[There is] no businessperson in New Zealand that would say when you are in difficulty the best thing you could do is sell off your best-performing assets.
At least both major parties now agree that that the election is all about finding a new CE to run NZ Inc. What a shame we’re not inviting applications from people with proven, international experience.
Before the stream of articles come out saying:
Wage growth was 2%pa
Wage growth was less than inflation
Let’s just say that Stat’s got the title wrong on this in strict terms. “Productivity adjusted” wages rose 2.0% … the LCI is a quality adjusted measure, just like the PPI, and the CGPI – it is supposed to measure inflationary pressures stemming from the labour market, not how much more money people have in their pockets.
Average hourly wages actually rose 3.2% (the QES), as the composition of labour changed and productivity increased. Furthermore, this is a gross wage measure – given that income taxes were cut to meet the increase in GST, we need to take GST out of the CPI number. As a result, average hourly wages rose more strongly than consumer prices.
Actually, wage growth has been very strong over the last two quarters while employment has been weak – this is starting to look more and more like a “two-speed labour market” … which is a pain. However, I doubt this real story will make it out as people are busily just going to use the LCI measure and CPI growth inappropriately to push whatever agenda they already wanted.
Why do I have to repeat this every quarter …
Rising and volatile oil prices suggest that oil scarcity is a important issue. So what can be done?
Personally, I think nothing – the price represents scarcity, and unless we think there are asymmetric information issues regarding the stock of fuel then this is fine. If we do believe these issues exist, then since fuel is a “non-perishable” we will see individuals/communities stockpile – again, there is no reason for government intervention.
Or so I agrue here.
After negotiating a sizable haircut on Greek debt and pushing through an expansion in the EFSF we have seen markets rally.
The current crisis has very much been one of people wondering “who the hell will bear the burden of default”. The closer we get to solving that question, the closer we get to putting this junk behind us.
I don’t like how people are calling these things “buying time” – in reality there just needs to be a clear set of policies set down, and a clear lender of last resort for the regions banking sector. Get those things in place and the crisis will get the hell out.
There has been progress this month, but the international situation is still pretty weak.
I was browsing the Herald to keep abreast of national events when I ran into this new set of policies from Labour.
I saw they wanted to gradually increase the retirement age, and I was thinking “this is good stuff”.
Then I saw that they have absolutely no moral fibre and have decided to package a tax-savings change for Kiwisaver members as money for nothing. The moment I read this:
Employee contributions remain at 2 per cent, “because we know families are finding it hard to make ends meet right now, let alone save”.
However, employer contributions would increase by 0.5 per cent a year from 3 per cent in 2014 to 7 per cent by 2022.
I stood up and started swearing loudly at my workmates. Calming myself to the point where I was only enraged, I explained to people at work what they already knew – it doesn’t matter who pays the contribution/tax in name, as over time wages will adjust so that the incidence of the tax is different.
This isn’t a complicated idea, I remember racing through it in test while I was in secondary school and thinking it was one of the easiest things we have to cover. However, it is only taught in economics – and as a result, politicians can just blatantly lie about the impact of policy without the public realising. And f**k, people in the party have studied enough to know this – they KNOW they are lying to the public, but they are happy to do it because they want to get elected.
Lets look at this case. If as Labour says things are really a struggle for households, labour supply is likely to be very inelastic. This would suggest that a significant amount of the “burden of tax” would in fact fall on them. In essence, they are just increasing the minimum amount you have to put into the scheme to get your “sweeteners” back … which you are being taxed to provide in the first place.
This sort of rubbish makes me feel ill – it is deception, it is lying, and its straight out immoral. This is why I dislike politicians.
Update: Via Kiwiblog I see that they did sneak in an admission that it will impact on wages – look this is fine, but when you make your main selling point that you are increasing employer and not employee contributions, you make it sound like they have a different impact. Which they don’t.
How about, instead of packaging your policy in a way to trick people you are just honest about it – and then you will see if people actually want it. Its this thing called democracy.
I see there are further calls for NZ to look at its “dollar policy”. I do not believe that an investigation will sensibly suggest we should change much in terms of “direct” policy – and I think it is important to try and understand what is going on here before saying we shoudl control anything.
Remember, the relative value of the dollar (the exchange rate) is really just a “price” we have for swapping currency and to buy goods and services (and the such) off each other. Like any price we need to determine “what is the market failure” before we mess around with it – the default “policy” IS to not interfere, we need a well articulated market failure that we feel we can deal with in a favourable way.
Now, the failure that gets identified here is “dutch disease” (or as I like to term it, the dutch issue).
It is UNDENIABLE that the rising terms of trade has pushed up the real exchange rate. However, whether the change in relative prices that has occurred in the economy is a negative or positive IS NOT clear. In fact, the default argument would really be that it is a GOOD thing. [FYI, I would suggest reading this for a discussion around the evidence – and policy relevance – of “dutch disease”]
Manufacturers complain about the fact that they are less competitive – which is true. However, as a country we have a comparative advantage at making something that the world values – as a result we want resources to move away from manufacturers in industries that are not part of the industry that is experiencing higher prices. As technology, tastes, desires, preferences, populations, and the allocation of resources all change in the global economy we want to be able to respond to changes in scarcity – changes in price. It is BAD to try and keep the structure of the economy the same and not allow adjustment – lets not forget about the Muldoon era.
Now you might think you are very clever, and you might say “aha, but what about if the price increase is temporary, and people invest too much, and then we lose our manufacturing and sell lots of worthless commodities”. My response would be to say – people are reacting to expected changes in prices in the future, as they are investing. There are solid reasons why commodity prices will stay “on average” higher then they have, and people in all industries are responding to that expectation – unless we think everyone is stupid, and that government knows better about the future, there is no case for intervention.
To me this implies there is no case for intervention. Sadly for some people, this is the real case they have in their heads for intervention 🙁
Note: This is not to say that, in the face of a massive change in the terms of trade, there is no role for monetary and fiscal policy to improve outcomes – after all, it is a clearly recognisable shock, and the cyclical and distributional consequences of it can be dealt with using policy. However, it is to say that directly f’ing around with our exchange rate in order to “help manufacturers” is likely to be bad policy – based more on a status quo bias among people than on sensibly policy design.