Matt Nolan

RBNZ December 2011 Bulletin

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It’s good – and its pretty easy reading.  You guys should give it a go.

My main focus was on the starting paper on consumption, which just gives a basic overview of how to view total consumption in New Zealand, and then uses this framework to understand some stylized facts regarding NZ in the past decade.  I also agree heartily with the conclusion:

However as consumption as a share of income did nothing very unusual during an unprecedented housing boom, it is not obvious that there is a large role for house prices to play in explaining consumption behaviour during the period.

I like it because it supports my priors of course 😉 .  Fundamentally, we can’t rely on some “wealth effect” that has driven us to buy “flat screen tv’s” to explain what has happened in NZ over the last decade – a point that was, at one point, being pushed too hard IMO.  Debt has been built up, house sizes have increased, building costs/land prices have risen, non-house consumption goods have been cheap, financial markets have changed – there are a range of factors here that we need to tie together to make a convincing, and sensible, story of what has happened.  And once we have a clear and consistent answer, only then can we try to understand whether it is/was “good” or “bad” and whether there is anything that should be done to improve outcomes.

Matt Nolan

On consumption in New Zealand

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I’ve just been playing around on the OECD stats site to keep abreast of relevant global economic data.  While I was there I decided to have a look at some ratios of consumption to gdp around the world, especially after realising how little my view on this and rebalancing in New Zealand has not changed in the past two and a half years.

So here are some graphs comparing us to some of our Anglo-Saxon relatives:

Nominal consumption to GDP

Real consumption to GDP (so doesn’t account for relative price changes)

That really puts the idea that we have been spending “too much on too many consumable goods” in perspective … actually, I find it hard to believe how stable private spending out of current income has been in NZ.

Matt Nolan

Now that’s over

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With that election thing finally out of our hair, we can focus on the fact that things aren’t looking good out there.

Krugman puts up a nice illustration of how this really is the fault of the Euro. (It would help if creditors and debtors just accepted that they need to take a bit of a bath)

And markets are now picking rates in NZ to be lower in a year’s time.  This is the extent of the positive news – again we are relying on European policy makers … I just don’t know if they deserve any trust anymore.

But, there is one thing I’ll give us here in NZ – a collapse of the Euro-zone isn’t necessarily going to be as bad for New Zealand as continuing uncertainty in financial markets.  The key is what happens to growth in Asia (given that it accounts for so much more of our trade now), and for now our dollar is pointing to a reasonable outlook for commodity prices.  But if there is anything we remember from September 2008 its that this can turn …

Matt Nolan

Read Brian Fallow

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Off you go.

In the end it comes down to supply and demand. The Reserve Bank can only influence the demand side of the economy – and that with difficulty and a considerable lag. It can’t do anything about the supply side.

But Governments can.

Rather than insisting that it take employment into account when making interest rate decisions – as though it didn’t already – it would be more helpful for politicians to focus on policies that would, for instance, create a better match between the skills employers need and those job seekers have to offer.

Very good.

Matt Nolan

Facing the bloggers

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I will be doing a free presentation to the blogsphere in Auckland on December 2, followed by a Wellington presentation on December 10.

You guys have been good to me, challenging my preconceptions and helping me to develop my ideas understand (ideas was a stupid term – I never come up with anything original, I just aim to try to understand the world around me given the knowledge that already exists 😉 ).

I want to give something back by giving you guys a rundown on what has been going on in the economy, and some of the issues we should be keeping an eye on over the next three years.  Given that it is after the election I’m calling it a “post-election economic update for bloggers”.

I will pop up more details closer to the time – I just wanted to give you guys a heads up that this is happening, and that you are all more than welcome.

For those that cannot make it, I will pop up the slides on the site after the Wellington presentation.

Matt Nolan

A minimum income can replace a minimum wage

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That is the suggestion here from Gareth Morgan.

I agree of course, I have said the same thing here before – both when raising what my policy platform would be and discussing the minimum wage more recently.

It is fine to disagree with this and say “only people who are part of the labour market are part of society” – but in that case lets make that transparent and build our policy platforms from there.  I don’t agree that platform (hence why I would push for a minimum income) – but the current state where we don’t face issues of income adequacy OR fairness simply leads to inconsistent and unfair policy.