The Secretary to the Treasury on productivity

June 20, 2017June 20, 2017 Michael Reddell New Zealand economic performance, Productivity, Treasury

A speech appeared on The Treasury’s website the other day. It was, we were told, by Gabs Makhlouf, Secretary to the Treasury, and given as the closing address at a Productivity Hub Workshop last Friday. The Productivity Hub is a grouping of government agencies, hosted at the Productivity Commission

which aims to improve how policy can contribute to the productivity performance of the New Zealand economy and the wellbeing of New Zealanders

It is a laudable aim. I’ve been to a few of their events, and at times they’ve had some interesting and stimulating speakers. Whatever the event was that Makhlouf was speaking at, it has a very low profile – there is nothing about it on the Hub’s homepage, or anywhere else I can see. I’ve lodged a request for the papers and presentations.

I’m all in favour of pro-active release of material by government agencies, but I was a little curious why The Treasury chose to make this speech something on-the-record. Closing addresses usually seek to summarise and draw lessons from what has been heard at the conference/workshop. But in Makhlouf’s speech there is no reference to any of the papers that had been presented, or any of the material discussed at the workshop. Perhaps he just wanted to signal that he, Secretary to the Treasury, treats productivity as something important (on checking, I found that Treasury had also published his brief remarks to a couple of previous Productivity Hub events)?

Whatever the reason, when the Secretary to the Treasury – head of the government’s main economic advisory agency – talks about productivity, it should be worth taking note of. After all, presumably even now Treasury is in the process of pulling together the analysis and advice that will form the basis for their Briefing to the Incoming Minister (BIM) after the election. We might hope they will be (a) pointing out to the Minister of Finance that New Zealand’s productivity performance is woeful, and (b) offering a compelling narrative and set of recommendations for what might reverse that performance and enable New Zealand to deliver for its citizens the sort of standard of living they should reasonably expect. But on the basis of the Secretary’s latest speech, I wouldn’t be holding your breath.

Of course, one can’t expect any sort of fully-developed story in a few pages closing a workshop. But if there is (a) a sense of urgency, and (b) a well-developed set of policy proposals being worked-up, that should be clear in a speech of this sort. Neither is there.

Makhouf recognises that our productivity performance leaves something to be desired, but how is this for minimising the issue?

We are middle of the OECD pack at best in the amount of income we derive per hour worked, and we have made little or no headway on lifting our productivity performance rankings over the past 15 years.

There are 35 OECD countries now, and only 13 had real GDP per hour worked less than New Zealand’s in 2015 (most recent comprehensive data). And the only reason we are even near the middle of the OECD pack is because so many poorer countries have been allowed into the OECD. Every single one of the 11 new members in recent decades was poorer, and less productive than us, when they joined.

When we joined the OECD in 1973, it was a club of 24 countries. OECD data go back to 1970. And in 1970, our real GDP per hour worked was similar to that in France and Germany. These days, they have productivity 60 per cent higher than ours, and of those 24 countries only Portugal, Turkey, and Greece now have lower real GDP per hour worked than we do. In 1970, Turkey had GDP per hour worked less than half ours, while on the latest estimates it is now almost equal to us.

And while it is certainly true that “we have made little or no headway on lifting our productivity performance rankings over the past 15 years”, the story is much worse than that, as even the OECD highlighted last week. Here is their chart

OECD productivity

And this is mine, from a post a couple of weeks ago

douglas 3

In 47 years now there has never been a time when New Zealand has succeeded in narrowing the productivity gaps that have opened up between us and other advanced countries. At best, we’ve gone sideways in some periods.

And if Makhouf understates the severity of the problem, he overstates any signs of progress

Our understanding of New Zealand’s productivity performance is improving, thanks to a wealth of information that has recently been released including as a result of the Productivity Commission’s report Achieving New Zealand’s Productivity Potential, the OECD’s New Zealand Country Study and Going for Growth, and the Treasury’s He Tirohanga Mokopuna. (That last one is a cracking read, by the way.)

Really? The Treasury report he refers to was their long-term fiscal report, and I’m genuinely puzzled as to how he thinks that (useful) report advances our understanding of the productivity underperformance. The Productivity Commission piece, which I wrote about here, was an interesting effort, and did represent a step forward in some areas (including the treatment of immigration policy) but it has hardly galvanised the nation – or even, as far as I can tell, official Wellington. As for the OECD’s report, surely Makhlouf was just being diplomatic – the OECD chief economist was at the workshop – rather than seriously suggesting that they have a compelling narrative to explain New Zealand’s underperformance and, thus, a solid model to use in proposing remedies?

Makhlouf goes on

Our challenge now is to keep building the momentum of progress and turning our growing understanding into action that lifts our productivity performance.

But where is the progress at all? Where, specifically, is the evidence that Treasury – or other government agencies – are any closer to credible answers?

Makhlouf set out what might have been an interesting marker

As I mentioned, we have seen little improvement on where we rank among OECD countries for productivity, yet we have been told that we have world-leading settings.
This raises a few questions for me. ….. Or could it in fact be that New Zealand’s world leading economic and policy settings aren’t so world-leading anymore?

I’m not sure who really thinks of New Zealand policies are being “world-leading” these days. In some areas, perhaps they are. In other areas, we score quite badly. But I’d have thought a fair overall description would probably be ‘no worse than the typical OECD country’.

Sadly, Makhouf doesn’t really do much to develop his tantalising question.

‘World-leading’ is always evolving. Looking back through history, Rome, China, India and the United Kingdom have all at times been world leading economies, just as the United States is today. So while some things will continue to hold for productivity and incomes, we need to make sure we are not working towards something that used to be world-leading, but is no longer so. It’s also likely that what’s world-leading will vary by country so it’s not a recipe that we can simply copy.

Surely all this confuses great power status – not unrelated to economic strength typically – with world-leading (economic) policy settings? After all, he could have noted that 100 years ago, New Zealand looked pretty world-leading – not as a “great power” but as one of the very richest and most productive nations on earth. Nor am I really quite sure how “what’s world-leading will vary by country” makes much sense, unless he is saying – in which case I agree – that in thinking about diagnosing New Zealand’s problems and offering remedies to policymakers we need to think hard about the specifics of New Zealand’s situation. It isn’t clear that the OECD (at least) has really done that.

But it isn’t clear that Treasury is really doing so either. Because Makhlouf devotes the rest of his remarks to

five factors that the Treasury believes always matter: skills, connections, markets, resources and rules.

Any micro-focused policy agency almost anywhere in world could trot out that list

Of skills

The Treasury believes that opportunities remain to lift skills and resilience in the workforce, and it’s important that those opportunities are pursued.

No doubt, but it doesn’t seem particularly persuasive that gaps here are big part of the 45 year story of underperformance, when the OECD adult skills data suggests New Zealand workers already have among the highest skills of any in the OECD.

Of connections

Connections matter, in particular people-to-people connections. And as Asia continues to dominate economic activity, perhaps those types of connections – ie, relationships – matter more than ever. Improving connections can help to improve the flow of people, capital, trade and ideas that contribute to productivity. Strong people-to-people relationships build confidence and understanding and promote learning. They help our businesses to identify capabilities that will help them improve their productivity and ultimately compete and succeed in both domestic and global markets.

I suspect this is some sort of code for “keep on having lots of immigration”, but it isn’t terribly specific. And as a reminder, with rare exceptions, Asia isn’t the home to the richest or most productive economies. But again, with hugely high (by international standards) rates of non-citizen immigration, did Makhlouf and Treasury have anything remotely specific in mind?

He gets a little more specific on “markets”

In the Treasury’s view we need to continue to lift the competitive intensity of the New Zealand economy. The pressure of competition pushes firms to be more productive, for example by innovation to improve quality or cut costs. We need to ensure our markets are as competitive as possible by reducing the barriers to entry, including for imports (whether in goods or services), or by regulating the price and quality of goods and services in markets where there is little or no competition, such as in our telecommunications and electricity markets. And we need to maintain the effectiveness of competition laws and institutions. If we want competitive markets and the productivity gains they bring, we have to ask ourselves: what are the regulatory barriers preventing competition and what can we do about them? How bold do we want to be to invite competition?

It isn’t really my area, but if there is useful stuff to be done in this area how plausible is it that it can materially explain 45 years of relative economic decline? Say what you like about competition in New Zealand now, but in almost all areas there is a great deal more than there used to be.

Then he moves onto natural and physical resources. Here he includes housing.

Our natural and physical resources are next. One of the most high profile issues we’re examining in New Zealand – housing – illustrates how these resources are a significant factor in productivity. We are all aware of issues in house price growth in Auckland and the inefficiencies in our use of land which are proving to be a bottleneck in New Zealand’s growth and productivity.

I’m not sure there is really any evidence for this proposition. If there is, in a New Zealand context, perhaps The Treasury could publish it. Dreadful as our housing policies are, when the city that is worst affected by them has (a) had very rapid population growth, and (b) has a very small margin by which productivity exceeds that in the rest of country, it suggests that overseas studies – on places like San Francisco and New York (which have had little population growth, and very high productivity margins) – may not be of much direct relevance here.

Still on housing

the degree of its affordability or unaffordability is a product of our entire urban development chain and of multiple interacting areas of policy. We’re considering these issues holistically, as well as particularly how land owners capture the economic rents and potentially magnify the problems. We see the concept of competitive land markets as an important part of the way forward.

Surely if there is something there, it could have been written a great deal more simply? And portentous words about “the concept of competitive land markets as an important part of the way forward” almost make a mockery of people priced out of home ownership right now.

In some areas, I’m not sure Makhlouf really knows what he is saying

At the moment, it can be argued that too much of our natural resource use is determined by incumbency rather than most efficient use.

Does inumbency here mean “the person who owns it”? But, surely, land is our greatest natural resource. Mostly, it is pretty freely tradable. Anyone with a better, more profitable use, in mind can surely make an offer? Or (but surely not) is the Secretary perhaps a bit worried about private land ownership?

Actually, despite what he said, he seemed to be mostly talking about water rights and pollution. What he says on water sounds sensible

To use water as an example, the ‘first-in first-served’ approach to water allocation means it may not always be allocated to the highest value use, and the current system lacks sufficient incentives for use to move to a higher value one. The Freshwater Allocation Work Programme is considering options that could be more appropriate to ensure that we are getting the best use of our water resources.

And I’m sure there are some real issues around pollution too. But when he says

Better rules around use and around pricing externalities such as pollution are critical to making best use of resources and are likely to be key to promoting significant diversification of the economy and contributing to an improvement in productivity.

I think he makes it sound all too easy. For example, it is all very well to talk of water pollution arising from more intensive dairying, or indeed of the implications for carbon emissions, but without a great supporting analysis it sounds a lot like feel-good rhetoric to suggest that restricting such industries is likely to be significant in lifting overall productivity in the economy. What channels, one wonders, does the Secretary have in mind?

His final category was rules

The making of rules and regulations – whether by central or local government or even by self-regulated occupational groups – has an impact on productivity. All rule-makers help shape the environment in which investment, enterprise, and job creation is either promoted or limited. Rule-makers in the public sphere have a double responsibility: to ensure effectiveness in public spending and decision-making, and to provide the best possible regulatory and policy settings.

Hard to disagree really. But is this really the best the Secretary to the Treasury – an agency with key responsibility for regulatory review policy – can do on the contribution of New Zealand regulation to productivity? There isn’t even an attempt to draw some of his points together, and note that (for example) well-intentioned but flawed rules help explain the absence of a well-functioning market in urban and peripheral land.

Overall, there is no sense of urgency, and no hint of any fresh insights either.

Makhlouf ended his speech this way

We need to continue to test our assumptions about what does and doesn’t work, and to apply new things where they make sense. I know there’s a lot of willpower and brain power here to ask questions, find solutions and take actions to raise New Zealand’s productivity.

Of course, it is elected politicians, not officials, who would get to “take actions to raise New Zealand’s productivity”. Sadly, despite the approaching election, there is little sign among any of them – or those competing to take their place – of much will to change, or much interest in attempts at serious answers to decades of decline.

Should there be more urgency? I’d have thought so. There has been plenty of talk in the last few years of New Zealand and Australia relative economic performance. Australia is our biggest trade and investment partner, and of course historically an outlet for New Zealanders pursuing the far higher incomes typically on offer there. It is certainly true that the Australian labour market has been cyclically weak in recent years, even more so than ours. But here is the latest update of labour productivity in the two countries (in NZ, using an average of the two GDP measures, and an adjustment to hours worked for the break in the series last June). The chart is indexed to 2007q4, just prior to the recession, but remember that even then we were well behind Australia (incomes and productivity levels)

GDP phw NZ vs Aus June 17

As it happens, Makhlouf’s appointment as Secretary to the Treasury was announced on 28 June 2011. We’ve had barely any productivity growth since then (none for the last five years). That, of course, isn’t directly his fault, but one does have to ask whether The Treasury under his stewardship has even once put forward a compelling set of policy proposals to end even this multi-year drought, let alone to reverse the 45 years and more or relative decline. On the basis of this latest speech, we shouldn’t be very hopeful of what they might have to offer a government formed later this year.

Answers from Switzerland?

June 19, 2017July 4, 2017 Michael Reddell New Zealand economic performance, New Zealand Initiative, Productivity, Switzerland

A month or so ago, prompted by a Herald news article talking up a New Zealand Initiative study tour to Switzerland to learn “the secrets of their success”, I pointed out that Switzerland wasn’t such an obvious place to look for lessons on lifting New Zealand’s continuing disappointing economic performance. After all, since 1970 they were the only OECD country to have had slower productivity growth than New Zealand

switz 70 to 15

and although the average productivity level in Switzerland is still much higher than that in New Zealand, it is no longer among the very best in the OECD. Denmark, Belgium, and the United States are among the countries doing much better than Switzerland, and even they don’t top the rankings.

A few days later it turned out that the author of the article, veteran journalist Fran O’Sullivan, was actually participating in the study tour, not just talking it up. At the time, I noted that it would be interesting to hear, in due course, what she learned from Switzerland, while being a little sceptical as to how detached from a New Zealand Initiative perspective she would prove able to be.

In Saturday’s Herald, O’Sullivan devoted a substantial article to reporting back on what was learned on the tour (this time with all the appropriate disclosures, including her partial sponsorship from one of the Initiative’s member companies). Much of the article is quotes from New Zealand Initiative people. And the answer it seems, at least on O’Sullivan’s summary take, is in the headline: Education key to Swiss success.

Near the start she observes of her own past trips to Switzerland

Other times I have been to Switzerland, it has been straight to Geneva to the World Trade Organisation’s HQ for trade discussions, or to observe the World Economic Forum in Davos. Not to look at what underpins Switzerland’s own resounding economic success.

I’m still quite genuinely puzzled at where she – or the Initiative – get this idea of “resounding economic success”. I’m sure there are many things to like about Switzerland but – despite a very strong starting point a few decades ago – it just isn’t one of the great economic success stories of modern times. Productivity growth has been underwhelming – to say the least – and although GDP per capita in Switzerland is higher than in, say, France or Germany, it is so mostly because the Swiss put in a lot of hours. Average productivity is higher in France and Germany, while Switzerland is like New Zealand in that total bours worked per capita are very high in both countries.

I quite like the sound of the Swiss political system – highly decentralised, lots of quite small, and competitive local authorities. It is the antithesis of something like the Auckland “supercity” put in place a few years ago by our government. But one has to wonder quite what economic gains it might have produced. The New Zealand Initiative seems dead keen on the highly decentralised system

“Private and central bankers, economists and journalists, federal and local politicians alike – in fact everyone we talked to – agreed that this was the most crucial component to the Swiss success formula,” says NZ Initiative executive director Oliver Hartwich.

But when your country has had the weakest productivity growth in the OECD over 45 years, you have to wonder whether the alleged contribution to “economic success” is not mostly one of those myths that all countries have, that don’t necessarily line up that well with the evidence. I’m sure the decentralised system is cherished, but in modern times it has seen (although not necessarily caused) Switzerland drifting backwards.

But the political system isn’t the thrust of O’Sullivan’s article. Rather, the education and vocational training systems seem to be. In fact, even Hartwich seems to agree

Concludes Hartwich: “The most important insight was the fact that a solid vocational apprenticeship is just as respected as a university degree (and sometimes leads to better salaries, too). New Zealand businesses should not only co-operate with institutions but lead the debate on the required reforms.”

And a couple of quotes to give you the flavour of the rest

It may seem ruthless to stream students at an early level into academic and vocational education training (VET) streams. But Switzerland does just that.

About 20 per cent go into the university stream and the rest into the upper secondary school vocational education training stream, where students combine school learning with skills developed in the workplace.

This system serves 70 to 80 per cent of Swiss young people, preparing them for careers ranging from high-tech jobs to health sector roles and traditional trades. Both white collar and blue collar roles are appreciated. There are about 230 vocational categories.

and

The upshot is that Switzerland enjoys virtually full employment, the youth unemployment rate is among the lowest in developed countries and the Swiss enjoy a very high standard of living. Those doing the VET stream are not locked out from university education, which they can do at a later stage.

….

Asked if they could import one feature of Switzerland to New Zealand, the consensus of the visiting business leaders was that it would be the vocational training system.

ASB chief executive Chapman says any growing economy relies on a pipeline of skilled and motivated workers for momentum, and “in that context I think there is a lot to learn from the Swiss”.

“The Swiss have an enviable record of high youth employment.

I don’t know anything specific about the Swiss vocational training programmes, so there may well be some specific aspects that New Zealand firms, or New Zealand governments, could learn from. But as I reflected on O’Sullivan’s article, the story about education etc didn’t seem terribly convincing as an explanation of Swiss “economic success”.

Overall employment rates in New Zealand and Switzerland are very similar (on OECD data 66.2 per cent in both countries last year). But on youth employment, Switzerland does appear to have had a consistently higher employment rate. Among those aged 15 to 24, 62 per cent of Swiss were employed last year, and 54 per cent of New Zealanders.

Employment among young people is a bit of an ambiguous indicator. After all, if young people are in full-time study (school or tertiary) they often won’t be in employment at all. Youth employment rates were probably higher in both countries 100 years ago.

But what about youth unemployment: people who want a job, are looking for a job, but can’t find a job? Here, Switzerland seems unambiguously to do better than New Zealand.

U rates Switz and NZ

And what are some of the things that affects the ability of young people to get into work? Minimum wage laws are likely to be one of them. I recall the New Zealand Initiative’s Eric Crampton, when he was at Canterbury University, making some very useful contributions (eg here) to the debate about the impact of the much more stringent minimum wage provisions, especially as they affect young people, that were put in place here about 10 years ago.

Readers may recall that, relatively low as New Zealand wages are, our minimum wage relative to median wages – the sort of metric relevant when thinking about whether minimum wage provisions exclude some people from employment – are very high by OECD standards (fourth highest in fact).

And what about Switzerland? Well, in Switzerland there is no minimum wage law at all. And not that long ago, Swiss voters overwhelmingly rejected an attempt to establish one. Perhaps in the course of the Initiative’s study tour no one thought to ask the question about minimum wages. But whatever the reason, it looks as though it could be a rather important omission. It isn’t the really skilled young people who typically have difficulty getting jobs, but the less skilled and more troubled ones. Our systems works against them getting established in the labour force, while the Swiss one seems not to. As the ASB chief executive put it:

“You can’t underestimate the power this has on the optimism and confidence of their youth as they look to their own future.”

But I was also a little puzzled about the story that seemed to downplay the role of universities in Switzerland. I’m as willing as next person (including New Zealand Initiative members) to think that perhaps New Zealand went through a phase where too many people went to university. And a good builder or plumber will certainly earn more than many of the occupations our more-marginal university students end up in.

But what did the data show? As it happens, the OECD Economic Survey on New Zealand came out on Thursday, and they had a whole chapter on the labour market, skills etc. So I flicked through it looking for relevant charts. Like this one.

skills young

Switzerland is “CHE”. Relative to New Zealand – and to the OECD as a whole – Swiss young workers (25 to 34 year olds) now have a far higher rate of completed tertiary qualifications than New Zealand ones do.

And there was also this chart

skills swiss

Whether for younger people or older ones, Switzerland is ahead of New Zealand, particularly in the proportions with masters or doctorates.

And yet

Tertiary Education Commissioner Sir Christopher Mace says, “to be highly qualified technically rather than academically was totally acceptable in Switzerland.”

No doubt that is true – or rather I have no reason to doubt it. But a huge proportion of Swiss young people are getting strong academic qualifications.

Oh, and the OECD also makes much in their reports of the adult skills data I’ve written about here previously. Switzerland didn’t participate in that survey, but New Zealand workers came up with some of the very highest skills (notably problem-solving skills) of any of the many countries that did participate.

Still flicking through the OECD chapter, I found another interesting chart on employment. Ideally it would be a chart of all sole parents, not just mothers, but it was part of another chart focused on maternal employment.

Swiss sole parents

Switzerland is at the far right end of the chart.

Which is by way of leading into another difference between Switzerland and New Zealand – the overall size of government is a bit smaller there. Here is the OECD data on current government receipts (mostly taxes) as a per cent of GDP.

govt size nz and swiss

The Swiss tax take is smaller than ours, as a share of GDP, but (a) the gap seems to have been closing, and (b) at least as much of that is coming from the Swiss raising average taxes as from us lowering them. Again, if one is concerned about productivity, it isn’t obvious that the Swiss experience has a great deal that is positive to teach us, even if the reasons for their weak productivity growth might well be different from the reasons for our own.

The Swiss track record with weak productivity growth isn’t something new that no one had noticed before – the OECD, for example, has been offering thoughts on it for some time (eg here). So it is still a bit of a mystery why the New Zealand Initiative is touting Switzerland as a success story to emulate, or why a senior journalist is channelling those lines. Perhaps it would have offended New Zealand business leaders’ sense of amour propre to have gone further east, but if there are many lesssons to be learned for us in Europe about lifting overall economic performance, it seems more likely they might be found in countries like Slovakia or Slovenia, Estonia or Latvia (all now fellow members of the OECD) where productivity is fast catching up (in some cases already has) average levels in New Zealand – and that in countries that for the whole of modern New Zealand history (ie since say 1840) have been much much poorer and less productive than New Zealand.

Travel generally broadens the mind, and almost any country can probably offers some experiences (good and bad) that visitors could learn from. I’ve no doubt Switzerland does too (eg about minimum wages and company tax rates perhaps) . But Switzerland’s overall economic growth performance has been poor for decades, and that even with the advantages that come from being a relatively-small government place in the heart of one of the most prosperous places on the planet (northern Europe). It seems unlikely there is very much to learn from them, at least in a positive sense, about how to markedly lift the performance of another struggling country almost as far from anywhere (and from suppliers, markets, clusters of knowledge) as it is possible to be.

One could wonder whether this group of leading business people, (having gone off to learn from Switzerland, where they would have found a system with no minimum wages and much lower company tax rates, but nonetheless want to tell a story about training and education as the secrets of what they see as Swiss success) are not perhaps preparing against the chance of a change of government later in the year. All that talk in the article would, no doubt, have seemed like music to Grant Robertson’s ears. Perhaps not, but I’m struggling to formulate a better hypothesis. Because the data don’t really seem to fit their story.

The OECD Survey process

June 16, 2017June 16, 2017 Michael Reddell OECD, Uncategorized

The OECD’s biennial report on the New Zealand economy was out yesterday.

I noticed that Treasury has put out a blog post on the late phases of the process, in which New Zealand officials go to Paris to engage with other countries’ representatives on the analysis and recommendations, and to haggle over the numerous differences the authorities and staff will have.

I participated in this phase of the process on perhaps half a dozen occasions over almost 25 years. In anticipation of the 2015 survey, I wrote a post along similar lines.

Being public servants, who have to keeping dealing with the OECD, the Treasury piece errs occasionally on the side of gush.

Every two years the Treasury assists some of the world’s best economists and policy analysts from the OECD with their study of New Zealand.

I, being of a more sceptical, perhaps contrarian disposition, and not any longer being a public servant, emphasised some questions.

It is, in other words, quite a political process. And that, of course, is also how these OECD Surveys are used. Opposition parties have liked calls for, say, capital gains taxes. The Reserve Bank likes references to overvalued exchange rates. The government likes positive comments on fiscal consolidation. And so on. The Reserve Bank doesn’t much like references to leverage ratios, or the Treasury references to fiscal councils, but then no one much cares either.

What is the quality of the Surveys like? I’m somewhat sceptical. The OECD does have some fairly unparalleled databases, and quite a knack for compiling and presenting interesting charts. I’m a data junkie, and I find those cross-country data comparisons fascinating, and labour-saving. But the quality of the policy analysis and recommendations is rather more questionable. I’ve looked at draft reports for New Zealand and for other countries over the years, and often found the argumentation quite unpersuasive, even in areas where I lay no claim to being a specialist or an expert. These days there is a strong tendency to favour what I’d call “smart active government” solutions, and a disinclination to put much weight on markets and market processes. That isn’t the image the OECD has often had in New Zealand – the late Roger Kerr often used to cite “OECD orthodoxy” to back his own arguments about what should be done in New Zealand. But a few years back, I pointed out to the head of the Country Studies Division that the OECD could probably be best characterised as the technocratic wing of the more market-oriented strands of European social democratic movement. He looked askance, and then somewhat reluctantly acknowledged my point. Reasonable people will differ on how to read the evidence on the appropriate role of government, but OECD papers aren’t inclined to put much weight on questions of why governments fail so often and how policy should be shaped in the light of that.

All of which is by way of saying that no one should put too much weight on anything in any particular OECD survey. Sometimes they will be right on the mark – out of interest I went back last night and read the 1983 Survey and thought that they had done a very good job of highlighting the microeconomic and macroeconomic challenges then facing New Zealand, without any sense of imminent crisis. At other times, they will be missing the mark, or adopting a particular recommendation based on not much more than institutional priors and the preferences of a few staffers. As the OECD acknowledges, they have consistently failed to come to grips with why the New Zealand economy has not performed better over the last 25 years. Without a good story about that it is hard to nest their individual recommendations in an overall narrative of what needs to be done.

Read together they’ll probably give you a reasonable sense of how these things come together. I do hope the New Zealand Ambassador still offers as fine a lunch as ever.

Wheeler, the BNZ, and Joyce

June 16, 2017June 16, 2017 Michael Reddell BNZ & Wheeler, Reserve Bank

A few days on and there has still been only scattered public comment on the systematic attempt by Graeme Wheeler and the senior management of the Reserve Bank to “silence” (materially alter the tone and content of what he writes) the BNZ’s Head of Research, Stephen Toplis, that came to light thanks to the Official Information Act and the efforts of BusinessDesk’s Paul McBeth.

(My previous post are here, here, and here.)

As I noted the other day, the letter in response to Wheeler written by the BNZ CEO Anthony Healy was quite strikingly deferential. It wasn’t even as if Wheeler’s letter was the first Healy had heard of the issue. In fact, Wheeler’s letter records that, having sent his Deputy and Assistant Governors out one by one to cajole Toplis, remonstrate with him, and induce repentance,

When this failed to address the situation I met with you and passed on examples of the material.

Presumably, the Governor hadn’t simply been told to go away, and get a thicker-skin, then either.

People are human, and sometimes over-react. In the last few days I’ve remembered, and been reminded of, various past reactions by Reserve Bank Governors to criticism they didn’t like from bank economists. In one case, a Governor took offence at criticism of his body language at a speech, and wrote to the economist’s boss to complain. But in the decades since liberalisation I’ve never seen or heard of anything like the sort of sustained campaign to censor a leading economist that we get a glimpse of in these letters.

To what end? Well, we don’t know what happened when the Governor and Mr Healy eventually talked again. But in a story the other day Bloomberg reported that they did get an emailed response from Mr Healy.

In a separate emailed statement, Healy said “economists have an important role to play in providing opinions, and it’s important that they are independent and have a view which isn’t influenced by the wider organization.”

“However, we have acknowledged that from time to time, we may not get the right tone and will always take on board any feedback where our intent or message is not reflected in the language used,” he said.

So the CEO apparently has no concerns – or at least none he is willing to be open about – about the Reserve Bank Governor, and BNZ regulator, engaging in a sustained campaign aimed at changing what (and how) one of Mr Healy’s senior employee’s writes?

But, on the other hand, he does seem concerned to assure us that he has taken on board the Governor’s concerns, and will see to it that the product is different in future. Perhaps they are just weasel words, but “take on board” seems rather more active than some bland observation that “we always welcome feedback”. And I don’t think there is anyone – whether or not they agree with what Stephen wrote – who thinks that in the MPS preview that upset the Governor so much his “intent or message is not reflected in the language used”. He said exactly what he thought, in a typically strident way.

So it begins to look as though Graeme Wheeler might have won (at least with the BNZ/Toplis) if not with a wider market. In some ways, that would be even more disconcerting than the fact of the initial Wheeler-led campaign in the first place. Time will tell, and I’m sure people will be watching Toplis’s future pieces with interest.

There was, for example, a new substantial piece out earlier this week, Capacity Constrained! It is an interesting note, with some points to reflect on even if (like me) you aren’t that persuaded by his “hawkish” case. But what I found striking, and a little disconcerting frankly, is that in five pages there is not a single mention of the Reserve Bank or monetary policy – and yet, the research report is about aggregate capacity pressures and, hence, inflation risks. The final sentence…..

But, that said, we strongly warn that businesses, householders, Government and investors alike need to better understand the capacity constraints that New Zealand currently faces and, in turn, recognise that whether or not expected inflationary pressures arise, growth is likely to moderate.

…..surely cries out to have “and the Reserve Bank” included in it? Perhaps Toplis has just been told to lie low until the fuss passes, and then normal service can resume. But even if that is “all” it is, it would be pretty disconcerting for Healy, his Board, and his parent, to have passed such a win to the Governor, him having exerted intense and illegitimate pressure to achieve it.

Then again, perhaps it was just an oversight, and Toplis really meant to include the Reserve Bank in his warning all along? Perhaps.

There have been a few other comments in the last few days:

one prominent business person, evidently a BNZ customer, commmented here, and while carefully avoiding direct comment on the Reserve Bank, observed that “any material change of approach by Stephen or Anthony would be unfortunate for BNZ’s customers and in due course BNZ.”
on interest.co.nz, David Hargreaves has a very forceful and well-written piece, in which he calls for “a new Reserve Bank Governor who is thick-skinned and accepts that people will disagree with them” . Mostly I strongly agree with Hargreaves – eg “People in high office need to, in the colloquial vernacular, grow a pair, and accept that not everybody will agree with them. That’s what they are paid the big bucks for. ” Having said that, he suggests that an “implied intellectual snobbery” at the Reserve Bank has got worse under Wheeler: for all his many faults, I don’t really agree with that comment (partly because I wince to remember some of the episodes I was involved in over the years in which at times we treated people who disagreed with us with absolute disdain….in public or in private….even if we didn’t try to censor them).

One line I really liked from Hargreaves was this

If you are going to take the drastic, actually, no…extraordinary… step of asking a bank that your organisation regulates to effectively censor the views of one of their (senior) employees you’ve got to be prepared for some consequences.

I’d certainly agree. But it increasingly looks as though, in modern New Zealand, you don’t really need to be prepared for any consequences at all – apart perhaps from a bit of criticism from the odd peripheral blogger.

Because the other person who has commented in the last couple of days is the Minister of Finance. Again, interest.co.nz has the story.

Speaking to media Thursday, perhaps ironically at an event at the Reserve Bank museum, Joyce said he just was “not going to go into that,” He said doing so would be an “unproductive use of my time.”

“That’s a matter for the Reserve Bank Governor, as to how he conducts his communications with the banks and their economists,” Joyce said. He had not reached out to the Bank’s board on the matter.

Perhaps people were supposed to take it as something like “what are you asking me for, after all the Governor is his own man, and he has his own Board. Really none of my business.”

Even if that were the legal position, it would be pretty disconcerting that the Minister of Finance would reveal himself, at least publicly, unbothered by such coercive conduct by a senior New Zealand public servant. It would add to the sense that Alfred Ngaro was only slapped down because there was a political firestorm, not because the government was really uncomfortable with the sort of implied approach – don’t criticise or else – Ngaro was enunciating.

But the legal position involves the Minister of Finance a lot more than he implied in answering those questions. As I noted in my post the other day, the Reserve Bank Act is built on a difficult-to-maintain balance between, on the one hand, huge powers placed exclusively in the hands of the Governor, and on the other hand, a countervailing provisions that are supposed to provide a high level of accountability. Some of that is in the form of serious scrutiny from outsiders (including banks and financial markets). But the legal bits are about the relationship between the Board, the Minister and the Governor.

For a start, the Minister appoints the Governor (even though he can only appoint someone the Board nominates). The Minister also appoints the Board – gradually, as they serve staggered five year terms. The Minister now writes annual letters of expectation to the Governor, and to the Board. In writing directly to the Board he recognises that the main statutory role of the Board is as agent for the Minister – and the public – in monitoring and evaluating the Governor’s performance. The Board isn’t part of the Bank – it is part of the review and assessment process, to strengthen accountability for the considerable power the Governor wields.

And not only does the Minister appoint the Governor but he can (via an Order in Council – in other words with the consent of his Cabinet colleagues) dismiss the Governor on performance grounds. In international central banking legislation, that is quite an unusual provision. In most advanced countries, central bank governors can’t be dismissed for poor performance and certainly not just by the Minister of Finance. It will often take parliamentary action to remove a Governor, and even then only for defined really serious problems (imprisonment, mental or physical incapacity, corruption). The whole point of our legislative model was that if the Governor alone was to have great power, there needed to be serious accountability.

And it is not even as if the Minister of Finance can simply hide behind the Board. The Board certainly has clear responsibilities to monitor the Governor’s performance, and can if things get really bad recommend dismissal of the Governor. Of course, they have a range of other possible sanctions, public and private, short of what is really a “nuclear option”.

But whereas the Minister can only appoint as Governor someone the Board recommends, he isn’t constrained that way when it comes to problems with, or concerns about, the Governor. He can recommend dismissal – again the nuclear option, but there are other options – without any recommendation from the Board. Which pretty clearly suggests that he has statutory responsibilities himself for being satisfied that the Governor is doing his job, and doing it in an acceptable manner. The Act is mostly concerned with the policy functions of the Bank, including the Policy Targets Agreement, but the tests for the Minister include whether he is satisfied that “the Governor has not adequately discharged the responsibilities of office” or that “the Governor has been guilty of ….serious neglect of duty or misconduct”.

Using the power of your office to attempt to coerce a private institution, regulated by you, to censor one of its staff when writing critical evaluations of the Bank, and instructing your senior subordinates to actively involve themselves in such efforts, don’t look like the sort of standard – the sort of discharge of the responsibilities of office – that the Minister, or citizens, should reasonably expect, or tolerate.

I’m not suggesting that the Minister of Finance should fire the Governor. But to simply pretend that the conduct of the Governor in this area is no concern of his, and not even to ask the Board for its views, looks like neglect of the Minister’s own responsibilities. And it sends a dreadful message to citizens about the sorts of behaviour his government appears to be willing to, at very least, turn a blind eye to.

One of the obscure provisions of the Reserve Bank Act, that as far as I know no one has ever quite known what it means, is section 169. It reads

169 Bank to exhibit sense of social responsibility

It shall be an objective of the Bank to exhibit a sense of social responsibility in exercising its powers under this Act.

That, too, is one of the Governor’s responsibilities in office (the Act makes him responsible for it all). It is hard to see how, in a free and democratic society, attempting to suppress a vocal critic, just because he happens to work for a body the Bank regulates, quite fits with that social responsibility.

As for the Bank’s Board, on the normal schedule they will have been meeting yesterday, upstairs just a few floors above where Steven Joyce was washing his hands of the affair. As I noted the other day, the Board members seem like decent and honourable people, and it should be a surprise if they were remotely comfortable with the Governor’s sustained attack on the BNZ and Toplis. Then again, they have form, and mostly just seem to give cover to the Governor whatever he does (the OCR leak episode being a particularly clear example). Perhaps some journalist should consider ringing the Board chair, Professor Neil Quigley, and asking him about the Board’s view of such behaviour. Quite likely, he would simply refuse to comment, but that in itself would be telling.

UPDATE: There is new piece out from Oliver Hartwich, Executive Director of the New Zealand Initiative. He notes

Central banks have a crucial role to fulfil in our economies. This role thus deserves public scrutiny and debate. Given the RBNZ’s independence, external commentary on its actions is the most effective check on its operations.

For these reasons, it is not acceptable for the governor of the RBNZ to attempt to stymie such scrutiny. With his complaints about a bank economist, the governor has overstepped his role.

A true believer from the OECD

June 15, 2017June 16, 2017 Michael Reddell Immigration, OECD

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.

douglas 3

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.

wages OECD

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. ]

Market rents

June 15, 2017June 15, 2017 Michael Reddell Housing, Uncategorized

In the aftermath of the London fire, in some ways my heart isn’t in writing much about housing. Disasters don’t often get to me, but this one has.

Nonetheless, the Dominion-Post led with housing this morning, and when I saw that the first word in the entire article was “greedy” (followed by that other emotive term “landlords”) it wasn’t promising. Just because people scoff when Fox News talks of being “fair and balanced” doesn’t mean the rest of media should abandon the aspiration.

Faced with rising demand for rental accommodation – in a city where central and local government have again combined to make housing supply not very responsive to changes in demands – owners (or their agents) of residential rental services businesses have faced excess demand for the limited stock available. The typical response you might expect would be for rents to rise.

There are different sorts of pricing structures used for different goods and services. Typical dry goods in a supermarket will have a fixed price, and occasionally the supermarket runs out of stock – which can be mildly annoying to you or me, but is presumably easier to manage for them. The value of New Zealand dollar (the exchange rate) is constantly changing, typically by quite small amounts, as pressures from potential buyers and sellers ebb and flow. Even at a retail level, petrol prices now change very frequently. There are whole literatures on the reasons why different structures are adopted in different markets (and I’m certainly not expert in that field).

Housing is typically nearer the variable pricing end of the spectrum. In the market for actual house purchases, fixed price adverts, “buyer enquiry over”, tenders, and auctions all co-exist. In the last two, the seller can reconcile supply (one house) to demand, simply by using the amounts bid. In a fixed price advert, if there is more than one interested party, the seller might have to use some other decision criterion (although I imagine that typically even then one bidder will offer more).

It is, as I understand it – not owning rental property, and not having rented one in this country for many decades – customary to advertise rental properties with a fixed rental price. Holiday home websites operate that way too – and, in effect, they just operate on a “first come, first served” basis. In a normal market, it probably often works quite well – if there are plenty of people offering rentals, and plenty of potential tenants, even if one misses out on one property, there is another not far away. If the property owners sets his or her price too high, they find there is little or no interest in renting their property, and eventually have to re-evaluate and revise the fixed asking price.

But the current situation seems to be one where lots of people are enquiring eagerly about almost any rental property on offer. Fixed asking prices are, in that sense, too low to clear the market. Over time you’d expect that those fixed asking prices would rise – and thus take care of that particular element of the problem – but that doesn’t deal with the property owner’s issue on the day: when 20 people want one rental.

Wellington Central MP Grant Robertson knew of two cases of renting tenders in Wellington – both from around the start of the year when students were returning to the capital.
“I think it is barely legal,” he said.
At one, would-be renters turned up to view a flat with an advertised price. “When they got to the property they were asked, ‘how much are you prepared to pay?'”

At the other there was no advertised price and would-be renters were simply asked how much they were prepared to pay.
“I think it is abhorrent. It is exploiting the fact we have a real shortage of rental homes in Wellington at the moment – exploiting people in vulnerable positions.”

So how is the property owner or agent supposed to respond? Just ignore the excess demand and draw straws to determine who should get the flat at the – evidently – too low advertised price? It is a market, and the property owners aren’t running charities for the homeless, but private businesses.

As is noted in the Dom-Post article, auctions aren’t always an ideal mechanism – as an owner you are likely to care about the quality of the tenant as well. But simply drawing straws doesn’t seem to have any particular merit – moral or practical – in this climate.

Don’t get me wrong. The housing market in New Zealand is, in many, respects a scandal, and the problems flow largely from the choices of successive waves of central and local governments. Since we are talking about right now, in this case it means the National-led central government, and the Labour-dominanted Wellington City Council. But attacking a symptom – rising rents, and alternative techniques to reconcile supply and demand – isn’t a particularly meaningful response. Owners of rental properties are, in many respects, the last people who should be being blamed here.

But I also learned something new from the article. The journalists approached, and got some comment from one of their officials

Ministry of Business, Innovation and Employment national manager tenancy compliance and investigation Steve Watson said the practice was allowable under the Residential Tenancies Act.

“Any party who feels that they are being asked to pay rent that exceeds ‘market rent’ has the ability to apply to the Tenancy Tribunal who can review and determine the appropriate amount of rent for a residential property,” Watson said.

Really? I know there has been centuries of philsophical and theological debate around concepts of “just prices”, but have we (or rather our Parliament) really legislated to provide for cases where some arbitrarily determined “market price” differs from a price being paid in….well…the market. It seems that our politicians had done just that.

Here are the relevant bits of section 25 of the Residential Tenancies Act

25 Market rent

(1) On an application made to it at any time by the tenant, the Tribunal may, in accordance with the succeeding provisions of this section, on being satisfied that the rent payable or to become payable for the tenancy exceeds the market rent by a substantial amount, make an order reducing the rent to an amount, to be specified in the order, that is in line with the market rent.

(2) Notwithstanding anything in subsection (1), no application may be made under that subsection in respect of the rent payable under a fixed-term tenancy later than 3 months after—

(a) the date of the commencement of the tenancy or (in the case of a tenancy that was subsisting immediately before commencement of this Act) the date of the commencement of this Act; or

(b) the date of the last review of rent,—

whichever is the later.

(2A) …..

(3) For the purposes of this Act, the market rent for any tenancy shall be the rent that, without regard to the personal circumstances of the landlord or the tenant, a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for the tenancy, taking into consideration the general level of rents (other than income-related rents within the meaning of section 2(1) of the Housing Restructuring and Tenancy Matters Act 1992) for comparable tenancies of comparable premises in the locality or in similar localities and such other matters as the Tribunal considers relevant.

Initially I wondered if this might be some historical provision to deal with, say, a situation in the Great Depression where there was a long-term fixed rent, and the general price (and wage) level fell sharply. But that can’t be – at least for fixed term tenancies these provisions can only be used within three momths of the tenant taking up the tenancy, or of the most recent rent review.

It just looks like an extraordinary piece of “feel good” law. The standard (in 25(3)) is the rent that “without regard to the personal circumstances of the landlord or tenant, a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay, for the tenancy, having regard to the general level of rents”.

It isn’t clear at all why the “personal circumstances” should be irrelevant. If someone desperately wants to live on a particular street, because they want to be close to aged parents (say) why shouldn’t that be something that can reflected in the price they pay for a rental tenancy? One bag of flour might be much the same as the next one. But except perhaps in high-rise blocks, almost every rental property is different from the others, even if only by location – and location preferences are often quite idiosyncratic and personal.

I have no idea how often this provision is used – perhaps more often now having been highlighted on the front page of a major daily paper. Various readers have a lot of exposure to running rental businesses, and I’d be interested in any perspectives they can offer. But you also have to wonder why the MBIE official felt it appropriate to add in this information when he commented. After all, the one common element, agreed (it would seem) by all parties in the story, is that the rental market in Wellington is very tight. The general level of rents is presumably rising. (And if, perchance, someone does agree to pay a level of rent “above the market rent”, it was a contract voluntarily – even if grudgingly – entered into: not great perhaps, but better – for the renter – in their own assessment, than the alternative.)

I was interested to see Grant Robertson stating that Labour will soon be announcing a package to “strengthen renters’ right”. There may well be merit in some of that. But the best way to protect the position of renters, and all others coming into the accommodation market (whether as renters or buyer) is surely to fix up the land use and housing supply markets. Abundant responsive supply in the face of changes in demand is the best assurance of genuinely affordable and secure accommodation.

(On which note, a reader sent me a link the other day to a stimulating piece on housing and land markets from a UK academic. I don’t agree with everything in it, but for those interested in the debate – and in recognising the similar issues in other countries – it is worth reading.)

The Wheeler letter

June 14, 2017June 15, 2017 Michael Reddell BNZ & Wheeler, Reserve Bank

(I’ve had to spend much of the day at the Reserve Bank, in a meeting chaired by one of their Board members, attended by one Deputy Governor, and where the Governor himself just might turn up – he’s a member, but will no doubt find himself too busy on the day and send an alternate. In the interests of that meeting – which will be contentious enough anyway just on its own subject matter – this post is pre-scheduled to appear when I’ve got out of the building.)

On Monday, the Reserve Bank posted the full text of the Governor’s letter to BNZ CEO Anthony Healy, and of Healy’s initial reply to the Governor. Valuable as Paul McBeth’s initial article in NBR was, it is always worth reading the full text of such documents if one can. Some of this ground was already covered in my post on Saturday, but after a bit of comment on the letters themselves, I want to offer some other thoughts after a few days to reflect further on the issue, and the reaction to it.

First, the Governor’s letter. What is clearer with the benefit of seeing the full letter is the extent to which it wasn’t anything like a one-off fit of pique on a bad day, but rather a culmination of a sustained campaign from the Governor and his senior management to put pressure on the BNZ to “silence” (materially alter what he was saying and how he was saying it) Stephen Toplis. It is interesting that the letter was dated 11 May, the day of the release of the Monetary Policy Statement itself. One might have supposed that the Governor would have had higher priorities that day, between a press conference, an FEC appearance and so on.

The first couple of paragraphs of his letter focus just on the specific Monetary Policy Statement preview that Stephen Toplis had written and published a few days earlier.

I am writing to you to draw your attention to the language used in the BNZ Markets Outlook of 8 May 2017, which appeared to bring into question the integrity of the Reserve Bank. While I appreciate that you will not have reviewed the document in detail, I expect you would also be concerned at the nature of the language used.

As I noted in my earlier post, the Governor offers no evidence or examples to back his suggestion that the commentary concerned “questioned the integrity of the Reserve Bank”, There was, in fact, nothing in the commentary that any reasonable reader could have read as impugning the Bank’s integrity. Competence, diligence, or focus perhaps, but not integrity. So the Governor was off to a poor start. Perhaps he’d just got so worked up about Stephen Toplis over such a long period that he ending up seeing/reading stuff that just wasn’t there?

The document claims that the Bank would be negligent if it didn’t conform to the views of the BNZ economists. Negligence is a serious accusation and implies that the Reserve Bank would not exercise reasonable care in the discharge of its responsibilities. The document also makes other claims that the Reserve Bank would not implement monetary policy in the best interests of New Zealanders. For example, we would not adjust our policy stance even if our analysis indicated that appropriate, if it in some way embarrassed the Reserve Bank. To bring into question the Bank’s integrity while fundamentally misrepresenting how the Reserve Bank formulates policy is unacceptable.

To repeat, there is nothing in the document that any reasonable detached reader could take as impugning the integrity of the Bank. There is also nothing to support the suggestion that BNZ claimed that the Reserve Bank “would not implement monetary policy in the best interests of New Zealanders” (although in fact the Bank’s statutory mandate is rather narrower than that anyway). The commentary did suggest that the Bank would be reluctant to raise rates in May, whatever the data showed, because of how strongly they had previously adopted a fairly neutral bias. Well, take it from me, having sat around monetary policy decision tables for decades, those conversations do actually happen in central banks. Ask the Bank’s chief economist – there are whole literatures on interest rate smoothing, consistent signals etc. And, however much we sometimes like to pretend otherwise, no monetary policy decision is ever totally clear-cut, simply because no one knows the future. What’s more, as I noted the other day, the Reserve Bank more or less did what BNZ said they needed to do – they did show a track with (eventual) OCR increases in it. So having made a conditional statement, that the Bank would be negligent – or remiss, or not adequately doing its job – if an upward-sloping track wasn’t shown, they showed one. So quite what was the Governor’s specific problem?

Perhaps Toplis could have chosen another word than “negligent”, but “negligent” is a synonym for various words for not doing a job well, and with due attention to responsibilities. That is exactly what the Reserve Bank Act charges the Bank’s Board with assessing – it even makes brief reference to “neglect”. The whole statutory accountability framework is built around quite personalised assessments of that sort. If the Board can do such assessments why can’t the rest of us?

At this point, the Reserve Bank escalates the issue from a simple expression of concern to a not-very-veiled call for tighter control on Toplis, to suit the Governor’s preferences.

The Reserve Bank makes a considerable effort to explain its monetary policy processes, engage with market participants, and communicate clearly its monetary policy stance. Given these efforts, I would have expected the BNZ economists to be more accurate and careful in their choice of words [is this a suggestion Toplis had been “negligent”?] I would also expect that the editorial quality assurance process (and any legal sign-off involved) would have identified that an accusation of negligence is inappropriate in a public document distributed by the Reserve Bank.

Quite why the Reserve Bank’s “efforts” should affect the evaluations of the Reserve Bank that the BNZ economists (or anyone else) make is a bit of a mystery. Many people have criticised aspects of the Bank’s communications – or policy – over many years, rightly or wrongly. They are free to do so. They are also free to suggest that the Reserve Bank might not be doing its job adequately, if it did this, that or the other thing. Only the other day, for example, I suggested that some of their regulatory interventions looked as though they might be ultra vires.

And then what is it with the suggestion of vetting and legal sign-off on market commentaries? A preview for the Monetary Policy Statement, isn’t exactly a prospectus for a bond issue, or an official disclosure statement, with lawyers scrutinising every line to ensure statutory responsibilities are met. It is an opinion piece, in a field where reasonable people’s views at times differ widely, and where the Reserve Bank has no privileged knowledge about what choices will prove to be right.

The next paragraph is mostly inoffensive.

I should stress that we respect the forecasts made by market analysts and play [sic] close attention to their views in our monetary policy processes. We do not always expect to agree on outlook or policy responses, but instead seek that differences of view are reasoned and understood.

Well, fair enough I suppose, but anyone really is free to disagree with the Reserve Bank on any grounds they like. It simply isn’t up to the Reserve Bank – in a free society – to decide what sort of disagreement is acceptable and what is not. If the BNZ puts out consistently poor commentary – in the eyes of its management and clients – presumably there will, over time, be a diminution in the demand for that commentary. There is a competitive market in opinion and analysis, including that on the Reserve Bank.

And then we learn that actually the pre-MPS commentary was just the last straw for the Governor.

You will recall that my fellow Governors each met separately with [withheld – but presumably “Stephen Toplis”] to convey their concern at the personal nature of the criticism being expressed by the BNZ. When this failed to address the situation I met with you and passed on examples of the material. I mentioned that the BNZ approach was damaging to the Reserve Bank and the New Zealand financial market, and the personal nature of its tone was contrary to that of the other banks.

So Grant Spencer – head of financial stability and responsible for regulation of BNZ – Geoff Bascand, and John McDermott each met with Toplis – not together, but in a succession of separate meetings. Not apparently to discuss or debate the substance of the BNZ commentaries or concerns – many of which have, over time, been quite well justified in my view – but to demand repentance and amendment of ways. That is what the Governor says – “when this failed to address the situation” , or “when the BNZ economists still refused to comment the way I wanted them to”. And the Governor complains about a personalised tone, even though he holds a very powerful position in a system which, as he knows, puts all the Bank’s power in his hands personally.

It is all rather extraordinary – perhaps redeemed only by the fact that the Governor actually put it in writing and thus (upsetting as it apparently is to him) eventually making it known to the public. The BNZ’s approach has certainly been more forceful than that of most other banks, but it simply isn’t for the Governor to tell a bank how it is allowed to review or criticise him. Lese-majeste is an offence in Thailand, but (a) this is New Zealand, and (b) Wheeler isn’t king. Probably no one would think it amiss if the Bank found Toplis’s tone so obnoxious that they refused to meet with him – no one has a right to meetings with the Governor or Chief Economist – but even then you need a thick skin in this game, and to recognise that over time scrutiny, even if not written in quite the tone you might like, has benefits (for society, and probably even for the institution).

Finally

I would like you to be aware of our serious concerns about the inappropriateness of the language used in the document and would ask that you bring it to the attention of those responsible for the editorial quality and any legal sign-off.

So twice in a single page letter, we have the heavy-handed call for censorship and references to lawyers. It is an extraordinary demand for a public servant to make of a private business in a free society. Extraordinary, having lost all sense of perspective, and quite – to use the Governor’s own words – “unacceptable” and “inappropriate”. And the Governor works for us – it is quite reasonable for us to hold him to account – while the BNZ does not work for the Governor.

I’ve had various discussions with people in the last few days about quite what was going on here. I’ve had people suggesting that maybe Wheeler wasn’t really responsible, but instead it was the Bank’s Communications Department, or one of the other Governors. Only they will know, but based on my knowledge of, and exposure to, each of those individuals that seems very unlikely. The Comms Dept can get prickly and precious at times, but they’ll have been only too well aware of how this would backfire if it ever got out. Graeme Wheeler is the one who has demonstrated a thin skin, a reluctance to expose himself to scrutiny, and a reluctance to engage with alternative perspectives. I’m pretty sure this was largely Wheeler-driven – perhaps he just got to the end of his tether as his troubled five year term finally draws to his end. Sadly, it seems that his colleagues were too weak to either convince him that he was over-reacting, or to refuse to be an active part in his censorship efforts. I don’t like to believe they’d have been encouraging him, but perhaps they were.

What of Healy’s response? It is mostly a holding response, but wasn’t written until several days after the Governor’s letter was sent, so presumably his lawyers, his regulatory affairs people, his Board, and perhaps his head office in Melbourne will all have been trying to work out how best to respond.

In an ideal world, perhaps, Healy would have written back along the lines of

“Dear Governor, Thank you for your letter of 11 May. The contents and style of our economic commentaries are matters for us to determine, not for you. We encourage and welcome robust debate, and we would hope you do too.”

But he was writing back to the chief executive – and single decisionmaker – of his regulatory agency. I should be clear that I do not read Wheeler’s letter as any sort of direct threat to BNZ itself – comply and censor Toplis or we will withhold this or that specific regulatory approval. Even the supine banks would probably have taken him on over anything that overt. But the banks need Reserve Bank say-so on numerous things large and small each year (people, models, instruments etc), and they are pretty cautious about getting offside with the boss of the regulatory agency, lest other disagrements risk colouring the attitudes of the Governor when he makes regulatory decisions.

And so Healy wrote

I refer to your letter of 11 May 2017 expressing concerns about commentary in the BNZ Markets Outlook of 8 May 2017.

I would like to acknowledge both the sentiment and concerns you have expressed in your letter and assure you that [withheld – but presumably either “Stephen Toplis is” or “the economics team are”] treating this matter with the utmost seriousness.

We will be reviewing the contents of the BNZ Markets Outlook and the concerns expressed in your letter in detail. Once that process is complete, I would appreciate the opportunity to have a call with you to discuss the outcomes of that review.

Please let me know if a call in the week of 29 May would be possible and I will ask my Regulatory Affairs team to arrange this.

Thank you for bringing your concerns to my attention and I look forward to hearing from you.

[UPDATE: A commenter points out that the RB doesn’t appear to have quite fully deleted the name, and what appears still be showing suggests it can’t be “Toplis”]

Pretty weak and deferential really – and the man knows this is the regulator he is dealing with, not just someone who disagrees with the team’s commentary. It isn’t his PA arranging the call, but his Regulatory Affairs team.

Healy, no doubt, finds himself in a difficult position. I guess the proof of his good intentions is that Toplis is still employed, and not obviously using a different tone or analysis in his reports. Then again, there hasn’t been another MPS since this episode. It would be interesting to know what was said in that phone call later in May, but I suspect it would be futile for anyone to try to OIA that information. Again, in an ideal world, BNZ would front up to the media on this attempt by the central bank to intimidate them and censor their commentary. I don’t suppose anyone will be holding their breath waiting for that. But failure to front up implicitly accepts and condones this sort of conduct by the Governor, whatever they might be saying in private.

Of course, one mystery in all this is how the story got to the media. Perhaps the BNZ themselves prompted Paul McBeth to lodge his OIA request. If so, well done. Presumably the Reserve Bank hierarchy didn’t want the news known, but I have heard stories that junior Reserve Bank staff were discussing the issue in Wellington bars.

In this episode, it is worth thinking briefly about the people involved. In some respects, Stephen Toplis isn’t a person who will naturally command lots of sympathy – highly paid economists of foreign banks, some might think, can simply fight their own battles. And his style can be, and has been, somewhat abrasive, not just with the Reserve Bank.

And, on the other hand, Graeme Wheeler is three months from leaving office. For all the failings in his term of office – and this is just another one – why bother when he’ll soon be gone from public life?

It seems to me that the response on both counts is about precedents. If powerful public officials attempt to shut down prominent economists, just think what they could do to other people. And if Graeme Wheeler gets away with this attempt – perhaps just having got the end of his tether – what message does it send to other regulators, officials and politicians in our system? Of course, others will try to keep their intimidation attempts quiet – as no doubt Wheeler did – but if there is little downside when things do come out, they might as well just keep on exerting that improper pressure. On this occasion it was about an almost unbelievably trivial thing – use of the word “negligent” – but on some occasions it will be more important things: the Muldoon attack on Len Bayliss was about serious and genuine differences of view about big picture economic policy. Such behaviour just shouldn’t be acceptable in a free society, and the powerful need to know it. And of course, the other reason to be concerned is that Geoff Bascand appears to have been fully involved in this, and he is widely expected to be a serious contender for Governor next year.

Very few people seem to have attempted to defend Wheeler’s behaviour – at most a few have minimised it (“not a good look”). But, given that fairly widespread apparent private disapproval, what is quite disconcerting is the deafening public silence over Wheeler’s attempt to “silence” Toplis and the BNZ. The BNZ itself hasn’t spoken out, and nor have any of the other banks or other bank economists. I can understand how difficult it might be for some prominent individuals to take an open stand. Then again, holding prominent positions carries with it responsibilities. And if, say, all the banks spoke out together – eg through the Bankers’ Association – what could the Reserve Bank possibly do in response?

It is to the credit of Paul McBeth that he got the original OIA material and ran the story, but it was reported as straight news. Where are other local media in deploring this attempt to limit open public debate and constrain critical review of a powerful institution? So far, there seems to have been more interest abroad. The story has been run on the Central Banking magazine’s website – premier publication for central bankers, and one which has honoured the Reserve Bank in the past (central bank of the year in 2015). I’ve spoken to one other foreign journalist who is quite stunned at the local silence (so far?) – not, it was put to me, what would have happened if an episode like this had happened in, say, the UK.

It isn’t a parliamentary sitting week, and Monday was Labour’s immigration policy day. But not a word of protest or unease has been heard from representatives of any political party. Of course, this isn’t a big vote-grabbing issue – defending institutions such as freedom of speech, and the need for self-restraint by the powerful, rarely is. Is this the worst offence in the world? Perhaps not, but we preserve our institutions and conventions by taking a stand on even modest breaches; when people step over the mark, perhaps even without quite fully realising what they were doing.

And then of course there is the question of the Reserve Bank Board. I know a few of the members, and they and the others look, on paper, to be people of decency who take their roles seriously. It is difficult to believe that many of them can really be comfortable with the Governor’s attempts to intimidate the BNZ. But if they aren’t, they have a responsibility to say so. They don’t work for the Governor. Their role isn’t to have the Governor’s back. It is to act as agent for the Minister and the public, in ensuring that the Governor is doing his job, and not overstepping those marks.

Similarly, where is the Minister of Finance in all this?. It would be a simple matter to let it be known that such behaviour is quite unacceptable in senior New Zealand public servants. If he won’t make that clear, he leaves us wondering whether in fact the government thinks such behaviour is acceptable, or just “the way of the world” (memories of Alfred Ngaro). That is the way the best elements of our free society are slowly but inexorably corroded.

As a final thought, I leave you with this quote

Financial markets, the business media, and other economic commentators all play a part in scrutinising and making sense of the Reserve Bank’s monetary policy choices. It is not difficult to make monetary policy choices that turn out to be wrong – indeed, in the nature of things, many will turn out to have been less than ideal. But the presence of the extensive market commentary, on every major piece of data and on OCR decisions themselves, means that if the Bank takes a position that even a significant minority of outsiders disagree with, the difference is likely to be highlighted. This not only allows for public debate and scrutiny, but also provides information that the Board themselves can (and does) use in questioning and evaluating the Governor.

It was the first thing that came up when I googled “monetary policy accountability and monitoring”. As it happens, I wrote those words 10 year or so ago, but they are still sitting on the Reserve Bank’s website, as an official document in the “About monetary policy” section. But after the Toplis affair, it is a little harder than it was to take it seriously as a representation of how the Reserve Bank thinks about the value of market commentary, alternative views, challenge and dissent. If so, that would be a shame.

The Reserve Bank Act isn’t built around a philosophy of deference, but around a difficult- to-maintain balance between the huge amount of power given to the Governor, and a countervailing place for searching scrutiny – by the Board, by the Minister, and by the public (including media and markets). Whoever the new Governor is next year really needs to devote a lot of effort to rebuilding an open and engaging culture that welcomes, and relishes, debate and challenge. At times, no doubt, it will be trying and frustrating, but that is how institutions in a democratic society are supposed to work. Life for the powerful isn’t meant to be comfortable.

A BNZ economist and the powers that be

June 13, 2017January 27, 2018 Michael Reddell BNZ & Wheeler, Reserve Bank

No, not Stephen Toplis.

This is a story about an earlier BNZ Chief Economist, Len Bayliss. A commenter on my post on Graeme Wheeler’s attempt to silence Stephen Toplis reminded me of how Bayliss’s career at the BNZ ended, victim of intense pressure from the then Prime Minister and Minister of Finance, Robert Muldoon, and a pusillanimous Board and management of what was then a wholly government-owned bank.

Len Bayliss was one of New Zealand’s leading, and most prominent, economists from the 1960s to the 1980s, particularly as the BNZ’s chief economist for 15 years or so. A few years ago I did an interview about his career with him for the newsletter of the New Zealand Association of Economists. As he records it, that interview and some follow-up questions from me prompted him to put together a volume of documents and recollections – Recollections: Bank of New Zealand 1981-1992 – dealing with his ouster from the BNZ and his later term as a government-appointed director of the BNZ as it descended into crisis and near-failure in the late 1980s and early 1990s. I’m fortunate enough to have a copy.

Bayliss and Muldoon had, at one time, worked very closely together, with Bayliss having served as a member of the Advisory Group in the Prime Minister’s Department when National returned to office at the end of 1975. A lot of financial liberalisation went on over the following couple of years, and Bayliss appears (there are conflicting accounts, but I’ve found Bayliss’s persuasive) to have played a key role in that.

Decades on, in that interview I did with him, Bayliss could still record of Muldoon

Excellent. He was the best boss I’ve ever had. Absolutely decisive. I wrote his speech for the Mansion House dinner, the most important speech he’d made after becoming PM. I gave it to him. He said send it to Treasury and see if it’s all right with them. They wrote back wanting something changed and wrote a little memo and he just put ‘No’. And he always was very proper. He may have been tough to his political opponents but as Bernard Galvin used to say, certainly in the time I was there, it was a very happy group. He never tried to force you to do anything. In a sense, he treated you just like a public servant, as a politician should treat them. He was decisive. He would argue very intelligently. Watching him at the Cabinet Economic Committee, he really tore strips off ministers who hadn’t done their homework. And I saw him several times in debates with Noel Lough [senior Treasury official]. Noel Lough was a lovely bloke but Muldoon really won the debates.

But after Bayliss’s return to the BNZ, and as New Zealand’s economic difficulties became increasingly apparent – with Bayliss among those openly highlighting the issues – the sentiments certainly weren’t reciprocated.

The crisis began to come to a head after Bayliss was interviewed on Radio New Zealand’s Morning Report on 14 August 1981. After a lengthy introduction, setting the scene for a discussion of the value of the exchange rate, the presenter turned to Bayliss

Bayliss: I think we have to do a number of things. We have to change the exchange rate, we’ve got to get our budget deficit reduced, we’ve got to get better control of the money supply and we’ve got to replace import controls by tariffs, and we’ve got to get more competition into the economy.

Reporter: Well, you’re talking about the exchange rate. You’re talking devaluation are you?

Bayliss: That would be it, yes.

The interview went on, concluding thus

Reporter: Well, this artificially high value of our currency has been held for many years I mean its not a recent thing. You know, why do we keep on doing it?

Bayliss: I think the reason we keep on with it is two-fold. First of all if you just devalue and do nothing else….you get a very short-term gain and in six months’ time the rate of inflation is worse. I think the second reason is that we’ve built up a system in New Zealand where a large number of industries and sectors and firms and so on are subsidised and naturally these people fight hard to maintain their subsidies……. The New Zealand economy has had nil rates of growth for about five years and rising levels of unemployment and this is a pretty deplorable economic performance……If we are going to improve our economic performance then we have to make some pretty dramatic changes in economic policy.

The Prime Minister was not happy at all. That shouldn’t have surprised anyone – who likes have their approach openly criticised? But the Prime Minister didn’t just complain to his colleagues, thump the desk, and get on with his day. Instead, he wrote a letter to the chairman of the Board of the BNZ. News of this letter got out – it took a while – and on 15 October there was parliamentary question about it. Answering on behalf of the Prime Minister, Jim Bolger stated

“I wrote to the Chairman of the Bank of New Zealand on 25 August 1981 expressing concern that Mr Bayliss’s comments were not only misleading and not factually based, but that they would also have an adverse effect on our international credit. Both the management and the Chairman of the bank have told me they regretted Mr Bayliss’s comments”

Opposition MP Stan Rodger then asked

“Can this be taken as as indication that the Government is adverse to having open debate in society within the news media on economic developments and on economic factors affecting New Zealand society?”

Bolger: “No it most certainly cannot be taken as an indication that we do not welcome public debate on issues. The question that was posed is whether or not the issue that was being debated was being debated factually, whether it was being debated in a manner that would not be harmful to New Zealand. As the answer was written by the Prime Minister, it was his belief that the NZ comments would affect New Zealand’s international credit. That is something that is of some moment.”

Another Labour MP, Michael Bassett continued

“When the Prime Minister wrote to the Bank of New Zealand was it his intention to silence Mr Bayliss altogether, or was it simply to ensure that he debated the economy on terms that were agreeable to the Prime Minister?”

Bolger: I cannot answer the question in the way it was posed because I do not know the precise intention of the Prime Minister when he wrote the letter. However, I am sure the Prime Minister will welcome debate on this issue or any other based on facts, not on any other basis.”

At the next meeting on the BNZ Board, (according to a contemporary file note) the Board apparently spent “considerable time discussing public statements on economic matters by the Chief Economist – in particular forthcoming speech to Hutt Chamber of Commerce”. The chief executive informed Bayliss that “in future contents of any public statement on economy by Chief Economist should be such that they provoke no criticism whatsoever by Prime Minister.”

Bayliss responded (again, according to the file note) “impossible to make accurate, balanced and professional analysis of economy under such criteria – a view which would be shared by all economists and many others. Board placing Chief Economist in impossible position – best to cancel speech.”

To which the chief executive is recorded as responding “Can’t do that – must make speech. Cancellation would damage image of BNZ and provoke public questioning of Board’s attitude. Only consideration must be BNZ’s public reputation.”

And so it went on in subsequent days. Bayliss eventually informed that BNZ that under these conditions he would probably feel obliged to resign, and did so early the following year. Both the Board of the BNZ and the Prime Minister disavowed any responsibility.

Bayliss includes in his collection of documents, a letter he received shortly after his resignation from John Stone, then the Secretary to the Treasury in Australia (and still vigorously contributing to the debate in Australia in his late 80s). Stone wrote

“I learned yesterday of the announcement of your impending resignation from your present position with the Bank of New Zealand. The reports which I saw of that development were naturally only of a general kind – the suggestion being that there had been some reaction from the political heights to the outspokennes and straight-speaking on the New Zealand economy which over recent years you have become well (and let me emphasise favourably) known.

“Whether or not there is truth in those kinds of speculation I naturally do not know. If there were I would think it is a sad reflection upon a country for which as you know I retain a considerable affection.

Indeed.

Graeme Wheeler was a junior Treasury official in late 1981. I wonder what he made of Muldoon’s attack on Bayliss? Did he even imagine that one day he’d be writing to the BNZ to complain of another economist whose style and/or substance had offended him, as high public servant and powerful regulator? Surely not.

Two sides of the same coin

June 13, 2017September 12, 2017 Michael Reddell Immigration, labour party

When, a couple of months ago, the current National-led government announced plans to tighten immigration policy in several areas, I summed up the changes as “a modest step that ignores the big picture“.

Yesterday, the Labour Party announced the immigration policy it will campaign on. I’d use exactly the same words to describe their proposals. Some of the changes – the largest ones – seem broadly sensible, but they won’t come close to tackling the real problems with New Zealand’s immigration policy.

In some ways the biggest difference between the two parties’ approaches is that National provided us with no estimates about what impact their changes would have on numbers (and the Prime Minister apparently claimed yesterday they would, in fact, have no impact on numbers), while Labour is touting large numerical impacts but not acknowledging that they will actually have little or no medium to long-term effect on the net inflows of non-New Zealand citizens.

In many ways, none of this should be a surprise. The “big New Zealand” strategy, revitalised over the last 25 years, has been a bipartisan project. On either party’s policy, it remains one. There is really no material difference between them – just details which, while not unimportant, don’t affect the underlying strategy. A strategy which, to the extent it had an economic performance objective behind it (recall how MBIE used to call our immigration policy, “a critical economic enabler”), has simply failed. There is no reason to expect anything much better if future if we keep on with the same policies.

What determines the medium-term contribution of immigration policy to population growth is the residence programme, which aims to give out around 45000 residence approvals each year. The government cut that target a little last year. Labour’s policy doesn’t even mention it. At 45000 approvals, the programme is roughly three times the size, in per capita terms, of the equivalent programme is the United States (where about one million green cards are issued each year).

But what of the proposals Labour did put forward. Their policy document is here. It is misconceived from the first sentences where they state

Migrants bring to New Zealand the skills we need to grow our economy

Have they not seen the OECD data showing that New Zealanders are among the most highly-skilled people in the advanced world, and that – on average – immigrants are a bit less skilled than natives? On the scale the New Zealand immigration programme attempts to operate at, the typical new additions to the labour force from non-citizen migration are not as highly skilled as the people who are already here, and our own young people who enter, and move up in, the workforce each year. There are, of course, no doubt some exceptionally talented people. But most are people from poorer countries looking for better opportunities here for themselves and their families – typically, too, people who couldn’t get into the richer and more successful Anglo countries. (None of this is a criticism of the migrants – pursing the best for themselves and their families is probably what all of us seek to do too – but it is a criticism of the policy framework that enables such large inflows of not overly-skilled people.)

Mostly Labour’s policy seems to be about fixing some pretty dubious changes made to the student visa system over recent years. In fact, three-quarters of the total numerical impact of their policy comes (on their own numbers) from student visa changes.

Labour will stop issuing student visas for courses below a bachelor’s degree which are not independently assessed by the TEC and NZQA to be of high quality.

Labour will also limit the ability to work while studying to international students studying at Bachelor-level or higher. For those below that level, their course will have to have the ability to work approved as part of the course.

Labour will limit the “Post Study Work Visa – Open” after graduating from a course of study in New Zealand to those who have studied at Bachelor-level or higher.

Mostly, those seem like a broadly sensible direction of change. That said, I’m slightly uneasy about relying on bureaucratic agencies to decide whether courses are “high quality” – in principle, surely the market can take care of reputational and branding issues?

And while it might look good on paper, I’m a little uneasy about the line drawn between bachelor’s degree and other lines of study. It seems to prioritise more academic courses of study over more vocational ones, and while the former will often require a higher level of skill, the potential for the system to be gamed, and for smart tertiary operators to further degrade some of the quality of their (very numerous) bachelor’s degree offerings can’t be ignored. In the student visa data we already see some slightly suspicious signs (bottom right chart) of switching from PTEs to universities I’d probably have been happier if the right to work while studying had been withdrawn, or more tightly limited, for all courses. And if open post-study work visas had been restricted to those completing post-graduate qualifications.

Selling education to foreign students is an export industry, and tighter rules will (on Labour’s own numbers) mean a reduction in the total sales of that industry. Does that bother me? No, not really. When you subsidise an activity you tend to get more of it. We saw that with subsidies to manufacturing exporters in the 1970s and 80s, and with subsidies to farmers at around the same time. We see it with film subsidies today. Export incentives simply distort the economy, and leave us with lower levels of productivity, and wealth/income, than we would otherwise have. In export education, we haven’t been giving out government cash with the export sales, but the work rights (during study and post-study) and the preferential access to points in applying for residence are subsidies nonetheless. If the industry can stand on its own feet, with good quality educational offerings pitched at a price the market can stand, then good luck to it. If not, we shouldn’t be wanting it here any more than we want car assembly plants or TV manufacturing operations here.

Labour estimates that their changes to student visas and post-work study visas will reduce numbers by around 17000, roughly evenly split between the two classes of changes. But what they don’t tell you is that these will be one-off reductions in the total number of people here on those visas. Since the number of people who settle here permanently is determined by the residence approvals programme, and that hasn’t changed, the changes Labour is promising around student visas – while broadly sensible – while make a difference to the net migration flow in the first year they are implemented (the transition to the lower stock level) and none at all thereafter. They might change, a little, who ends up with a residence visa, but not how many are issued. If you favour high levels of non-citizen immigration but just want the “rorts” tidied up, it makes quite a lot of sense.

The changes Labour proposes to work visas are also something of a mixed bag. They are promising (but with few/no specifics) to make it harder for people to get work visas

Since 2011/12, the number of low-skill (ANZSCO 4 and 5) work visas issued has surged from 14,000 to 22,000. For example, the number of “retail supervisor” work visas has increased from 700 to 1,700. Labour will work with firms to train New Zealanders to fill skills gaps so we don’t have to permanently rely on immigration. A developed nation should be able to train enough retail staff to meet its own needs. Immigration should be a stop-gap to meet skills shortages, not a permanent crutch.

Labour will make changes that preserve and enhance the ability of businesses to get skilled workers to fill real skills gaps but which prevent the abuses of the system that currently happen.

The broad direction seems sensible enough – after all, the official rhetoric about the gains from immigration relate to really highly-skilled people, but what does it mean specifically?

And I get much more wary about proposals to move to a more regional approach (on top of the additional points for regional jobs the government introduced last year, thus further reducing the skill level of the average migrant). This is what they say:

Currently, few skill shortages are regionalised. This makes it hard for a region with a skills shortage in a specific occupation to get on the list if the shortage is not nationwide. Importantly it means that work visas are issued for jobs in regions where there is not actually a shortage which puts unnecessary pressures on housing and transport infrastructure there.

Labour’s regionalised system will work with local councils, unions and business to determine where shortages exist and will require that skilled immigrants work in the region that their visa is issued for. This will prevent skills shortages in one region being used to justify work visas in another, while also making it easier for regions with specific needs to have those skills shortages met.

Where skills shortages are identified, Labour will develop training plans with Industry Training Organisations so that the need for skilled workers is met domestically in the long-term. We will invest in training through Dole for Apprenticeships and Three Years Fees Free policies.

Frankly, it seems like a bureaucrat’s paradise, and just the thing for influential business groups that get the ear of some local council or other. It is hard enough to ensure that local authorities operate in the interests of their people, without setting up more incentives that will allow local authorities to be used to pursue the interests of one particular class of voters.

More generally, it is an approach that suggests no confidence at all in market mechanisms to deal with incipient labour market pressures. There is no suggestion in the document, at all, that higher wages might be a natural adjustment mechanism, whether to deal with increased demand in a particular region or for a particular set of skills. Even the Prime Minister was running that line recently – and he isn’t from the party supported by the union movement.

Again, changes to reduce the number of work visas granted to people for fairly low-skilled occupations aren’t a bad thing, but they won’t make any difference to the average net inflow of non New Zealanders beyond the initial (quite small) one-off level adjustment. And there is no willingness to rely on market mechanisms – eg set a (say) $15000 per annum fee, and allow limited work visas for jobs where the employer is willing to pay the taxpayer that additional price.

There were two other initiatives in the package. The first was the proposed new Exceptional Skills visa.

Labour will introduce an Exceptional Skills Visa. This visa will enable people with exceptional skills and talents that will enrich New Zealand society — not just its economy — to gain residency here.

It will be available to people who can show they are in an occupation on the long-terms skills list and have significant experience or qualifications beyond that required (for example, experienced paediatric oncologist) or are internationally renowned for their skills or talents. Successful applicants will avoid the usual points system requirements for a Skilled Migrant Category visa and would be able to bring their partner and children within the visa. This visa will help grow high-tech new industries, meet the increasingly complex needs of the 21st Century and enrich our society. Exceptional Skills Visas for up to 1,000 people, including partners and children, will be offered every year

When I first saw reference to this I was quite encouraged. And if it makes a little easier for people who are genuinely highly-skilled to get first claim on those 45000 residence approvals each year, then I don’t have any problem with it. But it isn’t exactly the American exceptional ability visa, and we need to be realistic about New Zealand’s relative attractiveness (or lack of it) to people with really exceptional talents. The suggestion that the programme will “help growth high-tech new industries, meet the increasingly complex needs of the 21st century” is probably little more than late 20th century vapourware.

As for the proposed KiwiBuild visas, I suppose they were politically necessary. You leave yourself open if you campaign on both big reductions in migrant numbers, and massive increases in house-building, if you don’t prioritise construction workers. In fact, of course, this programme makes a one-off reduction in the number of people here – reductions concentrated in the population group that probably has the least housing needs.. None of the medium-term pressures will have been eased at all, even if some dodgy rules around students do end tightened.

In passing, I was also interested in this comment

We will investigate ways to ensure that the Pacific Access Quota and Samoan Quota which are currently underutilised are fully met.

I guess there are really large numbers of Pacific voters in Labour’s South Auckland heartland. These Pacific quotas, again, lower the average skill level of those we given residence approval too (since people only come in on those quotas if they can’t qualify otherwise, all within the 45000 approvals per annum total). I imagine, too, that the Australian High Commission will have taken note of that line.

Overall, some interesting steps, some of which are genuinely in the right direction. But, like the government, Labour is still in the thrall of the “big New Zealand” mentality, and its immigration policy – like the government’s – remain this generation’s version of Think Big. And it is just as damaging. The policy doesn’t face up to the symptoms of our longer-term economic underperformance – the feeble productivity growth, the persistently high real interest and exchange rates, the failure to see market-led exports growing as a share of GDP, and the constraints of extreme distance. None of those suggest it makes any sense to keep running one here of the large non-citizen immigration programmes anywhere in the world, pulling in lots of new people year after year, even as decade after decade we drift slowly further behind other advanced countries, and se the opportunities for our own very able people deteriorate.

But that is Labour’s policy. And that is National’s policy.

For anyone interested, the Law and Economics Association is hosting a seminar on immigration policy and economic performance on Monday evening 26 June. Eric Crampton of the New Zealand Initiative and I will be speaking. Details are here.

UPDATE: Here is what I said to Radio New Zealand yesterday afternoon on immigration, in a reasonably extended interview, partly on Labour’s announcement, but mostly on the more general issues.

An astonishing illustration of unfitness for public office

June 10, 2017June 14, 2017 Michael Reddell BNZ & Wheeler, Reserve Bank, Uncategorized

I wasn’t planning to write anything today, but I was flicking through the NBR website when I found a story that both shocks and appals me. I suggest reading it first, before reading my take on it.

After my experiences with the Reserve Bank over the last couple of years, I thought I was beyond the possibility of being shocked by the Governor. Clearly, naive optimist that I must really be, I was wrong.

Somehow the media got hold of a story that Graeme Wheeler had lodged an official protest with BNZ over something their head of economics, Stephen Toplis, had written. So an Official Information Act request was lodged and the Bank has apparently responded by releasing both Wheeler’s letter to BNZ chief executive Anthony Healy and Healy’s response. The Bank hasn’t put those documents with the other OIA releases on their website, so I have asked for a copy.

I should add that Toplis is not some close friend of mine. I always find his commentaries stimulating, but we usually disagree on the substance of monetary policy. In fact, when I was in the gun from the Governor last year, Toplis was sending the Bank snarky comments about me (that he no doubt didn’t expect to be published). But no one should be treated, by a top public servant, the way he has now been treated by Graeme Wheeler.

What is Wheeler’s complaint? Apparently, he was upset with the preview of the latest Monetary Policy Statement that Toplis had written.

Mr Wheeler, who is to step down as governor on September 26, wrote to Mr Healy on May 11, the day the MPS was released, saying a preview written by BNZ head of research Stephen Toplis called into question the Reserve Bank’s integrity by saying it would be “negligent” not to admit it had a tightening bias, expressed “through an explicit expression of rate increase(s) in its published OCR track.”

For some context, here is what Toplis actually wrote

So why do we think the RBNZ will sit pat this week? Simply because it said it would. When it released its March OCR review, the Bank reaffirmed that not only did it expect interest rates to stay where they were for the foreseeable future but it went on to reiterate that it thought there was equal chance that the next move could be a cut as a hike. To hike this week would leave the Bank with egg splattered all over its face, a prospect it couldn’t abide.

But surely, at the very least, the Bank will be forced to admit that it now has a tightening bias? Equally, it would be negligent not to express this through an explicit expression of rate increase(s) in its published OCR track. The biggest questions should revolve around how early the Bank is prepared to poke in a first rate increase and how quickly (if at all) rates rise thereafter.

Toplis seemed to be trying to strike a middle path. Hawks, he argued, would be foolish to think Wheeler would raise the OCR in May, whatever they thought the data showed. And doves who might expect a flat (OCR) track forever were also likely to be mistaken. In Toplis’s view – given the data he had seen – it would be “negligent” of the Bank not to show some rate increases in the published OCR track.

And, as it happens, the Bank largely agreed. The actual OCR track released in the May MPS wasn’t anywhere near aggressive enough for BNZ’s liking (I agreed with the Bank this time), but it did show some increases in the OCR eventually. Presumably they thought it would be wrong – inconsistent with their obligations under the PTA – not to have done so.

So quite what was the Governor’s problem?

Monetary policy is one of those areas of considerable uncertainty. Reasonable people can and will differ quite materially on what the best approach is. But the power – very considerable power over the way the economy develops in the short to medium term – is vested only in the Reserve Bank. More specifically, it is vested in a single individual, the Governor. It is one of the unfortunate aspects of the single decisionmaker model that any criticism of the Bank’s decisions is inevitably a criticism of an individual’s actions/choices. For a thick-skinned and self-confident individual on the receiving end, that just shouldn’t be a problem. After all, the Governor took on the job voluntarily, knowing that he would be making key decisions in an area where (a) almost inevitably there would be mistakes (almost the nature of uncertainty) and (b) where he would subject to a lot of scrutiny from smart people, in political and economic spheres, here and abroad. He gets paid a great deal of money (by New Zealand public sector standards) to make the decisions and be accountable for them. A self-confident Governor might either (a) let disagreements wash over him, or (b) pick up the phone and invite the critic in for coffee and an open exchange of views. But Wheeler is notoriously thin-skinned – and unwilling to engage.

Here is how NBR continued the story

Mr Wheeler’s letter describes a back story, suggesting he reached out to Mr Healy after failing to bring Mr Toplis to heel. It says Mr Wheeler’s deputy governors had individually approached someone (the name is redacted) “to convey their concern at the personal nature of the criticism being expressed by the BNZ in its written publications.”

“When this failed to address the situation I met with you and passed on examples of the material,” Wheeler wrote. “I mentioned that the BNZ approach was damaging to the Reserve Bank and the New Zealand financial market, and the personal nature of its tone was contrary to that of other banks.”

Clearly, Wheeler’s concern was more than just the particular pre-MPS commentary. And certainly, more than most other bank economists, Toplis is willing to quite openly disagree with the Governor and the Bank, sometimes with a vigorous style. But there is nothing “personal” in that preview, and even if there were, the Governor personally exercises the power.

Personally, I wish there were more like Toplis willing to openly question and challenge the Bank. The Bank – the Governor – after all wields huge power, not just in monetary policy but in regulatory matters, with rather little effective accountability. Banks in particular are very reluctant to openly call out the Reserve Bank – journalists have told me how difficult it is to get anyone to go on the record.

What bothers the Governor? Apparently, he thinks the Reserve Bank is damaged by criticism. It isn’t clear how or why, unless the Bank is operating in a way that leads people who read the criticism, and think about it, to conclude “yes, that’s right”. High-performing organisation shouldn’t need to worry about criticisms, And insular, low-performing organisations, need the criticism – and need to be willing to learn from it. Even more important, when it is a troubled public sector organisation, the public need the criticised body to learn from and respond constructively to criticism by lifting its game.

Perhaps even more oddly, the Governor thinks that Toplis’s commentary is “damaging the New Zealand financial market”. Who knows what he means by that? There is a competitive market in commentary. If Toplis’s criticism are wrong (on average over time) presumably that reflects badly on Toplis and the BNZ. If they right, perhaps it reflects badly on the Governor himself, but that doesn’t harm the New Zealand markets or economy. People having less faith in the Governor might, in principle, be a bad thing, but not if the criticisms are well-founded. And if they aren’t well-founded, the sort of observers who matter will go elsewhere for their commentary.

Wheeler clearly doesn’t see it that way

In his letter to Mr Healy, Mr Wheeler said it was “unacceptable” to question the Reserve Bank’s integrity while “fundamentally misrepresenting” how it sets monetary policy.

“I would also expect that the editorial quality assurance process (and any legal sign-off involved) would have identified that an accusation of negligence is inappropriate in a public document distributed by BNZ.”

Perhaps there is something in the Governor’s concern that I’m missing, but nothing in that quote above from the MPS preview questions the Bank’s integrity. It sets out some hypotheticals, and suggests the Reserve Bank would be not doing its job – “negligent” – if it didn’t do something Toplis favoured. But it did do it – there were rate hikes put into the OCR forward track. And even if the Bank has disagreed altogether – and run with a dead flat OCR track – the BNZ claim was “negligence”, it wasn’t a comment on integrity at all. When people suggest the Reserve Bank isn’t running monetary policy well, that is a judgement on their competence or their diligence (or just a disagreement about the data), but it isn’t a reflection on anyone’s integrity. It is disconcerting that the Governor doesn’t seem able to tell the difference. Nor, apparently, were the Bank’s Deputy and Assistant Governors.

The whole thing is extraordinary. I’ve never worked in a bank economics team, but I’ve never supposed that they had their daily or weekly economics commentaries signed off by in-house lawyers (or indeed by anyone much). It is chilling to have the Governor of the Reserve Bank writing to the chief executive of a major bank in effect urging such tight control. What is it, one can only wonder, that the Governor is afraid of? And isn’t this, after all, the Governor who regularly claims that the Bank is highly accountable, partly because of the scrutiny financial market participants and commentators provide?

All this would be quite bad enough if the Reserve Bank was simply a monetary policy body. Some central banks are. Such central banks influence the economy and the rate of inflation, but have little or no direct regulatory influence over private financial institutions. Access might still be valuable, but the central bank just doesn’t have that much leverage. Nor should it.

But that isn’t the model in New Zealand. Here, the Reserve Bank – the Governor personally – not only sets monetary policy, and sets prudential policy, but is also responsible for a wide range of detailed regulatory approvals that banks and financial institutions need to keep operating in this market. Mr Healy himself will have needed the Governor’s approval to take up his current position. So will all his direct reports. And approval of individuals is just the least of it. That is a huge amount of power, and all vested in one person. In this case, it appears, an extremely thin-skinned and reactive one.

Banks are typically pretty scared of the regulator – whether here or abroad – and unwilling to take them on over regulatory matters. That is bad enough. What is worse is when the Governor of the Reserve Bank openly – directly and through his deputies – attempts to coerce banks to just keep quiet, to say only stuff that the Reserve Bank likes to be said. We might expect that in Singapore, Russia, or other semi-authoritarian states. We shouldn’t tolerate it in a free and democratic society, governed by the rule of law not the whims of powerful men, like New Zealand. It would be bad enough from an elected politician – and I’m sure it goes on there to some extent (we saw recently the Alfred Ngaro comments) – but it is far far worse in an unelected, and exceptionally powerful, public servant.

As far as we can tell, the BNZ hasn’t been cowed by Wheeler’s approach. Perhaps they just think “there he goes again, and thank goodness he’ll be gone in another three months or so”. But even if they aren’t (this time), it is a chilling example that people in other organisations will take note of. Some of them will be more cautious, more risk averse, and the message will go down “be careful what you say; don’t upset the central bank”. We’ll be poorer for it. And actually, over time, the quality of our Reserve Bank would be poorer for it to, if the extent of robust scrutiny of this powerful institution was even less than it is now.

The fault here is clearly primarily with Graeme Wheeler, who reveals himself to be manifestly unfit to hold his current high office. But there are other people who need to take some responsibility:

where, for example, in all this were Grant Spencer, Geoff Bascand, and John McDermott, the deputy and assistant governors. Wheeler has tried to tell us that that group makes all the Bank’s major decisions collectively, whatever the legal position. The NBR article implies that they too were making calls to the BNZ to get pressure put on Toplis to alter his commentary. Were any of them willing to stand up to Wheeler and tell him that he appeared to have lost all sense of perspective, and that if he went ahead with these actions it would only leave him and the Bank looking worse (even before this OIA, I gather the story was pretty widely known)? If not, why not? If not, why we would we suppose that any of them was fit to hold the office of Governor – Spencer will be acting for six months, and Bascand is widely expected to be a leading contender for the permanent role? Do any of them know what is, and isn’t fit behaviour for a regulator? You would hope so given that Spencer is now Head of Financial Stability, and Bascand will assume that role in September.
where is the Bank’s Board in all this? They exist to monitor the performance of the Governor, and the chair has often seen his role as a bit of a confidential sounding board for the Governor. They were totally supine over the OCR leak last year, backing the Governor to the hilt? Will it be different this time – when the Annual Report comes out in a few months? If not, how could we possibly consider that these individuals are fit to take the lead responsibility for choosing a new Governor?
What does the Minister of Finance make of this? He appoints, and can dismiss, the Governor. I hope some journalists are willing to ask hard questions of the Minister, and not allow themselves to be fobbed off, about whether this sort of conduct is acceptable from a New Zealand public servant?
And what of the Finance and Expenditure Committee? Are they willing to call Wheeler before them to answer openly for his conduct in this matter? If not, what use are they to citizens?

I noticed that one commenter on the NBR article observed that if this is what Wheeler made of Toplis’s comments

“This is insane. Can you ask for Wheeler’s correspondence with Michael Reddell?”

There is no such correspondence. The difference is that Graeme Wheeler has no leverage over me. Stephen Toplis, by contrast, works for a bank over which the Reserve Bank has extensive regulatory clout. It shouldn’t make a difference – views are views and should stand or fall on their own merits – but in Graeme Wheeler’s Reserve Bank, sadly, it appears to. That is simply unacceptable.

He might only have three months left in office, but it is now three months too long. The words of Oliver Cromwell to the Rump Parliament – or Leo Amery to Neville Chamberlain in May 1940 – come to mind

You have sat too long for any good you have been doing lately … Depart, I say; and let us have done with you. In the name of God, go!

croaking cassandra

Economics, public policy, monetary policy, financial regulation, with a New Zealand perspective

Month: June 2017