is due to come into effect on February 28th unless immediate action is taken by the National Party.

Note that this law was passed by the previous Labour government, but inaction by the National government is just as bad….

More information available here

Will Taylor

LEANZ March 09 Auckland Seminar

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This month’s seminar by the Law and Economics Association of New Zealand (LEANZ):

Topic: Perspecitves on the ‘credit crunch’ and the state of finance markets

Speaker: Brendan O’Donovan, Chief Economist, Westpac

Date: Tuesday 10 March 2009

Venue: Chapman Tripp, Level 35, ANZ Centre, 23 Albert Street, Auckland

Time: 5:15 pm for a 5:30 pm start, followed by refreshments

RSVP: to: jenniene.fleming@chapmantripp.com

Topic

As talk of the ‘credit crunch’ has given way to assessments of how long and how deep a recession will be, it is more important than ever to get an informed perspective on the negative and positive features of financial markets here and abroad.

Speaker

Brendan O’Donovan has been Chief Economist with Westpac since 2003. Previously he has worked as Chief Economist for National Bank and worked as a macro-economist at the NZ Institute of Economic Research. Brendan has been published in NZ and international journals. He is a regular on the speaker circuit and is frequently providing comment to the media.

Matt Nolan

The baby boom: A result of what?

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According to Mansoor Khawaja from Statistics New Zealand, the recent baby boom is the result of:

young women … refusing to follow their mothers’ decisions to have few children later in life

I don’t know – I might be a bit more cynical and suggest that young women are more likely to have children now because the government is subsidising it (eg Working for Families).  Of course this may turn out to be testable as:

Professor Pool and Mr Khawaja expect the recession to have a dampening effect in the next few years

While in my view, the fact that having a kid provides a guaranteed and stable income (from WFF) would actually increase the value of having kids, leading to a greater number of kids being born.  Although I guess this would be counter-acted by the potential loss of the tax credit (from lower hours, or potentially from the loss of a job).