Another of the Governor’s whims

I was chatting to someone yesterday about what was behind the undisciplined, highly political, way in which Reserve Bank Governor Adrian Orr has taken to the job.  My interlocutor reckoned Orr might have his eye on a high place on Labour’s 2023 list (“doing a Brash”).  I was a bit sceptical –  he’d be about 60 and Jacinda Ardern about 43 –  but then I guess this is the era where a youngish (only 72) Trump could be facing off against either Bernie Sanders (77) or Joe Biden (76).   I still doubt Orr has a conscious personal party political goal in mind –  and if he did, it would be highly inappropriate for him to be serving as Governor –  and suspect it is mostly about revelling in being a big fish in a small pond, the opportunity to strut his personal ideological commitments using a statutorily provided (and funded) bully-pulpit to do so.    By comparison, the basics of the day job must seem rather technocratic and dull –  hence, no doubt, why we’ve had no public speeches about either monetary policy or financial regulation.   Anyone seen any sign of developed Reserve Bank senior management thinking about, for example, handling the next serious recession –  starting from an OCR of 1.75 per cent or less?  Thought not.   Or, for that matter, robust and honest articulations of the case for much-increased minimum bank capital ratios.

Instead we hear him on all sorts of stuff that is no part of the responsibility of the Reserve Bank.  There is infrastructure, thinking long-term (in the Governor’s view he apparently does, but we don’t, think long-term enough), and lots and lots on climate change, all entirely predictably left-wing (not even interestingly left wing) in nature.  Oh, and of course there is the tree god nonsense.   There are only so many hours in the day, so time spent on this stuff – and time spent getting his staff to do it –  is time not spent on core business.  And this from an institution that claims to be underfunded.

Early last month, I wrote a post, Other People’s Money,  prompted by a newspaper advertisement from the Bank for a “Cultural Capability Adviser Maori”.   I noted then

So what is he up to with his “Te Ao Maori strategy…designed to build a bankwide understanding of the Maori economy”?  Given his statutory responsibilities –  and those in charge of public agencies are supposed to operate constrained by statute – what makes the so-called “Maori economy” any different than the “European New Zealander economy”, the “Asian economy”, the “British immigrant economy”, the “Pacific economy” and so on, for Reserve Bank purposes and policy?

The Bank’s claim is that this new understanding will “enable improved decision making…about monetary policy and financial soundness and efficiency”.   Yeah right.

I lodged an Official Information Act request for material relating to the decision to create this position, including “any material covering the estimated costs and benefits of such a position”.

It took them a while –  more than 20 working days –  to respond but I eventually received 25 pages of material.    There was, of course (this is the Reserve Bank after all), no cost-benefit analysis, and more remarkably there was no mention (explicit or implicit) of any opportunity cost of the resources devoted to the Governor’s latest whim.  It is as if the Bank thought it had more or less unlimited resources and no clear need to prioritise –  I guess that is what using other people’s money, in an institution with very weak external budgetary controls can come to.

The direct financial costs were outlined –  almost a million dollars over three years, and a couple of hundred thousand a year thereafter (about as expensive as slushy machines for prison officers, and at least someone gets some benefit from those).  A million here and a million there and pretty soon you are talking serious money.

And all this for an organisation that, of all those in the entire public sector, must have the least compelling need for a Maori strategy (for this cultural capability adviser is only one bit of the wider strategy).   As a reminder, these are the key Reserve Bank functions

  • the Bank issues bank notes and coins.  That involves purchasing them from overseas producers, and selling them to (repurchasing them from) the head offices of retail banks;
  • it sets monetary policy.  There is one policy interest rate, one New Zealand dollar, affecting economic activity (in the short-term) and prices without distinction by race, religion, or culture.  Making monetary policy happen, at a technical level, involves setting an interest rate on accounts banks hold with the Reserve Bank, and a rate at which the Reserve Bank will lend (secured) to much the same group.  The target – the inflation target, conditioned on employment (a single target for all New Zealand) – is set for them by the Minister of Finance.
  • and it regulates/supervises banks, non-bank deposit-takers, and insurance companies, under various bits of legislation that don’t differentiate by race, religion or culture.

The Bank has chosen to put some decorative Maori motifs on the bank notes it issues, but that is about the limit of it.

Sure, there is a handful of other functions.  They can intervene in the foreign exchange market (one dollar for all), and they operate a wholesale payments system (NZClear), but it doesn’t  alter the picture.  There is just no specific or distinctive European, Maori, Pacific, Chinese, Indian or whatever dimension to what the Bank does (or what Parliament charged it with doing).  I looked up the list of institutions which are members of NZClear, and (unsurprisingly) there was not a single specifically Maori one  (Swiss, German, Indian, American, British, Tongan, Fijian, Sri Lankan  –  those last three other central banks –  and so on).

The Reserve Bank is essentially a “wholesale” institution.  The actions the Bank takes affect all of us to some degree or other, and so they need to open and accountable in communicating what they are doing, but it just isn’t the sort of agency that has a direct client base (or clients with culturally specific issues relevant to its statutory responsibilities) where race, culture, ethnicity, or whatever is an important consideration.  And so the million dollars –  and all the uncosted staff time –  is just money down the drain, advancing the Governor’s personal ideological and social whims, not the statutory responsibilities of the Bank.

There is a great deal of unsupported nonsense in the document.  But it starts here

TAM 1

And here is one of the key sets of deliverables

TAM 2

Which is, itself, a grab-bag of unsupported stuff.   “More assured forecasts” would, of course, be great, but from an institution whose inflation forecasts have been wrong (one-sided bias) for eight or nine years now, doing the core job more accurately seems rather more important.  The documents never suggest how their better understanding of “the Maori economy” will improve the forecasts –  as distinct perhaps from making the Governor feel better about them.

Notice too that reference to “the Maori economy”: not only is $50 billion rather less than one-sixth of GDP, but the $50 billion they are talking about is a collection of assets (a tiny portion of total assets of New Zealanders), and GDP is a collection of income flows.   Since Maori are a significant chunk of the population, I’m sure they do make up quite a share of the economy, but most assets owned by Maori people aren’t included in that headline-grabbing number (any more than my house is in some “European New Zealander economy”).

There is a similar degree of vacuousness about the references to the financial system.  It all the feel of someone making stuff up to backfill another of the Governor’s whims.

What of some other stuff. Among the responsibilities of the cultural capability adviser this was listed first

Lead development and implement an institutional language plan for the Reserve
Bank of New Zealand

You do rather get the sense, reading through the documents, that Reserve Bank staff will be under pressure to learn Maori whether they want to or not.  Again, perhaps there might be merit in that if the Bank were a customer-facing body dealing with (say) troubled families in the Ureweras, but this is the (wholesale) central bank.

I don’t suppose anyone (perhaps other than the Governor, and probably not even him –  he’s smarter than that) really believes the nonsense front line rhetoric about better policy.   It all seems much more about these “deliverables”

TAM 3

In other words, how “woke” can we be?

It is all pretty incoherent.  For a start, there is that reference to the ‘growing multicultural nature of New Zealand”, and yet this is an explicit Maori strategy, with no hint of comparable ones for Chinese cultures, Indian cultures, South African cultures, Filipino cultures, Samoan cultures…..let alone, Muslim, Christian or atheist cultures.     Another $1m for each perhaps? I thought not (and nor should there be).

Perhaps all this stuff will go down well among some in the Labour Maori caucus, in the further reaches of the Green caucus, and among some of those the Governor will be distributing largesse among.  Perhaps Guyon Espiner will be a bit softer next time he interviews the Governor.  But I find it harder to believe that this sort of strategy is going to, in any way, enhance the Bank’s standing in middle New Zealand.  And nor should it.   As for staff, I suspect there will be a selection process at work (perhaps a bit like the Treasury) – capable people who care more about serious analysis and policy (actually doing the Bank’s statutory job) will select out (or not be hired) and the place will increasingly be filled with cheerleaders for the Governor’s political and social agendas.

I don’t usually like to scoff at overseas travel budgets – there is often real value in building connections and relationships –  but I had to in this set of documents.  $40000 for international travel for a Maori strategy, when Maori culture has no substantial home but New Zealand, seeemed, shall we say, not exactly an abstemious use of public money.

Here is a graphic for the Governor’s Maori strategy

TAM 4.png

The writing is a bit hard to read, but it is just full of earnest trendy, rather unsubstantiated, feel-good stuff.  Unconscious bias holds back the Bank’s policy outputs we are told.  It would be fascinating to see the evidence base for that, including (for example) why it was an issue around Maori dimensions of the economy/financial system and not, say, Chinese, Indian or Fililpino bits.   Fortunately, monetary and banking policy operate  indiscrimately (in the good sense of that terms) –  there is, for example, precisely nothing the Bank can do that will affect long-term unemployment at all, let alone differentially affect that of Maori.  It is all a political front, using your money.   But –  bottom right corner –  no doubt the Governor and has staff will be self-actualising in a humanistic way.

(Oh, and recall that that island –  pictured in the top right hand corner –  isn’t even New Zealand, but Bora Bora –  the Maori strategy moving the Bank towards French Polynesia!)

I could go on, but I’ll leave it to anyone interested to plough through the verbiage (“we will actively seek to operate within the virtuous circle of sustainable economic development”, or references to “Cultural Security” – did this get lost from an MCH document?) and the rather non-questions (“Do Maori use cash differently to other people groups?” –  perhaps Catholics, atheists, Freemasons. Green Party supporters, or lefthanders do as well, but why would we want to spend scarce public money to find out?).

One of the points former Bank of England Deputy Governor Paul Tucker made in his book, Unelected Power, that I wrote about quite a bit last year, is that when central bankers start pursuing issues that range well beyond their narrow areas of specific responsibility, they run a real risk of undermining the willingness of the wider community to let them (fallible individuals, with limited accountability) exercise the discretionary power in their core responsibilities.  Sometimes people will agree with the errant central bankers on individual issues –  I often agreed with the substance of what Don Brash was saying when he strayed off-reservation, even as I thought he was very unwise to do so –  but over time it leaves a growing proportion of the population uneasy about overmighty public officials using platforms and money provided by all of us to pursue personal whims, personal social and political agendas.      If we can’t have a central bank that (a) sticks to its knitting, and (b) does that knitting excellently, we might as well just hand all the powers back to the politicians.  We elected them and can kick them out again.  We just have to put up with the Governor pursuing his whims at our expense, with very few effective constraints.

 

16 thoughts on “Another of the Governor’s whims

    • On that specific point I suspect it was slipshod staffwork rather than an actual attempt to deceive (it was an internal document after all), but it seems indicative of a willingness to suspend usual stds of rigour when it comes to this sort of stuff.

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      • If you want equity and Maori earned 20% of GDP the RB would need to look at policies to reduce their wealth – since Maori are only 15% of the population. So I don’t know if the slack staffer is doing Maori any favours by boosting the numbers.

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      • Yes its slack research/writing alright – it says 11.9% of the unemployed are Maori – which given that they are 15% of the population is a very good result. No work to do!

        Also oddly says the combined Maori and Pasiika are a “‘dominant portion of the future working-age population” Dominant?? – really.

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  1. Trying desperately to find something to disagree with.

    You imply climate change is predictably left-wing but the first serious leader to take it seriously was Margaret Thatcher so Jacinda is only following in her footsteps. Given the authority of the experts explaining the risks of climate change it is only sensible for our govt to have a policy. That is where the left and right wing should be disagreeing and I rather like Mr Shaw’s rather quiet approach to developing a concensus – in the short term NZ has more to fear from flip-flops of policy than they have from climate change itself.

    If NZ finds itself in a deep recession then it is conceivable that an appreciation of the principles of Islamic finance may be useful – we may want to get money from Arab states. Otherwise I agree with you that it is best for our institutions to avoid any apparent preference of one culture over another. This is something they could learn from Chinese leaders some of whom are fluent speakers of English but who steadfastly insist on speaking their own language and using translators in any formal situation.

    Odd isn’t it that both Brash and Orr have a thing about Maoridom. Our next Reserve Bank Governor might be a Maori and employ a “Cultural Capability Adviser Pakeha”.

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    • the left-wingness of the climate change stuff is not really about the nature and extent of change, but how one thinks about and responds to it, what price one might prudently pay etc, where one might position NZ etc. You are right it isn’t naturally a left vs right issue, but the distrust of markets and faith in govts and bureaucrats is more so.

      sadly, there is a whole network of central banks mostly taking time out of their day jobs to pontificate on this stuff (which in most cases has few systemic financial risks), but that will be material for another post.

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      • Climate change policy – publish targets (with a schedule for those targets to be continually reviewed), apply market forces evenly to persuade the public to change in ways that help meet those targets (consistent carbon tax), seed research into new technologies. Doesn’t sound too difficult.

        What needs to be avoided is setting targets that ignore some of the contributions to potential climate change. So emissions from both dairying and international travel must be included. If we had a predictable future carbon tax then it would influence serious economic decisions such as changing land use from forest to pasture (or the reverse) and the financial planning for infrastucture expenditure at international airports.

        As you say nothing much to do with the Reserve Bank.

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  2. He’s a man bored in his core job role and taking the liberty to dabble in silly diversions. Seriously, he should be looking for a new job, perhaps in some economic think tank or teaching at Victoria University.

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  3. The tragedy of this is although it may make the RB staff feel better about themselves – it in part displaces the need to actually improve the economic situation and therefore well-being of Maori.

    It may be beyond their remit but surely reducing excessive housing costs which punish lower income earners who are disproportionately Maori are a better focus for the RB if they want to do something useful?

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  4. Not much the Bank can actually do about it, but yes some good supporting analysis/research/speeches might not go amiss, esp given the link between nasty house price events and financial stability.

    In general, of course, things that sustainably lift productivity will probably offer the most valuable gains to people at the bottom….but, aside perhaps from making that point, productivity isn’t the Bank’s thing (nor should it be).

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  5. I fully agree with your points Michael. One could easily be forgiven for thinking that, tragically, we have a narcissistic adolescent with attention deficit syndrome and a hint of tourettes tendencies running the RBNZ, rather than an adult capable of focus, discipline and mature, insightful thinking. The tree god and other obsessive maori focus is all nonsense and a distraction from what he should be doing. Let’s hope that some real accountability pressure will come to bear on the RBNZ and induce a transition to a professional, sober and adult stewardship of the RBNZ.

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  6. Is the $4000 travel budget needed to get to theIsland (Boroa Bora). If so I am fully in support of the Bnak giving me $4000 to help me to get to the island.

    Liked by 1 person

  7. Given my assistance on the Capital front I’m sure they will give me and my extended family favourable consideration. With prices in Bora Bora and our business class fares we will need the whole $40,000

    Liked by 1 person

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