The OECD released today its biennial Economic Survey of New Zealand.  I will write about it in due course, but there are 170 pages to read.

Usually these reports are just released on the website from Paris.  But today the OECD’s Chief Economist, Catherine Mann was in town, to help promote the OECD’s view of the world.  There was a press do this morning apparently, and then a Treasury guest lecture presentation, attended by all manner of past and present bureaucrats, and some others with an interest in what Catherine Mann had to say.

She gave us some brief observations on the state of the world economy, before turning to present the New Zealand survey –  the OECD’s story about what is going on here, and what should be done to make things better.  To their credit, the OECD is quite open about the ongoing severe underperformance of the New Zealand economy –  as they note, the productivity gaps to the richer OECD countries are large and, if anything, are getting larger.  Here was my variant (from a post last week) of the sort of chart she showed.

But the point of this post is about the bit where she took my breath away.  I couldn’t quite believe what I was hearing.  I don’t think even the Minister of Finance or the Prime Minister would have made such bold –  but unsupportable –  claims.

She presented a chart showing growth in real GDP per capita in the OECD as a whole in the US, the euro area, and in New Zealand.  As she noted, growth in all regions is still lower than it was in the 20 years or so prior to the 2008/09 recession.     In the other three regions, the OECD is picking that per capita GDP growth will pick up in 2017 and 2018, but in New Zealand they are picking it to slow a bit.  I looked at the chart and didn’t make much of it –  there is plenty of year-to-year volality, and I wouldn’t put much weight on just two years’ data.

But Mann couldn’t help herself.  She was here to tell a good news story, and proceeded to try to do so.     You might, she said, look at that chart and think it wasn’t a very good story for New Zealand –  real per capita growth was picked to slow after all –  but, no, in fact it was really a good thing.  Perhaps, I thought, she was going to say that the economy was overheating and needed to level out.    But it was a bigger bolder claim even than that.

Her argument was that per capita growth was just slowing “mechanically” because we’d acquired so many more people, and were forecast to keep on doing so.  Of course, she said –  advancing no story for why – this would weaken per capita GDP “arithmetically” in the short-term.  But –  and here I scurried to write down as much as possible her actual words –  because we were taking in so many more people to work and study, who would add value, bring fresh ideas, and create new businesses we were creating the underpinnings of a longer-term stronger economy.

Apparently, high levels of immigration were now bad for per capita income in the short-term, but would be good in the long run.  It was pretty much the opposite of the conventional New Zealand evidence –  that demand effects exceed supply effects in the short-term.  But set even that to one side for the moment.

[UPDATE:  On reflection, perhaps she had in mind some of the European countries with waves of refugees crossing borders, adding to population and probably not doing much for economic activity in the very short run.  But that is nothing like New Zealand’s immigration system –  most people arriving either have a job to go to, or are paying for a course of study about to begin.]

Because, in fact, she reckoned she had evidence that we were already seeing significant benefits.  And what form did these benefits take, in the assessment of the chief economist of one of the world’s premier international economic agencies?   Why, it was wage increases.

She had another chart, showing real wage growth for the US, the euro area, and New Zealand.   On this measure, real wages had been rising strongly in New Zealand in the last two years –  more strongly than the average for the 20 years prior to the recession.  (And over the same earlier 20 years New Zealand had had the lowest average real wage increases of any of the regions she showed).  And what was her story to explain this?  Why, it was the immigrants.  We were bringing in highly skilled immigrants, who will be earning higher wages, and –  look at the chart –  we see it in the data already.

Many of you will no doubt be wondering about this alternative universe.  But it is real data.    And, in fairness, comparing wage increases across countries is quite difficult, because countries measure things different ways.  In this case, she used a measure of “labour compensation per employee, adjusted for the GDP deflator”.   Ideally, one would want to use wages per hour worked, rather than per employee, but set that to one side for now.   More importantly,  in commodity exporting countries –  where the GDP deflator (value of the stuff produced here) inflation rate goes all over the place, no one but no one thinks that the GDP deflator is a meaningful statistic to use to deflate anything year to year.    When dairy prices plummet, on that measure real wage inflation rises, and vice versa.  From year to year, it tells one nothing meaningful.  And this, recall, was a presentation specifically focused on New Zealand.

Here’s an alternative –  much better –  measure of real wage inflation for New Zealand.  It uses the private sector LCI (analytical unadjusted measure) adjusted for the Reserve Bank’s preferred measure of core inflation, the sectoral factor model.  There is some short-term variability, so I’ve used annual average increases.

Not much sign of the recent high rates of wage inflation the OECD’s chief economist was touting.   The QES –  an actual compensation measure – is even weaker.

Of course, there isn’t much sign of the really highly-skilled migrants either.  Mann seemed to have forgotten that the OECD skills data –  which they use quite a bit in this report –  shows that while New Zealand’s immigrants are relatively highly-skilled compared to migrants to other countries, they  are on average less highly-skilled than the natives.  There hasn’t been a sudden change in immigration policy in the last couple of years that has generated some step-change increase in the skill level of migrants.

A sceptic sitting near me whispered, “just drink the Kool-Aid Mike”……

I was puzzled by all this, and waited for the question time at the end of her presentation.  I asked Mann quite what her optimistic take was based on  –  that while immigration would apparently be denting per capita GDP now, it would soon lead to an acceleration.  After all, I noted, we’d had large immigration inflows for decades, and on the numbers she had presented we’d had the lowest productivity growth and lowest real per capita GDP of the countries she had shown.    I wondered if she could explain her optimism in terms that took account of New Zealand’s experience over the previous 30 years or so  (not my chosen period, but the one she was using in her own presentation).

It was a pretty astonishing response.   She argued that this was an “immigration-driven economy”, and asserted that the skill characteristics of the immigrants were high, repeating that the evidence for this was the high real wage increases we’d seen in the last couple of years.  Moreover, she asserted, the pre-recession period wasn’t that relevant because we had so many more immigrants now (and presumably could therefore expect much larger future real economic gains).  She seemed not to be aware at all that the largest single component of the increase in the net PLT inflow had been the reduction in the number of New Zealanders leaving.  Or that the new analytical immigration data suggested there wasn’t anything very exceptional about the inflows of non-citizens we are seeing now (there was something similar 15 years ago).   Was she aware that there had been no increase in the residence approvals targets –  indeed a cut more recently  –  and that a significant chunk of the rest of the increase in the net inflow wasn’t more people chosen for their high skills, but (eg ) working holidaymakers and students mostly studying in relatively low-level courses.   It was a quite extraordinary degree of ignorance in someone holding forth so confidently on the undoubted gains New Zealand would see from the large immigration flows.   I don’t expect the chief economist of the OECD to be across all the details of New Zealand (a rather small and minor member of the OECD), but if she isn’t, she shouldn’t be holding forth with such breezy confidence on such a major issue of New Zealand economic policy and economic performance.  Instead, she seemed to have a doctrine, and patched together something that superficially appeared to make the data fit the doctrine.

It went on, because she attempted to explain away why our real wage inflation had been less than that of the US or the euro-area in the couple of decades prior to the recession.  It was, she claimed, because the historical US numbers were (somehow –  it wasn’t made clear how) biased upwards, and the New Zealand numbers were biased downwards.  Perhaps, but it was a new claim on me, and not one for which there was a shred of evidence produced.

It was an astonishing performance.  She then invited the OECD’s desk officer for New Zealand to add any comments.  I felt a little sorry for him – especially as he was an old friend of mine.    He noted that the actual slowdown in real per capita GDP growth the OECD was picking  for this year and next was mostly to do with them using the expenditure measure of GDP, and the gap that had opened up between the expenditure and production measures (ie just technical stuff).  He certainly wasn’t running an immigration story for that, as Mann had attempted to do.

He (who knows my story reasonably well) went bravely on attempting to address my question about how this optimism about the economic effects of immigration fitted against the backdrop of the last 30 years.  But it was clear that neither he, nor the institution, had any sort of narrative explanation that would even begin to fit the bill.  He seemed reduced to quoting the recent IMF cross-country empirical piece on immigration.  As he noted, in that sample (which included New Zealand as one of 14 countries), immigration did appear to have boosted per capita GDP.   But, as I pointed out in a post when the work was published even if that result was true on average for all the countries in the sample, there was no reason to be confident it had been so over this period for New Zealand (since these are average results).  More importantly, perhaps, the same study actually found negative effects (although not statistically significant) of immigration on both labour productivity and total factor productivity –  again, on average across this sample of countries.

I’ve seen quite a few leading international economic agency senior officials in my time.  This was one of the worst performances from such a senior person I’ve ever seen.   She may well have been quite good in her own area –  international economics –  and in fact I went along mostly because she had a very good academic reputation, and had performed well when I’d seen her previously.  But when she lapsed into advocacy and cheerleading for New Zealand’s immigration policy, without getting fully familiar with a credible story that fits the New Zealand data and experience, she probably did herself, and the cause, more harm than good.

[UPDATE: For anyone interested, her presentation slides –  including the charts I tried above to describe – are here. ]