Two unrelated comments

The New Zealand tourism industry has been having a good year.  One particular source of strong growth has been visitors from China, but I’d noticed reference to something similar in the Australian visitor data.  That got me curious about how the two countries’ industries had done in attracting Chinese visitors, not just over the last year or so, but over the decades.  This was the resulting chart.

china visitors

It simply takes rolling annual totals of short-term visitors from China to each country back to 1991, when the easily accessible Australian data start.

New Zealand has enjoyed a good year or two relative to Australia.  It is just a shame about the poor decade –  really the story of New Zealand’s tourism sector more generally.  Visitor numbers from China to both countries have been trending strongly upwards over the whole period (Chinese visitor numbers to New Zealand last year were more than 100 times those for 1991), but for at least the last 15 years New Zealand has done worse than Australia in attracting new Chinese visitors.  Yes, there has been quite a recovery in the last year or two, but that just takes New Zealand’s share of the market, relative to Australia’s, about back to where it was in 2007, and still a long way below our peak relative performance in 2003.

Tourism plays a larger share in New Zealand’s economy than it does in Australia’s, so success in tapping new markets looks like it should matter a bit more to us than to them.

On a totally unrelated matter, while I was playing around with the visitor data a reader kindly sent me a copy of, veteran political columnist and commentator, Colin James’s column yesterday from the Otago Daily Times.  Headed “Are English and Wheeler drifting out of date?”, it is another rehearsal of lines as to why the OCR should not be cut further.  It would bore me, and probably bore you, to go through all the weak points in the argument.  On the domestic side, suffice it to point out that per capita GDP growth has been weak not strong, a 5.3 per cent unemployment rate is disconcertingly low not a sign of an overheating labour market, and how 7.5 per cent credit growth qualifies as particularly “strong” in a economy that has 2 per cent population growth, a 2 per cent inflation target, and aspirations to some reasonable productivity growth is a bit beyond me.

But my main reason for commenting was that James also advances the line that somehow the world is a great deal better off than the statistics suggest, that technological revolutions are driving upwards our living standards and pushing prices inexorably downwards, and there really isn’t that much to worry about.

The problem with the story is that there just isn’t much evidence for it.  In the aggregate data, as I’ve highlighted before, it is clear that productivity growth has slowed, not accelerated, and that that slowdown was already underway before the ructions around the financial crises and international recessions of 2008/09.  This was a chart I showed a week or two back –  the blue line is the median TFP performance for the old advanced countries (in Europe, North America, and Oceania).

tfp conf board

And here was the data specifically for the US business sector

fernald

But don’t just take it from suggestive top-down charts. Various experts have been looking at whether any material mis-measurement issues, especially around the tech sector and tech products, can explain away the productivity slowdown.  The short answer is that they can’t.  Many readers will already have seen Tyler Cowen’s summary of these papers, and for those who haven’t I’d encourage you to check it out.   As he notes

…the countries with smaller tech sectors still have comparably sized productivity slowdowns, and that is not what we would expect if a lot of unmeasured productivity were hiding in the tech industry

John Fernald, at the San Francisco Fed, does the business sector TFP data in the chart above, and is one of the acknowledged experts in this area. In a new paper, out just a few days ago, Fernald and co-authors conclude

After 2004, measured growth in labor productivity and total-factor productivity (TFP) slowed. We find little evidence that the slowdown arises from growing mismeasurement of the gains from innovation in IT-related goods and services. First, mismeasurement of IT hardware is significant prior to the slowdown. Because the domestic production of these products has fallen, the quantitative effect on productivity was larger in the 1995-2004 period than since, despite mismeasurement worsening for some types of IT—so our adjustments make the slowdown in labor productivity worse. The effect on TFP is more muted.

It seems pretty clear that there has been a real and material slowdown in productivity growth, and hence in the rate of improvement in underlying living standards.  The Fernald paper suggest that may partly be a return to more normal growth patterns, after exceptional gains in the 1990s, but whether that is so or not, it is no reason for complacency about inflation that undershoots targets.  Weak population growth and weak productivity growth both argue for low interest rates….and as a reminder, in New Zealander real interest rates (already high by international standards) have been rising not falling over the last couple of years.

real ocr

When contemplating tomorrow’s Monetary Policy Statement  don’t fall for the lines Colin James runs, channelling Graeme Wheeler, that monetary policy is “very accommodative”

 

 

 

One thought on “Two unrelated comments

  1. Compared to the good old days of just shearing wool and exporting or butchering meat and exporting where cost of production is low,

    Dairy does not lend itself to high productivity, you need giant industrial driers manned by thousands to engineers and administrators to get milk powder for export, you need giant suction machines that breakdown all the time, electricians and engineers to keep those machines working, you need to manage irrigation and water supply to feed the cows. You need to manage waterways for affluence. Methane gas emissions also has a environmental impact.

    Like

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