When the minimum wage change was being debated, I saw this tweet pop up from Duncan Garner.

Simon Bridges admits WINZ is there as a backstop if wages are too low. Can you believe it?

After the tweet follows a range of comments about corporate welfare etc etc.

This is all well and good, however I’m not sure I agree.  As I have said previously, I don’t agree with the minimum wage being used as a way of ensuring income adequacy (*,*,*).  If our true goal is to help those that are the “worst off” in society, than a direct minimum income – something that would be provided by WINZ – is the most direct means of doing this.  It sounds to me that Simon Bridges may have also been making that point (although we can argue about the degree and level of any said minimum income).

Now here is the kicker, people want to differentiate between the deserving and “undeserving” poor by using a minimum wage instead of transfering across a minimum income.  If we have to admit that transparently, does that seem fair, does that seem just?  These are the sort of question we should be asking ourselves, and society more generally, but they seem to have been missed in this situation – with people just looking for a reason to attack Simon Bridges.  Disappointing.

Note:  Via Economist’s View, Christina Romer on minimum wages.  The favoured solution over there tends to focus a lot more on the labour supply response than a strict minimum income/negative income tax would – and this is because it involves a broader set of redistributionary policies, rather than just the existence of a security net.  As you know, my focus tends to be on the security net issues with a pointer towards broader restribution given the rising potential for labour saving technolgy (*,*,*) – something that the Economist had a good piece on recently.  Remember, “potential parteo improvements” require redistribution for no-one to be worse off, there is no mystical tendency.

I see that discussions with financial market officials has seen the government come out and say that it is going to look at doing something about the interest rate premium in NZ.

Immediately you would expect me to nod and agree.  I’ve been talking about (*,*,*) a “high” real exchange rate, “high” interest rates, and low “competitiveness” stemming from these same and similar issues (although the margin and the level of rates are indicative of different issues … let’s leave that to the side) – and this is true.  But I’m not going to nod in agreement – at first brush this looks like another intermediate target, rather than a clear articulation of they “why” regarding interest rate margins and interest rate levels more generally.

Trade-offs run BOTH ways, we may have instituted policies on the basis that the cost of lower competitiveness etal is worth it for the benefit of greater “equity” in outcomes.  In the same way that I’m begging people who yell at the exchange rate to think of the issues – I beg the people listening to financial analysts who are talking about ways to “lower the cost of capital” to think of it in terms of the full implications for social outcomes.  A while back you would have heard me talking this way on productivity (*,*,*), and my severe mistrust of capital deepening (something that puts me on the fringe of many economists here tbh – and just to make sure that is clear).

Government is the body that society uses to help determine, and implement, the trade-offs that exist due to the inherent trade-off between some perception of equity and strict efficiency.  Let us keep these fundamentals in mind instead of targeting a price, or productivity, or some other “inbetween” function that obfuscates the trade-offs inherent in a decision!  Figure out the trade-offs that exist and getting society to express its desires (both hard tasks) is the way to go, and this sort of sidetracking through “targeting intermediate outputs” in an economy gets in the way of this.

My clearest post on this idea was when I discussed the recent writings by Mai Chen – full respect to her for putting out thoughtful articles on the issue, which is what allowed me to better articulate my problem with ALL those sorts of “aspirational” policy justifications (such as the ones I’ve previously criticised from the Greens – look, I’ve pretty much attacked every point on the political spectrum here 🙂 ).

Note:  This is a point where people will say “this is obvious” and roll their eyes and me – and then wink and say its just Matt ranting again (which is true).  But as well as being obvious it is fundamental – and given it is so fundamental to policy analysis I have to ask why reporting and suggestions of policy continually forgotten about it!

Hmm:  I wrote about remember equity and efficiency issues – in terms of economists recognising the importance of value judgments in 2008.  James was also talking about those issues then.  It is nice to see young “you” agreeing with old “you” on things!