How could the first half of the year only be a 0.5% decline in GDP?
That is the topic of my Dom Post article this week.
Dom Post editorial: Outlook
The Dom Post had a good editorial today – it can be found here. (ht the Hive)
While most economists out there appear to be turning to sensationalist comparisons of today to the Great Depression, the Dom Post has written a balanced editorial that captures how the ramifications in the credit market may impact us through the borrowing channel – namely, higher interest rates for a highly indebted nation.
September 2008 business confidence
National Bank consumer confidence has come out and (August here):
First positive result since May 2002. Own-activity expectations are rising. Capacity utilization is climbing. Profitability is climbing as cost pressures have eased. Employment intentions have improved (consistent with returning capacity pressures). Inflation expectations are still high – but the fall in cost growth has pushed it down in September.
Interestingly, the biggest rebound in confidence was in construction – the same sector that has reported a historically poor set of results over the three months to August on Tuesday.
We are not immune from the global slowdown, but just remember the two main channels the credit crisis will get us through: Interest rates and our terms of trade. These are the two factors we need to keep an eye on, and I can’t see them deteriorating enough to prevent a mild recovery in the domestic economy over the rest of the year. But we’ll see.
NZ Tax cuts are coming: Time for calculators
Tax cuts are coming tomorrow, there is excitement in the air. First tax cut after a decade of effective tax rate increases (through fiscal drag). And what an interesting time for it, as we go through the largest financial crisis since the Great Depression.
Still don’t forget that there are tax cut calculators available here and here namely:
- Infometrics: Simply type in your income and get your tax cut
- Labour: Has disappeared – is now here (ht Agnitio)
- NZIER: here, calculates the PPP adjusted income difference between Aus and NZ, and allows you to take into account WFF
- Deloitte Tax Cut Calculator: Compares NZ and Aus tax cuts
Update: The Standard asks a good question “what are you going to do with your tax cut”. Me, I’m not aiming to change my level of consumption and so it will flow into my savings.
How does this fit in with Ricardian equivalence?
Warning, boring description of my optimal consumption allocation follows below the tab
Does the credit crisis indicate the failure of the “free market”
Matt McCarten was someone I enjoyed listening to when I was a young Alliance supporter many years ago – however, even in the heyday of teenage communist sympathies I would not have agreed with his conclusion that the recent credit crisis is undeniable evidence that voluntary trade does not work.
Now Kiwiblog and Anti-dismal have already gone to task explaining why they don’t believe this is a fair criticism of free trade, and good on them I think they are on the money (David Farrar focuses on why the criticism doesn’t sit well while Paul Walker paints the case for regulation being the cause of the problem – more here). The Hive also mentions dis-satisfaction with his choice of historical comparison. However, even after reading these posts you may still harbour some confusion surrounding the fact that I said voluntary trade instead of free markets.
Ultimately, his criticism of the “invisible hand” draws out something incredibly naive about the point of view that the free market is bad. Supporters of the free market are not so much saying that corporations should be allowed to manipulate information and “defraud” the public as they are saying that voluntary trade among groups is a good thing.
If two people choose to trade, it must be in their benefit and therefore giving people the freedom to trade is an important part of a society – this is what free trade represents.
New Zealand’s second biggest concern from the Sanlu scandal
Obviously the biggest concern from this scandal should be the loss of life associated with it. However, the next biggest issue from a New Zealand standpoint is the potential loss of income associated with the damage to the “New Zealand brand”.
Now if Fonterra was taking into account the risk and return associated with their investment in Sanlu I would have little sympathy for the business in this case. However, according to Rod Oram poor governance in Fonterra ensured that the business owners (the farmers) were put into a situation where risk and return were not taken into account appropriately, and as a result the loss of domestic income was the result of poor processes that were entirely avoidable (ht The Hive).
Furthermore there is a negative externality here.