Infometrics

Is current spending unsustainable?

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Recent statistics indicate that households are ramping up the number of goods and services they are buying.  With debt levels still elevated and the spectre of the Global Financial Crisis still fresh in our minds is this a cause for concern?  Gareth Kiernan indicates that perhaps current spending behaviour is more ‘sustainable’ than meets the eye for two reasons (Infometrics link):  Price growth has been weak (holding down the increase in the value of spending) and ‘quality adjustment’ has been substantial.

So although growth in the total value of household spending has picked up over the last year, it is not out of line with historical norms – unlike growth in the volume of spending.  In simple terms, consumers have been able to purchase more goods and services without having to stump up more cash.

Infometrics

A view on debt in the dairy industry

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After the most recent Financial Stability Review in New Zealand, Benje Patterson has decided to have a look into whether dairy farm debt really is a significant financial stability risk – and what this means for macroprudential policy (Infometrics link).  His conclusion:

On balance, it seems that a sharp correction to both dairy and farm prices is an unlikely scenario at present.  This conclusion implies that risks to financial stability are contained for now, but the Reserve Bank’s warnings regarding dairy sector debt still provide a prudent and balanced starting point for a discussion of risk.  Even so, this does not mean the Bank’s comments should in any way be interpreted as a prelude to LVR restrictions in the dairy industry.  The Reserve Bank knows full well that such restrictions could lead to inappropriate distortions to investment incentives and the ownership structures of farms would make dairy LVR restrictions unworkable in practice.

It is a risk that we must be mindful of, but there seems to be no sensible reason for loan-to-value restrictions for farmers (in any way of defining such restrictions).  Do you agree?

Matt Nolan

What are we asking with productivity in NZ?

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Danyl posted about the recent Productivity Commission paper on Australia vs NZ productivity differences recently.  If you ignore the politics and conspiracy (the timing of the paper was well known and they were asking people to write about it, hence why I wrote this at the time) he asks a good questions, why have we seen relative productivity drop up?

I gave a fairly casual response in the comments – which was ignored as other people busily made things up 😉 :

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Matt Nolan

Some links against a Living Wage

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With the Living Wage idea cropping up around the place, I’ve noticed a couple of places where there have been criticisms of the result:

  1. A review by Brian Scott, where he points out that many of the defined “needs” required to get this wage are in fact not things some people in society would put in their defined “minimum” – this raises an interesting question of “what is poverty”, something we will lightly touch on here on Monday 😉
  2. An analysis from Treasury based on their arithmetic microsimulation model (Taxwell).  This essentially says “if the change in the minimum wage caused NO change in behaviour, who are the people who would see their income increase”.  So this DOES NOT rely on any employment effects or the such (although they will occur in New Zealand, given how high this would push the minimum wage relative to the average wage) – and it shows that most of the benefit in this optimistic scenario does not go to the group the Living Wage campaign wants targeted.

Now some may say that this is a suggestion to businesses, not a demand for policy.  That is fine – I remember working at the Warehouse and being paid a bit more for that role as part of their desire to build a “community” among staff.  And it was good.  But if it is just a request for firms to consider, why keep yelling at politicians?

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Matt Nolan

New Year’s Resolution: Get a handle on inequality in New Zealand

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It is 2014, isn’t that nice.

As I’ve promised, this year I’m going to write more on income inequality (and broader issues of inequality) when I get the opportunity.  With the recovery in the labour market and economy running above expectations, there may be less need for us to comment on macroeconomic issues here – a welcome change from when we started posting and the Global Financial Crisis took root.

However, this isn’t really an issue that an individual, or even a single discipline, can cover in the detail it deserves – so I am hoping that a wider variety of individuals from the broad church of social sciences can come visit us here to deliver guest posts on the issue.

Furthermore, we’d like to think about this in a New Zealand context – we mostly write about the New Zealand economy here (although James is doing a good job covering the UK), and recognising how different the issues are here than overseas is important.

This thinking is important.  As Len Kenworthy says (via Economist’s View):

I believe, as I said earlier, there are good reasons to object to the high and rising level of income inequality in the US. Yet I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1%’s share or the Gini coefficient.  That could distract attention from more direct and effective efforts to address those problems.

This is a view I agree with, and one of the key issues I had with the suggestions put forward in the Spirit Level.  Questions of policy are not easy, and trying to flesh out both a description of the trade-offs involved and an admission of the principles of fairness we may value are essential before we can even think of reaching a policy conclusion 😉

 

 

Matt Nolan

Productivity Commission on NZ vs Aussie productivity

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Recently I’ve been talking a bundle about inequality in incomes, and fitting it within an idea of “equity”.  However, as we’ve chatted about, policy choices often involve conceptualising an equity vs efficiency trade-off.  A fundamental part of how we understand where we are in relation to this trade-off, especially with reference to “efficiency”, comes from thinking about productivity.

With this in mind, the Productivity Commission has been thinking about New Zealand’s productivity performance.  And given that along many characteristics New Zealand and Australia are similar they have decided that looking into the productivity gap between these countries helps us to understand this issue.  This led them to release a working paper titled “Investigating New Zealand-Australia productivity differences:  New comparisons at industry level” on their main site (links can be found here).

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