An economist for President?

My two young US citizens have been badgering me about the US election, and when I tell them I’m just glad I don’t have to choose this year, one says “but what if someone had a gun at your head and forced you to choose between Trump and Clinton?”.  Watching Trump’s convention address last week confirmed many of the reasons why I would not support him, and watching Clinton’s address yesterday had much the same effect for her.  Last week’s New Yorker had an interesting profile of the Libertarian Party candidate Gary Johnson, but the more I read about him the less appealing he also seems to be.   I’m still glad I don’t have to choose –  and, what’s more, get to live in a country that has had women as head of state for 128 years of its 176 year modern history.

About the same time I was reading the Johnson profile, I stumbled on “Kotlikoff for President“: prominent economist Laurence Kotlikoff (a professor at Boston University) is running for President, urging voters to give him –  and his running mate, another prominent economist, Ed Leamer (at UCLA) –  a write-in vote in this year’s presidential election.  Kotlikoff is perhaps best known for his push to ensure that governments are fully transparent about the nature of the intergenerational fiscal obligations they take on.

A quick skim through Kotlikoff’s campaign website confirms that there are many issues I disagree with him on – not limited to his banking reforms proposals, contained in his 2010 book. Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking which he presented, and I had a chance to discuss with him, when he visited New Zealand two or three years ago.  It wasn’t so much that I thought his proposal was wrong, as that I thought he was much too optimistic as to what difference it would make –  my typical reaction to monetary reform proposals.

But what really interested me in working through his economics material was his discussion on immigration and population issues, in particular the bolded passage.


Immigration has been a major topic in the Republican Presidential debates. But the discussion has been remarkably disconnected from the facts. Notwithstanding the suggestion that illegal immigrants are overrunning our borders, there are and have been more illegal immigrants leaving our country than entering it. Indeed, over the last decade, roughly 1 million more illegal immigrants have left our country than have entered it. This is tribute, in large part, to our immense, decades-long effort to secure our borders. We still need to work extremely hard on border enforcement to eliminate illegal entry to our country. But we shouldn’t presume nothing has been accomplished.

The real issue with immigration is legal immigration. We are adding 1 million legal immigrants to the population each year. The great majority are unskilled. This isn’t hurting investment bankers or the software engineers at Google. This is hurting low-skilled U.S. workers. It’s the last thing we need if we are trying to restore our middle class.

Population Explosion

Legal immigration is also fueling a veritable population explosion. Unless we reduce legal immigration, our population will rise by one-third – over 100 million people – in just 45 years. That’s the current population of the Philippines. Most of these additional people will locate in the nation’s major cities. Driving in our major cities at peak hours is already a major challenge. With one-third more people, driving in our major cities may be like driving in Manila – an experience I don’t recommend.

Kotlikoff’s academic speciality is public finance, and Leamer specialises in trade and econometrics, but it was unusual to see  any such prominent academic economists speak up on the issue, expressing unease about the US immigration policy.  And recall that legal US immigration –  the bit Kotlikoff and Leamer focus on –  is one third the size, in per capita terms, of New Zealand’s non-citizen immigration programme.  The US grants around one million green cards a year –  every year roughly one new person for every three hundred already there. We aim to grant 45000 to 50000 residence approvals a year –   every year roughly one new person for every hundred already here.  In a single year, that difference might not sound like much.  Over even 20 years, it is enormous: over 20 years the US will have let in one person for every 15 already there, and we’ll have given the right to live here to one person for every five already here.

I’ve been reluctant to focus on the implications of immigration for wages.  My focus has been on the more macro perspectives: the potential impact on real interest rates, the real exchange rate, and tradables sector growth and investment prospects, in a country that has a modest savings rate and is constrained by its remoteness from the rest of the world.  I’ve also been a little uneasy about the wages story in aggregate in the short-term, since I read the evidence as suggesting that in aggregate immigration tends to boost demand more than it does supply in the short-term.  If anything, surprise immigration surges tend to lower the unemployment rate not raise it, at least in the short-term.

But the repeated (fallacious) insistence of business groups that large scale immigration eases skill shortages for the economy as a whole –  a proposition I dealt with here – eventually forced me to realise that at least in those occupational groupings where there is substantial immigration, that immigration simply must be holding down wages for New Zealanders in those sectors below what they would otherwise be.    The effect might be quite small at an economywide level, but if your sector can persuade the central planners in MBIE (and their Minister) to allow relatively easy recruitment of immigrant labour it simply must dampen the wage rate you as employer would otherwise have to pay.   If the available supply of labour diminishes, the typical response will be for the price to rise.

One could readily think of a number of occupational groupings that stood out when I looked last year at either residence approvals’ occupations or those getting Essential Skills work visas (and that is before starting on the sorts of role the people on working holiday visas tend to cluster in), such as

  • chefs
  • retail managers
  • dairy workers
  • aged care worker or nurse
  • restaurant or café managers
  • cook
  • truck driver

For each of these occupations, the alternative to a ready availability of immigrant labour must have involved, at least in part, higher wages.  Each firm would tend to pay higher wages to attract good people from other employers, and the industry as a whole will end up paying higher wages which will, over time, attract more locals into the industry.  Sympathetic as I am to aged care workers, it has always seemed that the heavy reliance –  as a deliberate matter of policy – on immigrant labour probably explains rather more about the pay differentials they complain about in pay-equity suits, rather than any sort of structural gender-based discrimination.

I understand why government politicians will want to deny these sorts of adverse wages effects. It is more puzzling why Opposition ones do  – especially Opposition parties with their roots in the trade union movement.  And even more so why most economists are at pains to try to deny any adverse effects on anyone.    Unless there are big productivity spillovers from the sheer presence of super-talented foreigners –  and in the New Zealand, most immigrants just aren’t super-talented (any more than most locals are), and no one has been able to find evidence of such spillover benefits at all – if there are any medium-term economic benefits from immigration at all they result from dampening the price of labour relative to the price of capital.  If labour is cheaper more projects are viable than would otherwise be the case.

In case anyone thinks this is just crazy stuff, there is a huge  formal literature on how immigration worked, and affected economic outcomes, in the first great modern age of immigration – the 50 to 70 years prior to World War One.   I’ve touched this in a previous post, referencing a piece by leading Irish economic historian (and professor at Oxford), Kevin O’Rourke.    Overnight, I stumbled on a new accessible essay by O’Rourke written prompted by the recent 100th anniversary of the Irish rising of 1916.  Here is what he has to say about the implication of emigration for wages.

Ireland was hardly the only country to experience mass emigration in the nineteenth century. If its emigration rates were particularly high, this was not due to a uniquely repressive environment (of either Irish or British origin). Irish wages were much lower than American wages, Ireland’s marital fertility rate was high, and there was a large stock of previous migrants to facilitate the transition to a new life in a New World. High emigration is precisely what would be predicted under such circumstances; the Irish were not unusually prone to emigrate, other things being equal.

And as was the case elsewhere, high emigration had a profound impact on the Irish economy, lowering the supply of workers competing for jobs, and raising wages. The wages of unskilled Irish building labourers rose from around 60 per cent of what their British counterparts were earning in the 1830s, to more than 90 per cent in the decade before World War I. Something similar happened in economies as superficially dissimilar as Italy and Norway, and in all three countries emigration was largely or entirely responsible for this wage convergence.

Irish wage convergence was emphatically not due to a superior Irish growth performance

This is just a standard non-contentious result in the modern literature about this historical period –  for anyone interested check out the writings of Hatton, Williamson and O’Rourke himself, for example. Emigration from Europe to the New World (including New Zealand) lowered wages here and raised them in the source countries. It greatly helped the process of income convergence –  although in New Zealand’s case, it took significant public subsidies to make even the high wages on offer here attractive to “enough” people.

There are occasional attempts to explain why the 19th and early 20th century experience might not be applicable today, but I’ve not found any of them even remotely persuasive. Instead,  most modern academic enthusiasts for high immigration to Western countries are either altogether unaware of the historical literature, or simply choose to ignore it.    That is particularly unfortunate –  one could think of worse descriptions –  in the New Zealand case, where since the 1970s we have had huge net emigration of New Zealanders and since the end of the 1980s huge policy-facilitated and promoted immigration of non-New Zealanders.  If it had just been the outflow of New Zealanders, the 19th and early 20th century experience might have led us to expect a substantial measure of income convergence between New Zealand and Australia (as outflows from Invercargill or Taihape helped keep factor returns in those places somewhat in touch with those in the rest of the country).  But if such a process had been incipiently at work, the policy programme to bring in so many non New Zealanders to a country no longer sufficiently attractive to its own would have worked to directly stymie the prospects of such convergence.   And yet in none of the MBIE or Treasury work on immigration I’ve seen has the historical convergence literature been applied to the New Zealand experience.  That seems like quite an omission.

It seems like a good year for Kotlikoff and Leamer to get some coverage for the issues they are promoting. I hope their sensible comments on the immigration policy issues do get some more attention.   And that as we approach our election next year –  with one of the largest controlled non-citizen immigration programmes anywhere in the world (and one of the worse long-term productivity performance –  we can have some thoughtful engagement with the costs and benefits of immigration, including the distributional ones, informed by the historical experience, as well as by the models of modern academic immigration enthusiasts.



Reviewing government assistance to business

The Australian Productivity Commission’s latest annual Trade and Assistance Review was released quite recently.  These, statutorily required, reviews contain

the Commission’s latest quantitative estimates of Australian Government assistance to industry

as well as useful discussion and analysis of key recent developments in the trade and industry assistance area.  As the Commission notes in the Foreword to this year’s report

Views inevitably differ on what constitutes industry assistance and whether it is warranted. Fundamental to these questions is transparency of measures. The annual Review seeks to identify government arrangements that may be construed as assistance, as well as their target, size, and nature. This information provides a basis for considered assessment of the benefits and costs of the arrangements.

Transparency  alone usually can’t stop daft policies being adopted or continued, but without good empirical estimates and disinterested analysis it is harder to push back against the special interests lobbying governments for this deal or that.  Such deals are almost invariably dressed up as being in the public interest, but perhaps rarely are.

The Commission highlights one particularly egregious example in this year report –  the decision to build the new submarine fleet in Australia  (characterized by many as marginal seat retention scheme  –  and the Cabinet minister most often mentioned did retain his seat at the recent election).  As the Productivity Commission’s report tartly observes

Paying more for local builds, without sufficient strategic defence and spillover benefits to offset the additional cost, diverts productive resources (labour, capital and land) away from relatively more efficient (less assisted) uses. It can also create a permanent expectation of more such high‑cost work, as the recent heavily promoted ‘valley of death’ in naval ship building exemplifies. Such distortion detracts from Australia’s capacity to maximise economic and social wellbeing from the community’s resources. The recent decision to build the new submarines locally at a reported 30 per cent cost premium, and a preference for using local steel, provides an illustrative example of how a local cost premium can deliver a very high rate of effective assistance for the defence contractor and the firms providing the major steel inputs (box 3.1). While based on hypothetical data, the example reveals that the effective rate of assistance provided by purchasing preferences can be higher than the peak historical levels recorded for the automotive and textiles, clothing and footwear industries prior to the significant economic reforms of protection. It is notable that this cost premium does not include any delays in deploying the new submarine capability.

Effective rates of protection, in 2016, higher than those provided to automotive, textile, clothing and footwear industries in the bad old days of high industry protection.

I wrote briefly about last year’s review, which included material which the Sydney Morning Herald described as scathing attack on preferential trade agreements of the sort that Australia (and New Zealand) governments have been enthusiastically signing.  The Australian Productivity Commission  –  a body strongly committed to open and competitive markets – has a well-established record of skepticism around the wider economic benefits of such deals.  Here is their box summarizing the issues and concerns.

Box 4.1           Conclusions in regard to the merits of trade agreement

The Commission has previously raised questions about the merits of trade agreements (including PC 2010, and the Trade & Assistance Review 2014‑15). The overall conclusions are as follows:

·       Multilateral trade reform offers potentially larger improvements in national and global welfare than a series of bilateral agreements. While the slow progress of the Doha Round of multilateral trade reform has accelerated preferential agreement making, the trade‑diverting effects of bilateral agreements should not be forgotten.

·       Australia gains more from reducing its own tariff barriers than from the tariff reductions of a bilateral trade agreement partner.

·       The benefits of increased merchandise trade emanating from bilateral trade agreements have been exaggerated.

·       Different and complex rules of origin in Australia’s preferential trade agreements are likely to impede competition and add to the costs of firms engaging in trade.

·       The nature and scope of negotiating remits should be assessed from a national structural reform perspective before entry into negotiations, rather than primarily for export opportunities. The text of proposed trade agreements should be made public and a rigorous analysis independent of the negotiating agency published with the final text.

·       The Australian Government should seek to avoid the inclusion of Investors‑State Dispute Settlement (ISDS) provisions in bilateral and regional trade agreements that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors.

·       The history of Intellectual Property (IP) being addressed in preferential trade deals has resulted in more stringent arrangements than contained in the multilateral agreed Trade‑Related Aspects of Intellectual Property (TRIPS). Australia’s participation in international negotiations in relation to IP laws should focus on plurilateral or multilateral settings. Support for any measures to alter the extent and enforcement of IP rights should be informed by a robust economic analysis of the resultant benefits and costs.

It isn’t exactly the enthusiasm of New Zealand or Australian governments for deals such as TPP (although the Commission does not comment at any length on that specific deal).

One can always argue what value publications like these add – given the fondness for daft policies that governments continue to show. But given how badly the incentives are skewed against citizens, provisions that require officials to publish reports of this sort seem appropriate. Information is one of the few tools citizens have to push back.

In New Zealand, the Taxpayer’s Union has done sterling work in highlighting some of the cost of “corporate welfare”, but it might be a good part of improving New Zealand’s economic governance if provisions requiring an annual report of this sort were included somewhere in New Zealand legislation.  At very least, it would help to prompt something like the annual modest round of stories in the Australian media about just what governments are doing  –  and at what cost –  in this area.  In a small country, with a lightly-resourced media, we probably need such official reports even more than Australia does.

A couple of cartoons

I mentioned this morning that talk of slow and controlled adjustment down in house prices reminded me of a cartoon from the 1980s, contrasting the Douglas and Anderton approaches to economic reform.    Having dug around in my garage, here is the cartoon.


There are no totally easy or fail-safe ways to unwind the disaster that the New Zealand –  especially Auckland –  housing market has become.  But this is a clear example where the sooner it happens the better.  If house prices rose sharply one day and were reversed the next, almost no one suffers.  If prices rise sharply for six months and then fully reverse, a few people will have difficulty –  but the losses will be isolated and limited, posing no sort of systemic threat.  But if real house prices stay at current levels for the next 20 years, most of the housing stock will have been purchased (and borrowed against to finance) at today’s incredibly high prices.  There will have been a massive real wealth transfer to this generation of sellers (sellers, not owners).  And that transfer itself simply can’t be unwound no matter what happens to house prices.  If house prices were to fall now, there has still been quite a redistribution, but four years of turnover is quite different from 20 years of turnover.

In the Douglas-Anderton debates illustrated in the cartoon there were some real and legitimate choices about timing.  If one is stripping away industry protection, or substantially restructuring government agencies, there are some reasonable questions about how much notice one gives people to reorient their lives, and businesses, and find new options.  The protected industries were mostly pretty static, and a signal that protection would be stripped away over five years would call a halt to most new investment anyway.   The house price situation is different.  Even if prices go no higher from here –  the sort of the thing the government and Labour Party seem to want –  more and more people are getting caught in the web of paying (and borrowing) too much for houses with every passing month, just through normal housing turnover.  For each new borrowing family, that choice will affect their consumption options for the rest of their lives.

But lets take a deliberately extreme contrast: on the one hand, house prices fall 50 per cent tomorrow, and in the alternative scenario they fall 50 per cent steadily over the next five years.   Who would gain from the gradual adjustment?  There is no obvious gains to banks –  the debt is what it is, and at least conceptually they’d want to mark down the value of the collateral straightaway.  There is no obvious gain to existing owner-occupiers.  There is no  obvious gain to the economy as a whole –  indeed, arguably a climate of expected continuing falls in house prices might be worse for activity than a single sharp adjustment. Of course, there would be some winners and some losers –  the losers would be the people who for some reason simply had to buy a house in the next few years (they’d pay more than in the sudden adjustment scenario) and the winners are the few smart or lucky people who manage to offload their properties before the full adjustment occurred.  In fact, what we would see is turnover in the housing market dry up for several years, which would also make it more difficult for those who simply had to transact to do so.  Again, not an obvious social gain.

Sadly, it isn’t going to happen, but given the mess successive governments have created a 50 per cent fall in house prices tomorrow as a result of land use liberalisation would be one of the single best things that could happen –  and much better than the false promise of some sort of controlled gradual fall (such things just don’t happen). Sure, it wouldn’t be easy for some, but the number of people who will be adversely affected if the housing problems are ever really resolved grows by the day.

Changing tack, on the front cover of my cartoon collection I have this cartoon from early 1991.


For some years, I had it pinned to the wall in my office –  the sad procession of successive Ministers of Finance who for decades (this cartoon implies back to the 1950s) had promised that New Zealand’s decline would be reversed (made worse in this case in that Ruth Richardson must have said something along these lines in February 1991, just as the severe recession of that year was taking hold).      Since then, we’ve had Bill Birch, Winston Peters, Bill English, Michael Cullen, and Bill English again, and although we’ve had plenty of cyclical ups and downs, never at any time have we looked like successfully or sustainably reversing our relative economic decline.   It saddens me every time I look at this cartoon –  so many decades, so much failure.

Kudos to the Greens

I’m not usually much inclined to support the Green Party on anything –  their interest in reforming the governance of the Reserve Bank being an admirable exception.  And political courage on doing something about house prices –  and being honest about what making house and urban land more affordable means  – had seemed to be in really short supply from all across the political spectrum.  I’m not sure even the current ACT leader has been willing to openly suggest that if prices in Auckland fell 70 per cent it would only bring them into line with the price to income ratio of around 3 that has been a typical benchmark of affordability (happy to be corrected if I’m wrong on that).

And so I can only commend the Green Party for being willing to say it: house prices should fall, especially those in Auckland, and the fall needs to be large.

On Wednesday Turei, the Greens co-leader, put her neck out politically calling for house prices to be slashed, particularly in Auckland, where the average is knocking on $1 million.

She’s considering policy that house prices drop to about three to four times the median household income.

As the Stuff story puts it

Her party’s approach is not dissimilar from former Reserve Bank chief economist Arthur Grimes and former National and ACT leader Don Brash, who are calling for a 40 per cent drop and as much as a 60 per cent fall respectively.


Don Brash would probably describe himself as being on the right of New Zealand politics, while Grimes has always struck me as being (non-partisan but) a denizen of the mild centre-left.  This isn’t an ideological issue (at least on any traditional left-right spectrum) –  but one about facing facts, and prioritizing people who currently have little hope of ever being able to afford a house.  There is simply no excuse for that sort of systematic exclusion.

Turei says she’s doing work around what a policy would look like but she’s taking a lead from initiatives, such as Auckland Council chief economist Chris Parker’s report picked up by the council to aim for house prices five times the household income by 2030.
“We are saying it like it is. Most people believe house prices are far too high, most people believe house prices need to come down.”
The sad thing is the light that Turei’s comments shed on the leaders of our two largest parties.  We already know that the Prime Minister has dismissed the Grimes call as “crazy” –  not demanding, not uncomfortable for some, just crazy.   And as for the Labour Party.
But Little says the solution is stabilising house prices by cracking down on speculators, building more houses and lifting wages – not crashing the market.
So house prices should stay at these levels and in 40 or 50 years time wages might have caught up –  and our grandchildren might perhaps finally be again able to purchase a house at reasonable multiples to income?
No doubt both sides have been polling furiously on these sorts of issues –  trying to detect whether there is a tipping point in public opinion approaching.  As I’ve said before there is no doubt that sharp falls in prices could be uncomfortable for some.  But the potential unpleasantness is typically much overstated –  at least if a correction were to happen soon.  Most people haven’t entered the house market in the last  four or five years, and many of those who have will have envisaged paying off a mortgage over their working lives.  Our banking system is robust, and there is no chance of some repeat of the US 2008 financial crisis here.  But for some highly-leveraged investor purchasers, a sharp fall could mean a business failure.  That wouldn’t be pleasant for them, but it is in the nature of a market economy –  people take risks, many are rewarded, and others fail.  It is also in  the nature of unwinding distortionary controls that have skewed markets against ordinary people –  whether that is land use restrictions or in years past farm subsidies, import quotas or whatever.
The main point of this post is to praise the Greens.  But having done so, I would add that I’m much less convinced that they have the answers as to how to get prices down again
Turei says addressing the issue involves a capital gains tax, a state house building programme, both state houses being built and a state programme for building houses for sale, the unitary plan and supply.
And I’ve been puzzled for some time as to why a party that is concerned about the impact of people on the environment is so opposed to adjustments in immigration policy being part of the mix.
I also part company from them on timing

Any approach to bringing down house prices needs to be done in a controlled way and over a long period of time, she said.

I think that is exactly the wrong approach –  and the idea of “controlling” the pace of adjustment seems far-fetched.  Turei’s comments remind me of a cartoon –  which I might track down later in the day –  from the 1980s contrasting the Roger Douglas and Jim Anderton approaches to economic reform.  Dressed as surgeons, confronting a gangrenous limb, one advocates lopping off the entire limb in a single blow, while the other advocates removing tissue just a slither at a time.

The sooner house prices come down the easier the adjustment will be –  politically and economically.  The longer the current disaster goes on the larger the proportion of people who will have borrowed and entered the market on the basis of current high prices, and harder it will be, on both political and economic grounds, to secure the support for the necessary adjustments –  the more there will simply be a push to wait out the problems and leave affordable housing as a dream for a couple of generations hence.  That really would be a national failure (well, National and Labour).

A journalist asked me the other day for some comments on the housing market.  They don’t seem to have been used, so I’ll reproduce them here

Do you think the Auckland housing bubble will burst and why/ why not?
The best way to think about Auckland house prices is that they have reached their current outrageous levels because of the interaction of rapid population growth (mostly on account of immigration) and tight land use restrictions.   Whether prices, or price to income ratios, ever fall back very sharply mostly depends on what, if anything, governments do about alleviating those pressures.  Net immigration does ebb and flow, but around a very high annual target for the inflow of non-citizens.  There doesn’t seem to be much political appetite to change that target, and there also seems to be only limited appetite for really freeing up land use restrictions.  Allow any land within 100 kilometres of downtown Auckland to have even two storey houses built on it, and the price of urban land would quickly fall a very long way –  owners of land on the margins of the city will be keen to utilize the land as soon as possible, not as slowly as possible.  But far-reaching reform like that doesn’t seem that likely.  So, sadly, while we might see house prices fall back 10 or even 20 per cent in the next recession –  whenever that is –  it is difficult to be optimistic that price to income ratios will drop back to around 3 (where they should be) any decade soon.
If yes – any idea about when?
Forecasting is a mug’s game.  All that can really be said is “please, as soon as possible”.  The longer the eventual adjustment is delayed the more people –  owner-occupiers and investors –  who will caught having borrowed hugely to pay today’s massively distorted prices.  The longer prices stay at these, or even higher levels, the more difficult the economics and politics of ever making Auckland housing affordable again.
To all of which I’d add that I also have no problem with greater intensification, but these things should be decided by landowners, not by councillors, or hearings panels.  Assign property rights in the existing plan provisions to groups of homeowners –  say 500 house groups –  and let them trade changes in those rights.  Use collective action clauses – as are often used in modern bond contracts –  so that a vote of say 80 per cent of land owners in a neighbourhood would be enough to agree changes for that neighbourhood.  It might sound messy, but compared to the current situation it sounds like a path that would actually generate change –  and ensure that affected parties sort these things out in the market, without anguished arguments on Checkpoint about bureaucrats and judges deciding the fates of Panmure, Mission Bay, or wherever.




There is just so much wrong with this sentence

The latest version of the proposed Auckland Unitary Plan –  itself a phrase that leaves me slightly queasy each time I read it –  is apparently due out at 1:30.

Reading an article on it in today’s Herald I found this sentence:

“it will decide where and how Aucklanders will live, work, and play for the next 30 years”

Actually, I doubt even the most fervent advocates will claim all of that for it –  and almost certainly it won’t be what actually happens – but it is a sad reflection of where we have got to, in respect of freedom, property rights, individual choice (add in the sheer unknowability of the future) that a journalist can write a sentence like that and probably not even see anything unusual or controversial about his statement.

In a free society, Aucklanders would make those choices themselves, and Councils (as providers of basic infrastructure and public services) would fit themselves to those private choices exercised in a free market in land, and the ability of private landowners to contract with each other, to respect each others’ interests and property rights

Allow any land within 100 kilometres of downtown Auckland to be built on to a height of two storeys and we’d pretty soon see house and land prices a lot lower, and the market –  private preferences, private opportunities –  would sort out just where the new houses were built.



A former Prime Minister and Minister of Finance on immigration policy

A couple of weeks ago we had a family holiday in the Bay of Islands. It was almost 20 years since I’d been that far north, to a part of the country suffused with New Zealand history.  It is also a part of the country where some of tensions and divisions are still pretty visible. The visible divide between prosperous, heavily European, eastern towns, and the poorer browner inland areas is one example, but I was also struck by how often I saw the 1835 United Tribes flag flying.  In a country where flags are flown much less often than in, say, the United States, it was hard to miss.

As we looked over the historical sites and talked to the kids about New Zealand history, it had me wondering again, rather uneasily, about Maori perspectives on immigration in New Zealand history.  Scholars can debate quite what mix of factors led various Maori leaders to agree to sign the Treaty of Waitangi, or what they thought they meant in doing so.  But by some mix of consent and proclamation in and around 1840, the British government acquired control of New Zealand, and international recognition of that new possession.  At the time, the European population was probably no more than 2 per cent of the total population of New Zealand.

Mass European immigration wasn’t a specific article in the Treaty.  Many of the Maori leaders probably welcomed some immigration –  which had brought, for many, trade opportunities, education, Christianity and so on (as well as law and order problems etc).  But I don’t suppose anyone signing the Treaty, or probably anyone associated with establishing colonial government in New Zealand for that matter, really thought much about how the numbers would eventually turn out.

But whether it was foreseen or not, the numbers quickly changed.  Even by the mid 1850s, it is estimated that Europeans and Maori were roughly equal in number, and the immigration associated with the gold rushes further skewed the numbers towards European dominance, especially in the South Island.  Since then, of course, the numbers have swung ever further against Maori –  complicated by intermarriage.  Whatever benefits there might have been from the immigration, it is hard not to avoid a conclusion that it has created a society in which Maori are marginalized –  in important respects – in what had been for hundreds of years their own land.  Things Maori have more prominence now than they did when I was young, but the way things are done in New Zealand today isn’t primarily a reflection of Maori culture.  And, in a sense, that is inevitable –  countries reflect the cultures of the people who inhabit them –  but I can’t help wondering what that means to Maori.  Immigration changes societies, and in largely irreversible ways, whether intended or not.

My real focus today though is the history.  In the North Island in particular, the process wasn’t without tension.  There had been the Northern War of the mid 1840s, and then the North Island land wars of the 1860s and early 1870s.  These conflicts were enormously costly, and involved really large deployments of British military forces (in the 1860s apparently the British forces in New Zealand were the second largest British military deployment –  behind India –  anywhere in the world).  But by the end of the 1860s the British wanted out, and wanted the burden of defence and security to rest with the New Zealand government.  At the time, the colonial government could barely be said to have a secure hold on most of the North Island, at least outside the major towns.

It was around this time that the huge debt-funded immigration and public works programme was launched, driven by Julius Vogel.  It was a key event in New Zealand history, and features in all the histories and economic histories. The scale of the population inflows, and of the debt that was taken on in the process –  bringing in migrants and building railways and other public works –  swamps (proportionately) anything in more modern times.  The net migration inflow in 1874 –  the peak year –  was around 10 per cent of New Zealand’s total population at the time. Last year, our population increased by 2 per cent.

What isn’t much discussed is quite what drove the immigration and public works programme.  Earlier in the year I had seen a passing mention that in the leading biography of Vogel, the author –  Professor Raewyn Dalziel –   had suggested there was evidence that an active desire to change the population balance, “swamping” the Maori population in the troubled North Island in particular, was a key factor.  Having just come back from Northland, I decided to should look up the reference (p 105 for anyone interested).

In his own contemporary statement on the policy, which Dalziel quotes, Vogel had written

“The one chance of gaining adequate control was to introduce such a system of public works and workmen into the North Island as would 1st give protection in case of need 2nd occupy to some extent the natives 3rd open up communications 4th keep the natives in touch with the colonists….It was a matter of life and death to secure its adoption.”

Dalziel also draws from a lecture Vogel gave in London in 1893.  That was some time after the policy was introduced, but only six years after Vogel had ceased being Colonial Treasurer (Minister of Finance, in today’s terminology).  It is perhaps no different to listening today to Ruth Richardson explain the thinking behind the Fiscal Responsibility Act, or Bill Birch on the Employment Contracts Act.  Retrospectives are often tinged with the benefit of hindsight, but such reflections also often offer valuable insights on just what was shaping policy thinking.

Fortunately, Vogel’s lecture is available on-line here, as part of Victoria University’s Electronic Texts Collection.  I found it fascinating reading on numerous counts.

In discussing the immigration and public works programme, Vogel begins with the British government’s decision to transfer defence and security responsibility to the New Zealand government.

Mr. Gladstone euphemistically describes the sudden imperative withdrawal of the Imperial troops in 1870, at a time when war with the natives was proceeding on both sides of the North Island. There is a modern phrase which more aptly describes what took place. “Scuttled” is the word that would now be used. That the Colonists proved equal to the task they had to undertake was no excuse for the way in which the obligation was flung upon them in the midst of a double warfare existing at the time. I have always felt grateful to the Maoris for the way they behaved at this crisis. Had they been possessed of less generous instincts, they would have taken advantage of the position. The North Island was sparingly peopled, the Colonists of the Middle Island, by far the most wealthy and populous, were profoundly discontented with the onerous call which had been made on their resources, by expenditure which they comprehensively regarded as cast upon them to fulfil Imperial obligations contracted by the Treaty of Waitangi. The actual means of the Colony at the time were not large, and any attempt to raise a war-loan would have been scouted. The North Island was not only scantily populated, but much of the interior was almost impenetrable to Europeans, whilst the Maoris could go from end to end and from side to side of the Island with great ease. It took General Chute, with a considerable force, a long time to penetrate to New Plymouth from the Wellington Province, and his able performance of the task was regarded as a great feat. Had Te Kooti and Titokowaru, who were respectively at war with the Europeans on the east and west coasts, joined their forces, and other great chiefs combined with them, the issues would have been very grave. This risk the Colonists were left to confront whilst Downing Street exhibited the most stoical disregard of the consequences of its own previous acts, and of the responsibilities it had specially contracted.

The Public Works’ Policy.

The Government had but one resource, a policy of the utmost conciliation, until they could place themselves in a position of strength for the future. It was a most anxious period. The ‘Maoris were a fiery race, and any little dispute in any part of the Island might have occasioned a fierce and general war.

It has often been said and written that the Public Works’ Policy was the outcome of a speculative desire to obtain the expenditure of a large quantity of borrowed money for the gain that expenditure would bestow, leaving to chance subsequent consequences. I will tell you the real facts, and I think I may say there are only two or three men now living who can speak with equal authority. The Public Works’ Policy seemed to the Government the sole alternative to a war of extermination with the natives. It comprised the construction of railways and roads, and the introduction of a large number of European immigrants. The Government argued that if they could greatly increase the population of the North Island and open up the means of communication through the Island, and at the same time give employment to the Maoris, and make their lands really valuable, they would render impossible any future war on a large scale. They recognised that in point of humanitarianism there was no comparison between the peaceful and warlike alternatives. They considered also that, financially, it was infinitely preferable to spend large sums on permanent development, to expending equal, or probably larger amounts on issues of warfare.


The Colonial Government dared not introduce the Public Works’ Policy as a measure to subjugate the natives to future peacefulness. To have done so would have involved the risk of exciting them to immediate hostility. The most that could be stated in that direction was contained in the following paragraph in the speech in which a declaration of the policy was made.

“I cannot close this branch of the subject without adverting to the effect which the promotion of railways and immigration must certainly have on the native question. The employment of numbers of well-paid natives on Public Works, to which in their present temper they will resort with avidity, the opening up of the country and its occupation by settlers, which will result from the construction of roads coupled with the balancing of the numbers of the two races by a large European immigration, will do more to put an end to hostilities, and to confirm peaceful relations than an army of ten thousand men.”

There was thus the necessity of bringing the measure forward on its merits, only as a colonising scheme. Pray do not think the Government had any doubt on the subject, but it was a bold departure for so small a community, and under ordinary circumstances it would probably have been proposed on a less ambitious and rapid scale. But the circumstances forbade anything of the kind. From what I have previously said it may be gathered that the South Island would not be willing to give its credit to benefit colonisation in the North Island without inducements applied to itself of a large character. Hence to really serve the North Island, it was necessary to frame the whole scheme on a scale sufficient to offer great advantage to the South Island.

What surprised me was that when I pulled other books off my shelves  –  political and economic histories of New Zealand –  there was almost no reference at all to this strand of argument.  There is plenty of discussion of the economic and fiscal impact of the immigration and public works programmes –  albeit nothing on what it might have done (good or ill) for per capita incomes in the longer-term –  but nothing at all on what seems to have a key motive for key figures in the government of the time, Vogel  –  former Premier and Colonial Treasurer – foremost among them.

I’m not sure why, but I can guess.  Among other things, it is pretty uncomfortable stuff for a European author –  or reader.  Conquest and displacement are, no doubt, the way of history, but it isn’t a comfortable thought about one’s own country, about events that are only 140 years or so in the past. It is a reminder of the fragility of many of the settler societies, and of how –  plausibly enough –  the New Zealand story could have ended quite differently.   Personally, I read it with a mix of conflicting thoughts and feelings: glad on the one hand that my own ancestors were all in the South Island, and  the comfort and familiarity of being part of a majority culture.  But on the other hand, more than a little uneasy about what it has all meant for the place of Maori in New Zealand –  and for all that the rest of us (rightly and reasonably) claim this place as home, it is the only home for Maori and their culture.

Quite plausibly, mass European immigration to New Zealand in the 19th century did raise per capita incomes here –  for Maori and for Europeans –  but it did so partly by operating on scale that substantially displaced the cultures and institutions that had been here previously.  Indeed, Vogel suggests that for the largest single wave of that migration, to do so was a matter of calculated government policy.

For many readers, there might be a “so what?” reaction to all this.  A family member’s response was “well that’s fine, but it happened and can’t be undone”.  And that is fine too – this isn’t directly about lessons for today, but for me anyway it prompts me to reflect afresh on how immigration –  and immigration policy – has shaped our country in the past, and in different ways continues to do so today.  And to wonder again about what it means for the relative and absolute place of Maori in New Zealand.

(On quite another matter, I was amused to see that the concept of value-added in exporting made the speeches of former Ministers of Finance even 120 years ago.  I’ve written here about how New Zealand performs pretty poorly on that score now.   Here is Vogel talking about value-added in exporting –  and the lowish proportion of imported inputs in New Zealand’s exports – back in 1893:

over the 40 years ending 1892 an exportation of articles produced in New Zealand equal to £14 annually per head of population. The United Kingdom prides itself on being a great exporting country. During the 16 years to the end of 1890, the annual value per head of population, of exports, the growth, or produce of the United Kingdom amounted to £6. 7s. 5d., against £14 per head in the case of New Zealand. But even this comparison does not give a full idea of the difference between the two countries. The New Zealand exports were entirely the growth and produce of the country, whilst one-half of the exports from the United Kingdom were merely preparations or manufactures of imports received from other countries.

For anyone with an interest in New Zealand history, Vogel’s lecture is fascinating stuff – an upbeat visionary politician’s take on what had been created in New Zealand over the previous 50 years, and what might yet be.)

A good feature of our tax system

Yesterday I commented regretfully on the absence of any sign of much in-depth thinking from the Labour Party about reversing New Zealand’s ongoing relative economic decline.  I noted then that they had plenty of company in that failure.  As one illustration, I saw a piece on The Treasury’s website this morning outlining Treasury’s work programme, which is apparently organized around seven “strategic intentions”.  Each of them is probably fine in their own way, but none bears directly on reversing New Zealand’s decades of relative economic decline.  The standards of the modern Treasury seem to be  reflected in this quote from a related document, trying to recruit a new Chief Economic Adviser:

we are facing up to the challenge that economic actors operate in complex ways and not according to straightforward and predictable scientific models.  Moreover the days when improvements in living standards were measured exclusively by the increase in total production – GDP – are on their way out.

I just shook my head in weary despair.    I no longer have my Stage 1 economics textbook, but I doubt that even there anyone assumed that “economic actors” (people?) are other than complex.  No Treasury in my 30 years of working alongside them ever did.  And perhaps the Treasury could point us to cases where anyone ever thought that “improvements in living standards were measured exclusively by the increase in total production –  GDP”.  We conscripted labour in World War Two –  forced people to work even when they didn’t want or need to, and forced them to work longer hours than they preferred.  That provided a big boost to GDP, but no one thought it boosted living standards – it was a means to an end, defeating our enemies.   If they are really reduced to arguing against such straw men, it would be a very brave, or slightly deluded, person who took on that Treasury role.

But this post is, in part, about praising the Labour Party (and on this one, I suspect Treasury probably agrees with them).  The Herald has an article this morning on turnover taxes on real estate transactions.  They draw on this piece from a UK accountancy firm which looked at turnover taxes (on US$1m houses) in 26 countries.  New Zealand has no turnover taxes on property taxes and so ranks top of the table –  just marginally ahead of Russia, which levies a fee of US$30.45 on such a transaction.  Belgium, by contrast, which has always been known for its high turnover taxes charges US$113131 on a purchase of a $1m house.

The Herald found a local economist, Shamubeel Eaqub, who (in the sub-editors’ words) “frets on tax ranking” and who thinks, in his own words, “it would be a very good thing for New Zealand to tax property purchases”.  To his credit, Labour’s housing spokesman Phil Twyford disagrees noting that “stamp duty is a relatively inefficient tax” and stating that Labour did not advocate stamp duty –   no if, no buts, no suggestions of referring it to a working group.  Stamp duties on property purchases are just bad policy.  In some places (eg Australian states) they have been used when revenue options aren’t available to that particularly authority, but from either tax policy or housing policy perspective, let alone fiscal or labour market considerations, they have almost no other redeeming features and we should be grateful that we are free of such taxes.

The UK accountancy firm that wrote the piece fretted that high turnover taxes might make it hard to recruit overseas senior executives or rich foreign investors.  I’m not sure that the latter concern in particular will really have much resonance among electorates anywhere.  We should worry much more about what turnover taxes mean for the functioning of the market for ordinary people.  Moving cities is expensive enough as it is, without slapping an additional heavy tax on people whose job opportunities mean it is necessary for them to move.  Stamp duties on property transactions bear no relationship to ability to pay or any of the other usual desirable features of a tax system.  At the margin, they impede labour mobility, undermining the effectiveness of the labour market.  And, almost certainly, they reduce housing turnover.  Some might see that as a good thing, since high housing turnover is often associated with rising prices –  but it isn’t the turnover that generates the higher prices, it is the underlying boost to demand that lifts turnover and prices together.   Structurally reducing the level of housing turnover would simply reduce the choices people face when they do come to the market.  And where it might make good practical sense, on account of changing family circumstances, to move house, such taxes will simply encourage more people to alter and extend an existing house instead.  There is no obvious welfare gain from that.

And, of course, there is no sign that the presence or absence of a turnover tax plays any part in explaining cross-country variation in house prices, or price to income ratios.  Belgium’s houses certainly aren’t cheap, Australia and the UK both have quite material turnover taxes and house price problems as severe as ours, and in the US places fast-growing places with very affordable housing co-exist with highly unaffordable cities all in a regime with very low property turnover taxes

I’m also very uneasy about property taxes tied to turnover – whether stamp duties, or realisations-based capital gains taxes (which all real world CGTs) are –  because of the fiscal risks they create.  When times are good property turnover is higher than usual –  often quite a lot higher than usual.  Tax revenue floods in –  not just 10 per cent higher than GDP when GDP is 10 per cent higher, but multiplicatively so (housing turnover per capita might double or treble from bust to boom),  If the boom runs for several years, the fiscal authorities –  officials and politicians –  come to treat the higher level of revenue as normal, and perhaps even sustainable.  Even if some boffins in Treasury keep sounding the alarm, politicians have elections to win and abundant revenue encourages even-more abundant spending.  This is a problem even when tax systems draw almost entirely on income and consumption –  our own Treasury finally caved in in 2008 and conceded that the higher levels of revenue built up during the boom of the previous few years was sustainable,  just before the severe recession blew to pieces all those assumptions. It was much m0re of a problem in Ireland, where property-based revenue had hugely flattered the fiscal picture in the years leading up to the crisis.  It is fine to talk about clever schemes to limit these risks –  fiscal rules or separate funds –  but they rarely work well.  And there is no good tax policy or housing policy case for turnover taxes in the first place.

I’m not so keen on the rest of Labour’s housing tax policy –  extending the quasi capital gains tax for investment properties, or “axing” so-called negative gearing –  but credit to them for having no truck with pure turnover taxes.

(UPDATE: I noticed that Treasury recently released some material on the – rather limited –  work they had been doing on the possibility of a stamp duty –   turnover tax –  for residential property).



Labour on New Zealand’s economy

It is probably only about 14 months until the next election.  We have a government that has presided over eight pretty-mediocre years of economic performance –  not all of it their fault, as there are global factors at work –  with no real idea what they should or could do to reverse New Zealand’s decades of staggering relative economic decline.  Often enough, it seems that the current government doesn’t even really care, so long as they can successfully persuade enough of the public that things aren’t too bad, or (worse) that our problems are actually marks of some sort of success.

Of course, our key economic agencies –  Treasury, MBIE, and the Productivity Commission –  show no real sign of offering the sort of quality advice that takes seriously the specifics of New Zealand’s situation and offers solutions that might make a material difference.  I’m not really sure why.  For them individually  –  and maybe for senior politicians too – perhaps it doesn’t matter very much.  For the upper tier of New Zealand, life is pretty comfortable.  And it isn’t always clear that politicians want hardheaded advice that seriously addresses New Zealand’s problems.  The Muldoon government wasn’t that keen on robust Treasury advice in the early 1980s either, but it didn’t stop the agency investing in capability and offering the best professional advice they could.

But this post is about politicians, and particularly about the Labour Party.  12 months out from an election, eight years since they last held office, at a time when no one would really claim the economic situation is particularly rosy, one might have hoped that the main Opposition party would be offering a pretty compelling alternative narrative: a diagnosis of what has gone wrong economically and the outlines of a rather different approach to policy.  I’m not suggesting that they should have all their policy detail published this early, but surely there should be enough to leave floating voters –  or potentially detachable voters –  with a sense that the main Opposition party was offering a different path, that would make a material difference?

I watched Grant Robertson’s interview on Q&A yesterday and was as unimpressed as ever.  There are occasional glimmers of recognition of some of the symptoms.  As he notes, per capita GDP growth has been very weak, and to the extent there is growth in total real GDP most of it is just based on the demand effects of a rapidly rising population.  He knows house prices are a problem, and I was pleased to see reference to the idea that house price to income ratios of around 3 might be a more normal level.  There was at least a hint that the economic performance of the non-metropolitan regions has left quite a lot to be desired –  although no apparent recognition that per capita incomes in Auckland have grown more slowly than those in the rest of the country for the last 15 years.  And last week he usefully drew attention to the very weak dairy price forecasts from the OECD.

But that was about it.  I heard two fairly specific proposals.  One  was to ban offshore buyers from the housing market. And the second was to revise the Reserve Bank’s monetary policy mandate.  Reasonable people can differ on the merits of a (non-resident) offshore buyers ban  –  and I happen to agree that we shouldn’t be ruling out even daft future policy options in preferential trade agreements that try to tie the hands of future Parliaments –  but it must be a pretty peripheral issue.  After all, Australia bans offshore buyers purchasing existing houses, and Sydney and Melbourne house prices are if anything more ruinous than those in Auckland.  And offshore buying seems unlikely to be a material phenomenon in the New Zealand second tier cities where price to income ratios are still far above 3.

And as for changing the Reserve Bank Act and the Policy Targets Agreement, it is all very well to say that the mandate is “broken”, but Labour has shown no signs of offering an alternative that would make any material difference to our real economic performance.  They offered a reasonably sophisticated attempt at a redraft in 2014.  I argued at the time inside the Bank, and subsequently, that the alternative wording –  while not necessarily objectionable –  would not have made any very material difference to the conduct of monetary policy, let alone to New Zealand’s longer-term economic performance.  As a readers know, I do think the Reserve Bank Act needs substantial reform, and I would probably favour some changes to the PTA and the related provisions of the Act, but they aren’t in any sense “the answer”.  I guess we’ll have to wait and see what specific proposals in this area Labour will campaign on in the next election.  But we should never expect that different monetary policy arrangements will make much difference to a nation’s longer-term prosperity.

What else was there in the interview?  There was talk of using government procurement policies to support New Zealand businesses –  which is probably illegal under our existing trade agreements, and in any case sounds mostly like old-fashioned protectionism, which rarely makes sense anywhere, and particularly not in a small country.  There was talk of investing in infrastructure and education.  Within limits, the infrastructure point is probably reasonable –  rapidly rising populations need more infrastructure –  but there was no hint of how this might lift trend productivity or per capita income performance.  As for education, it always sounds good to offer to spend (“invest”) more on it, but such proposals rarely seem to engage with the evidence suggesting returns to tertiary education in New Zealand are already among the lowest in any OECD country.  If anything, there are hints there of a possibility that too much is being spent, not too little –  at least if one thinks of education as an investment item, rather than just another part of consumption.

There was talk of “building wealth from the ground up”, and of “working with our farmers to get more value-added products” (as if, somehow, government officials and politicians are better able to make specific dairy product choices than their own managers and owners), but nothing remotely specific.  And there was not a single mention of the exchange rate –  even though ours has spent the last decade or so 20 per cent higher in real terms than in the previous decade.    And even on housing, where Labour has shifted ground in some important areas, Robertson was about as feeble as the rest of the political class –  he wants housing to be affordable, but doesn’t want house prices to fall.  It is easy enough to say “lets raise incomes and undermine those price to income ratios that way”, but it is just words without any suggestion of a strategy that would materially lift the rate of growth of per capita incomes.

Labour has been heard to suggest that something should be done about immigration.  Of course, I agree that something should be done, but I’ve been watching for months for any sense of how Labour is actually thinking about the issue.  The most I’ve seen has been occasional talk about “temporary pauses”, which mostly seems like a substitute for hard-headed thought or engagement with the issues.  It isn’t as if immigration policy is much different now than it has been in the past 15 years –  including the period when many of Robertson’s colleagues were ministers and he was ensconced in the Prime Minister’s office.   Chopping and changing immigration policy on the basis of this year’s pressures, or last year’s, doesn’t seem a particularly sensible approach –  there are lags in the system, and such short-term policy  reversals would create huge uncertainty for all parties concerned (potential immigrants and people here). And they simply can’t deal with the long-term challenges.  There is a respectable case that New Zealand’s high target levels of non-citizen immigration are good for New Zealanders.  But is that the case Labour wants to make, or isn’t it?  There is a respectable alternative argument that our approach was a not-unreasonable policy experiment that has failed.  Is that the case Labour wants to make?  We just don’t know.

I’ve been keeping an eye on the Labour Party’s website for some months –  and even, on occasion, trawling through the tweets of senior Labour Party economic spokespeople  –  to see what issues they are engaging on in public.  Robertson is the finance spokesperson so one might reasonably expect the most from him.  But there just hasn’t been much all year.  The flagship event was the Future of Work conference which, whatever one might think of it in a longer-term context, didn’t really seem to be addressing today’s issue, where labour force participation rates have been quite high and total employment growth has been faster than in almost any advanced economy.  The challenge for New Zealand hasn’t been finding enough jobs, but generating sufficiently high returns to the inputs of labour and capital to provide first world incomes for New Zealanders.  Robertson hasn’t been offering anything of real substance there.

Labour also has spokespeople on immigration and economic development, both apparently ranked in the upper half of Labour’s caucus.  I assumed –  or at least hoped –  I would find something from those people on how Labour’s thinking was developing.  Iain Lees-Galloway is the spokesperson on immigration, and since his leaders have talked on several occasions about how something should be done about immigration, I hoped to find something from him.   He seems to have put out 15 press releases this year, but only two of them look to have been around immigration issues –  dodgy dealings around Indian students and something about seasonal horticulture work.    Even if Labour doesn’t yet want to release the details of its policies, one might have hoped for a scene-setting speech on how Labour is thinking about immigration policy, costs and benefits etc etc, looking to shift the ground where the debate is taking place.  But there is simply no sign of anything of the sort. Perhaps lots of intense thinking and deliberations are taking place in private, but it really isn’t that long until the election.

David Clark is Labour’s economic development (including regional development) spokesperson.  According to the Labour website, he hasn’t put out a press release at all since April, and there is no sign in any of his statements this year as to how he or Labour are thinking about reversing New Zealand’s economic decline.   Perhaps a whole new wave of serious policy thinking and efforts at reframing the narrative are just about to be launched.  But I’m not really that hopeful.

I find it pretty depressing –  as if people (bureaucrats and politicians) have simply given up and decided that it is all too hard.    It is we and our kids who will pay the price of that failure.

Young UK voters and the EU: then and now

Since the successful Brexit vote on 23 June, there has been a great deal of (mostly rather disdainful) attention paid in some quarters to the demographic breakground of the support for Leave and Remain.  Among aggrieved Remainers there has been a particular focus on the fact that –   at least among those who bothered to turn out to vote –  young voters had fairly strongly favoured Remain.  In Lord Ashcroft’s exit polls, the Remain/Leave split among voters aged 18 to 24 was 73 per cent in favour of Remain, and 27 per cent in favour of Leave.  Among the (much larger group of) voters aged 65 plus, 60 per cent favoured Leave and 40 per cent favoured Remain.   Here is the graphic from the Ashcroft polls.

The rising generation favoured Remain and only the old really wanted Leave (although the margin in favour of Leave was pretty clear cut among all those aged over 45).    This led some more fevered critics to suggest that old people should be deprived of the right to vote altogether –  although it was never clear what age threshold they had in mind.  But a similar sentiment was evident in an op-ed in the FT the other day from Nick Clegg, former Deputy Prime Minister, former Liberal Democrat leader (and champion of the EU).  According to Clegg

the status quo cannot last. A country that has taken such a momentous decision about its own future against the wishes of its own younger generation is not on a stable path.

Which might be a sort of plausible argument if the views today’s young held could be counted on to remain unchanged for the rest of their lives, or if (somewhat equivalently) today’s old had been those staunchly opposed to the UK entering the EEC in 1973.     Of course, even if today’s young still do feel the same in 20 years time, and they manage to command a pro-EU majority then, there is nothing to stop a future UK government seeking to rejoin the EU (if it is still there).  Neither Parliaments nor referenda today bind future Parliaments and governments.

My instinct had been that one couldn’t count on such preferences remaining stable throughout life.  For most of us, it only takes a brief moment of introspection to recall views we held staunchly decades ago that no longer reflect our views today.  And, after all, today’s UK young have known only Britain in the EU.  Once Britain leaves, they –  and next cohort of young people –  will have different experiences.  Exit might work out well, or badly, or be simply hard to tell, but different data will be available to future voters (and responders to opinion polls).

In the course of pottering around secondhand bookshops in Northland and Auckland last week, I stumbled on a fascinating book, published in 1973 by an Oxford political science academic, called Diplomacy and Persuasion: How Britain Joined the Common Market. I have not read it yet, but flicking through it my eye was immediately drawn to the statistical tables and charts, with data on support for, and opposition to, joining the EEC.    In the early 1960s, British public opinion had been strongly in favour of joining the EEC,  but by the late 1960s and early 1970s –  as entry actually became possible, once de Gaulle had departed the scene – public opinion had reversed.  In one major poll in 1971, where the same questions were asked in the UK and  in each of the six EEC countries, public opinion in each of the six was strongly in favour of Britain joining, while British opinion was strongly against.    Foreshadowing future tensions, public opinion in each of the six strongly favoured a move towards a United States of Europe, while British public opinion was opposed (even conditional on the UK actually joining).

The British government of the early 1970s had undertaken to join the EEC only if there was clear majority in favour, in Parliament and in the country.  That simply didn’t happen before Britain entered the EEC on 1 January 1973 –  key parliamentary votes were very close, and in the run-up to entry date public opinion (as captured in the polls) never got beyond being evenly split between those favouring joining and those opposed.

But what particularly interested me was the demographic data the author reported.  He reports detailed results for 21 different polls from early 1971 to late 1972.   The age breakdowns are a little different than in the Ashcroft polls above, but in every single poll the over 65 age group were opposed to the UK joining the EU (typically by very large margins), and the 16 to 24 age group was either in favour of joining or much less strongly opposed.

Here are the average results from the five 1972 polls that are shown in the book, with all results shown in net balance terms ( a positive number means a net balance of that demographic in favouring of the UK joining the EEC).

By age

Net support for UK joining EU
Overall 16 to 24 25 to 44 45 to 64 65+
0.2 5.6 10.4 0.8 -20.2

Overall, the population was split, but young people were much more inclined to support joining than old people were.  But the 1972 20 year olds are today’s 64 year olds – people on the brink of joining the group most strongly now in favour of leaving.

And here are the results by social –  or occupational –  class

Net support for UK joining EU
50 19.8 -10.2 -27.2

The divide between the more-educated higher status groups is somewhat similar to that now (see the Ashcroft table above), but it is perhaps notable that for all the disdainful talk now about how the educated favoured staying in the EU and the uneducated wanted out, the gap between the views of these occupational groups is much less marked than it was in 1972.  In 1972, overall public opinion was evenly divided, but with huge margins in favour among the AB group –  professional and semi-professional occupations –  and substantial opposition among the working classes.  Working class opinion now is similar to what those polls captured in 1972, but “elite” opinion is much more evenly split (57:43 in favour of Remain) now than it was then.  Joining the EU was always an “elite” project, and Britain is now leaving because enough of the “elite” groupings have lost confidence that the EU is the best option for Britain.

I don’t suppose anyone took very seriously the idea of depriving the old of the right to vote.    But why we would suppose that 1972’s 16 to 24 year olds were better placed then to make a decision on the best interests of their country, themselves, and their children and grandchildren, than today’s 60 to 68 year olds are now?  They are, after all, the very same people.

(For anyone interested, there has also been a lot of coverage of the fact that a majority of Scottish voters favoured Remain in this year’s referendum.   By 1972, there was not much difference in the poll results by region, but I was interested to find that in every single one of the 16 1971 polls, Scottish opinion had been more opposed to joining the EEC than opinion in the rest of the country.)


Another example of the Reserve Bank’s approach to the OIA

Regular readers will recall the OCR leak at the time of the March MPS.  A month or so later, when the Reserve Bank reluctantly recognized that there had in fact been a leak, and that their systems needed to change to reduce future risks, they released what purported to be a report undertaken for them into the leak by Deloitte.

In fact, subsequent material released by the Bank in response to an OIA request confirmed that what had been released then was not the actual report but a short-form “public” version.  I’m not sure what they had to hide, but decided to ask for a copy of the full report, partly out of genuine interest in its contents (as I had been the subject of a significant portion of the short-form “report”) and partly on the principle that leak inquiry reports, paid for by taxpayers’ money, should be made public as a matter of course.  In particular, the public should not be misled into believing that they were being given a full report, when in fact they were being given only a convenient summary.  When the initial release was made on 14 April, there was no suggestion at all that what was being released was a summary report only.

Anyway, I lodged the request several weeks ago, and this afternoon received this response.  How it can take more than 20 working days to decide whether or not to release a single report (that they already claimed to have released), which they themselves commissioned, and which they must have expected to be requested, and which deals only with their lock-ups etc is beyond me.  It seems like just another excuse for delay, another opportunity to simply ignore the principles of the Official Information Act.

(UPDATE: A reader points out that the Bank has given itself almost twice as long to consider the release of a single easily accessible administrative document as it allows for citizens to make submissions on its own proposals for further far-reaching regulatory interventions around housing finance.)

22 July 2016

Dear Mr Reddell


On July 4 2016 you made a request under the Official Information Act for:

“…. a copy of the full Deloitte inquiry report (as distinct from the “summary” – Graeme’s description in the Board minutes – or “public” version that was released on 14 April”.

The Reserve Bank is extending the time limit for decisions on your request to 10 August 2016, as permitted under section 15A(1)(b) of the Act, because consultations necessary to make decisions on the request are such that a proper response to the request cannot reasonably be made within the original 20 working day time limit.

Under section 28(3) of the Official Information Act, you have the right to complain to the Ombudsman about the Reserve Bank’s decisions relating to your requests.

Yours sincerely


Naomi Mitchell

External Communications Adviser | Reserve Bank of New Zealand (Auckland)

205-209 Queen St, Auckland 1010 | P O Box 5240, Auckland 1141

  1. +64 9 366 2643 | M. +64 27 294 3900 | F. +64 9 366 0517