On reading the official pandemic plan

I’ve been dipping into the official New Zealand Pandemic Action Plan  –  all 193 pages of it –  a bit in the last few days.  The document has evolved over the years and now describes itself as

This edition of the New Zealand Influenza Pandemic Plan reflects the sophistication of a third generation, risk-based plan that promotes collaboration across all levels of government, agencies and organisations when planning for, responding to and recovery form a pandemic event.

and

Pandemics by their nature are unpredictable in terms of timing, severity and the population groups that are most affected. This version of the New Zealand Influenza Pandemic Plan establishes a framework for action that can readily be adopted and applied to any pandemic, irrespective of the nature of the virus and its severity.

It isn’t really clear what status the document has at present.  It was finalised late in the term of the previous government, it was finalised under a different Director-General of Health, and it was designed for an influenza pandemic, and the current virus is not influenza.    As the Ministry of Health notes, in any case it is only a “framework for action”, and has to be adapted for the particular virus –  and presumably for the policy preferences (on how best to respond, what trade-offs to make etc) of the government of the day.   As a document, or even a framework, it seems most likely to be useful the more closely to health the immediate issues are –  but even then, different virus, different issues.

There are various workstreams described in the plan.  One of them in “Economy” –  something I had quite a bit to do with in earlier iterations of the planning almost 15 years ago now – described from page 48 of the plan.  But it really does no more than list the key relevant official agencies (Treasury, MBIE, Inland Revenue, and Reserve Bank) and a brief plain-vanilla description of the sorts of roles and responsibilities those agencies have.  And that’s it.

The plan itself is dealt with in about 35 pages.  But about a quarter of those aren’t about immediate issues, but about longer-term planning and preparation (important of course, but not the uncertainties we now face).   The “Keep it Out” phase –  the one officials and politicians regard us as being in at present –  then takes another seven pages.    I presume it is mostly worthy and sensible stuff, although there is little or nothing about the frameworks or evidence base used to shape official advice to ministers (eg around border restrictions of the sort we have in place now).

The next phase is “Stamp it Out”

Objective
To control and/or eliminate any clusters that are found in New Zealand.

There is a set of key decisions listed

stamp it out

(Many of which won’t be relevant here/now, absent a vaccine)

And there is a detailed listing below that, but it is all lists, and no analytical or policy framework.  One hopes there are more-detailed analytical papers in the Ministry of Health or other agencies, but the Pandemic Action Plan document is what the public has.  The Ministry’s website claims that

The NZIPAP provides information to guide key decision-making.

But really the only information is a listing of issues, agencies, and formal statutory powers. Useful as far it goes, but not that much help –  in particular to the public.

And it is no different in the “Manage It” and “Recovery From It” phases.    Catchy phrases –  useful enough –  and long lists –  again useful enough –  but little substance to guide decisionmaking or public debate/scrutiny of governments plans and actions.

The second half of the document is a little more discursive, and perhaps more useful.   For example, there is a discussion of Public Information Management. But it is limited by the fact that it seems wholly focused on the Ministry of Health, and not on the key role that political leaders (notably the Minister of Health and the Prime Minister) play throughout any pandemic period.    And it is a bit disconcerting when the very first item in the key objectives around public information management

Key objectives are to:
- maintain public confidence in the response and in agencies’ competence and capability

That might be the Ministry’s aim –  pursuing its own interests –  but it isn’t clear it should be what would be most important for the public, who cannot simply assume (need to be shown by transparency, consistency, humility etc) that the response is being well-managed.

The section also seems disturbingly oblivious to both the extent of information available to the public from other countries and public health agencies and to the genuine political choices likely to be faced during the pandemic period.

What first took me to the document was a desire to understand the relevant statutory powers and options.  There is what seems to be quite a good description (p109f).    Here is one summary

legis powers

Do note that reference to the Epidemic Preparedness Act.  It has really far-reaching powers, which appear to allow the government to temporarily waive lots of legislation once the Prime Minister issues an authorising notice. But as the Plan says, it relates “only to give named quarantinable diseases set out in Part 3 of Schedule 1 of the Health Act 1956”.

quarantine

Remarkably, this schedule appears to be able to be updated by regulation, rather than by legislation – itself a little worrying given the scale of the powers given to the executive –  but you might suppose it was about time that the current virus was added to the list.

But to take the Health Act special powers first

special 1

 

special 2

All of which is good to know, but there is no discussion anywhere as to the circumstances, considerations etc that might lead to such powers being exercised.   Now, perhaps one could argue that they would be context-specific, but in a sense that is my point.  In the current context, the Plan itself offers little or guidance to the public, and we have had no guidance, consultation etc specific to the looming event from either the Ministry or (more importantly, since they are the ones we can hold to account) the Minister of Health or the Prime Minister.  (As there was no open discussion of considerations relevant to decisions around border closures, either the initial ones or subsequent decisions.)

And what about that Epidemic Preparedness Act?  Here is what the Plan says

epidemic preparedness act

That is quite a mouthful.  The Act itself isn’t long, and if anything I found it a little clearer.  Here is the purpose statement

epidemic act

Such legislative overrides can themselves be disallowed by Parliament, which has to be called together pretty quickly if the Act is invoked –  unless, potentially an issue this year, the House has been dissolved for the election.

My point isn’t to debate whether or not these powers should exist –  although it does seem strange that the criteria relate to “essential government and business activity in New Zealand” (a term itself not defined anywhere, and you have to wonder how the Director-General of Health is qualified to judge what is “essential business activity”) not to human health, societal functioning etc (as well).   My point is that there is nothing in the Plan, and nothing we’ve heard from the officials or politicians on (a) what grounds they would look to invoke this Act, and (b) what statutory requirements they would look to suspend, in what circumstances (for those particularly worried, there are some core Acts they can’t touch).

Perhaps that might be unavoidable if there was a sudden outbreak of some disease with no real warning at all.  But we’ve had time –  now weeks and weeks of it – and there is nothing.  Ministers and officials act in ways that look as though they think “there, there, don’t worry your silly little heads about it, we’ll tell you what you need to know when you need to know it”.   But that is no standard for an open and democratic society.  It doesn’t even really seem consistent with the “public information management” themes, which talk about transparecy, building and maintaining trust.  You do that best by (a) being excellent, (b) being humble, but (c) being open and letting the public in on your thinking and planning, and being responsive to feedback.

As a good example, there is some discussion in the Plan of the possible closure of schools (and similar entities) –  pages 125 and 126 –  but it offers almost nothing.  And, as they note, much will depend on the circumstances of the virus.  In the current episode globally, we’ve seen many countries move to close schools, but one highly-regarded example of management (Singapore) where schools etc have been open throughout.  What is our government’s view on the matter at present, when New Zealand experiences community outbreak?  Surely it matters to the sort of planning individuals etc can/should be doing now.   If universities might end up closed quite soon, might that be relevant to questions around reopening borders to foreign students?   More generally, what is the government’s thinking on the movement restrictions etc being adopted in other democratic countries, notably Italy and South Korea.  Both ministers and officials seem missing in action –  no doubt talking among themselves, but not talking with citizens.

In an Appendix to the document there is a longer Public Information Management Strategy.  Much of it appears sensible enough.  There is even a specific extended section on

Key messages
It looks like a flu pandemic is about to start

Again, a lot of it seems sensible and seems consonant with what we are hearing from health authorities in various other countries. For example

plan

But we aren’t hearing any of this from our officials and ministers, even though –  as we’ve in the last week –  countries have gone from thinking they have no major immediate problem to full-bore crisis in a matter of days.  If anything, the Director-General of Health on RNZ this morning sounded rather Trump-like still talking of low risks of community outbreak in New Zealand  (when plenty of international experts talk in terms of having got well beyond that point everywhere, even if some still think Stamp It Out strategies can work –  viz encouraging signs from Singapore).    They still seem more interested in playing things down –  don’t worry your heads about it –  than in helping guide the public to realistic preparations and precautions, or even to offering substantive answers to specific reasonable questions about how the health system –  under pressure at the best of times –  would be able to step up, add capacity in short order etc when/if significant community outbreak becomes established here.  Perhaps there is a good case for such a choice, but we don’t see the Prime Minister or the Minister of Health even trying to make that case.

And since this blog is still primarily economics-focused, much the same point could be made about economic issues.  The Minister of Finance’s speech the other day seemed okay as far as it went, but it stopped well short of taking seriously the sort of disruption, risks and economic losses, if we see widespread closures (from regulation or fear) when the virus hits here.  There might not be much governments can do in the very short-term if those losses happen, but there are important specific issues, including those around how things like the food distribution system keeps working (if, say, one main city is largely locked-down and movement in and out restricted).

We really deserve and need more pro-active leadership and preparation from key ministers, and perhaps from officials too –  but they mainly work for and to the ministers, whose handling of these event may yet feature significantly in this year’s election campaign.

 

 

Preparing

In those distant days when world sharemarkets were still at or very near record highs –  actually, on Monday –  the Federal Reserve Bank of San Francisco released one of their short accessible Economic Letters summarising some research work done last year on the question “Is the Risk of the Lower Bound Reducing Inflation?“.   The views expressed are those of the authors, not the FRBSF let alone the wider Federal Reserve system, but the authors aren’t just fresh out of college either: one is the executive vice-president and head of research (one of the most senior policy positions) at the FRBSF, and the two authors are senior managers on the research side of the Bank of Canada.

Here is their summary

U.S. inflation has remained below the Fed’s 2% goal for over 10 years, averaging about 1.5%. One contributing factor may be the impact from a higher probability of future monetary policy being constrained by the effective lower bound [ELB] on interest rates. Model simulations suggest that this higher risk of hitting the lower bound may lead to lower expectations for future inflation, which in turn reduces inflation compensation for investors. The higher risk may also change household and business spending and pricing behavior. Taken together, these effects contribute to weaker inflation.

How does this work? Here is their description

If monetary policymakers are constrained by the ELB in the future, recessions could be deeper and last longer because central banks may be unable to provide sufficient stimulus. The greater decline in economic activity in this case would translate into lower inflation during such downturns relative to recessions when the policy rate is not close to the lower bound.

In addition, greater risk of returning to the ELB could also affect inflation during good times, when the economy is performing well and interest rates are above the lower bound. Investors and households often care about the future when making long-term investment decisions that are difficult to reverse, such as setting up a new production plant or buying a house. The possibility that recessions might be more severe in the future because of the ELB can affect their economic decisions today, prompting them to be more cautious to guard against this risk. For instance, households could start saving more in anticipation of possible harder times ahead. Similarly, businesses could engage in precautionary pricing by setting lower prices today if they anticipate a greater likelihood of deeper recessions in the future and do not review their pricing strategy frequently.

As something for the future –  perhaps the very near future –  it all seems a plausible tale, and is consistent with a line I’ve been running here for years, that when the next severe downturn comes markets (and other economic agents) will quickly focus on the limitations of conventional monetary policy and adjust their behaviour (for the worse, in cyclical terms) accordingly, deepening and lengthening the downturn.  But these authors go further and posit that people (real economy and financial markets) have already been factoring the ELB risks into their planning and decisionmaking, in turn directly contributing already to lower inflation and lower inflation expectations (than perhaps the current cyclical state of the economy might otherwise deliver).

I haven’t yet read their full working paper so can’t really evaluate the strength of their evidence on this point.  But if they are capturing something important about actual behaviour in the last decade or so, presumably those effects would be expected to have become larger the closer to the present we come.   Prior to 2007 the Fed (and other central banks other than Japan) had not reached the ELB at all. Immediately after the recession there was a pretty strong expectation that things would return to normal (including normal policy interest rates) before too long –  a view typically shared by markets and by central banks.    Only with the passage of time did those expectations gradually fade –  and perhaps more completely in Europe (where policy rates are still often negative, and pretty consistently lower than those in the US).

For New Zealand, of course, if there is anything to this story, it must be even more recent, having started with higher policy rates, and with markets and the Reserve Bank mostly looking towards higher policy rates until just the last couple of years.   The possibility of reaching the ELB in New Zealand has been a distinctly minority point (yours truly and perhaps a few others) for most of the last decade, in ways that leave me a little sceptical that the story will explain anything much of the inflation experience in New Zealand (or Australia) for the decade as a whole. In both countries, inflation has averaged materially below the respective target midpoints.

Whatever the case for the past, the FRBSF note ends with this point

These findings suggest that the puzzle of how to raise inflation to meet central bank goals may require new ways of addressing the risk of returning to the ELB and new ways of understanding how to set and meet inflation goals.

The problem is that there is a growing risk that it is now too late, and that central banks (and Ministries of Finance) have spent the last ten years not getting to grips with ensuring effective capacity for the next severe downturn, leaving things potentially almost paralysed when that severe downturn breaks upon us.  Which it could be doing right now.

Many advanced country central banks can now barely reduce the policy interest rate much at all –  the biggest problem with former Fed governor Kevin Warsh’s call yesterday for a coordinated international rate cut is that it would immediately highlight the limits, especially in Europe.  Even in a traditionally high interest rate country like New Zealand, there is perhaps 150 basis points of capacity, when the average recession in recent decades has involved 500+ basis points of cuts –  a point our Minister of Finance rather glossed over yesterday in his talk of the advantage of starting with relatively high interest rates.

As the FRBSF authors note

To compensate for this lack of conventional firepower, central banks can rely on unconventional policy tools, such as forward guidance or quantitative easing. While these tools proved effective during and following the crisis, it remains unclear whether they can fully compensate for the diminished conventional policy space and the more frequent encounters with the ELB

That is fairly diplomatic speak, as befits senior officials.  In reality, few really believe that unconventional tools under the control of central banks can adequately compensate for lack of conventional policy space.

In my view, those limits have not really been sufficiently focused on by markets, firms and households, or governments.  There has been quite a lot of wishful thinking around –  hankering for higher neutral rates, inability to spot an near-at-hand risk that might trigger an early severe downturn, or whatever.   But when people look at the looming coronavirus risks –  and markets will no doubt ebb and flow still, just as happened as the financial crisis unfolded a decade ago – and really begin to focus on what can, and will, be done, we are likely to see inflation expectations falling away much faster than in a normal downturn, in turn raising real interest rates and accentuating the problems, at a time when neutral interest rates are likely to be falling further (perhaps temporarily, but real enough for the time being).

To bring that back to the New Zealand situation, after ignoring the issue for a long time the Reserve Bank appears to have begun to take it more seriously in the last 18 months or so. But with little or no transparency and no apparent urgency.  We keep being told they are about to reveal their thinking –  I hope with a view to getting serious feedback etc –  but they’ve already mentioned enough that we can be sure that what they’ve had in mind simply will not make up for the limits of conventional interest rate capacity, even allowing for the likelihood that in such a severe downturn our exchange rate will fall a long way (as it did in most of those previous 500 basis point rate cut episodes).   There is also sadly little sign that the Minister of Finance has shown much leadership or urgency about seriously addressing this problem (again, nothing along those lines in yesterday’s speech –  good enough as far as it went, but it stopped short of the really serious issues/risks).

It would be easy for me to suggest that the Governor has been too much occupied with his tree gods, his climate change interests, his views on infrastructure or the distribution of income, rather than driving action urgently in this area of monetary policy capacity (core day job).  And that is no doubt true, but as a specific criticism it needs to be kept in perspective –  his predecessors had let the issue drift, and his peers at the top of many other central banks have also seemed to prefer to believe things would come right than to seriously prepare for the constrained alternative.  We risk paying the price now –  including with central banks paralysed by their own limitations and reluctant to act early and decisively to lean against (do what they can to buffer) the economic downturn (and downside risks to inflation and inflation expectations).

Quite possibly there is a place for fiscal policy in responding to a serious downturn, even one amid the chaos of a potential pandemic, but there needs to be a lot more realism about the likely constraints on how much, and how longlasting, any discretionary stimulus is likely to last.   There is no real excuse – even in a less fiscally constrained country like New Zealand –  for authorities not to have moved to greatly alleviate or remove the effective lower bound before now, and to have used relatively settled times to have socialised the case for doing so.

And even if the FRBSF authors are wrong about the influence of the ELB on inflation over the last decade, if it very quickly now becomes even more binding – starting from a lower initial level –  it will be front of brain for everyone through the next cycle.    It really needs to be dealt with now.  It isn’t technically hard –  there are various workable options –  but it needs leadership, will, and vision for something to happen, something which has the potential to limit the extremes (depth, duration) of that severe downturn whenever it finally strikes us.

 

Government spending and revenue: some comparisons

I had to look up this morning where New Zealand ranked among OECD countries in the total share of GDP taken in taxes.   The answer (for 2019) was 11th lowest, or 10th lowest if you (as you should, and as I do in the chart) use the denominator for Ireland (modified GNI) that the Irish authorities use.

taxes 2019

Among the English-speaking countries we often compare ourselves to, New Zealand and Canada are in the middle of the bunch, with the UK and Ireland higher and Australia and the United States lower.  Note that these are “general government” figures, including all levels of government in each country.

What about the spending side of the picture?  This is the chart for current spending across all levels of government.

spending 2019

New Zealand is towards the very bottom of that chart.  It is, however, fair to point out that when you have a low level of public debt you don’t face much an interest expense:  in terms of current purchases or transfers our overall level of current government spending goes a little further relative to most other OECD countries (with higher debts) than it might first look.

The big outlier, of course, if you compare that two charts is the United States, with yawning budget deficits.

What about the changes over time?  These OECD data only go back to 1986 for New Zealand, so I’ve started the chart from then showing (a) New Zealand, (b) the median of all OECD countries, and (c) the median for the OECD countries for which there is complete data from 1986 onwards.

spending time series

The gap between New Zealand current government spending and that in the median OECD country opened up 30 years ago.  In fact, the gap between New Zealand and the consistent-sample grouping (the orange line) has fluctuated around a fairly constant mean since the early 1990s, with no obvious differences based on which of the major parties was leading the government.

Of course, at the start of the period we still had fairly high debt and fairly high interest rates.  But that factor doesn’t look to explain much about comparisons for the last couple of decades.  This chart is of net interest expenditure as a share of GDP.

interest net

And what about changes in taxes (and social security contributions) over time?

taxes over time

On this measure, the gap between New Zealand and the complete-sample group of OECD countries (grey line) has widened further over the last decade or so.  Partly in consequence, whereas for the OECD as a whole (either series) the median country now has a higher tax share of GDP than it had in the late 1980s, we have lower taxes.  Consistent with that, of course, we also have lower current outlays than we had then, but it looks as though much of the difference will be accounted for by (a) in particular, lower (real and nominal) interest rates, and (b) lower debt.

I’m not attempting to draw any strong conclusions, just presenting the numbers.  They aren’t the only numbers that are relevant.  For example, as I understand it, the current disbursements series does not include depreciation, so in some respects it would be better to look at total outlays (in New Zealand, with a fast-growing population, government capital expenditure tends to be quite high).   Similarly the taxes and social security contributions series –  while important in its own right – is not a measure of total government revenue.  And I could track down the gross interest data and subtract that from the current disbursements series to get a consistent series of current primary spending.   Perhaps another day.

For now, I think one can safely say that New Zealand government spending and revenue are below those of the typical OECD country.  That wasn’t always the case, although much of what changed was servicing costs.  Whether that relatively modest size of government (spending and revenue) is a matter for concern or celebration will, I guess, depend on your ideology, your view (implicit or explicit) of various key elasticities, and perhaps your sense –   which should be detachable from ideology –  as to how wisely and well existing spending is being done.  For myself, I think there are areas where our government should probably spend more (health, access to justice, administration of justice, and statistics as just some examples), but I’m not convinced that even taken together they would amount to a strong case for higher taxes (when I think of potential savings –  on NZS, free tertiary education, the PGF as just some high profile examples).

Coronavirus can’t just be thought of as an illness for other countries

There was quite a bit of media coverage this morning around the potential economic impact of, and possible policy responses to, the coronavirus.   There have been commentaries from, or interviews with, various economists and a fairly substantive interview on RNZ with Grant Robertson, the Minister of Finance.  Each of them left me a little concerned, but of course the comments from the Minister of Finance –  who gets to decide things and is backed by phalanxes of official –  matter the most.

In his comments at the post-Cabinet press conference on Monday, the Minister indicated that he and his officials were working with three distinct scenarios.   There doesn’t appear to be anything in writing (eg on The Treasury’s website) but broadly the scenarios were as follows:

  • something (probably not too different than the Reserve Bank’s quite-sanguine recent published forecasts) that seems wholly focused on China, and with things beginning to get back to normal next month,
  • something where the effects, perhaps around a wider range of countries, linger for the rest of the year, and
  • a third scenario which he characterised as a serious global recession.

The government is still working with the first of those scenarios, although the Minister acknowledged that the risks of the second scenario looked to be rising.

Many of the other commentators seemed to be thinking along similar lines.  The NZIER, for example, released their quarterly forecasts overnight and their press release says

It is early days and there is a large degree of uncertainty over the magnitude and duration of the effects from the coronavirus outbreak. In the short-term, the uncertainty revolves around the ability of exporters to redirect their exports to other markets. Over the longer-term, the uncertainty is whether the coronavirus has any persistent negative effects on global growth.

And I’ve seen/heard other economists commenting on whether or not GDP growth for the first couple of quarters might or might not be negative (the popular definition of a recession –  more demanding here than in most countries, given our fairly rapid population rate).

But, frankly, it all seems a bit pointless, especially the very short-term forecasting, because all of them –  including the Minister of Finance –  seem to be dealing with a scenarios in which coronavirus is someone else’s health (and attendant domestic disruption) problem, for which New Zealand is only exposed to the global growth backwash.  Of course, that backwash might well be quite severe.   But none of them seem to be grappling with the near-certainty that coronavirus will soon be confirmed in New Zealand (based on what we’ve seen abroad, there must be a reasonable chance it is already here  –  and the Ministry of Health tell us that under their narrow criteria only 120 tests have taken place here).  And, more specifically, none of them is grappling with the possibility that we –  like any city in the world, it appears – could have Korean, Iranian, Italian, Bahrain situations here at any time from today (none of those countries seem to have thought last week that they’d be imposing all the the restrictions they now have).   If the experts who tell us there is now a high chance of a general global outbreak, perhaps infecting 40 to 70 per cent of the world’s population, are correct, probably most cities will face such a scenario.   And those sorts of events have the potential for huge disruption, and economic cost, which would swamp the sorts of narrow effects forecasters like the Reserve Bank have already allowed for.

Take as a scenario a significant outbreak in Canterbury (or Wellington).   Canterbury accounts for about 12.5 per cent of New Zealand’s GDP, and suppose that for a month economic activity in Canterbury is reduced to 50 per cent of normal  (some mixture of schools and daycare centres etc being closed, lots of people being sick or self-isolating because a family member was sick, restrictions on public gatherings, the evaporation of tourist arrivals, and fear).   If that was the only effect New Zealand’s GDP for the quarter of the outbreak would fall by 2.1 per cent –  not annualised, an actual fall of that amount.   That alone would be almost as bad as the worst quarter of our worst recession in modern times in 1991.      You could triple the effect if the outbreak was in Auckland (38 per cent of national GDP).

And even if by some chance the outbreak –  and tough restrictions –  was contained to a single city/region, the economic effects won’t be –  partly about domestic supply chains, partly about transport networks, and lot about precautions and fear.     If there is a Korean or Lombardy style outbreak in Sydney or Brisbane, we’ll already see a lot of costs start to rise rapidly here –  both domestic fear, and how many foreign tourists do we suppose would still be coming here?   So we can’t even assume that even if an individual city’s outbreak takes just a month to work through, that the national effects would be limited to a single month.     It isn’t inconceivable that we –  or small/compact countries like us –  could see the level of GDP fall by 10 per cent or more in a single quarter, and then take quite a long time to recover from the shock of what the society has just gone through.    Quite apart from anything else, that is quite a lot of lost tax revenue, even if 12-18 months hence things were more or less back to normal.

Of course, no one doing quarterly forecasts can allow for these sorts of events in their specific numbers, because we have absolutely no idea whether these scenarios hit tomorrow, next month, June (or, indeed, not at all).   But anyone –  policymaker, business, or householld – thinking about the outlook for the next year would be pretty unwise not to explicitly factor in a fairly probability that exactly that sort of highly disruptive short-term scenario could occur.     And then you have to factor in the near-certainty (so to speak) of extreme uncertainty, and associated disruptions –  forced on individuals or firms, or self-chosen as a precaution – across the world for much of the year ahead.   At very least, a lot of travel just won’t happen, a lot of investment projects will go on hold, and cash-flow/liquidity is likely to be a big issue for many firms and households, whether or not banks are more or less as supportive (or otherwise) in other stress periods.   Whether that will amount to the Minister’s “serious global recession” scenario or not, who knows (but probably, given other underlying vulnerabilities).

In many ways, GDP is just a headline number in thinking about the challenges we face, and in time it is likely to recover more or less fully (even allowing for the limits of monetary policy).  Much the bigger issue in the disruption to lives –  even lives lost –  lost jobs, debt defaults, perhaps stranded sick tourists, overwhelmed health systems, disrupted supply chains for things as (normally) mundane as food.  I suspect policymakers shouldn’t be focused so much on the Minister of Finance’s scenarios –  which in many respects from a New Zealand perspective are fairly vanilla as regards policy responses –  as on handling, and preparing for, the extreme but short-term disruption of actual coronavirus outbreaks here.

(As a reminder here of my post last week with some speculative thoughts on the potential economic ramifications if things go really bad.)

Of course, “preparing for” here should include preparing the public.  So far, both officials and ministers have been almost totally silent on that count.  In the early days, Health officials seem to be more interested in minimising the issue, but even having got beyond that they and their political masters seem to think all these issues are really just matters of bureaucrats, not for the public themselves.  News coverage seems more interested in what the government might or might not do to help currently-affected industries, and media representatives don’t seem to be pursuing ministers on how they will handle (the likelihood of) a significant outbreak here.  There was not a single question along those lines at the PM’s press conference on Monday.

There is, of course, a pandemic plan on the Ministry of Health’s website.   It was last updated in 2017, under a previous government.  It was designed with influenza in mind, and the current virus appears to be different in some material ways.     There is even an explicit appendix (p155f) on “public information management”, including for use at a stage when a pandemic might be looming.  But almost none of the messages mentioned there seem to be being conveyed at present.   There is no evident leadership –  from the Prime Minister, the Minister of Health, or some other minister leading the government’s response –  and no sense of what choices the government might make under what conditions.

As just one example, what approach does the government intend to take around schools and daycare centres?  Some places have closed them pretty quickly –  Hong Kong just extended school closures until April – while other places (notably Singapore) have left them open.   That single choice has big implications for many parents, and for their employers, and yet we’ve heard nothing, meaning no one can plan with reliable information.

Or at a more-mundane level, is there any sign of advice to people to consider stocking up on various non-perishables that might better enable them to cope with a few weeks at home.   Probably many of those paying attention will already be doing so (I certainly am) but a lot of people are probably barely conscious of the issue –  which could be on us tomorrow, or months away.  And what thought has the government given to people without the financial capacity to do much about stocking up –  living from pay cheque to pay cheque –  including if we were to see the sorts of runs on supermarkets you can see photos of from Milan.   If cities are more or less closed down, foodbanks aren’t likely to be available/effective either.    And what are the plans if 10 per cent of the population needed fairly serious medical treatment over a matter of a few weeks?   What plans might community support groups be making now?  Is it wise, or humane, to look at encouraging more young foreigners in now, when we might soon face serious stresses on our own health systems, with the visitors having few/no domestic support networks?  And so on.

There are lots of these sorts of questions/issues. Eric Crampton had a useful post on the point with some more of the relevant questions set out.  Perhaps there is some really effective planning going on behind the scenes, but even if so that simply isn’t good enough in the face of this sort of event, especially when we can all see and read about what is going on elsewhere and the advice being given elsewhere.   How much better to have some visible leadership and open serious conversations about how, as a society, we manage the high likelihood of extremely disruptive, costly, perhaps deadly, events quite soon.

A tweet from the Reserve Bank

I was in a meeting all morning and don’t have that much time this afternoon, so I should offer a special thanks to the Reserve Bank for suggesting a topic for today’s post.  It is prompted by this tweet, which turned up in my feed just as I was about to head into my meeting

The Bank used to use Twitter for not much more than sending out links to press releases etc.   But they seem to be trying to use it more actively, with a strategy (if any) that is less than entirely clear to the outsider.   For example, a couple of weeks ago there was the invitation to us all to submit questions via Twitter for the Governor’s MPS press conference –  which went rather badly when they only took two questions that were reframed as soft platforms for the Governor to declaim on some or other favoured topic.   Yesterday, there was a puff piece telling the world that the Bank was now 43rd most favoured employer for graduates in New Zealand.  I suppose that didn’t sound too bad –  small organisation and all that –  until I clicked on the link and found that the Bank came in behind 11 other government departments and a couple of local government entities.  Oh well, thanks for letting us know I guess.

This morning’s tweet has the potential to be quite a bit more concerning, on several counts.  Most concerning is that it reads as a statement of the institution’s view –  that of the MPC? – on matters directly relevant to monetary policy, launched into the ether with no notice at all.     That is no way to do monetary policy –  or rather it was the sort of way we did monetary policy 25 years ago, before we moved to a clearer, more scheduled, more predictable system.  This might seem like only a picky inside-the-Beltway issue, but this isn’t way things should be being done.  It would be interesting to know whether the MPC were consulted, or even advised, that a statement on the economic outlook was about to be made.

More substantively concerning is the content of the comments, perhaps especially when released in the middle of one of worst financial market trading days in several years.   Look at the substance of their new text: “we expect activity will pick up later this year, meaning more investment, more jobs, and higher wages”.      The link is to their cartoon summary of the Monetary Policy Statement, released almost two weeks ago, based on forecasts finalised almost three weeks ago.    Those were forecasts based on very short and quite limited negative coronavirus effect.    Those are the forecasts today’s statement links to.    How can they possibly still be the MPC’s best view now, when a growing range of medical experts now expect the virus to go round the world, infecting (in time) perhaps 40 to 70 per cent of the world’s population, with attendant disruption and uncertainty?  At very least, the risks to the happy upbeat story must be much more serious than the MPC thought them two or three weeks ago.

My guess is that the tweet wasn’t really intended as monetary policy and related economic commentary at all.  My guess is the MPC wasn’t aware of it, and quite possibly the Governor was not either.   Perhaps someone down the organisation running the Twitter account just thought it would be a good idea to tell us a bit more about the Bank (“we do forecasts”).    But official communications need to be managed better than that –  an excellent central bank, best in the world, would certainly do so.

Excellent central banks also communicate carefully and precisely about things bearing directly on their mandate.  A reader yesterday drew my attention to (something I’d missed) the way the Reserve Bank is falling short there too.   A good example was in the cartoon summary of the latest MPS, linked to in that tweet, where I found these

target 1

target 2

It isn’t just the cartoon version either.  Here from the MPC’s minutes

The Committee agreed that recent developments were consistent with continuing to meet their inflation and employment objectives

And my assiduous reader tells me the same phrasing pops up in comments made by the Governor, and in the last few MPS rounds as well.

Can you tell me what the Reserve Bank’s employment target is?

Trick question, as there isn’t one.

The MPC and the Governor surely know this, as their Remit –  the mandate set for them by the Minister of Finance –  is reproduced at the start of each Monetary Policy Statement.  Here is the central section

The current Remit sets out a flexible inflation targeting regime, under which the MPC must set policy to:

• keep future annual inflation between 1 and 3 percent over the medium term, with a focus on keeping future inflation near the 2 percent midpoint; and

• support maximum sustainable employment, considering a broad range of labour market indicators and taking into account that maximum sustainable employment is largely determined by non-monetary factors.

There is a clear and measureable inflation target, basically the one we’ve had for almost 20 years now.

And then there is a requirement to “support” maximum sustainable employment –  which is, more or less, what monetary policy tends to do when it acts to keep inflation near the inflation target.  There simply is not an employment target, so what are the Governor and MPC doing claiming that they’ve met this non-existent target.  It might be quite reasonable for them to argue that they believe they’ve done what they can to support keeping actual employment near maximum sustainable employment –  reasonable people might differ from them on that, but the debate would then be around an explicit mandate the Bank has been given.

Perhaps to many the loose language will seem harmless.   And perhaps when we are near to full employment it does little damage, but that won’t always be the case.  Come the next serious recession, unemployment will rise a lot/employment will fall a lot.  The Bank will do what it can to lean against those changes, but it won’t be failing –  not hitting a target –  just because the unemployment rate is high, perhaps even for several years (especially if the limits of monetary policy are reached).   More generally, it creates a sense in which someone there are equally important employment and inflation targets, when the Minister of Finance –  the one responsible for setting the target –  has clearly specified otherwise.

Mostly, it is probably some mix of sloppiness and the Governor’s ongoing efforts to play the “tribune of the masses” card.    And we should expect (demand) better than that from the Governor and the MPC – especially in formal written documents, whether aimed at the “specialists” Orr affects to despise or at a wider general audience.  You do not need to be sloppy in the use of language to communicate the essence of what you are supposed to be about.   From the Bank recently we’ve had loosely-grounded factual claims, outright misrepresentations, and repeated sloppy use of language to misrepresent the Bank’s mandate.  I’m guessing it would not go at all well with the Bank’s bank supervisors if they found the banks and financial institutions they regulate operating in so loose a way.  Apart from anything else, those supervisors might reasonably ask themselves “if things are this loose in what we see –  prepared for the public face –  what are things like where we cannot see, inside the organisation”.

These might be issues the Bank’s Board and the Minister of Finance –  both charged with keeping the Governor (and MPC) in line and accountable –  might be asked about.    I imagine they would just run defence for the Bank, but you never know.   Perhaps some journalist might approach an MPC member for comment –  and if, as most likely would happen, they simply refused to comment then report that stonewalling.

 

Orr speaking

We’ve been hearing quite a bit from the Reserve Bank recently (in addition to the OIA disclosures of the Governor’s antics last year), just not much about monetary policy, short-medium term economic developments, or financial stability and regulation.  In a few weeks the Governor will have been in office for two years, and in that time we’ve not had a single serious and thoughtful speech from him on either financial stability/regulatory issues or on monetary policy and cyclical economic issues.   It is extraordinary, and not the sort of thing we’ve seen here in the past or in other advanced countries today.  As it happens, the new MPC members have now been in office for 11 months, and we’ve not seen or heard a word from any of the external members at all.

But what of Bank management?    If they haven’t been talking about core business (that small matter of the statutory responsibilities they are funded for), they’ve been out championing other causes, including themselves.

Last Wednesday the Governor (and accompanying senior managers) turned up at Parliament for the annual Finance and Expenditure Committee financial review hearing.  The Governor’s opening statement is here.    The only bit that immediately caught my eye was this

Amendments to the Reserve Bank of New Zealand Act, which came into effect on 1 April, gave responsibility for monetary policy decisions to the newly-established Monetary Policy Committee.

This framework has now been implemented and is working well, with six Official Cash Rate decisions by our new Monetary Policy Committee. The Summary Record of Meeting provides insights into how decisions are reached, and improves our stakeholders’ understanding of each Committee member’s contribution.

That final sentence, and particularly the second half of it, is at best spin, more accurately just a lie.  The Governor explicitly states that the Summary Record “improves our stakeholders’ understanding of each Committee member’s contribution”, when of course –  go and read them for yourself if you like –  that is simply false.  Not only does the Summary Record give no real sense of “how decisions are reached” but, by explicit choice and design (endorsed by the Minister of Finance), there is no reference at all to the views, arguments, analyses etc of any individual Committee member.  And –  did I mention this?  – none of the externals has been heard from in any other fora.  We have no idea whether they are making any contribution at all.   It is breathtaking that the Governor can so actively and deliberately –  in writing – lie to a parliamentary committee.  In isolation perhaps it is a small point, but if we can’t count on a very and powerful public official in the small and visible points, how do we trust him more generally.

The FEC appearance was also an opportunity for the Governor to bid for more resources –  a lot more resources we are told.  According to the Stuff account,  the Governor is bidding for a “30 per cent perhaps” increase in the Bank’s funding, claiming that (in respect of bank supervision)

The Reserve Bank’s existing resource was at the the low-end, if not “the lowest”, in the OECD

Which might sound more worrying/inappropriate were it not for the fact that New Zealand is among the smaller OECD countries and one of the poorer OECD countries, and also a country with a record of a sound financial system, and one dominated by banks already subject to serious supervision in another country that also has a long record with a sound financial system.

On several occasions over the years I’ve been willing to defend or even champion the case that the Reserve Bank is probably a little underfunded.  But it gets progressively harder to defend that view as the evidence mounts for how undisciplined the Bank is in the use of the resources it already case.  There was the million dollars for the Maori strategy, or the trips to international climate change meetings (and resources devoted domestically to such issues, for which the Bank has no particular responsibility) and there is the sense of a proliferation of staff in the communications/PR areas of the Bank.   I can’t yet formally verify that –  although I have lodged an OIA to get chapter and verse –  but I’m not the only person to note the range of new people/positions (on the bottom of press releases, emails or whatever) and my favourite anecdote was one a friend told a few months ago about being approached by a headhunting firm to consider applying for a job in something like “stakeholder relations” at the Bank,  a job my friend characterised as “having coffee with a lot of people, getting paid $180000 a year”.   I hope The Treasury and Grant Robertson will be having a close look at whether there is any sort of culture of ruthless prioritisation, frugality etc in how the Governor uses what he has, before offering up yet more public money.    There isn’t much sign of it.

Stuff also reports that National’s Finance spokesman Paul Goldsmith challenged Orr on his conduct

National Party finance spokesman Paul Goldsmith questioned Orr on the bank’s reaction to “criticism and debate” during a series of exchanges at the select committee, saying the Reserve Bank governor had “very significant independent powers” over the industries the bank regulated.

“From my point of view it is very important that we have open and robust discussion,” Goldsmith said.

“We wouldn’t want to have an independent governor with a glass jaw or a sensitivity to robust criticism,” he later added.

Orr’s response?

“What I won’t stand for is abuse of my team or myself,” he said.

He keeps claiming he and his team have been “abused” in some inappropriate or unacceptable way, but has not yet shown us a shred of evidence for those claims, suggesting that what is really at work is a powerful public figure who simply can’t cope with being challenged.  As one of his former staff put it last week “he could always dish it out, but could never take it”.

I hope Goldsmith won’t let the matter rest, especially if he should become Minister of Finance later this year.

Orr was back on the public stage on Friday with a speech, delivered to a business audience in Christchurch, under the title “Aiming for Great and Best at Te Putea Matua” (that being that Maori label the Governor has chosen to attach to the Bank).    The, perhaps rather odd, title refers to the Governor’s vision for the Reserve Bank “Great Team and the Best Central Bank”, the even more overblown goal than the one his predecessor had introduced, aiming to be the best small central bank in the world (when I asked, a few years later, what steps they’d take to benchmark themselves and measure whether they were getting close to the goal, the answer came back “nothing”).   Nothing wrong with aspiration and ambition of course –  although it is not clear that taxpayers would choose spend resources so heavily that a small, not very rich, country’s central bank would ever be best in the world.   The real problem is the delusional nature of the claims, the visions, which seem more about spin than substance.  Excellent central banks don’t have thin-skinned bosses, unable to keep their thin-skinnedness under control.  Excellent central banks have senior figures who make excellent thoughtful speeches. Excellent central banks are producing a steady stream of insightful research.  Excellent central banks underpin major policy initiatives with confidence-inspiring research and analysis, taking seriously alternative perspectives.

(Come to think of it, excellent central banks don’t just make stuff up when testifying to Parliament.)

We don’t have an excellent central bank (although it still has some good people); instead we have an organisation that has become little more than a platform for the Governor’s ambitions, whims, and political preferences, with little or no sense of boundaries, restraint, or the proprieties of public office.

I’m not going to waste a lot of time on a detailed review of the speech. Frankly, it is fairly dull although suffused with the Governor’s personal whims, especially around climate change (important issue and all, but really nothing whatever to do with the Reserve Bank).  But do notice just how the Governor operates.  There was this line

We have now made six Official Cash Rate (OCR) decisions – as a committee. We have managed robust discussion and come to consensus decisions. The nature of these discussions is published as a ‘Record of the Meeting’ for all to see. We also won this year’s Central Bank award for transparency in how we operate.

It is technically accurate, except that the transparency award they won was explicitly for one small element –  the (quite good) Handbook they’ve published on monetary policy –  not at all for anything about how the Monetary Policy Committee functions or how the ‘Record of the Meeting’ operates.  It is just dishonest.  It should be unworthy of –  beneath –  a major public institution in a sector where trust is supposed to be central.

A Stuff story appeared this morning about some more of the Governor’s comments.  I first assumed it must be referring to the (published) Christchurch speech, but the article says it is talking about a speech given in Auckland (perhaps he used much the same text?).  We get accounts of Orr as populist (also there in the published speech)

“I’m not here to talk to a few narrow specialists. I’m not here to talk to just the institutions we regulate.

“We are the central bank of everyone here in New Zealand, present and future, and we have been too narrow and too lax in our engagement with you all, and it is not going to happen again.”

The problem, of course, is that (a) few “specialists” actually have much confidence in him, (b) in all fields of life, we rely on “specialists” to help us evaluate and hold to account powerful public agencies (something Orr isn’t keen on at all), and (c) all that business about how his predecessors didn’t get out and talk to wider audiences is just so much nonsense, simply inconsistent with the facts.  Perhaps Orr has forgotten Don Brash’s in(famous) retail roadshows, or Graeme Wheeler’s repeated talk about how he and the Bank were going to talk to a wider range of people.   Some questionably, Alan Bollard even wrote a book (not inaccesible either) while in office.

And the article ends with an account of Orr’s answer to an audience question, which seems like quintessential undisciplined Or

Orr spoke about the importance of economic and social inclusion in response to a question from Jackie Clark, founder of The Aunties whanau support movement, who complained New Zealand was a low-wage economy.

“The owners of capital have been doing a great job over and above the owners of labour,” Orr said.

“It’s been extreme, unprecedented, over the last 40 or 50 years of that ongoing return to the owners of capital, and labour has become a global commodity, where production goes to the lowest common denominator.”

“We want low and stable inflation, but that does not mean we want low wages,” he said.
“We’ve been celebrating the fact that nominal and real wages have been growing recently.

“That’s how we roll. That’s how we have to roll, otherwise create yourself a gated community. Enjoy yourselves, but don’t leave.”

Would have sounded just great in a stump speech from Bernie Sanders, Alexandria Ocasio-Cortez –  there is at least some evidence in support of his story in the US –  or even Marama Davidson.  But (a) this is New Zealand, and (b) you are the Governor of the Reserve Bank, with quite narrow responsibilities for monetary policy (affecting only nominal variables beyond the short-term) and regulation for prudential purposes of some classes of financial institutions.  Instead, we get a rampantly partisan/ideological answer (inappropriate in itself, but when did bounds and norms bother Orr?), but one with little or no grounding in facts.

(A prudent grounded answer to the question might have been to note that distributional issues are not an issue for the Reserve Bank, but that in the longer-term only productivity growth will support a much higher wage economy.  Both statements would be accurate and uncontentious.)

Those first two sentences in Orr’s answer seemed to be about the labour share of income.  The data are summarised in a chart in this post.  In New Zealand –  it is different in some countries –  the labour share of income rose in the 1970s, fell in the 1980s and (depending on your measure –  I show three) is now just a little higher or a little lower than it was fifty years ago.    You might personally argue for some different split of the pie, but what in the New Zealand experience justifies Orr’s flamboyant off-reservation ideological rhetoric.

Or what about how wages have been rising relative to economic capacity (say, nominal GDP per hour worked, capturing productivity and terms of trade effects).  Well, as I illustrate every so often (most recently last month), this century, wage rates in New Zealand have been rising faster than GDP per hour worked.  Perhaps Orr doesn’t know that –  it certainly doesn’t suit his ideological message – but whether he knew it or not he actively misled his audience, while working on the taxpayer’s dime.

I was going to round off this post with a fairly detailed critique of a truly dreadful speech given a week or so ago by one of Orr’s principal deputies, Christian Hawkesby, the Assistant Governor responsible for economics, monetary policy and financial markets on “The Maori World View of the Reserve Bank” but with quite a bit else –  including some atrociously bad history –  thrown in, concluding with the absurd hubristic claim that the Orr/Hawkesby Reserve Bank is “putting the New Zealand back into the Reserve Bank of New Zealand”.   You’d think they were candidates at this year’s election, not senior (supposedly non-partisan, supposedly operating within the constraints of specifc statutes) statutory public officials.  But perhaps I’ll save that speech for another day, rather than risk losing the focus on the Governor who yet again reveals himself as simply unfit for the office he holds.  And yet those paid to hold him to account sit idly by.

Preferring to look the other way

It was remarkable to pick up the Herald yesterday and find their coverage of the SFO prosecutions over the donations to the National Party given over to some “gotcha” attacks on Jami-Lee Ross.    The huge headline is “Own Goal” and the next level down is “Jami-Lee Ross’ spectacular political faux pas”.   Almost as if it were some sort of National Party newsletter.

Three things struck me about the Herald’s coverage (and, as far as I could see, other mainstream media were not that much different).

The first was that this jeering at Jami Lee-Ross’s comeuppance seems a weird approach for a major media outlet to take, when we’d not have known anything about the events now subject to prosecutions on serious charges without Jami-Lee Ross’s disclosures.  There was certainly no sign the Herald had been getting to the bottom of the issues.   Whistleblowers have a wide variety of motives, and not all of them are noble –  and even those with elements of nobility are not infrequently tinged with more than a little of the less savoury side of things.   And yet we rely on whistleblowers to uncover lots of wrongdoing: in specific circumstances, we even have statutory protections for them  (but whistleblowing often comes with costs to the whistleblower, perhaps especially if they themselves have been directly involved in the alleged wrongdoing).

I guess I could understand the attacks at Ross’s expense had he, prior to all this coming out, been a longstanding public campaigner for clean elections, transparent financing of political parties, keeping foreign influence out of politics etc etc.   The (apparent) hypocrisy would be stunning –  akin to, for example, the morals campaigner caught in an extra-marital affair.   But that wasn’t Ross.  Did anyone ever mistake him for the moral face of politics when he was rising rapidly up the ranks of the National Party?

Perhaps he just generally was not a very nice or admirable person –  there are, for example. those reports of his flagrant, repeated, violations of his marriage vows etc.  But the fact remains that this wrongdoing (as alleged by the prosecutors for the SFO) would not be known had Ross simply stayed silent, whether that had involved continuing his efforts to climb National’s greasy pole, or just moving on quietly.     Either might have suited the National Party.   But it isn’t clear why such silence – about these specific donations, or about his involvement with others (Todd McClay and the PRC billionaire) that aren’t illegal but aren’t universally regarded as proper either – would have been in the wider public interest.  Unless, somehow, all that now matters to the New Zealand elite (political, media or whoever) is maintaining that veneer of cleanness, even when they know the substance has become very different.

Perhaps some of the jeering might have seemed reasonable to some back in late 2018 when the story first broke.  But the SFO clearly seem to think there is enough evidence that makes it worth a severely resource-constrained organisation actually laying charges on points of substance.  It doesn’t have the feel any longer of something just relying one (motivated) individual’s words.

And to Ross’s credit, since the story first broke (and all the drama of that time) Ross does seem to made some effort to contribute constructively to the public debate on some of the policy issues around donations to political parties.  He participated in the Justice committee’s (rather lame) inquiry into foreign interference, and spoke very forcefully in the House when the government was pushing through its travesty of a foreign donations law in December (the one that accomplished almost nothing useful,but perhaps looked/sounded to some like action).    Who knows quite what mix of motivations he has.  Perhaps some desire to bring down the existing National Party leadership (in Parliament and outside) with whom he previously worked so closely.   Perhaps some element of genuine remorse, or recognition of how far he himself had been part of the system degrading.    In a way, his motives don’t matter –  it is the facts and the merits (or otherwise) of his arguments.  No one appears to have contested the facts around the Todd McClay/billionaire donation.  Few appear willing to openly champion the current law which allows tightly-held foreign-owned New Zealand registered companies to donate freely to our political parties (even as none of the parties is willing to end that provision).    Ross’s call –  having been a key figure in the alternative model in recent years –  that only those registered to vote in New Zealand should be able to donate is a constructive contribution to the debate on our future laws (one I happen to agree with, but that isn’t the main point here).

In many ways, Ross seems an unsympathetic character –  down to and including the claims about whether he had ever wanted his name suppressed  – but when alleged serious wrongdoing is only brought to light by the voluntary choices of one individual (however self-destructive some of those choices might also be for now), there is something a bit tawdry and desperate about media kicking the man when he is down.  Better, surely, to encourage Ross to tell us all he knows –  and then test and scrutinise such claims/records –  whether or not particular actions happen to skirt inside current law or pass to other side of the law.

Perhaps the second thing that struck me was how little all of the coverage tied back to the National Party.   Jami-Lee Ross was re-elected to Parliament at the 2017 election under National’s imprimatur, and he was hardly a peripheral figure.  In fact, he’d risen quite rapidly and might have seemed to be a face of the future.  He was Chief Whip, and then was moved further up into senior spokesman roles.  Most likely, he’d have been a Minister of the Crown had National remained in office after 2017.  The (alleged) donation splitting occurred both when National was in office (under Bill English) and while it was out of office (under Simon Bridges).   Not only had Bridges promoted him, but read the transcript of one of those calls between the two of them  –  only a few months before all this became public –  and this clearly wasn’t someone on the outer with the leadership, no matter how quickly they later jettisoned him (while still trying to pretend nothing was wrong).

Before the names of those being charged become public, National had sought to distance itself with a statement welcoming the fact that no one now involved in the National Party had been charged.  But it doesn’t really wash does it, when (mostly from that transcript)

  1. the donations involved were to the National Party,
  2. the recipient of the donation (the Botany National Party account), and liaison with the donors, was a front-bench National MP,
  3.  one of those charged had hosted Bridges and Ross to dinner at his house, and Bridges was planning to host him for dinner at his own house (with Ross also to be invited),
  4.  one of the others of those charged was quite openly being championed for a place on the National Party list, and –  we are told –  had put his name in to go through National’s “candidates’ college” –  which presumably would require either prior party membership or some high level support from somewhere in the party,
  5. one of those charged had been nominated not long previously for an honour by another National MP.

Very conveniently, National is now saying nothing further on the grounds that “the matter” is before the courts.   And isn’t it convenient for them, in an election year, that the justice system works so very slowly that the cases are unlikely to come to trial before the election (and then, of course, we’ll have excuses about rights of appeal etc).   The defendants are entitled to a fair trial, but the public –  voting just a few months from now –  is also entitled to some straight answers from National and its leaders.

I’m not here taking a view on whether Bill English or Simon Bridges (or perhaps John Key before them) knew about the specific transactions and conduct over which the four individuals have been charged, in ways that might render them liable themselves to prosecution.  Who knows  (perhaps Ross, but he has yet to produce firm proof).  And frankly, I’m less interested in prosecutions as such, than in the underlying culture and conduct.  And there it is very hard to believe that the party leaders (in Parliament and outside) were somehow oblivious to that, especially when a rising MP is involved.  Organisations are rarely like that, when something pretty central (for a political party these days, fundraising) is involved, even if key people sometimes deliberately refuse to inquire more deeply into methods, lest that knowledge prove awkward.

This is the bit from the transcript that struck me

JLR: [laughs] Hey um you know at Paul Goldsmith’s function you saw those two Chinese guys, Zhang Yikun and Colin? You had dinner at their home?

SB: Yes.

JLR: They talked to you about a hundred thousand dollar donation –

SB: Yep

JLR: That is now in.

SB: Fantastic

and, a little later,

JLR: Donations can only be raised two ways – party donation or candidate donation. Party donation has a different disclosure which is fine, and the way they’ve done it meets the disclosure requirements – sorry, it meets the requirements where it’s under the particular disclosure level because they’re a big association and there’s multiple people and multiple people make donations, so that’s all fine, but if it was a candidate donation it’s different. So making them party donations is the way to do it. Legally, though, if they’re party donations they’re kind of under Greg’s name as the party secretary, so –

Bridges doesn’t challenge, dispute, express surprise or anything here. The conversation just moves on.

It just beggars belief that Bridges did not know that what was being talked about here was, at very least, sailing extremely close to the legal line.   Note that “hundred thousnad dollar donation” and the description “it meets the requirements where it’s under the particular disclosure level because they’re a big association and there’s multiple people and multiple people make donations”.     No talk of 20 people independently chipping in and the total happening to come up to $100000, no talk of an aim that a group might look to raise something like $100000 –  but explicit prior talk (with a key figure being someone we are told does not speak English) about “a $100000 donation”  –  a description Bridges clearly recognised –  and then once the money is in talk about how “it” meets the requirements.   Bridges either knew/realised, or actively preferred not to.  Neither should be acceptable in someone who wants to be Prime Minister.

It is remarkable that Bridges is not facing more scrutiny, relentlessly, whether from the media (every time he faces the media), in Parliament, or from other political parties more generally.   Even just straightforward questions like were any of the other defendants (notably Colin Zheng) ever National Party members, for how long, when did that membership cease?   Have other caucus members dined privately with any of the other three defendants?  What exact role does the leader play in party fundraising?  And so on.

(For the record, and in case it has not long been clear, while this particular issue involves the National Party, I have no unusual animus towards them –  except perhaps as a party for whom a social conservative pro-market middle-aged person might more normally be inclined to vote for.)

The third aspect of the coverage that I find perhaps most troubling is the near-complete media silence on the connections of one of the defendants, the Auckland businessman Yikun Zhang. These are issues which have no direct bearing, it would appear, on the cases to come before the courts, and yet nothing.

It isn’t as if Yikun Zhang is some independent and private individual who just happened to one day invite the Leader of Opposition (and his senior offsider Ross) home to dinner and out of the goodness of his heart popped a modest donation into the National Party account.   Apart from anything, media reports of a statement issued on behalf of the defendants suggests they claim to have given to various different parties (a point which really should be verified).  But when you don’t speak English, you don’t invite senior politicans home for dinner –  let alone welcome an invitation to dinner at the Leader of the Opposition’s (no doubt much less fancy –  as Bridges says, less-good wine) house – for the quality of the sparkling intellectual debate around, policy, political philosophy or the mechanics of government.

This rather is someone who seems to assiduously cultivate associations –  how much substantive, how much photo-op isn’t clear –   with almost anyone in New Zealand political circles.   Before his background was widely known, he pops up in photos with Andrew Little, Jacinda Ardern, Raymond Huo, Phil Goff, Paula Bennett, Simon Bridges, Jami-Lee Ross, Jian Yang, Simeon Brown, Paul Goldsmith and more.     He was nominated for his 2018 Queen’s Birthday honour –  conferred under Labour, initiated (we are told) under National – with nominations from prominent National and Labour politicians.   Not the sort of thing that happens to your run-of-the-mill community-oriented private citizen.

Yikun Zhang’s net stretches more widely: there are the ties to the Gary Tong, Mayor of Southland, which came to light a couple of year ago.   Tong went to China with Yikun Zhang.  Not a typical connection for a businessman with an Auckland construction company. [UPDATE: Anne-Marie Brady reminds us of this interview with Gary Tong, acting as some sort of mouthpiece for, and defender of, Yikun Zhang in 2018.]

And what of Yikun Zhang’s associations back in the PRC?    Auckland ethnic Chinese writer Chen Weijian documented those a couple of a years ago.  I wrote about it here, where I observed

On my reading, the author’s key point is that the evidence of Zhang Yikun’s close association with the Chinese Communist Party, and the high regard in which he is held by the Party, is crystal clear.  Among that evidence is his very rapid ascent in various significant organisations that are part of the party-state’s overall United Front programme.

and there is a translation of the original article here.  None of this seems to have been disputed.  It looks a lot as though Yikun Zhang’s principal orientation –  despite now being a New Zealand citizen (how do we let people become citizens when can’t speak English – or, presumably, Maori?) is to the CCP/PRC.     Since then specialist China commentators have further highlighted the prominent position Yikun Zhang has in the regime’s United Front activities, advancing the interests of the CCP at home and abroad.  (There is no suggestion that any of this is illegal.)

All this became public knowledge more than a year ago.  You’d have hoped that political leaders would have done due diligence on people their leaders are regularly photographed with, but even if they’d chosen to keep their eyes wide shut before late 2018, they had no such excuse since.

And yet remarkably, even after the material about his background, even after the allegations re donations emerged, there is little or no sign that either side of politics has become warier of Yikun Zhang.   One of his big activities last year was the international conference for a grouping of people from the area he originally came from in China, which was held in Auckland.

He’d managed to get the National Party’s president –  known for his past praise of the PRC regime and of Xi Jinping – to serve as honorary chairman of this conference, and the turnout of prominent political people, from both sides, is striking.  There is an article from the PRC consulate here (open in Chrome for a translation), featuring (perhaps among others) John Key, Jian Yang, Anne Tolley, David Parker, Jenny Salesa, Willy Jackson, Peter Goodfellow, Raymond Huo, Nicky Kaye and Phil Goff.

This is one very well-connected person, across both sides of politics, with considerable pulling power, who was gifted a New Zealand honour essentially for services to Beijing……who is now facing serious charges around electoral donations.  Who was known for months to have been caught up in allegations around party donations.  And yet our politicians –  National and Labour –  just wouldn’t stay away.

I hope at least somewhere in our media one assiduous journalist, working with people who can navigate the Chinese language sources, is doing a serious investigative piece on Yikun Zhang and his connections –  local, and in Beijing.  Perhaps it wouldn’t sell many papers on the day –  all those confusing acronyms etc –  but it is the sort of scrutiny our tarnished democracy needs.

It all looks, from the outside, like that combined New Zealand “elite” determination to do all its possibly can to never ever upset Beijing, to pander in public and behind the scenes, to tap apparently generous sources of donations from people without regard to their ties to an alien regime with no regard for democracy, freedom of speech, and human rights.  Keep the deals flowing, keep the dollars flowing, make sure no one can ever drive a wedge between the CCP and the National and Labour parties.  It is why, to me, the big issue isn’t really whether or not Yikun Zhang, Jami-Lee Ross or the other split donations to get round the law –  courts can and eventually will rule on that –  but the value-free mentality that has taken over our political “leadership”.   What was Simon Bridges doing going to dinner at the house of someone with such close regime ties, discussing party donations with, and soliciting from, him –  he was hardly a personal friend (that English language gap is telling)?  Why were MPs, mayor, and the Cabinet getting together to honour him?   Why was such a galaxy of political figures turning up at his event, all of them surely realising the regime-affiliation and interests of all such events?   But then why was Jacinda Ardern posing alonside Xi Jinping in Beijing a few months ago, why was Simon Bridges meeting the Politburo person in charge of domestic security (Xinjiang and all that), and so on?   The pander continued as recently as this week, with the PM reportedly calling for a minute’s silence at the Lunar New Year function at Parliament for those who’ve died of the coronavirus –  nothing wrong with that perhaps in its own right but, of course,she’s never called out the deaths and mass imprisonments in Xinjiang, the imprisonments and persecutions that inhibit freedom of speech and worship and politics in the PRC, or the tens of millions of live that regime has claimed.

Then again, these are the parties that (in National’s case) keep Jian Yang in Parliament and (in the case of all the other parties) do and say nothing about it, the parties that administer a government adminstration that seems unbothered by Jian Yang’s acknowledgement that he had lied about his past to get into the country.  It is shameful, and it is mostly not covered by our media.

In ending, some kudos to David Seymour, the ACT MP, re Yikun Zhang.  On his telling

“I’m pretty happy I didn’t take the invitation to a private dinner at Yikun Zhang’s house right now,” Seymour, leader of the ACT Party, told reporters on Wednesday.

“Multiple times the guy invited me to have a private dinner at his house and I thought ‘that sounds dodgy’ and never went…I have no idea what his intentions were.”

Seymour said he received the invitation in 2018, adding: “I don’t normally go to their house for dinner if I don’t know them and we can’t speak the same language – very unusual.”

He said Zhang Yikun “made frequent appearances at various Chinese events on the calendar that a lot of MPs go to” and that he would usually have “several intermediaries standing around who would speak English”.

Seymour said, “On multiple occasions he tried to get me to have dinner at his house, I said I won’t do that, he said ‘I own a restaurant and we could meet there’, and I said that sounds worse.

“So, as a result I never had any kind of arranged meeting with the guy and I’m pleased about that.”

It can be done.