jamesz

Crafar decision overturned

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The Court has now decided that the OIO’s decision was a poor one. I’m no lawyer, but the key point of the decision seems to be that the OIO used the wrong counterfactual in assessing the benefits to New Zealand.

For any cost-benefit analysis, such as the OIO has to conduct, one of the most important elements is the baseline that you assess the projected costs and benefits against. It is called the counterfactual, because it is the situation that you you think will prevail if you don’t do the thing you’re assessing. One of the most basic mistakes in such analyses is to compare future benefits to the current situation, since it is extremely unlikely that the current situation will be unchanged in the future. For example, if Milk NZ doesn’t buy the farms then someone else will at some stage, and they will then do some work and try to turn a profit from the land. Thus, the land won’t remain in its current state if Milk NZ’s purchase is blocked by the government; yet, that is exactly what the OIO assumed would happen!

So it sounds like a good decision by the Court and I’m really surprised that Key has been saying that the test has changed, unless he’s referrring to a different part of the decision. If the OIO is routinely conducting CBAs by comparing the factual to the current state then its hard to have much confidence in their assessments. Hopefully that is not the case and this was merely an oversight. Either way, this isn’t a decision against Milk NZ and Pengxin: it reflects poorly only on the OIO’s work and probably won’t change the final outcome.

Update: Bill Kaye-Blake thinks about it a little more generally.

Matt Nolan

What does market monetarism say about NZ during the crisis?

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The Money Illusion has popularised the idea of market monetarism, leading to strong claims overseas that there needs to be more monetary easing.  This is all well and good, and in fact I long agreed with many of the policy recommendations that have been stated (although I am not a complete proponent).  But if we were to look at the nominal GDP numbers for New Zealand (NGDP) what would it tell us?

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Matt Nolan

Is that an inflation target …

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Or are you just flirting with me Bank of Japan?

In truth the BOJ has tried to hold back from an explicit 1% inflation target, and is just discussing it as a “near term goal”.  While this isn’t as positive as the Fed move to an explicit inflation target, and Australia and New Zealand’s long-term policy of having an explicit inflation target and printed rate track, it is an improvement.

With Fed and BOJ policy improving, credit markets in Europe consistently settling since mid-December, implied volatility on markets way down (the VIX), and the cost of credit down significantly in the past 6 weeks we could be seeing a real improvement on financial markets.

What does that mean in little old New Zealand?  Well our higher exchange rate is tempering part of any stimulus coming from offshore, while its up to the RBNZ to keep an eye on the rate track.  If financial conditions look like they are going to improve in the near future the Bank may suggest that they will be lifting rates in larger chunks when they do get around to it.  It will be interesting to see what happens when we get to the March meeting.

Matt Nolan

Australia and New Zealand in monetary policy

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Sorry for my lack of posting recently, my high level of disorganisation is taking its toll at what is quite a busy time for some reason.

As a result, I will post today with a comment I wrote somewhere else – hopefully, one day I can do a real post on this issue 😉

Over at Money Illusion Marcus Nunes links to an interesting post comparing monetary policy outcomes during the GFC between Aussie and NZ.  One conclusion is that, during the GFC both central banks did some good work – but Aussie was better (from the market monetarist standpoint).

I stab down a reply stating that I think this is unfair on the RBNZ.  I list some reasons why and discuss.  Key points are:

  • I think that the potential output gap suggested are wrongish,
  • In per capita terms the divergence is much weaker,
  • Australia had more of a TOT boost – which needs to be taken into account in this framework,
  • New Zealand suffered a myriad of other “supply side shocks”, which even in the market monetarist framework are expected to lead to an ex-post deviation from trend even with an optimal central bank,
  • If we stretch things out for the latest data, and look in per capita terms, the RBNZ appears to have got us back to this “trend” once we were finally free of the effects of drought, earthquakes, and regulatory changes.

The one argument I can see pulled out against the RBNZ is the same one being pulled out about the BOE – that they changed the structural framework in banking without compensating for any current drop in money supply indirectly linked to this change.  However, even this is a bit rough – given the high level of uncertainty about the impact of those structural changes … in essence “ex-ante” they will have been taking this into account (they were saying it), the impact may have just been larger than they reasonably expected.

Matt Nolan

Wages and costs in December

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So the latest labour market statistics are out … and since the “quality-adjusted wage increase” (what is actually just inflation expectations) exceeded “inflation” (proxied by annual growth in the CPI) I thought people might say something about it.

I mean hell, when it was the other way around we didn’t hear the end of it – even when we pointed out why the comparison was weird, and why there were specific one off factors behind the shift.

Now the data is out, its been 30 minutes, and all I see is this and this.  Nothing wrong with what they’ve said per see (although it would be nice to point out that the wage increase is for a fixed quality and quantity of worker) – but if they were so keen to make it sound like New Zealander’s were getting poorer before, why not say they are getting richer now.  At least be consistent right … 😉

Update:  Ahh but this happens everywhere right.

Matt Nolan

New blog: Test pattern

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There is a relatively new blog around called the Test Pattern, that gets a few individuals together to debate specific public policy issues in written essays.

The current debate on the blog is around performance pay for teachers, one such discussion around its merit (or lack of) is given by Robbie Allan here.

What do I think?  I have no problem with performance pay in of itself, but it relies on low cost measures of performance.  In an area like primary and secondary school education, how observable are outcomes?  If we can’t observe actual outcomes well, performance related pay may in fact make outcomes worse – not just by leading teachers to fake results, but by convincing teachers to invest in the “wrong parts” of education.

Hell, when it comes to education do we objectively even know what areas provide the most value?  Until we really face the issue of what performance really is, the entire concept of “performance” related pay is relatively redundant.