There have been claims by the Labour party that rising departures from NZ are the fault of the National party, and that the increase during their tenure was due to the global financial crisis (GFC). Now this is a little bit untrue in terms of the way it is framed, I’ll just quickly point that out and then have a little chat regarding why we might be seeing departures rise, and whether it is really a policy relevant issue in of itself.
Now, I know we make a big deal of how Australians make more than we do. However, it doesn’t matter how well or how poorly a country is doing – when policy is made it should be on the basis of evidence and costing, not ideology per see. Redistribution and social goals are essential – but we should ask why we are going for them, and what is the best way to achieve them, rather than throwing ourselves around at selling points.
On that note Agnitio sent me this article. The TVHE team is discussing it at the moment. In the interest of having a post up today, I will put up my first response to the article.
Not fact checking properly was a pretty big fail on the part of the Economist to be honest – but I noticed that the Labour guy did not rebut, or explain why, the cost of the Australian project was 10x higher … especially given that he said the speed of the system would be the same.
And the justification may be that Aussie is much much larger – but in that case the marginal benefit associated with providing the service to low density areas would be pretty low. It is useful to use a market mechanism in help figure out what the underlying value really is.
And that is where the Economist article was probably right with its “right-wing dogma”, and where the Australian government keeps messing up – along with setting maximum calorie counts on meals, and forcing power companies to pay above the price they can charge to households selling back to the grid 😉
If the Australian government is determined to keep implementing poor policies that directly lower the welfare of their citizens, then we probably won’t have to worry about New Zealanders continuing to flood over there will we.
Note: I believe that a number of the reasons why Aussie is more affluent than Australia stem from their sheer advantage in terms of scale, their earlier TOT increase, the fact they are closer to their markets, and the fact that average tax rates are in fact lower over the ditch. Given all this, I don’t see why catching Australia should be a goal for policy – simply making the best society we can, given what the members of society value, appears to be the only sensible target for policy right?
One issue I have with the constant discussion on savings, current account deficits, and consumption in NZ is how people look at it – they keep thinking that we are “consuming” to much and have needed to “borrow”. That is how we’ve been told to look at it – especially with all the talk of “spending too much on big screen TV’s”.
So all this leads to statements like this from John Key:
“We are rebalancing the economy away from debt-fuelled consumption and government spending and towards savings, investment and exports” (ht Rates Blog). Sounds good, but I think it misrepresents the issue.
Lets think about real GDP shares, when thinking about shares of expenditure GDP we are saying that “this much of the nations production is in this category”. Saying we need to rebalance is like saying that we need to adjust these shares – the consumption one down, the investment and export ones up.
However, what does the data on real GDP says (note the period of “rampant borrowing” was around 2002-2008 … also note that Stats provides this beautiful data for free, much appreciated):
There has been a lot of commentary on asset sales around the place, so much so that I didn’t feel like I need to write anything.
Dim Post mentioned a lot of the people against asset sales and also Geoff Simmons recently wrote against them. Furthermore, both Anti-Dismal (*, *, *, *, *) and Roger Kerr (*, *, *) wrote a series of insightful posts regarding the issue.
On the left there seems to be an inherent bias against any selling at all – selling is bad. On the right there is an inherent bias against government ownership – government ownership is bad.
So, where do I fall on the issue? I have to admit that I am relatively in the middle – I see it as a case by case issue. There is nothing inherently wrong with privatisation, at all. Furthermore, I agree that generally privately run firms will “meet the market” more efficiently – implying that they either/both provide the same outputs more cheaply, provide more outputs for the same cost, and/or provide higher value outputs.
At the same time there is no doubt that some assets have social values/external benefits that are not captured by private agents. If the cost of indirect regulation (taxes and competition policy) is too high, it may be preferable for the government to run said agencies directly – I view it as direct regulation.
In New Zealand at the moment there is definite scope for opening up SOE’s to private sector investment – that is where we are sitting now. However, even given this I cannot go as far as Roger Douglas and say that the price does not matter – in fact, price is THE issue that the government should use when deciding whether to sell assets.
Why do I say this? I have already said that I believe that, in the absence of external benefits, the private sector is more than likely to run the organisation more efficiently. However, just because the evidence says this happens on average, and just because I have a value judgment that individuals are more responsive to incentives than government, isn’t sufficient to justify policy when we have prices available!
Effectively, a private purchaser will be willing to pay up to their reservation price for an asset. This reservation price will be based on the dividend yield they expect to get from the asset, and the relevant opportunity cost of investment.
At the same time the government know that, if it keeps hold of the asset, it expects to make some dividend yield from said asset through time. As a result, the government can price the asset – they can say they would not accept a bid below the discounted expected return from holding the asset.
If the government sticks to its guns, and a private sector agent is willing to pay MORE than this then we know that – ex ante – the private agent will be able to run the business more efficiently/add more value. This implies that the government SHOULD NOT sell for less than their discounted expected return (not the should, so I’m being all prescriptive 😉 ).
In essence, pricing the assets (including relevant external benefits) and then seeing what price people are willing to pay gives us information regarding what can be run more efficiently in house – and more efficiently in the private sector.
Looking backwards and saying “this business is paying dividends overseas, wahhh” or “this business ended up making more than what we sold it for, wahhh” is a rubbish argument against privatisation – but so is saying “the private sector is better, so give it the assets for free, wahh” is a poor way of justifying privatisation.
At the moment, the type of debate we are hearing in public sounds like the above quotes – and as a result the two sides appear to be talking past each other, making the debate feel more like ideology than reasoned analysis.
If we sat down and just explained the dividend example to people in society, I do not think they would be averse to a government stock take. The tough questions will then be “how do we value external benefits” and “what is the expected dividend yield” rather than is selling blanket good or bad.
Update: Anti-Dismal points out that there are other factors that need to be taken into consideration beyond the starting point of comparing dividend streams – that is why this is very much a case-by-case issue.
Update 2: I somehow missed this piece by Eric Crampton (even though I did check the site while writing the post).
… at least lets hope so right 😉
Unemployment rate rose to 6.8%, and the employment rate is at its lowest level since June 2003. Further (relative to seasonal) weakness in part-time employment was the kicker here – which is why total hours worked (the size of the labour input in a sense) still rose.
Relative to many other countries our unemployment rate is still low – but the fact that a rising proportion of people are out of work for a long time is concerning, as these are the people that really struggle (loss of human capital, happiness, etc).
One thing I will say is this:
It has been worse.
I am busy with labour market data (and the EPL transfer window), so you won’t get a good read on the report from me until later tonight, or even tomorrow.
However, I was happy with the media release in the most part. Especially the discussion of tax bias toward housing (and away from interest bearing investments) and the fact that it was over-investment in the housing stock (paradoxically while we were underbuilding in terms of the number of houses – this bit is just from me, not the release though) was one of the main drivers of debt accumulation.
Mentioning the risks of a “sudden stop” is a good step towards the justification of some type of externality/multiple pareto ranked eqm among outcomes – which could justify subsidisation. So if they have made that case, with associated evidence, it is a relatively persuasive one.