Two of the government’s top four ministers appeared on the weekend TV current affairs shows. It wasn’t encouraging.
The Minister of Finance appeared on TVNZ’s Q&A. There was a great deal of talk about boosting wages – after several years in which real wage growth has outstripped (almost non-existent) productivity growth. But nothing about credible steps that might lift productivity growth itself. It is easy to spend money, but much harder to generate the foundations for higher incomes in the first place. And there seemed to be no recognition whatever that the real exchange rate has been increasingly out of line with the dismal productivity performance
or, not unrelatedly, that the export share of New Zealand GDP has been shrinking, not rising. And, of course, no plans, no suggestions even, as to what might be done to reverse this decline.
There was talk of the tax system having, it was claimed, underpinned a “speculative economy”, but no sense of how the Minister of Finance saw possible tax system changes producing materially different outcomes – notably around house prices – than they have in Australia, the UK, Canada, or much of the coastal US. Nothing, of course, about fixing the fundamental problem: land-use restrictions, the effects of which appear to have become increasingly binding (some nice new evidence on just that point from Australia was published last week).
There was blather about the forthcoming ‘wellbeing budgets”, built on The Treasury’s living standards framework, but no sense of how decisionmaking was going to be improved or economic (or other) outcomes improved.
There was a lot of talk about the “future of work” – one of the Minister’s favourite themes – and the potential to support workers facing displacement by the advance of technology etc, at a time when the employment rate and the participation rate are both higher than they’ve been at any time in the 30+ years history of the HLFS data.
There was enthusiastic talk about the economic benefits of immigration, but no evidence or argumentation. And for all the talk about “skills gaps” no recognition of the OECD data suggesting New Zealand workers are among the most skilled of any in the advanced world. And for all the allusions to the role of immigrants in building houses, no apparent recognition of just how few construction workers are among the immigrants, or of the new research published by the Reserve Bank of which the authors note (and which in many ways just repeats what New Zealand economists knew decades ago)
The estimates further suggest population change may be ‘hyperexpansionary’ as the residential construction demand associated with an additional person is higher than the output they produce. In these circumstances, population increases raise the demand for labour and create pressure for additional inward migration, potentially explaining why migration-fueled boom-bust cycles may occur.
And that was just the Minister of Finance.
On Saturday, the Deputy Prime Minister and Minister of Foreign Affairs had been interviewed on The Nation. When I read the news story about the interview I couldn’t quite believe what I was reading, and went back to watch the interview to see if Winston Peters was being fairly reported. He was.
It was bad enough to find New Zealand’s Minister of Foreign Affairs appearing to defend Donald Trump’s tariff policy. I can understand that it might not have been diplomatic to have openly attacked them as rushed, ill-considered, dangerous and not grounded in any decent economic analysis. In other words, stepping around the issue delicately would have been one thing. But the defence of Trump was pretty shameful – the more so in a week when the government of which he is Deputy Prime Minister was signing up to what it would have us believe was a new “free trade agreement”.
But rather than oppose the move as detrimental to free trade, Mr Peters said Mr Trump was reacting to unfair deals.
“What’s Donald Trump’s biggest complaint? It’s that countries shouting out ‘free trade for America’ don’t practise free trade themselves. In fact it’s New Zealand First’s and my complaint that the countries we deal with apply tariffs against us whilst we’re giving them total and unfettered access to our country. It’s simply not fair.”
He said Mr Trump’s move was “not Luddite, it’s not old-fashioned”.
“It happens to be an economic fact which some propagandists of the free market tenet should face up to, and describe why it’s not fair for Donald Trump to do what he’s doing.
Do the Minister of Finance, the Minister for Trade and Export Growth, and the Prime Minister agree with this sort of “trade as zero-sum” analysis and approach, that threatens to further undermine the WTO arrangements governing world trade, which have been of considerable value to New Zealand?
But our Minister of Foreign Affairs hadn’t finished. He also went on record as one of the few people left, outside the Russian government, asserting that Russia had not been attempting to meddle in the US 2016 election. Reasonable people might differ on whether there is any real evidence that such meddling made any material difference – as staunch an anti-Putin anti-Trump observer as Masha Gessen remains very sceptical. One might even take the view that it is not really any of New Zealand’s business. But for our Foreign Minister to actually be weighing in in defence of Putin should be inconceivable, inexplicable, and indefensible. Sadly, it is now only the latter two.
But even that was just the entree. The crowning outrage was the attempt by our Deputy Prime Minister and Minister of Foreign Affairs to suggest that the Russian authorities had no part in any responsibility for the downing of the Malaysian airliner over Ukraine and the deaths of 298 people. Sure, Vladimir Putin himself didn’t the fire the missile (leaders rarely do) but as David Farrar summarises it
the Dutch investigation found the Buk missile system was transported from Russia on the day of the crash, fired from a rebel controlled area and returned to Russia after it was used to shoot down MH17.
If the Minister just wanted to mount an argument that our firms can still trade with evil regimes – a point he went on to make – that would be one thing. After all, our governments have been pursuing deals with Saudi Arabia, even as it is primarily responsible for the ongoing disaster in Yemen. If he wanted to make an argument that there are bigger threats to the world than Russia – China say? – reasonable people could also debate that proposition.
But to minimise the Russian regime’s responsibility for what was an act of mass murder of innocent, otherwise uninvolved, civilians is just shameful, indeed disgraceful. It shouldn’t be allowed to pass quietly by by the Prime Minister, the rest of her Cabinet, or (say) the leaders of the Green Party on whom the government also depends. What sort of country would we be becoming if a senior minister can get away with lines like this?
It seemed to be a weekend for trivialising the really dangerous stuff by use of spurious – and insulting – comparisons. In the same interview, Peters seemed to compare Russsa’s actions in Ukraine (or the US) with Australia’s in legally deporting from Australia non-citizens convicted of committing crimes in Australia. And in another interview a few days ago Peters seemed to be attempting to draw parallels between the activities of the government of the People’s Republic of China in the Pacific (and presumably New Zealand) and those of private citizens among the Samoan and Tongan diaspora in New Zealand.
Amidst fears about outside influence from the Chinese in the Pacific, Peters is quick to note that New Zealand possesses some influencers of its own.
“One of great forces in Tongan society is the Tongan society in New Zealand, that’s where an enormous amount of remittance money is coming from, and that’s the same for Samoa.
“So when you talk about outside influences, bear in mind that we have massive outside influences on Samoa.”
If you refuse to actually confront real threats, that is one thing, but don’t insult us – or our friends, allies, and even our citizens – with such efforts at trivialising those threats, those behaviours.
croaking cassandra 
As you say, its easy for politicians to talk about higher wages, but much harder to deliver them… Robbo is coming across as quite the sloganeering numpty in these matters… I doubt he really understands how productivity ‘works’ to drive real wage growth and likely sees it as ‘over there’ as compared to an integral part of the equation.
As for WP… well he has always been an economic nationalist at heart so no surprise he is backing Trump on tariffs… its core to WPs state of being really… and he won’t understand that boosting exports is not about throwing up trade walls but about getting the real exchange rate to a point where it makes sense to be an exporter.
Sigh… there is a saying ‘you get the Government you deserve’… unhappily we have this one…
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Actually I think WP sort of gets the point about the real exchange rate, but hasn’t got (or hasn’t been willing to prioritise pursuing) what it might take to actually bring such outcomes about. I take your point about him as an economic nationalist, but – as spokesman for the govt – it would surely have been better to just step gently past the issue – noting, if you like, that other presidents have also gone down the tariffs route in the past (albeit probably in less threatening ways).
re your last para, i was certainly among those who thought the previous govt needed clearing out – as having accomplished next to nothing, and grown fat and lazy – without much hope of better from the alternative. At present, it looks on track to be even worse.
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Now lets not get too tough on the previous National government. The problem is with MMP type governments where you have to depend on the tail wagging the dog. National Party MPs take their jobs very seriously and work very hard to solve issues within the constraints that are imposed by MMP. If you can’t get decisions across the line with minority parties having their own agenda, you have to blame that minority party for that failure. Case in point would be RMA reforms with Iwi participation was a Maori Party requirement which had hamstrung the government and council.
The lack of government spending on important issues I blame entirely on the RBNZ and perhaps also on Treasury that failed the Government. The government can only act on the best advice of its experts and its experts failed them. A $50 billion QE was required targetted around the entire Christchurch community so that the government did not draw on day to day operational budgets to fund a disaster of that scale. Drawing on day to day operational budgets mean that every department is squeezed for funding.
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As a reminder, in their first term National and ACT alone had a clear majority. There were also plenty of things the govt could have done without legislation.
But I should have added to the list of reasons why I was among those keen to see them ousted, even with expecting better substantive policy: it was the arrogance, the complacency (recall John Key on Akld’s “quality problems”), the refusal to provide decent answer on almost anything, and so on. It happens to almost all government as they age, and – if they last that long – will no doubt happen to the current lot.
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I think that was just a 1 seat majority with ACT party, David Seymour in charge of wagging the dog. I am not even sure he can be considered right wing. Some of his euthanasia and idolisation of meat with women and men ramblings suggest extreme mental imbalance. No wonder John Key brought the Maori Party onside. I know Dr Sharples quite well. Very pleasant chap to deal with. Used to meet often gambling at SkyCity Casino. Of course that gambling habit was before he took up parliamentary services.
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I have been visiting my medical centre in for the last 15 years. There were initially 5 doctors in their 50s White locals own the centre and in partnership supported by 2 receptionists and 2 nurses. All of whom were white locals. Today there are 4 asian migrants and 1 white south african migrant doctors. The nurses remain white locals but rather aged in the mid 60s. In reception are 2 asian migrants.
This is where the productivity issue arises. All 5 white local doctors still own the centre and they still do show up whenever they want to show up. They are still practicing doctors in their 60s but wander in and out at their own time saying hello to patients and checking on the new doctors providing a mentoring role. Where previously there were 5 doctors in partnership, there are now 10 partners in the same centre and seeing perhaps a few more patients but the client base would not have doubled.
Older people are still working but at a much reduced pace lowering productivity and spending more time chatting rather than seeing patients or getting more jobs done which is left to the new migrant doctors. This is a planned reduction of productivity as the older generation that live longer and longer as they take a much longer period of time to transition to the new partners.
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My original doctors returned to Ireland a decade ago and were replaced by a Egyptian or Iranian doctor whois a superb GP: he has perfect English, is a great listener and I have recent learned is in his 60’s but looks like a fit 40. Wouldn’t dream of going elsewhere.
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Real wage growth may have outstripped productivity growth a bit recently according to your blog, but surely that is in the context of a massive drop in the labour income share after the 1970s where real wages did not keep with productivity growth – as I understand it – for a long time and hence we arrive at the levels of inequality we now see.
Is that not a fair re-balancing – and a necessary one if you want to avoid pitchforks and Trumpets?
Would you really like to see the labour income share fall again? Would a fall in real wages or stagnation of them again solve our productivity and export problems?
From a lay perspective I just don’t see the NZ poor and middle class feeling an real wage growth because it all goes on debt or on rent.
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There are clearly some global forces at work over multiple decades. I don’t have a particular view on whether the labour share of income should be larger than small. I’d much rather our leaders focused on the productivity gap between NZ and (say) France, Germany, Netherlands (or the US). If productivity here increased by 60% (what it would take to close the gap), almost everyone here would be better off (than just redistributing the current cake).
Of course, it is never all of one and none of the other. But the change in the labour share here has been less (of a drop) than in many other advanced countries in the last couple of decades, so I’d prefer to focus energy on productivity growth (and fixing the urban land market, in a way that might actually make housing seriously affordable again, for this and the next generation). As a parent of three who will all be on the accommodation market in the next decade the latter issue is very salient for me.
(on which note, I’d commend Rodney Dickens’ piece on housing – and the worrying signs re the new govt’s policies (or lack of them) https://www.interest.co.nz/opinion/92556/rodney-dickens-says-section-prices-are-key-solving-housing-affordability-problem-not
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Dickens says that, “There have been suggestions Labour should or may make it easier for people to build small dwellings on existing properties like granny flats and petition existing dwellings to make them multifamily dwellings.”
That option is already available under the Unitary Plan as Minor dwellings or as 2nd dwelling within an existing dwelling. There is however a 6 metre outlook restriction that may limit what can be done, all part of preserving the lifestye living space by limiting what can be done. So really nothing to do with Labour, but that 6 metre restrictions was put in by the Independent Hearings Committee I guess as a compromise with Auckland 2040 groupie objections to too much density.
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Rodney Dickens has not said much other than land section prices need to come down. With 160skm of National parks, 57 sacred volcanoes and extensive Viewshafts covering 40 million sqm of land. I sincerely doubt Labour is going to get land section prices down. I think it is about time we forget this nonsense that Auckland has a lot of land availability and start to look at Singapore as a land locked city as a close comparative with Auckland, an artificial land locked city. Rather silly to keep coming up with cities like Houston as a model city for Auckland. About time for NZ economists to face reality and face facts rather than sprout a lot of fiction with a lot of copy paste innuendo.
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For Auckland we should try a Netherlands style dyke just inside the Manukau Heads (enough room for a new deep water port) and we would immediately double land available to build on.
Fanciful?
Maybe not.
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I just watched a very interesting talk by Lord Adair Turner on automation, productivity and the Solow Paradox.
What I found interesting is how he in part argues that the benefits of the productivity gains of automation are being captured by a select few and their consumption choices may mean that productivity overall is curtailed. So we get the strange paradox of a high tech world in which a wealthy elite in London get their pizza delivered by the Deliveroo driver on a bicycle with a box on his or her back. London becomes more like India.
Very interesting.
He also raises the issue of whether current GDP measure capture productivity growth accurately.
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I think among many politicians, academics and policy analysts there is a belief that immigration is good for everyone. Any evidence to the contrary is immediately dismissed or fought over (such as the data from the Mariel boatlift). By and large both National and Labour politicians subscribe to the same ‘group think’ on most matters. Labour isn’t too different from National except they might dish out a bit more largesse in certain areas (such as the free year of tertiary education), whereas National prefers tax cuts. I’m not optimistic that they are going to solve any problems such as housing, transport, productivity etc.
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Our politicians, academics, policy analysts and most journalists are middle class fatheads. It is so simple: immigrants take jobs at a slightly lower wage.
That is how I came to NZ as an experienced computer programmer; my Kiwi boss was happy to employ me because I was willing to take a lower wage than any Kiwi. I was a POM on a good wage but for my own reasons happy to earn less in NZ. The effect being a slight reduction in IT wages in NZ with benefit for myself and the NZ economy and the only negative being a few well paid Kiwi programmers indirectly having their high wages slightly reduced at the next wage round.
Now my two children, both NZ citizens are looking for work but have no degree or special qualifications. How does a slightly lower wage look if you are at the bottom of the employment wage pyramid? Unemployment, minimal on the job training and third world wages.
So let’s restrict immigration to only politicians, academics, policy analysts and journalists – is doesn’t bother me if they all are replaced by immigrants from the poorest country they can find.
BTW I agree with your conclusion.
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They are very short of groomers and cleaners. I understand from the migrant workers doing this job, they can earn $50k to $60k a year. They are paid $350 a day for a sleepovers if required. Usually you are assigned hourly work and you can turn up late and get paid for the full hour. You can finish early and also get paid for the full hour. The client is happy that you even bother to show up after sitting in poop for a few hours. You can have a choice of which clients you service and can reject those you do not want. Sundays are especially short staffed due to church services. 7th adventist church days are saturdays and other christians on sundays. If you are prepared to work on those days you could have 10 hour paid days.
I overheard a groomer complaining to the scheduling centre that there is an automated lifting equipment in the property and she does not work for clients with lifting equipment because she was not technically savvy and have not been trained on how to use one. So if pushing a button and attaching a harness is too hard then no worries, your kids have a wonderful future in NZ.
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Correction: $350 per night for the sleepover. This payment is above and on top of your normal day pay.
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Trump’s tariff policy is “dangerous”? How so – because of escalation? But aren’t there already an abundance of tariffs around the world? For example, why should the EU charge 25% tax on the importation of US cars?
And why shouldn’t the US protect a strategic industry against economic warfare by a country whose intentions are quite possibly hostile. If tariffs and industry protection are economically so bad, China doesn’t seem to have got the message. In fact it seems to have prospered by operating a nationalist mercantile trade policy for decades. Should we really surrender up our strategic industries for some short term gain (say cheap steel) without being mindful of the long game being played by China?
There is something disingenuous about countries that protect their own industries wailing about the US. tarriffs. The EU imposed steep import duties on dumped Chinese steel in 2016, Unless I’m missing some critical point, I don’t remember an outcry over this or on earlier tariffs by the US on dumped Chinese steel. https://www.theguardian.com/business/2016/oct/07/european-union-import-duties-chinese-steel-port-talbot-tata. I notice Canada, which will be exempt from the US tariff anyway wants to work with the US to protect its steel industry, since it is also threatened by dumped Chinese steel. https://globalnews.ca/news/4077354/steel-tariffs-justin-trudeau-donald-trump/
My take is that the US isn’t looking to start a trade war but is really looking for fair treatment or reciprocity on its trade dealings, and this is one way the Trump administration is signalling this.
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These tariffs aren’t being imposed under the WTO anti-dumping rules (which are justiciable before WTO panels) but under vague “national security” provisions which, as I understand it, aren’t. The earlier Bush and Clinton tariffs (which I’m also not defending) were done on anti-dumping grounds, and the US lost those cases at the WTO.
Yes, there are far too many tariffs (and NTBs) in the world, and we still have some ourselves, but tariffs typically fall most heavily on people in the country imposing them (thus China remains far poorer than the more open of the east Asian economies – Korea, Taiwan, Japan. Singapore).
I’m sure Trump’s intent isn’t to start a trade war. Probably the Congress in 1930 didn’t have that intent either.
btw, I don’t buy the argument that tariffs will themselves lead to a recession. In the short-run they are modestly expansionary for the country imposing them, offset by the effects of any retaliation. There are efficiency costs, but recessions require other triggers (as in the 1930s protectionism was more response than cause of the Depression).
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Trump stopped a multi billion dollar sale of a US advanced semi conductor manufacturer to Singapore buyers stating National security. That is a smart move. You do not want your IP bought by another country and compete with your very own manufacturing and development base. Our government did not even concern itself that a NZ space rocket technology IP was sold cheap as chips to US buyers or that the Xero internet cloud based IP has now moved to overseas owners.
We do not get a equivalent Samsung without investing in our own budding technologies of the future. Harping about why we are just mere primary producers, isolated and good for nothing else is just plain nonsense. We simply do not invest in our own high tech companies. We are more prepared to invest billions in roads and rail to allow tourists and milk to move around rather than into our high tech industries. Samsung is a heavily subsidised company by the Korean government in the start up and they continue to subsidise today.
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“but tariffs typically fall most heavily on people in the country imposing them (thus China remains far poorer than the more open of the east Asian economies – Korea, Taiwan, Japan. Singapore).”
Say this is actually right. Then why should China behave this way? I don’t believe China is particularly altruistic. It is not going to hurt its own people or subsidise exports to foreign consumers unless there is a very good reason. I realise your view on tariffs is orthodox, but if the economic paradigm isn’t wide enough to encompass situations where (say) Chinese companies, subsidised by the state, are dumping cheap product on the international market as a way of degrade local (say) US industries and increase their own market dominance or power, then the economic analysis of the short term would seem to be somewhat beside the point. It if it is incapable of factoring in longer term strategic threats the short term benefit to consumers would seem to be irrelevant.
The assertion that China is far poorer than other smaller Asian states because of state protections seems quite a leap. Apart from the fact that these smaller countries do protect their industries, as pointed out by GGS, China is a vastly larger country than those you mentioned and to have lifted the GDP per capita of its people the amount it has in this amount of time is still impressive. Probably it is still being held down by the large rural areas of China where modernisation has yet to bring much benefit. If you measured the GDP per capita of a subset of China, say the east and south, I suspect you would get a different picture. My point in all this is really to question whether the highly protectionist policies of the Chinese state have really harmed their wealth creation. Clearly their policies have hurt the West, with forced intellectual property transfer, limited access to Chinese markets and so on, while some industrial regions in the US have never fully recovered from having their manufacturing base sent to China. But to believe the Chinese have stunted their own economy through protectionism, well what is the evidence of this?
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Interesting question (your final paragraph). My comment – that you reacted to – is clearly too compressed. It certainly isn’t only foreign trade barriers that keep China poorer than the West, or than Taiwan/korea/Singapore/Japan, but rather – most likely – the whole panoply of controls, weakness (or absence) of the rule of law, the stuff that means China’s economy doesn’t resemble those of economically successful countries.
I don’t really buy the line that just because China is very big the job of raising living standards is harder. On the one hand, countries from Singapore (similar popn to NZ) thru Taiwan, Korea, to Japan – second most populous advanced country – have all managed. And on the other, a huge domestic market can be quite a headstart, in a world of external trade barriers etc. Across the OECD there is no sign that size of country has been either an advantage or disadvantage (see, say, US vs Belgium).
I’m also not really persuaded that China’s approach has hurt the West (net). From a narrow economic perspective I’d expect the West would be even better off if China had generated the ideas, products, firms etc that had lifted them to first world living standards. Of course, some sectors/industries in the West would have been harmed – as, say, the catch-up of the rest of Europe to the UK following the Industrial Revolution adversely affected some British firms/individuals, but didn’t make Britain as a whole poorer.
Do governments adopt policies that harm their own people? Sure. Ours did, with import controls from 1938 for decades. There are huge literatures on why – agency issues (very real in China, with no effective public accountability, misunderstanding or false myths or whatever.
To your specific question, can I cite a specific paper on the economic costs to Chinese people of Chinese protectionism? No, I can’t. But I’d be surprised if basic economics didn’t hold in China as much as elsewhere.
Of course, none of this has touched on non-economic motives. I doubt bans on Google, Facebook etc, or increasing efforts to shut down VPNs, is primarily about trade protection for economic motives; they seem much more about the Chinese govt’s attempts to ensure continued control over their own populace, and arguably perhaps some national security motives.
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