Coda

And so we now have a single political party in a position to form a majority government. Between our single-chamber Parliament and the historically very tight party discipline on Labour MPs, the new government will be able to do whatever they like over the next three years. And where significant things are not done, it will be entirely down to them: their choice.

Of course, they didn’t promise much, so most don’t seem to expect much. But the issues, challenges, and problems don’t go away just a party or government chooses to ignore them. House prices for example – where the Prime Minister has consistently refused to suggest she might act in ways designed to markedly lower the price of urban land/houses.

Or, and the economic issue that mostly drove the creation of this blog, New Zealand’s dismal long-term economic performance. In short, productivity growth (and the lack of it), and our continued decline relative to other advanced economies.

The outlook wasn’t good before Covid – the last government was doing nothing, and Labour was promising nothing, that would have prevented those well-established and dismal trends continuing. But now there is Covid to confront too.

One view of the outlook was contained in the International Monetary Fund’s World Economic Outlook forecasts published last week. The IMF doesn’t have a particularly good track record as a forecaster, but its forecasts do have two particular values at present: first, they are compiled consistently for a wide range of countries, and second, they forecast/project five years ahead, which on most readings is currently far enough out that one could think of things by then being back to some sort of new normal. For what it is worth, the IMF also has no particular partisan interest in New Zealand, but has also, over the years, tended to run relatively upbeat stories about New Zealand when it does comment.

Unfortunately, the IMF does not publish productivity (eg real GDP per hour worked, or MFP) forecasts. But here is a chart showing their forecasts for growth in real GDP per capita for their “advanced country” grouping over the period from 2019 (pre Covid) to 2025).

IMF WEO 0ct 20

Third worst of all the advanced countries over this period, at least on the IMF’s telling. And do note that the countries a few to either side of us all have materially higher levels of labour productivity than New Zealand does, while the countries to the far left of the chart – best-performers – are mostly the countries (I’ve previously highlighted here) that started way behind and are now matching, and move to roar ahead of, New Zealand. On these projections, our relative decline – underway now for 70 years – keeps on keeping on.

Are there any silver linings? I couldn’t find any when I dug a bit deeper:

  • as I noted, since these numbers are for 2019 to 2025 they shouldn’t be affected by either measurement challenges, or real differences in economic structure, that contribute to quite different GDP outcomes for some quarters this year,
  • the difference also can’t be down to differences in how quickly unemployment drops back to normal (itself a thing amenable to policy, especially in a country with its own exchange rate): in most countries by 2025 the IMF thinks that unemployment rates will have got back to pretty close to 2019 levels (NZ’s is about 5 per cent, so not quite there, but it won’t explain anything like the differences in the real GDP chart).  For what they are worth, the IMF also publishes output gap estimates for G7 countries, and they are also back near zero by 2025. 
  • I didn’t look deeply into what border assumptions the IMF is making, but I did check their population growth projections, and they continue to forecast high rates of population growth over 2019 to 2025 (hardly lower than the rate for the previous six years, and third fastest in this group of countries), which again suggests they must think something like a new-normal re-establishes before too long.
  • the IMF seems to think that investment as a share of GDP will also be more or less back to pre-Covid rates by 2025 (unfortunately in New Zealand business investment in the last decade was very subdued, especially once one took account of the needs of a rapidly-rising population).

Sadly, the only realistic interpretation one can take is that the IMF thinks that over 2019 to 2025, on current government policies, New Zealand’s productivity growth performance –  labour productivity and MFP – will be simply shocking.  Most probably negative –  the only way to square falls in real GDP per capita, unemployment returning towards normal, and a reasonable level of investment – and almost certainly far worse than in almost all other advanced economies, and especially far worse than the performance in the countries that were aiming to close gaps with the OECD leaders.

It is a really dismal outlook.

Of course, it is only one set of forecasts.  The IMF may be completely wrong, even specifically about New Zealand’s relative performance.  But it isn’t clear what about policy or the economic environment should be expected to generate decent productivity growth over 2019 to 2025, especially after the fairly dismal performance in the pre-Covid years.

One would like to suppose it was the sort of issue the Minister of Finance would be intensely focused on.  One would like to think that The Treasury’s post-election briefing would have extensive analysis on the issue and possible remedies, and indeed how political party promises may even worsen the outlook.  But such is the malaise around New Zealand economic policy and performance that it seems unlikely.

Changing tack, for some months I’ve been writing much less here than I’d really intended or hoped to. I’ve made occasional references to my indifferent health. I’ve had bugs occasionally in the past that have hung around for a couple of months, never amenable to medical diagnosis, and then eventually gone away and I kept expecting this would be the same. But despite some moderately good weeks at times – this week wasn’t one of them – it hasn’t, and my doctor now reckons that I have some – perhaps fairly moderate – version of chronic fatigue syndrome. And while it still seems most likely that it will eventually go away again, there is no immediate timeframe for that. It seems a rather pathetic thing to have, but I can’t really ignore, say, the three daytime naps I needed on Tuesday.

As a result, I’ve decided for the time being to stop attempting to maintain any sort of regular blog output. As I’ve said to various people who’ve asked, I’m probably only able to operate at 50 or 60 per cent of normal, and while I’m fortunate in not having to try to hold down a fulltime job, I have other fixed commitments (household and other) that demand almost all that energy. Since there are good days, and even a few relatively good weeks, and there many issues (even if I don’t have the concentration to dig into all of them as I’d like), I expect I will probably post here from time to time. But I won’t be trying to meet any schedule. For anyone who wants to not miss out on those posts, feel free to subscribe to get posts by email, and I also use Twitter (@MHReddell) to, among other things, provide links to any posts here.

And now it is time for a lie down…..

The PRC and our politicians

I wrote a post a couple of weeks ago noting how silent the competing politicians, and the media, had been on issues around the People’s Republic of China during our election campaign. The campaign has now almost come to an end, and nothing much has changed. That is, no doubt, just the way our politicians like it. No awkward questions, no challenges, no serious scrutiny of their own institutional complicity, no nothing.

I’m not going to repeat that post, but there are a few new points, and one I inadvertently overlooked and which has (or should have) acquired fresh life in the last week or so.

Perhaps you noticed that yesterday the PRC was elected to term on the UN Human Rights Council, along with a bunch of other egregious states. These elections are done by secret ballot, which must be terribly convenient for the politicians as the votes they instruct to be cast for their country normally remain secret. But there is nothing to stop journalists asking about New Zealand’s vote, or asking the Leader of the Opposition (or leaders of the minor parties) what stance they think New Zealand should have taken. It isn’t impossible that New Zealand abstained or even voted against – China’s election was far from unanimous – but surely voters have a right to know what stance our government took as regards such an egregious a human rights abuser as the PRC? It would be great if they did vote against – and they did join a recent multi-country letter on some of the PRC’s abuses – but it is pretty feeble stand if they won’t tell their own citizens they took such a stance. And if the government won’t say, what stance would National, ACT, or the Greens have taken?

Incidentally, reading the belatedly-released Labour manifesto – which, remarkably, had no reference to China, even in the foreign policy section – I noticed this

labour ethics

So government agencies – including the NZSF and ACC – will no longer be taking equity exposures to companies owned or controlled by the PRC/CCP? I don’t suppose so, but it rings fairly hollow if the PM and her colleagues think New Zealanders could “stand proudly behind” such investments.

Through the election campaign it seems that the National Party has carried on with its deference to the PRC/CCP. An Australian-based China analyst drew our attention to this

Now perhaps it would be one thing for the National Party’s foreign affairs spokesman to be meeting with the PRC Ambassador (as with the ambassadors of other countries) but this is a party-to-party meeting, in the middle of a New Zealand election campaign. The same Goodfellow who previously championed Jian Yang, and who refuses to come clean on the National Party’s involvement/association with the CCP-affiliated people now facing electoral finance charges. What values, one wonders, do the ordinary members of the National Party share with the CCP? Few, if any, I imagine, but if so what is the party hierarchy doing holding party-to-party exchanges with the CCP. Pretty confident that in days gone by it was only the Socialist Unity Party that had much to do with the USSR Communist Party.

But the real prompt for this post was something I forgot to mention in the earlier one.

A couple of months ago, Professor Anne-Marie Brady at the University of Canterbury (with a couple of research assistant co-authors) published a paper titled “Holding a Pen in One Hand, Gripping a Gun in the Other: China’s Exploitation of Civilian Channels for Military Purposes in New Zealand”. It had been submitted as supplementary paper to the Justice select committee of the New Zealand Parliament and is substantially devoted to documenting the connections between New Zealand entities, especially universities, and PRC PLA-affiliated institutions and organisations. As she noted in the first of her Key Points

The People’s Liberation Army’s (PLA) rapid militarisation program is accelerating via an international technology transfer strategy, which includes academic exchanges, investment in foreign companies, espionage and hacking. Scientists work globally, so by accessing universities or tech companies in states with an advanced technology
sector like New Zealand, the PLA can get a foothold within the international network of scholars working on a given subject area.

It didn’t seem terribly controversial – previous papers by other authors have documented the PLA connections with many universities here and abroad – and I didn’t read it at the time.

But a few days later I noted the news that Canterbury University itself was ordering a review into the publication of this paper. Other academics apparently did not like it one little bit, and the Canterbury seemed ready to play along

Canterbury’s deputy vice-chancellor, Professor Ian Wright, said the complaining academics believed the publication contained “manifest errors of fact and misleading inferences”.

Brady herself appears to have been, at least temporarily, silenced and her voice has been totally absent from the public square in this year’s election campaign. You’ll recall that it was during the 2017 campaign that she released her Magic Weapons paper on PRC influence/interference activities in New Zealand, to the discomfort of much of the political class.

It seemed a very odd approach from the University of Canterbury. Academics often like to remind us that they have some sort of “critic and conscience” role in society, and that the freedom to speak openly and publish their material – in turn exposed to scrutiny from the public and peers – is a big part of how academe is supposed to run. And so if there were problems with Professor Brady’s paper, wouldn’t the normal approach have been for those who thought they had identified problems – whether of fact or interpretation or emphasis – to have published something themselves, and let the issues be fought out openly.

I’m, of course, not an academic myself, but many/most of the signatories to an open letter that was released last week are. Addressed to the Vice-Chancellor of the University of Canterbury, the (now in excess of 150) signatories wrote

Professor Anne-Marie Brady’s work has had a far reaching impact on public and policy discussions globally, which is why we were dismayed to read Martin Van Beynen’s report in Stuff entitled “Canterbury Uni orders review into publication by China expert Anne-Marie Brady”. All of us are familiar with Professor Brady’s superb report “Holding a Pen in One Hand, Gripping a Gun in the Other” that was submitted to the New Zealand Parliament’s Justice Select Committee this past July. We are shocked to read that your Deputy Vice-Chancellor, Professor Ian Wright, gave a statement to the press confirming that the University was entertaining the complaints, and giving them currency by explaining that they  allege that the paper contains “manifest errors of fact and misleading inferences.”

We, who know this area, can see no manifest errors or misleading inferences based on the evidenced material provided in the report. The paper does not make “inferences.” People who study it may draw some, but that does not mean the paper made them, misleading or otherwise. Since Professor Wright publicly voiced the allegations a group of us peers again went through Professor Brady’s Parliamentary submission. We find in it no basis for the allegations. Some of the links in its comprehensive sourcing have gone stale since she submitted it but those URLs all still work if put into Wayback or archive.today.

We are disappointed to see no prompt follow-up, explanation or clarification of the University’s position concerning the allegations. The impression left by that published report should have been corrected to show that the University did not intend any endorsement of the complaints, nor an approval or acceptance of complaints to the University as the appropriate way to criticise academic work. The silence has been interpreted as collaboration in slander against a very distinguished scholar whose work has been consistently based on sound social scientific methodology.

We would have expected you to stand up for your university, the right of any of its members to publish their research freely, however contentious, and for Professor Brady as a brave colleague. She has been the target of a harassment campaign and threatening menace because of the serious implications of her important research.

We ask that you issue a prompt and full apology to Professor Brady on behalf of the University of Canterbury for not rejecting the complaints against Professor Brady and instead referring the complainants to the normal way of disagreeing with a paper – publishing their criticism. Professor Wright should publicly apologise for allowing his statement to give credence to the complaints, whether or not he intended that.

We know of no valid basis for any “review” of Professor Brady’s work other than by her peers and other researchers and commentators, as is normal for academic research and publication. That will and should include informed criticism as and if grounds emerge. Her publications are subject to peer review. They have brought great international credit to your University. You risk destroying that credit, to leave it with her alone.

And yet this fairly stinging attack on the university, and robust defence of Anne-Marie Brady’s paper has had almost no coverage in New Zealand. And this even though the signatories include, from abroad, some leading academic authors on issues around modern China, as well as several local academics and – to my surprise – two Labour MPs.

(Regular readers may recall that this is not the first open letter in defence of Professor Brady in the years since she first went public on these issues – the earlier one was about the apparent indifference of our political leadership to the break-ins to Professor Brady’s home and office that were widely regarded as most likely to have had PRC origins.)

One might suppose that in the middle of an election campaign, when academics – including many from abroad – and MPs have signed an open letter about attempts to silence or intimidate a leading academic writing on important public policy issues it would spark some serious coverage. Questions, for example, to the Prime Minister, questions to the Leader of the Opposition, questions to the Minister of Education (what sort of system is he presiding over than sees such chilling “reviews” of controversial material), of the two Labour MPs who signed the letter, and perhaps even of the Natiomal MP – Simon O’Connor – who has sometimes put his name to efforts to push back on the PRC but who is strangely silent this time. But not a word. It is all-too-easy to see why the politicians would prefer the issue, and probably Professor Brady, to just go away. But why almost all the media make themselves complicit with this shameful silence is a bit more of a mystery, but not to their credit.

The publication of the open letter finally prompted me to read Professor Brady’s paper. To be honest, I was prompted by this line from the open letter

We, who know this area, can see no manifest errors or misleading inferences based on the evidenced material provided in the report. The paper does not make “inferences.” People who study it may draw some, but that does not mean the paper made them, misleading or otherwise.

In the past, sometimes when I have read Professor Brady’s pieces I have thought she drew stronger inferences and implications than the facts, as she presented them, seemed to warrant. But reading through the latest paper I was struck by the almost-complete absence of inference. She offers, and appears, to document a long series of fact, and offers some thoughts on possible policy responses. I can quite see that some of those involved would prefer (a) that the facts weren’t know, and/or (b) that people looked more benignly on the PRC/PLA connections that benefit their universities, but the significance of those connections is a matter for debate, not for chilling attempts at academic censorship. But neither our politicians nor our media seem to care. Coming on top of how Professor Brady has been treated over the last three years it is a sad commentary on (a) what New Zealand has come to, and (b) how in the thrall of the PRC our universities and business/political sectors seem to have become. And all this without even mentioning things like the Confucius Institutes that our universities host and partly pay for, providing access to our schools for PRC entities and messaging.

At this election, the two previous United Front connected MPs – Jian Yang, he of the CCP/PLA, and Raymond Huo (the one who tried to stop Brady even testifying to the foreign interference inquiry) will pass from the scene and back into private life. But it is not as if any of the parties seems to have had a change of heart, as they’ve rushed to select new Beijing-comfortable ethnic Chinese candidates – one of whom, former head of the Chinese Students Association (consulate-controlled entities), is now certain to enter Parliament.

And then there is ACT. Not long ago it might have seemed almost irrelevant, but now seems likely to emerge from the election with quite a few MPs. ACT leader, David Seymour, has from time to time been heard uttering some quite encouraging words on the PRC, including some forthright comments at the time of the Hong Kong unrest last year. However at least one person, who knows his stuff in this area, has become quite disillusioned with ACT, suggesting that principle has been traded in for opportunism to some considerable extent.

At the request of people with associations with him I’ve previously published links to translations of a couple of pieces by Auckland-based dissident Chen Weijian, who edits the Chinese-language online publication Beijing Spring. Here is a link to an authorised translation of a new piece, Has the ACT party betrayed its principles on China?

The views are solely those of the author. He begins noting his previous enthusiasm for ACT

It’s voting time in New Zealand. Until fairly recently, I had the comfort of knowing that there was a party and politician that stood for the values I cared about: David Seymour’s ACT.

When Seymour supported the Hong Kong protests here in Aotearoa he captured my interest. He was the only New Zealand politician to express solidarity by appearing in person at gatherings of students in this country supporting the rights of Hong Kong.

Seymour delivered well-considered, passionate speeches backing the demonstrators.   That was when I decided to vote for the ACT Party. 

However, David’s recent actions are inconsistent with the words he spoke when I took him for that rarest of species: a politician of principle.

But then proceeds to discuss the extensive advertising ACT has apparently been doing in the CCP-aligned Chinese Herald, including apparently in the 1 October special edition devoted to the PRC national day and the celebration of the Party.

He goes on to highlight’s ACT’s selection as a candidate – albeit well down the list – who has an extensive background in missile technology (and from whom, apparently, never a discouraging word has been heard about the PRC). The article ends

Most Chinese immigrants, even if highly educated in China, do not rise to such high status positions so soon after settling overseas. However, Ms. Xiao’s ascent has been preternaturally rapid.

Right now, fellow liberal democracies such as the USA and Australia are working hard to squeeze out CCP influence through party-state organs such as the United Front and other limbs of Beijing. Many people with special relationships and obligations to the CCP are in a panic.

It is my strongly held conviction that New Zealand must do the same, and ACT, as a leading voice for liberty, should do the same. Until that happens, they will never get my vote.

I’m much less convinced than the author that ACT has, for a long time, been much of a party of principle – rather they tend to hunt where the votes are, whatever it takes, and this time Chen suggests that that is among the Beijing-sympathetic bits of the ethnic Chinese community. So in many respects I’m less bothered about ACT, which will always be at most a peripheral player in New Zealand, but his penultimate paragraph is one that rings truer to me.

Unfortunately there is little or no evidence that our major parties – notably this time the Labour Party, which will certainly lead the next government – really care at all, or even take seriously these issues. There is a complete absence of any moral leadership on these issues, whether from National or Labour, and too many establishment institutions – notably the universities – seem to quietly cheer on, even egg on, that failure, that choice.

If the silence and complicity of both National and Labour is telling, there is no sign of the minor parties is any better (I’ve been through almost all their websites in a fruitless quest for a party I might consider voting for).

Housing, the Reserve Bank, and interest rates

Last week it was reported that the Reserve Bank’s chief economist Yuong Ha had told assembled journalists (at a media briefing on the Bank’s proposed new tools – all while they refuse to use the core one they already have) that

“The worse situation we’d face right now is actually if we had house prices falling.

Ha isn’t just any official. He is one of the four internal members of the Reserve Bank’s Monetary Policy Committee. He was appointed as chief economist by the Governor, but serves on the statutory MPC with the endorsement of the Bank’s Board (themselves appointed by the Minister of Finance) and of the Minister of Finance himself. His department delivers the forecasting and analysis that typically guides the rest of the MPC in their deliberations. In principle at least, he wields quite some clout.

In practice, there is reason to doubt just how much influence he has. He was appointed 18 months ago (somewhat to the surprise of many observers, and perhaps with more emphasis on his service as an Orr-lackey, including around the generation of Orr’s tree-god rhetoric, than for any particular analytical or policy depth). And in that time he appears to have given not a single on-the-record speech – this in the Orr administration that claims to be more pro-active in its external communications and speaking – or paper. It is a striking contrast to, say, the Reserve Bank of Australia or the Bank of England. And it is not as if management has held back to allow the external members of the new MPC to shine: they’ve either been unwilling to, or been forbidden from, speaking at all. And all this through turbulent and uncertain economic times.

But the Bank obviously feels they have to wheel Ha out from time to time so he gets to do the odd interview and the like. Some of them have been quite odd, and all too often reading Ha’s remarks one gets the sense that he just hasn’t really adjusted to operating in the major leagues (he’d had almost no external profile or media experience prior to taking up this job), and that many of his comments probably leave his colleagues wincing just a bit. From a senior statutory officeholder the Bank – and more importantly the country – deserves better. If they were doing their jobs, the Board and the Minister would insist on it.

As just one example, earlier in the year – mid-March actually – we saw this in the Herald reporting comments in a panel discussion Ha had participated in, and casting doubt on just how much difference asset purchase programmes might make.

yuong ha

As it happens, I think he was right then. In fact, he was running the fairly standard line the Bank had run for some time. It is just that within a few days there was going to be volte face and suddenly the Bank would be claiming that large scale asset purchases were making huge amounts of useful difference.

There was also this little snippet I’d forgotten until I went looking for the quote above.

ha apr 20

Perhaps there really is/was a good reason for the Bank’s ongoing resistance to any serious transparency, but that certainly isn’t a compelling argument.

I’m not going to try to track down all the quotes I’ve seen this year – and no doubt some have been perfectly reasonable articulations of the (poor) policy Ha is a consenting party to.

But I suspect that the most charitable interpretation of last week’s comments is that it was just another such mis-step. That Ha had simply never taken a moment to reflect on how what he was about to say would sound – most particularly in the last days of an election campaign. Or lifted his perspective from some equation in which these dubious “wealth effects” might have shown up. There was a – highly arguable – narrow point that he might have made, but instead he ranged expansive appearing the welcome New Zealand’s iniquitous house prices as somehow “a good thing”. (And, contrary to at least one commenter I saw, I don’t suppose it had anything to do with the personal financial positions of Ha or any other members of the MPC – very comfortable as they all no doubt are.)

Here is the fuller quote from the interest.co.nz article

ha quote on housing

There is a quite confused mix of things going on in those comments. On the one hand suggesting that higher house prices are “a good thing” in terms of supporting demand at present (a monetary policy commentary) and then shifting into financial stability matters for which Ha has little or no responsibility. And it is here that he suggests that falling house prices at present – any falls apparently – would represent a worrying (“worse”) situation from a financial stability perspective. But the subsequent comments are then all over the place. Clearly journalists pushed back and suggested that modest falls in house prices are hardly likely to jeopardise the stability of the financial system – as indeed the repeated Reserve Bank stress tests show – and so then Ha is left floundering, falling back on “wealth effects” again, suggesting – at least by implication – that these could threaten the financial system. It was all just very badly done (on the assumption that his remarks are fairly reported in context). And he ended up simply feeding the narrative that somehow the New Zealand economy is a house-of-cards reliant on house prices staying high, or rising, indefinitely, and that the Reserve Bank is somehow party to this conspiracy against the nation’s young and poor. And comes across as backing the reluctance of our political party leaders to do anything that might lower house prices.

I don’t really believe it is the institutional view. If I’m not a great fan of the Governor I have heard him do much better on this issue (and have even used those remarks to defend the Bank on occasion). He’s pointed out the falling house prices only pose a serious systematic threat when (a) house prices have fallen a long way, and (b) when the unemployment rate goes very high and stays high for some considerable time. That is the consistent result of the Bank’s stress tests, including those done in the last three months. One could easily add that whether one approved or not of the Bank’s LVR restrictions – I didn’t and don’t – they did have the effect that few people buying a house since 2013 will have had a deposit less than 20 per cent, and prices have mostly risen quite a bit since then. That is really quite a large buffer (ie if house prices fall even 15 per cent – a bit more than they fell in the 2008/09 recession – very few people are going to have any modest negative equity.

And I’ve heard the Governor better articulate even the wealth effect (dubious) story, to be rather clearer that the Bank has no vested interest in high or rising house prices, but that one way monetary policy can work – all else equal – is by affecting asset prices. What, of course, no one at the Bank points out is that in 2008/09 real house prices fell by 15 per cent – and took five years to get back to previous peaks – even as the Bank cut the OCR by 575 basis points). There is nothing necessary about cuts to the OCR – in recessions – driving up house prices, as for example we also saw after 1987/88 and in the late 90s. Why is that so? Because recessions typically involve income loss, heightened uncertainty, and some tightening in lending standards. (What has made the last few months a bit different? Massive income replacement in the near-term, and the removal of the LVR restrictions – temporarily ending financial repression will tend to have the sorts of effects we’ve seen.)

For myself, I remain very sceptical of the idea of any material housing wealth effect at all. The Bank has been running this line for the last 15 or so years – really since the 00s boom got into full swing – but its case has never been very persuasive, and it remains a story one hears much more vocally from our central bank than from others operating in countries with high/rising house prices. My scepticism on this count is now of long standing, and has both a conceptual and empirical strand. At a conceptual level, higher house prices do not represent greater wealth for the population as a whole (that makes them quite different from, notably, higher stock market valuations, especially those resting on business innovations and rising profit opportunities etc). There is, of course, a distributional effect affecting some people (although not generally owner-occupiers, who have a natural position owning one house and wish to consume housing services for the rest of their lives). Those holding rental properties, who can reallocate their portfolio are certainly better off when prices rise (and worse off when they fall). But their gain is exactly offset by losses to the renters, and to those in a demographic wanting to shift into home ownership.

Ha himself was asked about part of this

Asked whether there was a point at which high house prices would actually have an inverse effect – IE leave people, especially renters, with less cash to spend on stimulating the economy, Ha said this was something the RBNZ was constantly monitoring.

But it doesn’t suggest they have done any serious work on this hardly-new issue.

That it isn’t new is documented, no doubt inter alia, in this article published in the Reserve Bank Bulletin as long ago as 2011 (of which I was editor and co-author). It was mostly an article about understanding consumption behaviour in aggregate, and the abstract read as follows (emphasis added)

Household spending is typically the largest component of economy activity. This article sets out some ways of thinking about what shapes household consumption decisions and looks at New Zealand’s experience over the last decade or so – a period marked by rapid growth in asset prices and debt, and by big swings in economic performance. Large unexpected, but sustained, shifts in incomes appear to have been the biggest influence on total household consumption. Fiscal policy also appears to have played a role. It is less clear that the large increases in asset prices played a substantial role in influencing total household spending.

Among the many points traversed was this chart

housing and C

If you think there is nothing very interesting to it, that is sort of the point. Private consumption – even consumption ex housing – as a share of GNI showed no consistent trends or even cycles over (then) 20 years, and nothing to even hint at any sort of material economywide wealth effect, even as real house prices had risen enormously.

And this chart is from a followup discussion note I did a year later, showing the sharp increase in housing “wealth” over the decades.

housing and c 2

Some individuals will have felt wealthier. Some will have been wealthy. But many others will have felt or been poorer. In aggregate – as you’d expect , since we don’t export houses to any considerable degree – not much sign of any material economywide effect. I’ve seen nothing to suggest things have been different in the wake of the rise in house prices of the last decade. It is very hard to unpick what is causing what in a business cycle – and so house prices are often rising when the economy is growing quite strongly, both influenced by similar third and fourth and fifth factors. But as I noted almost a decade ago

If one looked at NZ consumption and savings data for the last decade unaware that there had been a house price and credit boom, one would not immediately think there was anything unusual to explain.

More generally, the Reserve Bank needs to find better, and consistent across their people and across time, ways of communicating that it is not responsible for house prices and it does not, or should not, have a view on where house prices should go (up, down, sideways). As a bank regulator, the Bank has a responsibility to ensure that banks are adequately placed to cope with sharp falls in house prices, especially those accompanied by sharp sustained rises in unemployment (which one would not expect to be the case if land use was substantially liberalised). The Bank appears to have done that – perhaps overdone it with the new capital, requirements. Beyond that, house prices are just one of those thing they may need to factor into their forecasts (of which there are many), not something it should be opining about the merits of. And while I would never encourage them to weigh in, given the Governor’s politicised remarks on all manner of other policy issues, if they are going to weigh in you might hope it was on the side of more affordable house prices and better opportunities for the young and the poor.

Finally – and this post has gone on quite long enough – you’ll have noticed the story yesterday that Heartland Bank is now offering a mortgage product at (just) less than a 2 per cent interest rate. From a housing affordability perspective this should have been a cause for muted celebration. Instead, we get headlines about driving prices to even more unaffordable levels.

The (real) cost of housing really should now be at an all-time low. The cost of using a house (rent, actual or imputed) is the cost of using a long-lived assets. With very low interest rates, the alternative returns from other assets should be expected to be very low, driving real rents down. Lower interest rates also slightly lower the cost of bringing new houses to market – holding costs of land, financing costs during the construction phase etc. And the cost of building materials themselves shouldn’t be materially affected by interest rates (and lows in interest rates are often reached in very low-inflation environments). Ah, but I hear you say, what about land, which is after all in fixed supply. But even there two things weigh against a very substantial effect. First, sustained low interest rates are often associated with low productivity growth (few investment opportunities) and that may be a true of rural land as anything else. But second, and more important, it is only the unimproved value of the land under a house (actual or potential) that should be affected by interest rates, and – in a liberal land market – that unimproved land value will be a relatively small part of the overall price of a house+land. That, of course, is not the way it is in modern New Zealand, but that has nothing whatever to do with the Reserve Bank or monetary policy, but with successive waves of central and local governments that make land – abundant in New Zealand – artificially scarce for housing purposes.

And a few days out from an election we, of course, don’t hear a single significant political party either pointing this out, or promising to make a real and substantial difference.

Debating the economy

At lunchtime yesterday I went along to the debate sponsored by Victoria University’s Institute for Governance and Policy Studies among the finance spokespeople for our various political parties. I presume the invitation had been spread reasonably widely, but in the end only Labour, National and the Greens turned up (New Zealand First’s Fletcher Tabuteau was ill and sent an apology, and I presume, quite rationally, David Seymour was spending his time where he thought potential ACT voters might be).

Having only three speakers, and all of them serious figures, had some advantages – there was only an hour, and no one wants lots of time going to people/parties that aren’t in, or likely to be in, Parliament.

The Green Party’s Julie-Anne Genter spoke first. She was very fluent. We heard about the four principles the Greens suggest they build all policy around. These were “ecological sustainability”, “social responsibility”, “non-violence and peace”, and “subsidiarity’ (whatever one makes of the rest of them I wasn’t sure how their nationwide plastic bag ban fitted with the notion of subsidiarity). And then there were the six major policies. Remarkably, I even found myself agreeing with one of them – I might normally be categorised as being on the right, but I’ve long hankered for a system that treats victims of accidents and of long-term illness/disability more similarly (the Greens want ACC to cover both).

But for the Greens, the economy seemed to be just something for governments to use to redistribute and pursue their own visions. There was no sense at all that sustained growth in real wealth mostly arises from private sector entrepreneurial activity. So we heard briefly about the poverty action plan (higher taxes and a lot more welfare spending), ACC (see above), on housing all she emphasised was the government building a lot more housing (with no recognition that, all else equal, that if the government builds more the private sector is likely to build fewer).

And finally there was transport. This was the one place where she mentioned stimulating the economy (recall that the debate was about economic policy). The Greens, of course, want lots more trains – rapid regional passenger rail, not just between Auckland, Hamilton and Tauranga (almost certainly uneconomic as they would be) but from Wellington to Napier and to Wanganui, the overnight train from Auckland to Wellington (why, when one can fly in an hour?), and then in time down the whole east coast of the South Island. In her words “just as it used to be”. It was breathtaking – bringing back memories of time Gabs Makhlouf told as, as a new arrival at The Treasury, that the thing New Zealand got wrong decades ago was insufficient investment in rail. There would be, on the Greens’ telling “massive productivity benefits” from this rail programme. Quite possibly she meant that these “massive productivity benefits” might also stem – and a little more plausibly so – from more public transport in our cities, but beyond the cities themselves it just seem to take leave of any sense of reality or economics (and that without even the points Richard Prebble made on rail in his column in the Herald earlier this week).

I think it was safe to say that the Greens’ vision would be one that would make us poorer – perhaps not in absolute terms, but certainly further widening the alarming productivity gaps that already exist to the rest of the advanced world. Then again, as I noted in my post the other day, no one votes for the Greens because they care about economywide economic performance, or the choices it makes possible.

National’s Paul Goldsmith was next. Sadly – for the spokesperson of the largest Opposition party – there wasn’t much there. We got the upbeat stuff about how he was sure the country would get back on its feet – smart entrepreneurial people, products the world wants, and all that. I guess that is all fine in a short-term Covid context, but it rather ignored 70 years of relative economic decline, that has continued more recently under governments led by both major parties. We heard about National’s temporary income tax cuts – you might approve or disapprove (I think they are less bad than spraying money around favoured projects, less good than a temporary GST cut, and less good – and much more expensive – than looking to monetary policy) – but it was all very short-term in nature. We then heard about how many jobs were being created each month in the last term of previous National government – even as per capita income growth was very subdued – allegedly based on “business investment and confidence” seeming to ignore just how weak business investment actually was for the whole of the last decade (National or Labour).

He was on more appealing ground – although probably not to the predominantly left-wing audience – when he emphasised the importance of a vibrant private sector – including in job creation – and spoke of the increasing regulatory imposts, including Labour’s further increases in the minimum wage and in sick leave requirements.

Oh, and then there were the “bold plans” for infrastructure. Fair enough. They are proposing to spend a lot of money – but then so are the Greens – but there was no sense of a narrative of how this might make a real difference to reversing decades of productivity underperformance. No sign, in fact, that he really cared. It was sad, if a little predictable (we’ve heard nothing different from his leader).

Then Labour’s Grant Robertson spoke. He was on-message, and so we heard about his aim of building a ‘base for truly sustainable economic development”, about infrastructure spending, about the $4 billion the current government has apparently already put into rail, and (a little more positively) about the National Policy Statement on housing. Less relevantly perhaps we heard about the new Public Service Act, and changes to the Public Finance Act, and to the Reserve Bank Act (it was a fairly geeky audience), about spending on improving the “three waters”. And then he did throw in the p-word: Labour apparently wants to lift productivity, and believes it will do this by “heavy investment in skills”, a “significant boost” to R&D subsidies, and by supporting small business and pursuing their trade agenda. Oh, and he ended noting that next year the government would have climate budgets, and that it was important that the government keep up its push for 100% renewables.

It was pretty underwhelming stuff, and again there was no real sense that – even with all the resources of The Treasury and the Productivity Commission at his disposal – the incumbent had any serious ideas about making more than marginal differences to productivity (recall that, for example, we already have some of the highest adult skill levels in the OECD), or was even particularly bothered about doing so. Robertson seems to be a safe-enough pair of hands, if continued managed decline is your vision.

There was a short question time – too often with long questions. In it, Paul Goldsmith allowed himself to get bogged down on the question of whether his family would spend or save the temporary tax cut if they received it (who cares, although he probably should have had a better pre-prepared line). Asked about why Labour wouldn’t adopt a tax policy more like that of the Greens, Genter opined that it was because the level of political debate was so trivial and the main Opposition party was distorting people’s perceptions etc. Also from the Greens a reminder that they want to go even beyond the Welfare Working Group recommendations in lifting benefits. Goldsmith did make the point that only a better-performing economy supports higher sustainable incomes.

The final answer I noted down was from Goldsmith. He stressed the importance of job creation (hard to disagree) but in commenting on the housing market seemed only interested in pushing back against the new regulatory imposts on landlords. Agree with him on that or not, it simply isn’t the main game. Get house prices down to 3 or 4 times income in our larger cities and rents won’t just stop rising, but one would expect them to fall. But – consistent with his leader, and with Labour’s shameful stance on this too – there was not even a hint that National would welcome, or pursue, lower house prices.

It was all deeply underwhelming. As one respected commentator I talked to afterwards observed “that takes us an hour closer to the grave, and we are none the wiser”. We have two big parties with no interest in, or ideas for, reversing decades of economic decline, and almost running scared from any suggestion that house prices might appropriately fall, all complemented by a third party only really interested in cutting the cake differently and perhaps shrinking the size in the process.

The Minister of Finance was born in 1971. He’s been on record admiring the economic performance and institutions of places like Denmark and Sweden. In 1971, real GDP per hour worked in New Zealand was 79 per cent of that of Sweden and 85 per cent of that of Denmark (our relative decline was already well underway). By 1990 – when the 4th Labour government he is keen to dissociate modern Labour from left office – that was 72 and 64 per cent respectively. Last year, it was 60 and 57 per cent. There is a whole range of countries – mostly in Europe, but including the US (and probably Singapore and Taiwan) with average labour productivity 60 to 70 per cent higher than that in New Zealand. Productivity really matters for the living standards this country can offer its people, but none of these parties seems to have anything much to offer. All evidence suggests they really don’t care either.

Having the Governor’s back

When the Reserve Bank Act was passed back in 1989, decision-making power was taken away from the Bank’s Board and given to the Governor (even as, overall, the Bank gained a greater degree of autonomy). The Board was retained but in a quite different sort of role. Their new role was primarily to hold the Governor to account, on behalf of the Minister and the general public. Later reforms were made to try to strengthen (the appearance of?) that role: somewhat belatedly the Governor was to no longer chair the Board (although he remained a member of a board whose primary role was to hold him to account), and the Board was required by statute to publish an Annual Report. More recently still – in a well-overdue move – the current government amended the Act to provide that the Minister of Finance would in future appoint the Board chair, making it clearer who the Board was responsible to.

Over the years, the powers of the Bank and the range of activities it undertakes has also grown, and the policy discretion exercised by the Bank has grown well beyond what was orginally envisaged. And latterly most of the formal monetary policy powers have been handed over to a statutory Monetary Policy Committee, and the Board is now also responsible for holding them to account.

But through all these changes, one thing has been constant: the Board has never really acted to hold the Governor to account at all, and instead the Board – through numerous waves of different members and different chairs – seems to have acted as if its primary role was to have the Governor’s back, and reinforce the gubernatorial spin. (In previous posts I’ve argued that in some respects this was always likely, since (a) the Board had no independent resources (eg for external advice), (b) the Governor remained a member, (c) the secretary to the Board was for a long time a member of the Bank’s own senior management, and (d) there were no real incentives to rock the boat.)

There seems to have been a belated general acceptance that the Board is useless, and not readily able to be fixed, in its current role. In fact, the government has introduced legislation which will, if passed, scrap the current model and give the Board primary decisionmaking responsibility for most of the Bank’s non-monetary policy functions (it is a hodge-podge model, itself not likely to work that well, but that is a post for another day).

The Bank’s latest Annual Report was released last week. It didn’t get attention. The Board’s Annual Report got even less (pretty sure it was none). That is hardly surprising. The Board buries its report in the middle of management’s report, and the press release the Governor puts out never mentions that there is an independent report by an entity paid and mandated by Parliament to hold he and his colleagues to account.

As it is, had anyone read the Board’s Annual Report (start on page 6 here), they could only have come to the conclusion that the Board was determined to prove its utter uselessness and ineffectualness in any role other than covering for the Governor. It is spin and/or unquestioning acquiescence, from start to finish.

There is, for example, the nonsense inflation of the Bank’s importance:

We are pleased with the decisive actions that have been taken by the Bank to deal with the potential collapse in economic activity.

75 basis points off the OCR, and whatever lowering of near-term government bond rates the LSAP achieved, simply did not – on any serious reckoning – avert a “potential collapse in economic activity”, and could not conceivably have done so, when the shock to economic activity was primarily about things (fear of virus, policy response to virus) that monetary policy has no affect on.

Remarkably they also claim to be “pleased by the communication and transparency the Bank showed in delivering these innovative tools”.

All while making no mention of, for example, the Governor’s substantive interview last year (in the year under review) expressing a strong preference for a negative OCR as a first cab off the rank, or the public comments of one of his own senior managers in March this year playing down what anyone might reasonable expect from a bond purchase programme. Or the failure to release any research/analysis around the LSAP. Or the failure to release the detailed background papers – promised by the Governor in a speech in March – on the various unconventional instrument options. Or the weird pledge the MPC made in March not to alter the OCR for a year come what May.

And, of course, they make no mention of expressing any concern that despite (a) years of lead time, and (b) the Governor’s explicit preferences expressed last August, it only emerged quite belatedly that it was not until the end of January that the Bank took any steps to discover whether the banking system was operationally ready for a negative OCR (perhaps that is because, as they note, “well before Covid-19, we were briefed on the Bank’s preparations”, and presumably none of them asked the question either).

There is no suggestion of any unease around the policy/communications inconsistency from the MPC in the middle of last year (they could perhaps have explained it away as teething issues with the new MPC, but they seem resolutely determined to utter no cautions on anything at all sensitive).

The Board was quite as determined, it appears, to have the Governor’s back when it comes to financial stability as well. They are firmly behind the big increase in capital requirements and seem quite unbothered about concerns and questions raised, and (if anything) even less bothered about the abusive style adopted by the Governor on many occasions during the course of the consultation. Reflecting the Bank’s own lines, the Board both championed the much higher capital requirements – which had not come into effect and made little or no difference to capital levels by the end of last year – and repeat the Bank’s spin about how sound the system is/was in the face of the (large) Covid shock at the old capital levels. Taxpayers’ money is wasted on this.

Lest you thought that they never uttered a challenging word – to encourage or discourage – there is in fact one quiet dissent in the report, although presumably only allowed to get this far because the Governor himself was on board. We learn that

Policy work on the Deposit Takers Act is highly complex and significant for the Bank’s operations; the Board has expressed concern that the policy development process should be thorough and not rushed.

And that is it – and even then a comment on something not largely under the Bank’s control (Treasury and the Minister having a large say).

For the rest of the report, it is just gush. Perhaps the Board is less than enraptured with the Governor’s climate change ambitions – they just get passing mention – but they are all-in with the Maori strategy; this in an institution that operates at a wholesale, not primarily individual-member of the public facing, level:

The Board believes the incorporation of Te Ao Maori into the Bank’s work will help develop a central bank with a distinctive New Zealand approach and character.

Tree god myths and other pandering, but with not a shred of evidence for how any of this expenditure of public resources (from memory of my OIA it was $1m) will enhance macroeconomic or financial stability. But I guess when the Board chair is accused in his day job of fostering “systematic racism” (universities and all that being, in current form, a western development) he probably had to be seen to go along.

The gush continues to the end. We learn that the Governor and Deputy Governor have provided “outstanding leadership” – so much so an accountability body finds no fault at all – and the report ends having lost all touch with reality observing that the Bank is “realising the Bank’s vision to be a – Great Team, Best Central Bank.”

You might conceivably think the Bank does, on the whole, not a bad job. But there is no conceivable basis – in outputs or outcomes (or actually in inputs for that matter) – to think that the Reserve Bank is even close to being the “best central bank”. As I’ve noted previously, in a not-so-wealthy small economy it might not ever be realistic as an aim. But it could do a great deal better than it is on numerous fronts – and presumably if the decisionmakers did not agree they would not recently have decided to throw lots more taxpayers’ money at the Bank to help them do better.

Most likely, there will only be one more of these puff pieces, and by 2022 the new legislation is likely to pass and any pretence that the Board is an accountability body will pass out of law. When it finally does, of course, it will only reinforce how weak the accountability mechanisms are around this very powerful independent agency. I’m still of the view that New Zealand would benefit, slightly and at the margin, from establishing a small Macroeconomic and Finance Policy Monitoring agency, operating at arms-length from both The Treasury and the Reserve Bank.

The final thing of interest in the Bank’s own Annual Report is the higher salaries table. This is an excerpt from this year’s.

RB salaries

As I noted last year, Orr himself seemed to be getting more than the Minister had suggested when the appointment was made. And there seem to be a lot of senior colleagues – in a still not very large organisation – pulling in very high salaries. I’m not one of those who generally thinks top-tier public service salaries are too high in principle. These are probably something like fair salaries for excellence, but there is little sign of consistent excellence at the top of the Bank, particularly not from the Governor.

(Incidentally, government department chief executives earlier this year took a temporary 20 per cent pay cut in the wake of Covid. I’ve seen no hint that the Governor – exercising significant public policy powers, and better paid than most of them, and apparently thwarting a collapse in the economy – followed their lead. Perhaps some journalist might ask why.) UPDATE: Thanks to the reader who drew my attention to the footnote describing the Governor’s temporary pay cut.

The Board itself pulls in a couple of hundred thousand (in total) in fees – the largest chunk going to the chair who, one woud have thought, had a demanding day job. The Governor might be getting his money’s worth, but the public is not.

And so another term passes and nothing changes for the better

A couple of years ago I had my arm twisted and agreed to write a chapter for a new book on New Zealand public policy being edited by a couple of Victoria University academics. My chapter was to be on the economy, and although the general tone of the book was to be rather upbeat, about the public policy and governance frontiers New Zealand had marked out, there wasn’t very much to be upbeat about in the longer-term New Zealand economic story. And so I wasn’t.

The published book finally turned up in the mail last week and I’ve started reading it (there might be a post later about some of the other chapters). In my chapter (a slightly longer version of which is here) I’d highlighted the continuing relative decline in New Zealand’s economic performance. I’d forgotten that I’d ended the chapter this way (emphasis added)

Looking ahead, if New Zealanders are once again to enjoy incomes and material living standards matching the best in the OECD, policy and academic analysts will have to focus afresh on the implications, and limitations, of New Zealand’s extreme remoteness and how best policy should be shaped in light the unchangeable nature of that constraint (at least on current technologies). Past experience – 1890s, 1930s, and 1980s – shows that policies can change quickly and markedly in New Zealand. But with no reason to expect any sort of dramatic crisis – macro-economic conditions are stable, unlike the situation in the early 1980s – it is difficult to see what might now break policy out of the 21st century torpor or, indeed, whether the economics institutions would have the capacity to respond effectively if there was to be renewed political appetite for change.

That must have been written 18 months ago and finalised later last year. We were a couple of years into yet another government that, while perhaps perfectly competent at overseeing some macroeconomic stability, was quite uninterested in – and had no serious ideas about – reversing the continuing decades of relative economic decline. And that was even though the better of them surely knew that productivity was the best, and only reliable, long-run path to widely-shared prosperity. Another government and, of course, another Opposition. To which one could add, a Treasury – self-described premier economic advisers to the government – that had little to offer and seemingly little interest in the issue, and a Productivity Commission that now seemed less-equipped to offer much of value either.

Since then, of course, we have had a rather dramatic crisis – not economic in origin, but with major and ongoing economic ramifications. Best forecasts – in this case, Treasury’s PREFU numbers such as they are, and no one really knows – suggest it will be years before even the cyclical losses are behind us, and that the economy (ours and others) may just settle on a lower path of real income and productivity. We’ll be poorer than we previously thought, and even if others are too, we would still be lagging a very long way behind the advanced world’s leaders. That means real lost opportunities – whether consumer fripperies, or the health and education preferences that get so much attention.

Faced with a backdrop like that perhaps one might have hoped for an election campaign in which a major theme involved confronting the decades of economic underperformance. Note that I’m not suggesting that it should be the only issue of importance – of course not, there is the government-made housing disaster, and the handling of Covid itself (where to from here) as just two other examples.

But what is striking, sobering, and sad is that – even amid a serious economic downturn, with no end in sight – the decades of economic policy failure seems to command no attention at all. I think it was Matthew Hooton who in a column a few weeks ago suggested that focus groups and polling suggested that the public wanted to hear that parties had “a plan”, but there is little sign any of the parties is offering us one. They use the word often enough, but there seems to be little or no substance behind any of it – even the immediate Covid stuff, let alone the economic failure.

One listens in vain to the debates among political party leaders, and there is no hint of any serious interest in addressing the structural issues at all, no suggestion (of course) that they’d done the hard work and settled on a compelling narrative of what had gone wrong, and what they’d offer that might make a real difference.

In the Herald’s election supplement this morning there was a double-page “Policies at a glance” feature, with a line for economic policy.

Labour seemed to have no clue, and no interest. There were policies for the short-term. They might create jobs in the short-term or even limit immediate jobs losses. I don’t have any particular argument with that – although monetary policy is better and cheaper. But then there were the longer-term policies which – whatever their merits on other grounds might be – are all likely to make us a bit poorer not richer (higher top tax rate, higher minimum wage, higher sick leave). But that is par for the course: even at the last election where Ardern occasionally mentioned productivity, there was never any energy or compelling ideas behind it.

National also has its shorter-term policies (the temporary income tax cut, grants, and depreciation provisions), but the longer-term ones seem to come down to not much more than new roads. Of their claim that they would save $1 billion per annum in Auckland congestion costs I wrote

I guess $1 billion per annum is supposed to sound like a big number.  In fact, it is about 1 per cent of Auckland’s GDP.   Fixing the problems is probably worth doing, but 1 per cent of GDP is tiny in the context of either Auckland’s gaping economic underperformance, let alone that of New Zealand as a whole (recall that the productivity leaders are more than 60 per cent ahead of us).

Perhaps welcome. Certainly not transformative.

And yes, we heard a bit about the technology sector, but the numbers were so modest that no one supposes it was going to be transformative either. But Opposition parties have to have a little bait to throw towards the fish.

Of the other parties, and with productivity in mind, I guess ACT seemed to lean in the right direction in places, while the Greens mostly offer measures that would make us poorer and less productive (then again, no one votes Green for productivity etc concerns). To my surprise, NZ First seemed to a have a few sensible lines – offset by wanting to “ramp up” the PGF – but who cares any more?

But, at best they are all just playing, suggesting doing stuff at the margin and offering no real leadership.

It isn’t just the politicians. Somewhat surprisingly, twice in the last few days I’ve seen media invite several economists to offer their thoughts on what should be done about economic policy. Saturday’s Herald’s contribution was under the headline “What’s the next big idea” in which “Liam Dann asks independent experts what tough policy changes are needed for a fairer, more productive economy”. The six economists they consulted seemed to cover the spectrum from Ganesh Nana (BERL) on the left to Prof Robert MacCulloch (who co-authors papers with Roger Douglas).

Their ideas?

Ganesh Nana: a) tax reform (“taxing income and goods and services, but not property/wealth – is not working and is not fair”), and b) a rent freeze and the government as last resort buyer of houses.

Robert MacCulloch: Saving. (“NZ should introduce mandatory savings accounts for all workers which cover health, retirement, housing and risk (like unemployment)”

Cameron Bagrie: “an unflinching commitment to microeconomic reform…..the little things”. More funding for the Commerce Commission and RMA and Overseas Investment Act reform.

Oliver Hartwich largely agrees with Bagrie, adding in a desire to see “a return to a more rigorous approach to cost-benefit analysis”, and a renewed focus on education (the NZ Initiative has a new report on education failings out shortly).

Christina Leung (NZIER) emphasises equality of opportunity with a particular emphasis on education.

Brad Olsen (Infometrics) wants tax reform “to ensure that investment is directed into productive areas”, and also wants a National Skills Plan and a Digital Business Investment Fund “to accelerate the movement of New Zealand businesses into the digital age.

I happen to agree with some of those points – generally the Bagrie/Hartwich line – but even if some of those proposals would be steps in the right direction almost inevitably they would mostly be pretty small beer (others would mostly likely represent small steps backwards). Some of these economists – notably MacCulloch – really do seem exercised, in other writing, about the shockingly bad economic performance. But none seems to have a model in mind for how the ideas they are proposing would make the scale of difference that the productivity failure – material living standards failure – calls for. One can’t hold people too much to account over a few quotes in a newspaper article, but I’m not aware that in other writings most of these economists have even tried to tell such a story.

That was one lot of economists. Then the latest issue of the new Listener turned up this morning offering the views of nine “leading economists on the way forward”. Leung and Bagrie were in both groups, and the Listener added the bank chief economists, Shamubeel Eaqub and David Skilling.

Mostly the bank economists are focused on short-term data flow and perhaps inevitably their focus was on relatively short-term stuff, about traversing the difficulties the virus poses for the next few years, so I’m not going to focus on them, but Westpac chief economic Dominick Stephens had a comment that caught my eye.

Covid-19 will eventually pass and we will still be a country with solid economic institutions, a highly-educated workforce and First World infrastructure. It won’t be east, but our economy is flexible enough to adapt to the challenges and opportunities. 

Sadly, to the extent that those descriptions are accurate they have been so for 25+ years, and yet we’ve still been drifting slowly further behind, even as other poorer OECD countries have begun to converge quite rapidly.

Of the remaining two economists, Eaqub rightly observes that New Zealanders seem to care about “housing affordability, inequality, climate change, health, education and justice”, noting that many of them are areas in which New Zealand is getting worse, but does not hint at what big things he thinks might be done differently to lift our economic performance. David Skilling has thought a lot about economic performance issues – and I’ve written about some of them including here – and on this occasion emphasises his view that the government should focus on spending on R&D, training and enterprise policy (I think this last relates to his idea of promoting – and picking – a few big companies). There is material worth debating in what Skilling writes, but it is still difficult to see a credible model, or narrative, for catching up again.

Now perhaps – it is just barely possible – that The Treasury has been beavering away from months and is about to deliver to the incoming government some really persuasive analysis and advice on the importance of the productivity failure, and what should be done about it. But it isn’t at all likely. Not only has their capability been degraded, but most of their energy will have been going into short-term Covid stuff. And, realistically, they know that neither party – but notably including their current minister, almost certain to be reappointed – has any appetite whatsoever. On economics they are conservative to the core – in a few good ways, but mostly in dreadful ways, simply preferring not to rock the boat, whatever the long-term cost.

I find it all pretty deeply depressing – even if, and yes I can be a detached observer too – not overly surprising, given the torpor into which policymaking and thinking in and around government has fallen (not just in New Zealand of course, but our long-term economic failure is much more serious, and idiosyncratic, than the situation in most other advanced countries). Of course, the cynics approach would be to observe that the public seem to care much, and that a definition of leadership is finding out what the followers want and getting in front of them. But real leadership – courageous, even costly, leadership is something quite different. It is about the perceptions to recognise real problems, and the drive and energy to find and promote solutions, championing answers, making the case and seeking to take the public with you. That sort of thing seems deeply out of fashion in today’s New Zealand- where holding office seems more important than what you want to do with that power. And such is our economic plight – once affordable housing, once the highest material living standards anywhere, but no longer – that is inexcusable and really rather shameful.

As for me, when I write posts like this I always get asked what my answers are. I don’t like to champion them too often, as writing frequently here I probably can come across as a bit of a stuck record. My “big idea” is, of course, a permanent and substantial cut in the rate of non-citizen immigration, so that public policy is not worsening the disadvantages of being in the most remote corner of the earth. But I’ve articulated other strands of story of response in, for example, this speech, this Covid-contextual paper from early in the year, and in this post from a couple of years ago with a fairly long list of things I’d do (some to boost productivity or fix housing directly, some to free up fiscal resources for better-focused and aligned policies, and some to help support some cohesion and legitimacy for our political process through what would, inevitably, be a difficult and contentious transition.

It is easy for things to drift. One year is (mostly) much like another, but before you know it am electoral term, decade, a generation, or even a lifetime has passed, and nothing has been done to fix, and reverse, the decades of relative decline. Our so-called leaders – whether political or official – really are without excuse now. And yet….nothing.

Bleak passivity

Reading last week’s statement from the not-very-transparent, not-very-accountable, Reserve Bank Monetary Policy Committee I was struck by both the bleakness of the statement and the do-little-or-nothing passivity of the monetary policymakers.

I guess you could argue it wasn’t much different than the previous month’s statement – which wouldn’t be much consolation, since that statement itself was pretty downbeat – but the relentlessness struck me. There was almost nothing positive in the commentary, even six months on from when the Committee belatedly recognised the Covid economic risks and started adjusting policy. The risks, both globally and domestically, are deemed to be to the downside – which seems right to me – and this around a base scenario in which the “the Committee expects a rise in unemployment and an increase in firm closures”. There is, again rightly, an emphasis on the susbstantial uncertainty firms and households face, again here and abroad, as the future course of the virus is really little more than anyone’s guess. We are told – in, I think, materially stronger words than they’ve used before – that “monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit”.

And yet what did they actually do? Nothing.

Seven months on from when they should have been first easing monetary policy, we still have an OCR that is only 75 basis points lower than it was at the start of the year. The Committee continues to cling to their bizarre March pledge – made in a climate of extreme uncertainty – not to change he OCR for a year, a pledge that has/had no solid economic foundations to it. They would prefer people to believe that in some sense they “can’t” move, but all it takes to know that is simply false is a look across the Tasman to Australia where, with a higher inflation target, and higher inflation expectations, short-term wholesale interest rates are 20 basis points lower than those here. Even if you buy the Bank’s claim that the OCR can’t be taken negative yet, there is no obstacle at all to them cutting the OCR to zero now. It should have been done months ago. It should be done now – their own outlook (all that downside talk) tells you as much. (20-25 basis points is, of course, not that much, and not a macro game-changer in and of itself, but in an all-hands-to-the-pump scenario, every little helps – and it would be a third more OCR easing than we’ve had to date.)

And, of course, the claim that the OCR can’t be taken negative now should itself be taken with a considerable pinch of salt. If true, it should of course lead to serious questions of the Bank’s competence and basic preparedness, which don’t yet seem to have been asked (although the Board’s Annual Report must be due out in the next few days, so perhaps…..unlikely as it is …..there will some sign of holding management to account). But it was never very convincing. For a start, had the Reserve Bank simply taken the OCR negative a few months ago it would have (a) rewarded the institutions that had read the – all too visible – international signs and got ready, and (b) encouraged the others to adapt very quickly. Even if the argument was partially defensible in February/March, it is now September….they’ve had months to get it right, and (on the MPC’s own reckoning) the economy could have done with more stimulus over that period. More generally still, a significant part of the way monetary policy works in an open economy is through (a) signalling and (b) the exchange rate: had the MPC moved aggressively months ago, or even now – not next March/April – it would likely have generated a lower exchange rate, supporting the New Zealand economy, and underpinned inflation expectations.

(As a reminder, the exchange rate has barely changed from where it was at the end of last year, real (1 and 2 year fixed) mortgage rates seem to be down perhaps 20-30 basis points since the end of last year, and the inflation expectations – whether survey measures or market measures – seem to be down about 50-60 basis points. Oh, and in case people hadn’t noticed, the unemployment rate has risen and the MPC expects it to rise further. Their August inflation projections – including all that fiscal policy – was also well below target. It is hard to imagine in any other circumstances a central bank doing nothing.)

Now defenders of the Reserve Bank will, of course, point out that the MPC is talking up some sort of “Funding for lending” scheme that it now says “would be ready before the end of this calendar year” (while also noting that “the design of the programme would be agreed and published ahead of deployment” – but there is only one more scheduled MPC meeting before the end of the year). The idea of this scheme is to lend to banks directly at a rate close to the (unnecessarily high) OCR, with the aim to “lower the financial system’s funding costs, and therefore borrowing costs for firms and households, and support the availability of credit to the economy”.

I don’t greatly like these sorts of schemes – although the details, which apparently won’t be consulted on, may matter. By contrast to the OCR, which is an instrument that works pervasively and unconditionally, FFL-type schemes are often available to some market participants but not others (undermining a core principle of efficient policy design, around competitive neutrality), and are often tied to some officials’ preferences around increases in lending to the private sector, whether or not such lending makes much sense in the prevailing economic climate (hint: in an environment of extreme uncertainty, of the sort the MPC talks of, not many firms are going to be voluntarily taking on much debt, and banks would generally be rightly cautious – even if not with the added uncertainty about the Bank’s new capital requirements next year). And an FFL is no substitute for an OCR adjustment when it comes to influencing the exchange rate, typically a really important part of the New Zealand transmission mechanism.

But here’s the thing. They’ve had a scheme like this in Australia since March. Term deposits rates in Australia have for a long time been closer to wholesale rates than has been the case in New Zealand, but – on checking this morning – are still materially higher than Australian wholesale rates. And although our Reserve Bank has been talking up an FFL scheme for some time now there is no hint in the schedule of retail rates banks are offering that, for example, 3-6 months are holding up but that longer-term rates (relevant to the period when an FFL will be deployed) have fallen away sharply, or at all. Big banks seem to be offering much the same rates for six month retail term deposits as they are for 1 to 5 year term deposits, just as they were at the start of this year. It just isn’t obvious that a realistic FFL is likely to make much difference to retail rates – and actual term rates suggest banks rather share that perception. It would be good to be wrong on this – all the evidence and the MPC comments suggest the economy needs the additional support – but nothing at present suggests it is likely.

Meanwhile, of course, months and months into this severe recession, there is no sign that the MPC or the Bank is doing anything about removing the real effective floor on the OCR (at perhaps -0.5 or -0.75), that results from the official provisions – regulatory interventions – that mean deposits are convertible to cash at par in unlimited quantities, with cash paying a zero interest rate. We have interminable debates and commentary on what macro difference a small further cut to the OCR – to just slightly negative – might make, but nothing on making feasible and useful the sort of deeply negative interest rates the economy might actually need. It is a cavalier indifference to the state of the economy and the plight of the unemployed – and to the health of the public finances – that seems to be shared by most central banks – which makes it no more excusable. One can, reasonably, haggle about whether threshold effects mean that,say, a -0.25% OCR would make much difference – although (a) the ECB seems persuaded, and (b) retail deposit rates in NZ would still be well above zero in such an environment. There should be much less room for doubt about the gains from a deeply negative OCR, including for the exchange rate and inflation expectations.

Of course, those on the left are often keen on fiscal policy substituting for monetary policy – especially while they are in power and get to choose the goodies being handed out – but that isn’t a path to an efficient allocation of resources, a wise evaluation of investment options (what do politicians have on the line?) and does nothing at all for promoting the health and growth of the tradables sector of the New Zealand economy. Whatever the merits of something like the wage subsidy scheme initially, fiscal policy initiatives seem to have become over recent months increasingly dependent on who you know, who is in favour, which project rings political bells, and not on a pervasive, fairly neutral, support framework in which politicians aren’t using your resources and mine to pick winners (unlikely to be so in actuality), rewards favourites and so on. Monetary policy operates much better as a countercyclical stabilisation tool for many reasons, if only central bankers would use it aggressively, or their political masters simply insist they do. It is fit for purpose, and respects the proposition that private firms and households are generally better at spending wisely than governments, in a way that handouts to Green schools, Pacific churches, this or that council, or whatever do not.

Complacent and complicit

There hasn’t been much about the PRC/New Zealand issues here recently. That isn’t because I’ve lost interest, or because the issues have become less pressing, but just because my health has been mediocre enough that I’ve only had the energy for the bare minimum of writing. There is an interesting piece on New Zealand firms’ trade with entities in the PRC that has been sitting on my desk for almost two months, although I hope to write about that in more detail before long.

But the election is now almost upon us, and what is really striking about the campaign – and the media coverage of the campaign – is the complete absence of discussion of any aspects of the CCP/PRC issues, domestic or international. There are lots to choose from. all of which should matter, and on which the parties should be challenged and scrutinised.

There is, for example, the overt pressure the PRC is putting on fellow democracies, India and Taiwan, right now (one could add Japan, in the East China Sea). New Zealand media don’t seem to give much coverage to the China-led tensions on the Line of Actual Control in North India that has already led to fatalities, let alone to the (apparently) much greater threat associated with the repeated incursions of PRC military aircraft into or near Taiwanese air space, and the apparent – really more than “apparent”, quite openly stated – PRC determination to take Taiwan one way or the other. And no New Zealand media appear to have made any effort to gauge the competency (around foreign affairs), or moral core, of those vying for political leadership, by asking them for their perspective on these disputes or how they would think about framing possible New Zealand responses to more overt aggression. Both main parties have been more interested in talking up their “friends” in Beijing – a line they might also reasonably be asked about – than about articulating a clear stance opposed to resolution of political disputes by force.

Then there are developments in Hong Kong, where one might – perhaps – give the main parties a grudging near-pass mark, with the government having suspended (and National supported them doing so) the extradition agreement with Hong Kong. But it has hardly been a full-throated condemnation of the rapid erosion of freedoms in Hong Kong or (say) offers of asylum to dissidents fleeing the territory.

But far worse than what is happening in Hong Kong – and clearly convergence to the PRC model was inevitable at some point, though we all might have hoped for a less-bad PRC by then – is the growing evidence of systematic and intensifying repression across multiple fronts in the PRC in the last few years, including in the period since our last election. Xinjiang has had the most attention – the concentration camps, the extreme surveillance and control, the apparent forced sterilisations, and so on. But it isn’t just about one region, or one minority religion/belief. On a regional basis, Tibet is back in the news, as is the intensifying pressure in Southern Mongolia. The evidence of use of political or religious prisoners for forced organ transplants is even better documented now than it was. The repression of Christians, Muslims, and other sects is intensifying, and any scope for freedom of expression – always limited – seems to be now much more limited. And yet what do we hear from Ardern or Collins (or the other small parties) on any of this? From National, a while ago we had senior Todd McClay touting PRC propaganda around Xinjiang and suggesting it was really none of anyone else’s business. Perhaps he knows better now – though surely he always did – but there has been no retraction, and no willingness to criticise his parties “friends” and donors. And Labour really isn’t any better. Defenders of the PM will suggest that “human rights issues” are raised in private but (a) why should we believe this? and (b) it is unlikely that what is said in private, in apologetic diplomatic language, bothers anyone (in the PRC).

You get the sense that both parties are more interested in keeping in with the dreadful regime in Beijing – that really combines much of the worst of Nazi Germany and the USSR – than in articulating the values of New Zealanders. You certainly get the sense that both parties are more interested in serving the economic interests of a few big corporates (including university ones) than in representing the values and interests of New Zealanders. There is no open criticism, there is no talk of trade sanctions (eg on products using concentration camp labour from Xinjiang), there is no talk of putting in place a system of Magnitsky-type sanctions. And no media seem to ask any of the party leaders of their foreign affairs spokespeople about any of this. What, for example, does “kindness” mean as regards the abuses of the PRC.

One little encouraging development in recent months has been the formation of IPAC, the interparliamentary alliance on China, with significant representation from members of Parliament in a range of countries, including many quite senior figures. Somewhat belatedly, two New Zealand MPs joined: National’s Simon O’Connor and Labour’s Louisa Wall. That’s good – and one can’t imagine the National whips etc can have been entirely happy about O’Connor who has been chair of Parliament’s Foreign Affairs committee. But I’ve not seen a single media piece on this development – no attempt to interview O’Connor or Wall on their views, including of what our main parties or governments should be doing about the PRC, or to talk to the party leaders about their stance on IPAC and its calls for the West to take a stronger stand.

And nearer to home, there is no continuing media coverage of the fact that we go into an election with both main parties still embroiled in controversy – and legal investigations – around donations from CCP/PRC-linked figures. This is most stark as regards the charges facing Jami-Lee Ross (who was a senior National MP at the time of the relevant developments), and several ethnic Chinese New Zealand citizens – including Yikun Zhang, who the parties got together to honour for, in effect, services to Beijing – around donations to the National Party. National has not been straight with the public about anything to do with this affair, and no other party seems bothered. Meanwhile Labour has its own issues – former leader Phil Goff, as regards donations to his mayoral campaign, former Cabinet minister Lianne Dalziel over donation to her campaign, and the obscure SFO investigation into some aspect of donations to Labour in 2017. And yet we hear almost nothing of this – not, I’m sure, out of respect for fair trial rights, but because it suits all the big parties to keep quiet. But why does the media let them get away with it? Are they too unbothered about the corruption of our political system, and the suborning of the process by parties linked to the PRC?

Last year we had the political theatre in which the government – with National’s support – rushed through under urgency (keep debate and scrutiny to a minimum) a largely-cosmetic change slightly further reducing the (already severely limited scope) of foreign citizens to donate to directly to New Zealand political parties. It wasn’t a bad change per se, but it consciously and deliberately avoided confronting the much bigger issues: the ability of closely-held New Zealand registered companies owned by foreign citizens to donate (where there have been real and actual issues around PRC-related donations), and around a political culture that has seemed to regard as quite acceptable to take donations – large donations – from New Zealand citizens or residents who are themselves closely connected to the CCP/PRC. Nothing serious has been done about the law, and no party has apparently been willing to take a self-denying vow re PRC-linked donations. And no interviewer or journalist puts pressure on them to do so.

As it happened, I asked about this issue at our local candidates meeting last week. With a bit of a preamble, including noting what last year’s reform had/hadn’t done, I asked National, Labour, Greens and New Zealand First (the parties in Parliament) if they thought their parties should/would take donations from people or companies, NZ citizens or not, with close connections to the Chinese Communist Party (which the PRC operates at the behest, and in the interest, of).

I got no clear and straightforward answer, of the sort one might have expected if, for example, candidates/parties had been asked about people with strong neo-Nazi associations or (one imagines) in days gone by about the USSR or Nazi Germany or the like. It isn’t some obscure party/country I was asking about, but the dominant force in the largest country on earth, a country with a track record of ties – good and ill – to New Zealand.

The young New Zealand First candidate – a researcher in their parliamentary offices – was almost funny. He was desperate not to say the wrong thing and ended up noting that it was a foreign policy question – about NZ political parties taking donations from NZ citizens? – and the question would have to be put to “Winston”.

The Greens and National candidate both get some positive marks. The (very able) Greens candidate noted that her party did not have a specific policy re the CCP and she wasn’t about to make one up on the spot, but noted that she did think New Zealand should be louder in calling out human rights abuses (re the PRC, the Greens this term have been about as silent as the rest). The National candidate suggested – not entirely accurately – that the party is very transparent about all donations, and while he avoided the direct question did suggest we might benefit from some system of registering and disclosing those working for/lobbying for foreign governments (he mentioned the US system, which attracted guffaws from the Green-supporting Newtown crowd). But it was a step up on his National predecessor’s approach at the 2017 candidates meeting.

Labour’s candidate was the only sitting MP, Paul Eagle. His response was that Labour adheres to the law – well, probably mostly – but as he well knew that was not the question. He then went on to suggest that he didn’t know Labour approach to the sort of donations I was asking about and that he would have to check and come back to me. I emailed him the next morning (last Friday) to repeat the question, but – perhaps much as expected – have heard nothing back.

I don’t want to be too hard on individual candidates – all rather junior in their own parties – and it was more telling about the refusal of all the main parties to take this issue seriously, and be quite clear that – no matter how much was on offer – they would not take donations from people with close CCP ties. That said, most of them had little or nothing to lose….and not one was willing to say “but, speaking personally, I think it would be quite inappropriate to take such donations – or those from anyone with close ties with a foreign political party or government”. Not one. It was establishment New Zealand’s indifference, perhaps desperation for dollars, on display. And, of course, no interviewer or debate moderator asks the people with clout – the party leaders – about this, even though it is no hypothetical, and there is a clear track record of such donations in the past. Those donations were, it appears, legal. They were not right (and as Anne-Marie Brady has noted, many forms of PRC influence in other countries, including New Zealand, are legal and yet quite concerning).

The final item on my list of things of which we hear almost nothing in this campaign is the efforts by both main parties (in particular) to ensure that they keep ties in to the PRC’s United Front efforts in New Zealand by recruiting candidates, often to safe list positions, that Beijing will smile on. The grossest example of course was Jian Yang – whose past was finally exposed just before the last election, and who eventually acknowledged misrepresenting his past, at the behest of his then PLA/CCP masters, to get into New Zealand in the first place. National seemed unbothered – Jian Yang claimed they had always known his past, even if the voters weren’t so lucky – and, worse, neither were any of the other parties. On the Labour side, there was Raymond Huo, perhaps not with a past as egregiously awful with Jian Yang’s, but with a present stance arguably worse (the man, who chairing the foreign interference inquiry – extraordinary in itself for Labour – actively tried to prevent Professor Brady for testifying). Rather belatedly this year, both men have decided to move on and spend more time with their families – Yang after having been talked up by National during the year and promised a high list place. But both sides have replaced them. I presume the National replacement for Jian Yang is likely to miss out, but Labour Naisi Chen seems sure to enter Parliament, coming off the back of a past as president of the (PRC-consulate controlled) Chinese students association in Auckland, and who at a recent candidates meeting was reported as also engaging in minimising the Xinjiang abuses. And yet no other party seems bothered, and the media gives the matter almost no coverage.

One could, perhaps, explain away any one of the items on this list. Not all are perhaps quite as important as the others, the economy is not in great shape, the virus lurks etc. But it really isn’t adequate as an excuse – whether from the political parties, who would clearly just prefer the issue didn’t come up – or the media which seems to do nothing to raise it. Those companies trading with firms in China must be delighted. They certainly don’t want any risk that they might fall foul of PRC displeasure – as some industries in Australia have, where the government has taken a somewhat more forthright stand – and simply expect that the rest of us should pay the price while they sup with the devil without even the precaution of carrying a long spoon.

And perhaps it is fair to note that foreign affairs often aren’t central in New Zealand elections but (a) many of these issues aren’t about foreign affairs, but about how we govern ourselves, and (b) that isn’t always so (think of our past whether around nuclear ships, Springbok tours), and (c) on most reckonings the PRC is now a big and threatening presence on the world stage, and in many individual countries. Troubled as the US political system is, it is notable how different the tone of the comment – fact of the comment – is there, whether from Democrats or Republicans.

Our so-called leaders really are a shameful bunch, apparently more interested in keeping their heads in the sand (or those of the public) and keeping the deals and donations flowing, rather than evincing any interest in leading conversations about either emerging geopolitical risks, the nature and character of the PRC, and/or the PRC’s activities here. It should be sobering to recall the break-ins to Professor Brady’s home and office that happened during this parliamentary term. Both National and Labour set out to minimise the potential issue – other parties as bad – and now it seems to suit them for such events to be brushed over and forgotten.

If the politicians are bad – and they are the ones who really matter, who vie to lead and who would like us to believe they have our long-term best interests at heart – the media is (with rare occasional exceptions) little better. It is pretty shameful all round. Beliefs and values that are worth their salt are worth paying a price for, but it isn’t clear that National or Labour (or, as far as I can tell, the rest) have any values worth the name when it comes to the most consequential evil regime now on the planet and its activities here and abroad. That is sad commentary on what New Zealand – once quite clear about its opposition to the Soviet Union or Nazi Germany, under parties of either stripe – has become.

For those with access, there was a good article in the Financial Times last week about coercive economic “diplomacy” by the PRC. The article was by New Zealander Jamil Anderlini, the FT’s Asia editor. He made the case for countries to stand, and work, together to resist the PRC’s attempts to use trade pressure countries – calling for a new and better United Front of democracies with common long-term interests in this area. Our politicians seem to think it is just to cower and defer to the regime, and do as little as possible to ever upset them (which only ever encourages thugs), rather than standing with other countries that share something rather closer to our values than National’s and Labour’s CCP friends do.

House prices

Looking at the polls, or the flow of daily news, in many respects it no longer much matters what policy positions the leader of the National Party is enunciating. Hardly anyone supposes that the government after the election won’t be either Labour alone, or Labour and the Greens. And so if we are at all concerned about policy, what matters for the next few years is what Labour’s leader is saying, and what – as incumbent Prime Minister – she has been doing.

Three years ago we were told by the Prime Minister – and correctly so – that the housing situation in New Zealand was pretty bad (the word “crisis” was often flung around). House prices had risen enormously in the previous few years, as indeed they had under the previous Labour government, and the National government prior to that. She made much of “child poverty”, and most serious observers recognise that a significant contributor to problems in that area was the extraordinarily high level of house prices in New Zealand. A few thought Labour was getting serious about fixing the grossly-distorted housing market – making it a functioning market, rather than a thing rigged by central and local government. The Executive Director of the New Zealand Initiative had even done a joint Herald op-ed with Phil Twyford who was then Labour’s housing spokesman.

I was among those who was on record here as being sceptical. Controversial reforms only happen if they have strong backing from the leader/Prime Minister. But whether under Andrew Little or Jacinda Ardern, Labour leaders in Opposition never highlighted the core problem – the land use restrictions – and only ever cited the palliative or distraction measures Labour was proposing; ones which, if they had any effect at all, might be a few percentage points in a climate in which house prices were perhaps twice what they really should be in a functioning market with abundant land. When, with a functioning land market and the lowest interest rates in a very long time, real rents should have been cheaper than ever.

What were they proposing? There was the proposed foreign buyers ban, the extension of the bright-line test, and ring-fencing. There was the vaunted capital gains tax, and talk about immigration (although the specifics would have changed the net flow for only one year). And, of course, there was to be Kiwibuild. If you dug enough in Labour’s manifesto you might find mention of land-use reform, but it never got much attention or profile at all.

And where are we now after three years in office? The REINZ’s measure of median house prices has risen by another 27 per cent – and real house prices are so high that 27 per cent increase at these levels are much more material, and damaging, than 27 per cent increases might have been 20 years ago. There hasn’t been much general inflation in the last three years – about 5 per cent in total – so real house prices are up in excess of 20 per cent in just three years. In none of that period was the economy performing spectacularly well, and of course this year has been flat out disastrous, mostly due to events beyond the government’s control.

And what has the Labour-led government done in that time? They’ve done some of their specifics – the PM last night claimed the foreign buyers ban had made a difference – while others have just fallen by the wayside. Capital gains tax is no more, and Kiwibuild was one of the government’s more embarrassing failures – not that, even if delivered, it would have made more than a jot of difference to the underlying, land price issue. Oh, and they’ve been consulting on locking up more land – especially on the outskirts of Auckland – as allegedly “highly productive”. Thank goodness we didn’t have that sort of government when Carlaw Park was in use as market gardens or Manurewa or Lower Hutt or…..

Asked about house prices in the debate last night, the Prime Minister seemed reduced to hand-waving. Perhaps the foreign buyers’ ban did make a small difference – it is genuinely hard to tell – but even with it real house prices have still risen in excess of 20 per cent in three years. For a city with median house prices at five times median income – and Auckland, Wellington and Tauranga are far higher than that – that 20+ per cent real increase is equivalent in cost to a whole additional year’s income. (In well-functioning markets, house price to income ratios of three are quite sustainable).

She seemed reduced to claiming that she couldn’t have fixed the housing market in three years – a claim that is not only wrong, but belied by the fact that her government has shown no real sign of trying, and is not promising anything much different in the next three or six years. One might almost believe that the Prime Minister doesn’t really care about the level of house prices at all, so long as she can keep it in check as an electoral concern. And, as a statist at heart, she’ll be happy when lots more people are in state houses – perhaps a reasonable outcome in itself, for a small minority, but hardly a systematic solution to one of the most egregious policy disasters in modern New Zealand history. (On that statist note, did anyone else note that when talking about lifting living standards her only answers seemed to be higher minimum wages and the state paying “living wages”, with never a hint of firing up overall economic performance in a way that would support market-led much higher wages all round.)

But we heard nothing from the Prime Minister – last night or in other speeches or interviews – suggesting she has any sort of vision of much lower house prices in New Zealand. I saw this post on Twitter yesterday afternoon

The Little Rock metropolitan area is bigger than Wellington and Christchurch but smaller than Auckland. These houses are about as far from the centre of town as Upper Hutt is from central Wellington or Orewa to central Auckland. And just look what you get for around NZ$300000. (In a place with interest rates just as low as those in New Zealand with – for the leftwing journalists currently aggrieved at loose macro policy – a central bank doing even more to buy up all manner of assets.)

But you don’t hear the Prime Minister talking of that sort of affordability as something New Zealand should be matching. But think about the sort of difference it would make if we did – not just to people buying a house to live in, but to the cost of supplying rental accommodation as well. It isn’t some silver-bullet to the issues around poverty – 50 years of real economic underperformance aren’t just about house prices – but it would make an enormous difference, and (not incidentally) turn houses back into a (lifetime) consumption item, not something to stress about or speculate on the value of it. Fear of missing out – which has, reasonably enough, driven many younger people – would be a thing of the past.

And even if one granted – what may have been the PM’s point – that writing a robust new land use law might take some time, markets trade in a forward-looking way. If anyone really thought Labour was serious about taking steps that might make a three bedroom house on a decent section affordable again, they’d hold off buying. And those who own the artificially-scarce land available for development would be looking to offload it now – developed or not – before that scarcity premium vanished from the price. But there is no sign of any of that. Instead, we have the government’s official economic advisers forecasting a new surge in house and land prices once the immediate Covid dip has passed.

Now, we know the government has had a report recommending its own rewrite of planning law. Who knows what will come of that, but it is hard to be optimistic. Again, if it were genuinely going to open things up we’d see the smart money moving already and peripheral land prices falling. But no sign of that – any more than there was when the Auckland spatial plan was put in place.

The dominant ideology of Labour (and much more so the Greens) seems to be simply opposed to allowing the physical footprint of our cites to expand much at all, a firm opposition to allowing markets to work in determining where new development takes place (thus, in combination cementing in quasi-monopoly land prices), all while both parties are wedded to driving up the population rapidly. Of course, some of them will tell you they are keen to facilitate greater urban density in existing suburbs near the central city or around transport hubs. I don’t have too much problem with that in principle, but it don’t think it is either right – or probably politically tenable – to ride roughshod over community preferences (many/most new developments run a system of private covenants, and it isn’t obvious why existing neighbourhoods shouldn’t have that possibility if that is what most existing owners want) and – more importantly here – there is little or no evidence that the drive for density, and height, is likely to lower the cost of a constant-quality unit of housing. Sure, you economise on land – even though gardens are what many people would actually prefer (revealed preference illlustrates that) – but the cheapest way to build houses is single-level properties, and (I’m told) the per unit costs of apartment blocks of several storeys are really quite high. Unless the land market is opened, so that there is genuine amd aggressive competition to supply new development sites, it is very unlikely that anything is going to change to deliver land-abundant New Zealand the sorts of real house prices it could, quite readily, have.

And that’s just a disgrace; a shameful reproach on both major parties (and their sidekicks) – but it is Labour which has been in government these last few years and almost certainly will be for the next few. It is inefficient and discourages inter-city labour mobility, but – more importantly to me – it is simply deeply unjust, with the burden falling most heavily on the young and the poor (in New Zealand that means disproportionately Maori), on new arrivals, and on those without wealthy parents, or even just on those who value self-sufficiency and earning their own way in life.

I look at my own teenage children and grow increasingly angry at the indifference of a Prime Minister who endlessly talks about “kindness” but has done nothing to fix the grossly distorted housing market, just presiding over ever-worsening imbalances. My son came home from the church youth group the other night telling me that one of the church leaders had said that he and his wife had purchased their first (inner Wellington) house for $25000 (at what would have been near the peak of the early 70s boom). That is about $250000 in today’s money. I checked that same house this morning – now almost 60 years old – and an online calculator estimates a value of $755000. Sure, real incomes are higher now, but in a functioning market that doesn’t justify higher – constant quality – real house prices. How would almost any early-mid 20s couple today purchase a first home in our cities? That should be a normal and reasonable expectation – looks still to be in much of the US – but this government seems quite content to turn the vast bulk of the country into a nation of renters. I recall going to Switzerland for a central banking course about the time I bought my first house, and being told by our hosts that prices in Berne were so high that really only department heads at the central bank owned their own houses/apartments. I was shocked – and disapproving – then, but never imagined it would be the case in land-abundant New Zealand. But something increasingly close to that is the legacy of National and Labour.

I try to be even-handed on this blog, and thus I should repeat that I have no idea if National would be any better now. They weren’t last time – despite positive rhetoric then too – but perhaps this time would have been different. But it doesn’t matter. They won’t be in government for the next few years. And all the evidence is that we have a Prime Minister who doesn’t care about lowering house prices, is uninterested in spending political capital or making the case to do so, and to the extent Labour has policy ideas in this areas none are likely to deliver real house prices lower than the disgracefully high level they were even three years ago when Labour took office.

Technology

Politicians of whatever stripe seem to want to associate themselves with “technology”. It was then British Labour Party leader – and Opposition leader – Harold Wilson who 57 years ago gave the speech where he talked of the new economy he looked to, referring to the “white heat of technology”. Perhaps it was the same in the 19th century too, but we certainly see and hear a lot about it in 21st century New Zealand. The economy continues to underperform, while same strange alliance of industry lobbyists and politicians want to talk up “technology” and so-called technology industries. I don’t think there is much difference between National and Labour on this one, but National is in Opposition, and yesterday Judith Collins was at it again.

As reported here, she wants to “double New Zealand’s technology sector in a decade, and specifically to double “New Zealand’s technology exports” to “$16 billion by 2030”, complete with talk of the sector being bigger than dairy 10-15 years hence.. Oh, and there was lots of money being flung around, and to top it all off National is promising a Minister for Technology. Presumably, that will be just one more title some other Minister would add to his or her list and – for better or worse – MBIE would carry on providing policy advice much as it does now.

Much of the political rhetoric in this area is fuelled by the annual TIN (“Technology Investment Network) report, a collaboration between MBIE and some private sector groups with an interest in talking up the sector. I took a sceptical look at this report in a post back in 2017. They seem to be the source of the idea that “technology exports” are currently around $8 billion per annum – the sort of line that led former minister in the current government, Clare Curran, to suggest a year or two back that technology was now our third largest export.

But the $8 billion (or thereabouts) is not a measure of exports from New Zealand – and certainly not in the sense that any serious economic analyst or national accounts statistician would recognise. Rather, it is the total foreign sales of the group of companies the TIN report put on their list. Exports, by contrast, are things produced the country concerned. ANZ is an Australian-owned and controlled bank, with significant operations in New Zealand. Last year its total revenue in New Zealand was about $7 billion, but no one thinks of that – or counts it as – an Australian export. But that is the sort of thing the TIN people lead people to do – TIN themselves tend to draft a little more carefully, but in ways that they know will lead people to talk of this revenue as somehow New Zealand exports. Last time I looked, for example, both Fisher and Paykel Appliances and Fisher and Paykel Healthcare were on the list. The former is not even New Zealand owned any more and both companies have substantial overseas operations – Healthcare, for example, does much of its manufacturing in Mexico, selling into the US. That makes it a successful New Zealand business, but those sales from Mexico to the US are Mexican exports not New Zealand ones.

It is difficult to get any sort of precise sense of the scale of (what one might reasonably think of us) “technology” exports from New Zealand, not least because technology is embedded, to a greater or less extent, in so much that is sold, whether locally or internationally.

But in my earlier post, I took a couple of proxies to try and get a sense of trends. I’ve updated some of those.

In the TIN report, for example, many of the companies are in “high-tech manufacturing”. But here is a “elaborately transformed manufactures” have done as a share of New Zealand merchandise exports.

ETM

And from services exports I worked out the share of the total made up of

Services; Exports; Charges for the use of intellectual property nei
Services; Exports; Telecommunications, computer, and information services
Services; Exports; Other business services
Services; Exports; Personal, cultural, and recreational services

The latter because the largest component of it appears to be film and TV exports (Weta workshops, Peter Jackson etc). “Other business services” is going to be quite a grab-bag, but it does include (for example) research and development services.

Here is how those services have done as a share of total services exports

tech exports

That series seemed to be doing quite well for a while, but unfortunately the last few years have not been very impressive and the latest observations are lower than those for, say, 2009. (Of course, there was a surge in education and tourism exports for a while, boosting the denominator.)

So what if we combine these two series and look at them as a share of New Zealand’s GDP?

tech exports 2020

Perhaps I’m missing some important series. But I went looking and I couldn’t spot anything obvious. Perhaps you are thinking of Xero for example, but wherever any of its export revenues from New Zealand might have been, the category of services of exports that mentions “accounting services” has shrunk hugely in real terms over the last 15-20 years. I’m sure there must be some other items some would reasonably label “technology exports” but if they were game-changing they should be easy enough to find.

We can all name various individual successful technology-based companies founded by New Zealanders. Some are even still owned, controlled, and/or based in New Zealand. And there is plenty of technology embedded in many of other exports – including dairy, the one they all seem to hope to rival.

But the overall picture really isn’t very encouraging at all. That is most unlikely to be “fixed” by flinging more scarce public money at the industry, or more visas. And we can be pretty confident that appointing a Minister of Technology would make no difference at all. In fact, if we keep on with the economic policies with run for the last 20 years, perhaps the main role for a Minister of Technology might be to front up to Parliament to explain why transformational change still hasn’t happened, hand in hand with the then Minister of Finance explaining why no progress has yet been made – perhaps another decade on – in reversing New Zealand’s longrunning relative productivity decline.

Of course, there is something of hint that the political parties aren’t really serious in the scale of the promise. National talked of doubling “technology exports” in a decade, which is akin to an average annual growth rate of about 7 per cent. For any really serious technology success story that would be a derisorily low rate of growth. Who knows: perhaps those worldwide sales of the TIN companies will grow 7 per cent per annum over the next decade – when nominal GDP is probably forecast to grow 4-5 per cent per annum – but even if that happens, it is unlikely to be the makings of a seriously stronger New Zealand economy.