Over at Anti-dismal, Paul Walker links to a paper by NZIER on New Zealand incomes relative to Australia.
In the paper, NZIER states that:
the average living standards of New Zealanders in 2007 were 24% lower than those of Australians (or equivalently, relative to living standards in New Zealand, Australia’s were
32% higher)
However, I am not convinced – not yet anyway. Here’s why:
Our preferred measure of consumer confidence, the Roy Morgan survey, has risen considerably over the last two months – and another set of data is due out of Friday, woohooo. However, this is not the only measure of consumer confidence – ultimately they all have some value.
On Sunday, the Colmar Brunton consumer confidence survey was released for September. This survey was taken mostly before the massive 50 basis point cut to the official cash rate – but according to this document it was still at 23%. This was the highest value of consumer confidence since June 2002!
Source (TVNZ)
In practical terms this seems like an absolute fact – New Zealand has had a recession over the first half of 2008. However, to satisfy the iPredict contract we need a technical recession.
As we have suggested before, the main risk to this contract stems from the March quarter being revised up – as partial indicators are telling us that June will be very negative. If March is revised to zero (or positive) the contract will not pay out.
Now interestingly, Goonix (who is a big fan of iPredict) said that the contract slumped to 0.70c on Sunday (suggesting that there is a 70% chance of a recession) – well down on the 0.93 it was recording a couple of days earlier. Given that Stats released manufacturing on Monday, and needs GDP for the Friday BOP release the GDP number would have been finalised by Friday. Does this imply that some people at Stats have some inside knowledge about an upward revision to the March numbers and have been trading on it? If so, they are going to make an absolute killing!
Over at policy.net, Chris Trotter states (ht Rates Blog):
Keynesian economics was never more than the rational response of decent and compassionate men to the human cost of economic management when reposed in the hands of the avaricious and the uncaring
This is an incredible mis-representation of “Keynesian economics” – however, it is also an incredibly common mis-representation.
Among many on the left and right of the political spectrum there is a belief that Keynesianism is left-wing macro-economics and modern economics (which people attribute to Friedman – even though in general terms his ideas only apply to monetary policy, not the whole shabang). However, as CPW once said to me, the correct comparison is not one of political ideology, but one of science – Keynes was like Newton, while Lucas/Friedman/the crew are like Einstein.
So the Reserve Bank surprised (almost) everyone by cutting the OCR by 50 basis points (there was one analyst who picked it – I can’t seem to find out who it was though). Lets discuss why they cut by 50 points and then move on from there.
The Bank appeared to cut on the basis of three over-riding issues:
Given there forecasts and assumptions a 50-basis point cut was a good call – if the “equilibrium” interest rate has fallen why not just cut rates straight away to get there. However, in the current environment I believe that a 50-basis point cut was not right – as I don’t believe their forecasts (I had the same problem with the forecasts in June a lot of the reasoning is the same as then).
Another kicker for me is what they think will happen to inflation expectations.
Update: A detailed post by Eric Crampton over at Anti-Dismal.
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