Day: March 14, 2019

Almost unbelievable

Michael Reddell China, NZ politics

I was about to settle in for the rest of the afternoon writing a review article of an interesting (but obscure) book on aspects of US monetary policy, when a reader sent me a link to an astonishing article from the New Zealand Police website.   In it we read

As he prepares to bring down the curtain on eight years as our man in Beijing, Assistant Commissioner Hamish McCardle has received a rare honour from his hosts.

He has been appointed Visiting Professor at the People’s Public Security University of China – the first foreigner to hold such a role.

The university is where China’s Ministry of Public Security (MPS) trains the elite of China’s police. …..

The university and the Royal New Zealand Police College have had a bilateral training relationship since 2016. ……

He says the university appointment is an endorsement of the healthy state of the New Zealand-China bilateral relationship, and “underscores the idea that New Zealand has values and ideas worth considering in the Chinese context”.

It also aligns with the aims and values of the New Zealand-China Friendship Society and the pioneering work of New Zealander Rewi Alley who fostered a life-long friendship with China from the 1930s.

I don’t have any particular problem with Police having a person in our embassy in Beijing.  The day job had “a focus on disrupting the flow of drugs and precursors to New Zealand”.  That sounds fine.

But in accepting this “honour”, have the Police, MFAT, and their political masters lost sight completely any sort of moral compass?

The People’s Republic of China is a country where the Chief Justice himself proclaims that the rule of law is not something for China.  The Party rules.   It is a country where the Ministry for Public Security plays a key role in imprisioning a million or more people in Xinjiang.  I’m sure they do basic policing work as well –  Chinese have road accidents, and break-ins just as we do –  but this is the New Zealand government actively participating –  on a ongoing basis – in making the repressive apparatus of the PRC state better and more effective at doing its job.  A big part of that job is an instrument of systematic repression –  political, religious, or whatever.    Political loyalty –  to the CCP – is, not surprisingly, a key element in recruitment, and presumably even more so at those studying to be “the elite of China’s police”.

And what about that weird stuff in the final paragraph of the quoted excerpt?  The New Zealand-China Friendship Society has been around for decades and long-served as a Beijing front organisation in New Zealand, right through the horrors of the Great Leap Forward, the Cultural Revolution, and on to their total silence today about repression in Xinjiang.    And Rewi Alley?   Well, he lived a fairly comfortable life in Beijing after the CCP took over, navigating this way through the thickets of changing CCP politics, reaching new lows when he published a jointly-authored book near the end of the Cultural Revolution defending the regime at its worst.  What possesses our Police to think these are “aims and values” to champion?   Why not, for example, the aims and values of the Tiananmen protestors, the Falun Gong movement, or the (underground) Catholic church?  But that wouldn’t fit the narrative I guess, of prostrating the New Zealand system before Beijing.

Presumably Mr McCardle is a perfectly decent chap, and probably won’t think of trying to import PRC methods to New Zealand policing on his return?  But did he not in the seven years he has been lecturing at this university already,  or does he not now, feel any qualms of conscience at all about abetting evil?  Because that is a big part of what the Ministry of Public Security, elite and otherwise, actually does.

And what of our subservient and deferential politicians?   Does the Minister of Foreign Affairs really feel comfortable with this “honour”?  ( I assume his officials at MFAT think it is just wonderful).  What about the Minister of Police?  Or the Prime Minister?

Or Simon Bridges or Todd McClay?  Or do all our MPs just think it is totally fine –  quite an honour in fact –  for the New Zealand government to be helping the PRC better repress its citizens, better repress freedom, free expression, free worship, free assembly or whatever?

It is a small thing in a way.  But a succession of individually small things build up to a narrative of a government system –  from the top down –  more interested in getting along, and supporting, this evil regime doing its work –  mercenaries, in effect, for trade deals and political donations –  than in representing the interests, values, and traditions of New Zealanders.   For Mike Bush and the New Zealand Police it seems that the values of the China Friendship Society and Rewi Alley count for more.

That’s shameful.

Has monetary policy run its course?

Michael Reddell Fiscal policy, Monetary policy, zero lower bound

In one of the world’s most prominent economics platforms, the economics columnist for the Financial Times, Martin Wolf uses this week’s column for a piece headed “Monetary policy has run its course”, with a subheading “It has made secular stagnation worse.  Fiscal alternatives look a safer bet.”.    That headline was guaranteed to get my attention, disagreeing as I do with all three limbs of the apparent argument.

Wolf draws on various other papers, but doesn’t really make his case in a compelling way.  Take secular stagnation first.  There are various definitions: Wolf uses one of “chronically weak demand relative to potential output”, while the FT’s own lexicon uses a materially diferent version

Secular stagnation is a condition of negligible or no economic growth in a market-based economy.

On the former definition, most of the OECD is estimated to be back somewhere near a zero output gap, and the unemployment rate now in several major economies (but not New Zealand) is lower than it was going into the last recession (and there is a striking fact that the worst performers are all in the euro common currency, a system Wolf tends to be keen on).  That has happened without big new surges in overall ratios of private debt to GDP.

On the latter definition, even in countries with high starting levels of productivity, productivity growth has slowed but not stopped.  Per capita GDP across the OECD is now about 10 per cent higher in real terms than it was in 2007.  Not stellar, but it means that 10 per cent of all the output growth managed in the last several hundred years (since the Industrial Revolution) has been in the last decade alone.

I think there are credible stories under which monetary policy wasn’t used sufficiently aggressively in, and following, the last recession –  partly because both markets and central banks misjudged things and expected a strong rebound, so were always looking towards the first (or subsequent) tightenings.  But is very difficult to construct a story, in which monetary policy has made any material (adverse) difference to population growth, productivity growth, actual innovation opportunities or the like.    And even if, for argument’s sake, there was some effect in the frontier economies, most OECD economies (including large ones like the UK, Japan, Italy, Spain, Canada, South Korea) are nowhere near the frontier.

Having said that, there is little doubt that neutral real interest rates have fallen away very substantially over the last 15 years or more.  They are now at levels that are pretty much without historical precedent.  This is the first chart in the article.

ft chart

That means there are issues.  There is an effective lower bound, at present, on short-term nominal interest rates.  No one knows precisely where that bound is, but there is a degree of consensus that taking your policy interest rate much below -0.75 per cent will lead to fairly large scale conversion of deposit balances into physical cash (not, primarily, transactions balances –  where the inconvenience would dominate – but large wholesale balances).  The limit now exists wholly and solely because (a) governments monopolise physical currency issue, and (b) pay zero interest on physical currency.  Zero might not be much, but for a multi-million dollar fund, it is a lot more than -3 per cent (for the same credit risk).

Quite a few countries (including the euro area) are at or very near that floor already.  Other countries, including New Zealand, Australia, and the United States are not.   But even in those countries, a severe recession in the next few years would be likely to exhaust conventional monetary policy capacity (our Reserve Bank could cut by perhaps 2.5 percentage points, but it has often needed to cut by more than 5 percentage points in previous downturns).

Wolf isn’t apparently keen on doing anything about that, observing that a need for materially negative nominal official interest rates

would, to put in mildly, create a wasps’ nest of technical, financial and political problems.

Not nearly as many problems as doing nothing, and allowing persistently high unemployment for multiple years might create.

There are two broad options for creating more monetary policy space.   The first is to raise the inflation target (and reading a central banking magazine yesterday I noticed that a Swedish Deputy Governor is calling for exactly that), and the second –  and more reliable –  is to remove, or markedly ease, that near-zero effective lower bound.   No government or central bank has done so (and there are not overly complex ways of doing so), and that passivity –  apparently endorsed by Wolf – is increasing the risk of problems when the next serious downturn gets underway.  If interest rates can’t, for now, be cut far, people will quickly recognise that, not expect it, and adjust their behaviour, and asset holdings, accordingly.

Is there reason for unease about some of these options?  Perhaps.  If we were to allow short-term interest rates to go materially negative, no one knows how far they might eventually go.  There are good theoretical reasons to think not too far (human innovation hasn’t died, there are naturally productive (positive returns) assets (land or fruit trees) but no one knows with certainty.  Would it matter if interest rates went, and stayed, materially negative?  I’m not convinced it would, allow it would certainly be a symptom of something odd.   But such philosophising shouldn’t get in the way of actively preparing to handle the next serious downturn.  Neither central banks nor governments seem to be doing what they could on that score (and although the issue is a bit less immediately pressing in New Zealand, it is true here too).

Which brings me to the third limb of Wolf’s argument: “Fiscal alternatives look a safer bet”.   “We need more policy instruments he argues”.  In many respects, the rest of the article is a teaser for a conclusion around more aggressive use of fiscal policy.   (“More aggressive? perhaps Antipodean readers wonder, but as a chart in the article illustrates OECD net government debt as a share of GDP has trended quite strongly upwards in the last fifty years as, generally, has government spending.).  He asserts boldly:

If the private sector does not wish to invest, the government should decide to do so.

And yet who is “the government”, except a collective representation of the voters, themselves “the private sector” in one form or another.  There is no sense of trying to understand why the private sector might not choose to invest more heavily and then, if those things are in the gift of governments (tax, regulation, policy uncertainty or whatever), fix them.

And nothing at all on the near-certain “political problems” and constraints around the large scale and persistent (for it is something structural he is championing, not just a short-term cyclical response) aggressive use of fiscal policy, whether for consumption or investment.  Monetary policy has its problems, but if central bankers and politicians got on and fixed some of the regulatory (lower bound) obstacles, it would be a much more reliable tool to deploy.   At worse, even left-wingers (such as Wolf, and the Democratic economists he cites –  Laurence Summers, Olivier Blanchard, and Jason Furman) should want to have monetary instruments to hand, rather than some all-or-nothing wager on fiscal policy, when there is no political consensus at all (anywhere) on using fiscal policy in the ambitious way they suggest.

Wolf is right that central banks can’t deal with structural secular stagnation –  although they can do the important job of leaning against serious cyclical downturns, as they did in 2008/09. But even on the most optimistic of readings, it seems unlikely that aggregate fiscal policy is going to be able to either, whether for technical or political reasons.  And so-called secular stagnation should simply not be regarded as an acceptable excuse for poor productivity growth and weak investment in countries that are far from the productivity frontier, New Zealand pre-eminent (for how far it has drifted behind) among them.

Kudos

Michael Reddell China, NZ politics

I’ve been quite critical of the New Zealand China Council, which uses taxpayer money to champion an emollient, in effect subservient, relationship with the People’s Republic of China.  Doing so, of course, serves the business interests of the other corporate and academic members of the Council.   Whatever the intent, I’ve argued that their approach serves the interests of the PRC, one of the most awful regimes on the planet.

As part of that I’ve noted that it has been hard to find any examples of a case where the China Council has ever said anything critical of the PRC.  They will benignly note, in principle, that our systems differ, our interests differ, but will never articulate specific areas where they are critical of the PRC stance on anything, whether directly affecting New Zealand or otherwise.

And so it is only fair for me to draw attention to a welcome, if somewhat surprising, exception.

A couple of days ago a group of US foreign policy experts issued a joint statement calling for the immediate release by the PRC of Michael Kovrig.

You may recall that Kovrig is the Canadian former diplomat who was detained in China just before Christmas, apparently as “retaliation” over the detention and extradition proceeedings against the Huawei CFO in Canada.  No charges have been laid, and Kovrig is being held without access to a lawyer and with little consular access either.    It looks a lot like a state-sponsored abduction, presumably intended both to intimidate foreigners more generally, and perhaps as some sort of “bargaining chip”.

Late yesterday, I noticed that that tweet (above) had been retweeted by Stephen Jacobi, the Executive Director of the New Zealand China Council, with this comment added.

jacobi

Not only does he associate himself with the call by the US foreign policy experts, but he goes further, adding an unequivocal call also for the release of Michael Spavor, the second abducted Canadian.

Sure, this message isn’t being sent out on the China Council’s own Twitter account, but when you are the chief executive of a body, writing about areas closely related to your employer’s interests, no one is going perceive very much difference.   The Executive Director of the China Council, their high profile public spokesman, has made a public statement that can only be read as unequivocally critical of actions of the PRC.   There might be some price to pay –  perhaps a certain barely-detectible frostiness when next he encounters the PRC Consul-General? – but he did it anyway.

For a picture of what sort of detention Kovrig and Spavor are undergoing, you might want to read this article from someone who was subjected to the same treatment:

The law in China allows for these disappearances. Yes, as reported, Michael’s whereabouts are being kept secret. Yes, he will not be given access to a lawyer. But more so, even China’s prosecutor, who is supposed to monitor these secret detentions, will be denied the right to visit him. In a database that the NGO Safeguard Defenders keep, for which I’m the director, we have never come across a single case where the prosecutor has visited, even though it’s prescribed in law that they should.

Mr. Kovrig, and Mr. Spavor, and future American and European victims can, without any court order, be kept incommunicado, in solitary confinement, for six months. Actually, solitary confinement is only half true – he will have two guards sitting inside his cell 24/7, working in six-hour shifts. These guards, most of whom are civilian-dressed trainees for the Ministry of State Security, will not be allowed to speak to him, but will take notes on his every single movement. They will also stare him down as he uses the toilet, or when he is (rarely) allowed to shower.

Numerous foreign governments (including all our Five Eyes partners) have weighed in in support of Canada and the detained Canadians.  But not New Zealand.

I wrote about the contemptible silence of our government a couple of months ago

Jacinda Ardern and Winston Peters head the New Zealand roll of shame on this issue, since they are the most senior figures in the current government.   But the shame isn’t just theirs.  There is no sign of anything from Simon Bridges, Paula Bennett (perhaps both rather keen on those donations Yikun Zhang was arranging?), or Todd (“vocational training centres in Xinjiang) McClay.   Nothing from the Green Party or ACT leaders.   Nothing from the Minister of Justice (rule of law and all that). And of course nothing from our PRC-born and educated MPs.  In a decent society, they’d be at the forefront of condemning the abuses in the land of their birth.  In our society, it seems to be just fine that they keep very very quiet –  a silence that suits Beijing –  and help ensure that the donations keep flowing.  Perhaps a journalist might consider asking Raymond Huo his opinion on the abduction of the Canadians.  He was, after all, formerly a lawyer with a leading local law firm, and now he chairs the Justice select committee in Parliament.  You’d hope the rule of law meant a lot to him.  But, like his bosses, deferrring to Beijing, and never ever upsetting the murderous rogue state, appears to matter more than the rule of law, or standing by our friends and allies when they (almost inadvertently in Canada’s case) incur the wrath of a tyrant.

By their utter silence, on this as on so many other PRC issues, our MPs and ministers dishonour this country and its people.   Cowering in a corner, deferring to Beijing, is simply unbecoming people who purport to lead a free and independent country.

But credit where it is due.  Well done Stephen Jacobi.  On this, an example to others.