Cowering and contemptible

A couple of weeks ago I wrote a post about the utter silence, from all New Zealand officeholders (most notably the Prime Minister), about the abduction –  no better word for it –  by the People’s Republic of China of a couple of Canadian citizens, apparently in an attempt to coerce Canada into not proceeding – in the event the Canadian courts find that the other terms of the treaty have been met – with the extradition to the US of the Huawei CFO.

….you have to wonder what goes through their minds when Jacinda Ardern and Winston Peters decide to stay quiet, when our traditional allies speak out.   Does it not for a moment cross their mind that one day New Zealand might find itself in Canada’s position, and to wonder who –  if anyone –  might go into bat for us, and for our citizens if they were to be abducted by the regime in Beijing?

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

It isn’t as if any of this is particularly new.  Our Prime Minister won’t speak up about the gross abuses in Xinjiang, won’t speak up about the intensified persecution of other political and religious dissidents, won’t speak up about…..well, almost anything.  But somehow it is a degree more shameful when you won’t even stand up for your friends.   When you are the cowardly one when others around you – in this case, other advanced countries – have been willing to make a stand.  It is contemptible behaviour.

There was more news this week.  We are told that the Prime Minister took a call from Canada’s Prime Minister Justin Trudeau.  I suppose she didn’t have much choice but to take the call –  Trudeau has after all been seen as cut from the same left-wing ideological cloth as the Prime Minister.    But the Prime Minister wouldn’t even comment on the call –  has anyone heard from her on anything for weeks now? – instead sending out not even the government’s ‘duty minister’, but just a spokesman for him, to blather and say nothing.

Ardern was not available for comment today but a spokeswoman for duty minister Grant Robertson confirmed Ardern had a brief conversation with Trudeau yesterday.

“Although the cases are a consular matter between Canada and China, as the extradition case relates to a Huawei executive in Canada, there are principles at stake that concern us all.”

What an utterly meaningless statement.

Perhaps, perhaps. the Prime Minister had quietly given her support to Trudeau but just didn’t want to let New Zealanders know?  It never seemed very likely, but a day or so later the Canadian Foreign Minister pretty much ruled out that (exceedingly charitable) interpretation

Ms. Freeland said Canada is grateful for the support it has received in recent days from Germany, Estonia, France, Latvia, Lithuania, the Netherlands, the United Kingdom Britain and the United States.

But not New Zealand, even though the two Prime Ministers had talked just a day or two previously.

When I mentioned this around the dinner table, one of my kids suggested that perhaps New Zealand was just small and had been forgotten.  But, of course, not only is New Zealand a traditional close friend, ally, and partner of Canada, but we are bigger than any of the three Baltics in the list.  Clearly, Canada is receiving no support at at all from New Zealand.

It isn’t the way decent people behave.  But it seems to be an acceptable standard for every single one of our elected officials; cowering contemptibly.

Who knows quite what it is they fear?  Perhaps it is that “FTA”- upgrade, or the trip the PM wants to make to Beijing, or some threat to the success of their year of Chinese tourism, or the flow of political donations, or whatever.    Whatever the rationalisation, it is shameful, and imprudent.   Just as schoolyard bullies try to pick off weak kids one at a time, so the People’s Republic of China.  But Ardern –  and Peters, Bridges, McClay, Shaw et al – simply refuse to recognise the character of the regime.  Perhaps there might be a modest cost to some entities if New Zealand were to take a stand –  on an egregious abuse –  but any worthwhile moral stance almost inevitably involves a cost. It is the willingness to pay a price that, in many respects, marks out the value someone places on their belief.  There is little sign that, when it comes to the PRC, our leaders put any value at all on any beliefs –  just deals and donations.

On which note, the Executive Director of the government-funded pro-PRC propaganda agency, the China Council, returned from his holiday to tweet on this issue.

When I first saw the tweet I was momentarily pleasantly surprised, until I realised that what Jacobi was actually championing was the line that somehow New Zealand could be a bridge between the PRC regime and the rest of the world.  The old “elite New Zealand” delusion that somehow by making nice to evil, never ever uttering a complaint about anything –  recall how upset the China Council was when the Huawei ban was announced – we could influence Beijing for the better.   That’s worked out so well over the last seven years as Xi Jinping has taken the PRC ever further back to heavy-handed repression at home, and into an era of new aggression abroad.  Cosying up to such evil should be something to be ashamed of, not trying to fool yourself and others that somehow the regime will be deterred from its aggressive defence of Meng Wanzhou by sweet nothings murmured quietly (if at all) by our Prime Minister or her officials.

Finally, on things PRC, there was a strange column on Newsroom the other day by Robert Ayson, professor of strategic studies at Victoria University.   His lament is that New Zealand/PRC relations are not what they were, while his vision appears to be one of “untrammelled mutual respect and win-win cooperation”, as if he cares not a jot about the character of the regime.  Perhaps he’d have been one of those urging “untrammelled mutual respect” with Adolf Hitler in the late 1930s?

Ayson seems bothered about several things:

  • the proposed ban on Huawei around the new 5G network (where he seems to treat Hauwei as some sort of normal company, even though Chinese law requires Hauwei to comply with government edicts, whether at home or abroad),
  • the recent GCSB statement –  in tandem with a number of other countries –  about the official PRC involvement in commercial cyber-theft,
  • the rather mild comments in the Strategic Defence Policy Statement last year, and
  • the speech in Washington in December by Winston Peters.

All this is the context of a flawed sense of how much China matters to New Zealand’s prosperity (“crucial” in his view).

Professor Ayson is not happy at all.

This shift may please friends in Canberra, Washington and Tokyo, who view China as an unrelenting full-spectrum menace. But New Zealand’s growing alignment with a faux Cold War posture runs against the tradition of foreign policy autonomy Labour-led governments have cherished in recent decades. 

(The same Labour-led governments that have had troops in Afghanistan and Iraq?)

Having an independent foreign policy means making your own choices about the medium-term interests of your own country.  It doesn’t mean never doing things, or sharing common views/interests, with friends and allies.  I’m not sure when Professor Ayson thinks any New Zealand governments ever acted otherwise (whether or not he –  or I – agreed with any or all of those stances –  be it involvement in the first Gulf War, providing a frigate at the time of the Falklands, Vietnam, Suez, or even our current deployment in Iraq).  But in the Ayson view of the world –  seemingly similar in practice to the Prime Minister’s –  an independent foreign policy seems to imply acting entirely on your own, never in concert with anyone, never acting for common interests and values, never acting with a quiet expectation of possible future reciprocal support.

Personally, I don’t think we should be taking a stronger stand against the PRC because, say, the United States is, but because it is in our own longer-term interests to do so –  both about the integrity of our own political system (recall, for example, the former PRC intelligence officer sitting in our Parliament, nominating other Beijing-associated people for honours), and about pushing back against international expansionism (particularly  by a state/regime with values inimical to our own).

But for Professor Ayson, somehow Trump and Brexit are reasons to stay cowering in the corner, deferring to the PRC.

There is one final, very small, fly in the ointment. It would be one thing to add New Zealand’s principled voice to an ensemble of China concern if the choir was unified and led by an internationally respected conductor. But has anyone seen how today’s conductor is behaving? In Donald Trump’s universe, traditional allies and close partners are at best expendable and at worst counter-productive. To the 45th president of the US, the rules-based order is barely relevant, including as it applies to trade. Things would be even worse if any of New Zealand’s remaining five eyes partners weren’t outward-looking models of political reasonableness. 

That’s called playing distraction (perhaps especially in the UK case where, whatever one makes of Brexit, the UK remains fully engaged in both NATO and Five Eyes, and has upped its commitment to this region, including naval patrols in the South China Sea).   You might not like everything about your friends and allies –  some might even be inconstant –  but you actually share values and interests with them.  Few New Zealanders share the values of the Chinese Communist Party or the state it tightly controls.

Ayson’s article ends weirdly.  He wants relations with Beijing strengthened, he wants “balance” back in our foreign and defence policy –  does he mean indifference to China’s consolidation of its hold on the South China Sea, indifference to its plays for influence in PNG, Vanuatu, Tonga, and (perhaps newly-independent) Bougainville), indifference to the growing threat to free and democratic Taiwan?  If so, perhaps he could say so directly.    But the weird bit isn’t that sort of alleged “realpolitik” but the final sentence

But especially in light of Beijing’s reprehensible conduct in Xinjiang, in which case, to borrow the prime minister’s own words, New Zealand needs to begin “Speaking up for what we believe in, standing up when our values are challenged,” this necessary readjustment will not get any easier.

After all it appears that he recognises something of the character of the regime.  But if –  as he says –  he wants the Prime Minister to start speaking up about that evil, it is unlikely to be a path that works towards sweeter and more harmonious relations with the PRC.  Decent people wouldn’t want it to.

 

 

Stress tests and bank capital

Just before Christmas the Reserve Bank released a consultative document on the Governor’s idiosyncratic proposal to increase required bank capital ratios to levels unknown anywhere else in the world.    I will have some fairly extensive commentary on aspects of that (unconvincing) document over the next few weeks, but today I wanted to focus in on stress tests –  something the Reserve Bank would prefer you paid little or no attention to in thinking about the appropriateness of their proposal.

Over the last decade or so, bank stress tests have come to play an important role in assessments of the soundness of banks, and banking systems, in many countries.   Devise a sufficiently demanding shock (or set of shocks) and then require banks to test their individual loan portfolios on those assumptions and see what losses would be thrown up.     Sometimes there has been a sense of the system being gamed – the shocks and associated assumptions deliberately set in such a way that banks the supervisors want to protect don’t emerge too badly.  There were suspicions of such issues in the US in 2009, and in the euro-area stress tests more recently (I heard a nice story about the clever way one set of tests were set up to minimise the adverse results for some Greek banks).    When you are in the middle of a crisis, that sort of thing is always a bit of risk: supervisors and their political masters have rather mixed motivations in those circumstances.

But there haven’t any credible suspicions of this sort of “rigging the game” in the stress tests conducted in New Zealand (and Australia) this decade.  That is no real surprise.  Our banking systems have appeared to be in good shape, and it wasn’t obvious that there was anything the supervisors and regulators would want to hide.  If anything, with both APRA and the RBNZ champing at the bit to interfere more in banks’ choices (especially around housing finance), the incentives ran the other way (if you could show more vulnerability, your case for intervention was stronger).  I was still at the Reserve Bank when the first results came in for the stress tests published in late 2014, and I vividly call a seminar in which various sceptics (me included) pushed and prodded, unconvinced that the results could possibly be as good as they appeared to be.  But, various iterations later, the broad picture of the results stood up to scrutiny.

There have been several stress test results published in the last few years (nota bene, however, that unlike the Bank of England, the Reserve Bank has not published results for individual banks.  The Bank of England approach should be adopted here –  publishing individual bank results should be a key component of disclosure and transparency.)  One of those was a dairy-specific stress test, about which I’m not going to say anything more  here (I had a few sceptical comments here).

The other two stress tests  are more useful in thinking about the overall soundness resilience of the banking system, in the face of severe adverse shocks.

The first set was published in late 2014.   This is how they described the main scenario

In scenario A, a sharp slowdown in economic growth in China triggers a severe double-dip recession. Real GDP declines by around 4 percent, and unemployment peaks at just over 13 percent. House prices decline by 40 percent nationally, with a more marked fall in Auckland. The agricultural sector is also impacted by a combination of a 40 percent fall in land prices and a 33 percent fall in commodity prices. The decline in commodity prices results in Fonterra payouts of just over $5 per kilogram of milk solids (kg/MS) throughout the scenario.

Auckland house prices were assumed to fall by 50 or 55 per cent (as large as the biggest falls seen anywhere).   In a 2015 commentary on these stress tests I pointed out just how demanding this stress test was, especially as regards the increase in the unemployment rate (around 8 percentage points).

My point is simply to highlight that the Reserve Bank’s stress tests were very stringent, using an increase in the unemployment rate larger than any seen in any floating exchange rate country in at least 30 years.  It is right that stress tests are stringent (the point is to test whether the system is robust to pretty extreme shocks)  but these ones certainly were.  And yet not a single one of big banks lost money in a single year.  That might seem a bit optimistic –  it did to me when I first saw the results –  but they are the Reserve Bank’s own numbers.

No bank lost money in a single year, and –  this is the Bank’s own chart –  none of them even had to raise any new capital (none would otherwise have fallen below minimum required capital ratios).

box-a-fig-a3-fsr-nov14

This should have been a bit of a problem for the Reserve Bank, as they published these results –  sold at the time as an indication of a sound and resilient system – just a few months before the then-Governor launched a new wave of LVR controls on housing lending.  I wrote various commentaries on this point back in 2015, and occasionally the Governor and his deputy seemed to squirm a little (one example here), but not ones to let rigorously done stress tests get in a way of a favoured intervention, they went on their merry way.   Ever since then, they’ve been trying to convince us that their interventions further reduced the risks associated with the New Zealand financial system.

In 2017, the results of another set of stress tests were published.     Here was how they described the main scenario in that set of stress tests.

The four largest New Zealand banks have recently completed the 2017 stress testing exercise, which featured two scenarios.1 In the first scenario, a sharp slowdown in New Zealand’s major trading partner economies triggered a downturn in the domestic economy. The scenario featured a 35 percent fall in house prices, a 40 percent fall in commercial and rural property prices, an 11 percent peak in the unemployment rate, and a Fonterra payout averaging $4.90 per kgMS. Banks were required to grow their lending book in line with prescribed assumptions, and also faced funding cost pressures associated with a temporary closure of offshore funding markets and a two notch reduction in their credit rating.

(By then, the unemployment rate was starting from a slightly lower level).

If this test was less demanding regarding the fall in house prices, it not only explicitly assumes huge losses in asset values across the full range of types of collateral banks take in their lending, but also imposed material increasses in funding costs (rather than allowing any such pressures to emerge endogenously), and required banks to keep on growing their lending through a savage recession (in which demand for credit is in any case likely to be very subdued).   If there are one or two areas where this stress test could have been made a bit more demanding, overall the test is likely to materially overstate the potential loan losses in an economic downturn of this sort, because large dairy losses and large housing/commercial losses are highly unlikely to occur at the same time.  In any serious adverse economic shock, both the OCR and the New Zealand exchange rate are likely to fall –  typically a long way.   A fall in the exchange rate acts as a huge buffer to the dairy payout, even if global dairy prices fall a long way in an international recession.   These are details –  perhaps important ones –  but they go to the point that overall the 2017 stress test was a pretty demanding one (which is what one wants –  there is no value in soft tests, especially in good times).

And again, no bank made losses, and no bank fell below the minimum capital requirements. Here is some of the Bank’s text.

Credit losses: Due to the deteriorating macroeconomic environment in the scenario, cumulative credit losses associated with defaulting loans were around 5.5 percent of gross loans. Losses were spread across most portfolios, with residential mortgages and farm lending together accounting for 50 percent of total losses. Credit losses reduced CET1 ratios by 600 basis points.

RWA growth: The key driver of RWA outcomes were (i) risk weights increasing in line with deterioration in the average credit quality of nondefaulted customers and (ii) the requirement that banks’ lending grows on average by 6 percent over the course of the scenario. RWA growth reduced CET1 ratios by approximately 160 basis points.

Underlying profit: The banking system’s net interest margin declined by approximately 50 basis points per annum in the scenario. Banks only gradually passed on higher funding costs to customers, reflecting a desire to maintain long-term customer relationships and that some customers are on fixed rates. Underlying profits remained sufficient to provide a substantial buffer of earnings that accumulate to around 550 basis points of additional capital for the average bank.

The banking system survived, quite comfortably, the very demanding test thrown at it, based on bank loan books as they stood in early 2017.  As the Bank goes on to note, the results are sensitive to the assumptions used, but the Reserve Bank had no incentive whatever to understate the potential scale of the losses –  after all, these stress test results were released when they already had their capital review project underway.

Of course, we had one more “stress test”; the actual events of 2008/09.   Going into that recession, the Reserve Bank had been becoming increasingly uneasy about bank balance sheets.  There had been several years of rapid growth in housing lending, but there had also been very rapid growth in commercial property and other business lending, and in farm lending, and a sense that not all of this lending had been done with anything like the discipline that might have been prudent.    The 2008/09 recession was pretty severe, and quite a bit of poor-quality lending was revealed (especially in the dairy sector).  And yet, of course, the banking system came through that shock substantially unscathed.   One could argue that the test really wasn’t that demanding, since asset prices didn’t stay down for long, but in a sense that was the point: even with a severe international recession, and lending standards that did seem to have become quite relaxed, we experienced nothing like the sort of asset price or unemployment adjustments that the stress tests assume.   Capital ratios then were lower than they are now –  the latter now regarded by the Bank as totally inadequate.    Really severe adverse events don’t arise out of the blue, they are typically a reflection (as in Ireland or Iceland) of severe misallocations and reckless lending in the years leading up to the reckoning.   This latter point is one that seems lost on the Reserve Bank.

You’d have thought the Reserve Bank couldn’t have it both ways.  Sure, the most recent stress test results are now two years old, but they’ve spent the last few years telling us that they are pretty comfortable with lending standards (especially after imposing their LVR controls).  What used to be a focus of particular concern –  Auckland housing –  has largely gone sideways since then, and overall credit growth has been pretty subdued.  There is no credible story they can tell (and they haven’t even tried) as to how robust balance sheets in 2017 are now such as to make it imperative –  using the coercive power of the state –  for banks to have much higher capital ratios again.

Stress tests do get a (brief) mention in the capital consultation document.  They acknowledge the results

64. Recent stress tests have found that the banking system can maintain significant capital buffers above current minimum requirements during a severe downturn. During the 2017 stress test, the capital ratios of major banks fell to around 125 basis points above minimum requirements, while earlier tests had a trough buffer ratio of around 200 basis points. However, stress test results are sensitive to assumptions on the scale and timing of credit losses, and on the ability of banks to generate underlying profit under stress.

To which one might reasonably respond with “well, sure, but that is the sort of things you are supposed to test”.

But where they get rather desperate is in the next paragraph.

stress test from consultative doc

And here we have come full circle, back to rather strained reliance on the US, Spain, and Ireland in the 2008/09 crisis.

This chart attempts to imply that there is something wrong with the stress test results, rather than drawing the more obvious conclusion that they say something good about the health of the New Zealand and Australian banking systems, and about the macro environments within which those systems are operating.

Take the first panel of experiences, those from the late 1980s and early 1990s.  All five countries had newly liberalised their financial systems.  Neither banks nor borrowers nor supervisors (to the extent that the latter even existed) new much about lending or borrowing in a market economy.  In New Zealand and Australia there was wild corporate exuberance.  And in the three countries where there were systemic banking crises, all that was compounded by fixed exchange rate regimes –  that misallocated resources during the boom phase and then compounded the adjustment difficulties in the bust.

And what of the second panel?   In both Spain and Ireland there was a fixed exchange rate (membership of a common currency, but it amounted to much the same thing for practical purposes), and in the United States there was a deeply government-distorted housing finance market.   None of those cases bear any resemblance whatever to the situation of the New Zealand economy (and banks) in 2019.   We haven’t had the reckless lending, and although a future severe recession will involve losses, there is no reason to think that the 2017 stress test results materially misrepresent the health of the system.  (As the Bank has noted in the past, research suggests that in most serious banking crisis it isn’t residential lending that is the problem, but corporate and property development lending. The Bank has also previously been on record highlighting the importance of the floating exchange rate in providing a buffer in severe shocks, but now they seem to wilfully downplay or ignore that.)

The consultative document is now out for….consultation (although I think few believe the Governor is serious about taking on board other perspectives, and being open to changing his view).    But a story out the other day suggests they aren’t content to wait calmly for submissions to come in, and that the Governor has returned to the fray already in a letter to a single media outlet

Orr was responding to a BusinessDesk story questioning whether the central bank’s proposed new capital requirements for the major banks amount to gold-plating.

(I’ve asked them for a copy of this letter –  clearly already in the public domain –  but even though the Official Information Act requires them to respond as soon as reasonably practicable, I’m still waiting).

And what does the Governor have to say?

Reserve Bank governor Adrian Orr says stress tests of banks have inherent limitations, suggesting they shouldn’t be relied on.

“We emphasise in our public articles that stress testing results should not be read at face value,” Orr says in a letter.

“Both the significant modelling uncertainties, and the fact that the banks know how/when the stress situation ends, limits the value of stress tests,” Orr says.

“Further, passing a stress test covering only dairy portfolios is not a meaningful indication of overall capital strength, given it is only approximately 10 percent of banks’ exposures.”

As Newsroom notes, the final point is simply irrelevant –  the Governor attempting to play distraction –  when as the Governor and anyone else interested knows the Bank has done economywide stress tests, across the entire loan books of the banks (see above).

And of course stress tests have inherent limitations.   That is one of the reasons to have as much transparency as possible about the tests so that users can evaluate for themselves just how demanding the Reserve Bank has been.   And while the Governor seems to want to imply that the limitation he highlights could understate the potential loan losses etc, there are alternative perspectives.  For example, knowing at the start of the stress test just how severe and lengthy the eventual shakeout (asset price falls, high and enduring unemployment) will prove to be may lead to more loans being called in earlier, perhaps at larger losses.    One thing we saw in the US in 2007/08 was that banks were able to raise fresh capital early on, at a time when few appreciated just how bad things were going to get.

I don’t, for example, recall anyone suggesting (for example) that the stress test results should result in a reduction in minimum capital ratios (despite the ample margins).  They are one input, but they should be something the Governor engages with a great deal more seriously, particularly when he proposes to go out on a limb and adopt capital requirements out of step with those anywhere else in the world.   And if he wants to run these arguments, it might be better form to do so in the published consultative document, than in knee-jerk responses to individual people casting doubt on his preferred option.  I can think of one or two half-decent counter arguments –  and I’ll come back to them in a later post –  but they aren’t ones the Bank has ever advanced.

Reality is that in thinking about the consultative document, on the one hand we have detailed and specific results from repeated stress tests (and the aftermath of a period of rapid lending growth and loose lending standards not many years ago), using the specifics of banks’ loan books as they stand.   A stake in the ground as it were.   And on the other hand, we have numbers that –  despite pages and pages of the document –  are really just plucked out of the air –  both the proposed requirements themselves, and the economic and financial consequences if those whims eventually form policy.

But more on some of those issues over the next few weeks.

 

 

 

 

Perhaps Councils could consider doing the basics right?

Wellington City Council is just one of the many local authorities whose staff and elected officeholders seek to use their office to pursue grand visions, that rarely stack up on any proper cost-benefit analysis.  In Wellington’s case there are big things like the airport runway extension, which fails on any decent analysis (notably the one that says no private sector owner would fund it) but only limps in through the planning process because councillors want to waste tens of millions of ratepayers’ money on it, or the convention centre, or the earthquake strengthening of the Town Hall (I quite like the building, but at what price?).  Or the smaller things like the Island Bay cycleway, supported by very few residents, costing ever more money, but……..part of the dream of Justin Lester and his team.

One might find their excesses slightly less annoying if the Council managed to get the basics right.  But they fail on that score too.  The housing and urban land market is only the most visible example –  a holiday climb to the top of Mt Kaukau is a reminder again of just how much land there is in Wellington City, and yet of how council restrictions mean house and land prices move to ever more unaffordable levels (a real estate agent’s letter yesterday suggested Wellington was the last significant rising market in Australasia).     Whose interests are they serving?  Certainly not those of the rising generation of Wellingtonians, but this is an ideology to pursue.

And then there are real basics like water.  Perhaps like many places, Wellington has watering restrictions in place over summer, whether or not there is much rain.  I don’t have too much problem with that, even if I can’t help thinking that using a price mechanism might be a better approach.  But it sticks in the craw when people are restricted in their ability to water their gardens while the Council does nothing about fixing leaks even when they’ve been reported (and WCC does have a user-friendly page for reporting such things).    This is a case in point.

leak

These leaks –  two side by side – have been going on for more than two weeks now.  I walk past them almost every day.  They were reported to the Wellington City Council more than two weeks ago: about two weeks ago I stopped and talked to someone who lived next to the water flows, who told me she had already reported it to the Council.

I watched it day after day, until finally yesterday I filled in the Council’s form and notified them again.  I even got a prompt response.   This is how it ran

We are aware of the leaks here and they are in progress with our Water Team to be repaired. There is a bit of a delay due to the location of the leak with it needing a traffic management plan in place for the crew to carry it out safety.

Talk about a jobsworth excuse.     This leak is at the very top of a dead end street.  To the left of where the leaks start there is a single private driveway, and just slightly closer to where I took the photo is the start of a pedestrian walkway.   It is true that there is a building site on the right (you can see one of the two entrances –  the other is on another street), but:

  • there is no through traffic at all,
  • the spot where the leak is could easily be fenced off with some cones, separating it from the traffic for the building site.

Perhaps more importantly, for several weeks the building site was closed for the Christmas holidays.  Work only resumed on Monday, and these leaks had been notified to the Council at least two weeks ago.  For several weeks there was almost no traffice anywhere near the leak –  and even now there is no through or passing traffic.

How do they ever manage when leaks occur on genuinely busy roads?  It is just waste.

But why would they care when there are ideological agendas to pursue?   I suppose voters keep electing these people, although between a Regional Council that stuffed up Wellington’s buses, and a city council that renders houses unaffordable, I’m firmly resolved not to vote for any incumbent (or anyone supported by incumbents) in this year’s local body elections.

Looking at some fiscal data

With the US partial government shutdown dragging on, I was digging around in the OECD’s fiscal data, with a particular emphasis on the US.  Of course, the shutdown itself has nothing to do with disquiet at the US fiscal position, or competing visions of the pace of adjustment back to budget balance.  There were once US politicians –  probably on both sides of the aisle –  who cared about balancing the budget, but if there are any such people left they are either inconsequential or keeping very quiet.   To the extent that fiscal issues play any role in next year’s presidential election –  probably unlikely –  they seem set to be conflicting visions of recklessness.

Here is a chart from the OECD comparing the core fiscal balances of the United States and New Zealand.   This measure is cyclically-adjusted, covers all levels of government, and is for the primary balance (ie excluding servicing costs).    There are various reasons for focusing on the primary balance, including the fact that interest costs can be heavily influenced by the rate of inflation (high in the 80s, low now), without telling one very much about the sustainability of the overall position.

us and nz fiscal

It is a striking chart.  Over 30 years there have only been two years when the US primary balance was higher (more positive) than New Zealand’s.   All else equal, New Zealand cannot run primary deficits quite as large as those of the US, as our real interest rates are typically higher than those in the United States.

But what of public debt?  In the early 1990s, when this particular debt series starts, the net government debts (per cent of GDP) in New Zealand and the United States were very similar.  But not now.

us and nz debt

And the US situation is seriously understated in this chart, because of the large unfunded public service pension liabilities that aren’t included in the debt numbers.   There is nothing remotely similar (small GSF liabilities only) in New Zealand.

The US isn’t alone (and one could mount an argument that the US is better placed to cope with higher public debt than many advanced countries as it still has a faster population growth rate than most).  Here are some of the G7 countries for the same period

g7 debt

Germany is little changed (point to point) and Canada has managed a large reduction.

I don’t take much comfort from the current low level of interest rates –  either they are low for a reason (eg lower productivity growth, lower population growth) or they will eventually “return to normal”, resulting in a heavy servicing burden.

Perhaps the thing I found most interesting was this chart, using OECD data for net government liabilities as a per cent of GDP and the OECD cyclically-adjusted primary balances.  One might have hoped that there would be some relationship between the two –  countries with very high debts, now running decent primary surpluses, and perhaps countries with very low debts running modest deficits.

net debt and primary bal

But, in fact, on this simple bivariate chart there is no relationship at all  (the US is the dot at the very bottom of the chart, while Greece –  surpluses – and Japan –  deficits –  are the two countries furthest to the right).

I wouldn’t read too much into the relationship.   What is captured in the debt numbers does vary across countries (see, eg, the pension point I noted earlier), as do the demographics (eg Japan now has a falling population), and the external constraints (eg Greece), but I found it a little sobering nonetheless.   There is a sense that, at least in some countries, the old self-correcting disciplines appear to have weakened considerably.

But they probably haven’t disappeared altogether, which brings us to what should be the biggest area of concern in the next few years.   When the next serious recession comes, there is little conventional monetary policy leeway in most countries (even in the US, 300 basis points less than going into the last recession), and not one of those G7 countries in the chart above has made any significant progress in rebuilding the public sector balance sheet. In fact, the two largest OECD economies – the US and Japan –  not only have high debt, but are also running some of the largest structural deficits, at a time when in both countries the unemployment rate is near record lows.

 

 

Productivity: any hope from Treasury?

In my post yesterday I noted briefly the dismal productivity record in New Zealand in recent years, nicely captured in this chart.

real GDP phw dec 18

That poor record builds on decades or underperformance, dating back to the 1950s.  In all the time since then, there has never more than a year or two at a time when New Zealand has outperformed other advanced countries, and mostly we’ve achieved less productivity growth than they have.  As a result, we’ve moved from being among the very richest and most productive economies in the world to one where the top-tier of OECD countries have rates of labour productivity about two-thirds higher than those in New Zealand (and countries like Turkey and various former eastern-bloc countries –  where market economies were unknown for decades –  are nipping at our heels).  This table is from a chapter on New Zealand economic performance in a forthcoming book (which I foolishly allowed myself to be persuaded to participate in)

GDP per hour worked
USD, constant prices, 2010 PPPs
1970 1990 2017
New Zealand 21.4 28.6 37.2
Netherlands 27.4 47.5 62.3
Belgium 25.0 46.7 64.6
France 21.7 43.3 59.5
Denmark 25.1 44.8 64.1
Germany 22.3 40.7 60.4
United States 31.1 42.1 63.3
Median of six 25.1 44.1 62.8
NZ as per cent of median 85.4 64.9 59.2
Source: OECD

You might have hoped that this shockingly poor performance would worry someone in office –  political or bureaucratic.  But there is no sign it ever does, for long anyway.  It occasionally provides a good line for Opposition parties (of whichever stripe), or even for incoming governments in the heady days when everything is the fault of the previous government and you’ve not yet been expected to produce results yourself.  Our current Prime Minister and Minister of Finance were occasionally heard to refer to the problem in 2017, but hardly at all since then.

Once upon a time it was something one might have expected The Treasury to care about, have views about, and be offering rigorous advice to the government of the day (of whichever party) on.  After all, productivity is the only secure foundation for material prosperity, and material prosperity allows societies to make all sorts of other choices with fewer constraints than otherwise.  But that isn’t today’s Treasury.  If there are people in the organisation who still think about these things, it certainly isn’t an issue that ever seems to trouble the senior management – the more so under the lamentable stewardship of Gabs Makhlouf over the last eight years.  As I noted late last year, when Treasury is forced to write down its view on the productivity outlook, results make it clear they have the wrong model.

After my post yesterday, a commenter observed

The only hope on the horizon is the appointment of a new Secretary to the Treasury who is given or [secretly] works on a single goal of devising policy to genuinely increasing productivity…..

The Treasury has lost its sparkle over the last 30 years and it is time it regained some lustre, it’s ‘reason for being’ and grew some courage.

I couldn’t disagree with the sentiment, even if I wasn’t optimistic that there was any hope at all.  But the comment prompted me to have a look at the documents on the SSC website supporting the current advertisement for a new Secretary to the Treasury.

The procedure for the appointment of public service chief executives is set out in the State Sector Act.  Section 35 provides that when there is a vacancy the State Services Commissioner must

invite the Minister to inform the Commissioner of any matters that the Minister wishes the Commissioner to take into account in making an appointment to the position.

That is the Minister’s opportunity to scope the job, and identify his or her priorities.  And although there is now a perception that appointments are made by the State Services Commissioner, in fact the law is clear that the Cabinet can not only reject a nomination, but can appoint their own preferred nominee.   In other words, while Peter Hughes (the State Services Commissioner) has considerable influence, appointments ultimately reflect to a substantial degree the choices and priorities of ministers.  Thus, under the previous government it was ministers who fast-tracked citizenship for Gabs Makhlouf to allow him to be appointed. (And thus Bill English –  who later acquiesced in the reappointment of Makhlouf –  bears responsibility for the failures of The Treasury this decade –  including the complete absence now of any comprehensive analysis and advice on the productivity failure).

But what of the current search?  The advert and supporting documents will reflect the Minister of Finance’s own priorities and views of what The Treasury should be doing.

Even the short advertisement itself starts in an unpromising way.

The Treasury is the Government’s principal economic and financial advisor. Its work improves the wellbeing and prosperity of all New Zealanders by ensuring the nation’s macroeconomy is stable,

In fact, if anyone does macroeconomic stabilisation at all well it would be the Reserve Bank –  that is a key part of the Bank’s role.   Sure, The Treasury advises the government on policy around the Reserve Bank, but the Bank is both operationally independent and has a direct line to the Minister on the policy issues.  But not a mention of productivity –  lifting the level of economic performance –  or any of its cognates.

Later in the advert, I was briefly encouraged

The Secretary will be both an expert in financial and economic policy leadership and  state sector management and strategy.

Good luck finding a person with both sets of qualities, but I don’t want to cavil just yet –  an “expert in financial and economic policy leadership” would be good.   An expert in financial and economic policy itself might be even better –  someone who would command credibility among staff, ministers, and the wider policy community.

Three other documents accompany the advert.  One is purely process oriented, and I’m not commenting any further on it.

The second is the position description.  In the opening bumpf  about the organisation there is finally some welcome reference to Treasury’s responsibility for things around the level of economic performance (emphasis added)

The three key outcomes the Treasury works towards are improved economic performance and prosperity for all New Zealanders, macroeconomic stability, and a higher performing State sector.

But that’s it.  Once the document gets on to the specific position of Secretary to the Treasury, it is all lost once again.   There are the specific accountabilities for the Secretary, moving beyond the generic statutory responsibilities:

The Secretary of the Treasury is also accountable for:

• Leading and overseeing New Zealand’s public finance system;

• Working collaboratively with the State Services Commissioner and the Chief Executive of the Department of the Prime Minister and Cabinet to ensure a consistent and aligned approach to State sector system leadership;

• Advising on, and implementing strategies for, managing the Crown’s balance sheet including debt; risks; contingent liabilities; and the government’s investment in companies and other entities;

• Advising and reporting on fiscal management for the Crown and monitoring departmental operating and capital expenditure; and

• Building succession for the Treasury’s leadership team and working with colleagues to leverage the Treasury’s talent for system benefit while building a diverse and inclusive organisation where staff have career pathways.

Nothing about economic performance (level or variability) –  advice thereon – at all.

And these are policy-related “critical success priorities”

• Leading, organising and managing the Treasury so it delivers on the Government’s goal of a shared prosperity where all New Zealanders benefit from the wealth that growth in the economy provides;

• Refreshing the macroeconomic framework (fiscal, monetary and financial stability) to ensure it is fit for purpose for the next twenty years, including driving the further development of a wellbeing approach;

• Promoting greater transparency and understanding of the Government’s economic goals through supporting the embedding of wellbeing measures in the Public Finance Act and through the Secretary’s and other Treasury communications and engagements;

• Providing advice to assist the Government to meet its policy priorities within its Budget Responsibility Rules;

• Working collaboratively with others, including Māori, to collectively develop and deliver creative solutions to resolve long-term challenges including child poverty, housing, climate change, and freshwater;

The first of those is about distribution (not “growing the pie”), and the second is about some odd mix of stability and the wellbeing approach.  The third is about transparency, the fourth about fiscal policy, and the fifth perhaps illustrates the government’s priorities.  Productivity appears not to be one of them, from the agency styled as the government’s principal economic advisers.    I’m not necesssarily suggesting there is much wrong with what is on the list –  one can debate the vacuity of the wellbeing approach another day –  but what isn’t there is telling.

The third document is the application form, which is useful because it sets out the capabilities SSC (on behalf of the Minister) says it will be assessing applicants on.  These are the capabilities applicants are required to demonstrate (in writing)

Think, plan and act strategically; to engage others in the vision, and position teams, organisations and sectors to meet current and future needs.

Lead and communicate in a clear, persuasive, and impactful way; to convince others to embrace change and take action.

Work collectively across boundaries to deliver sustainable and long-term improvements to system and customer outcomes.

Drive innovation and continuous improvement to sustainably strengthen long-term organisational performance and improve outcomes for customers.

Bridge the interface between Government and the Public Sector to engage political representatives and shape and implement the Government’s policy priorities.

All probably fine and reasonable in their own way –  if what you want is some generic public service manager –  but again what is notable is the absences.   Neither here, nor anywhere in any of the documents, is there any sense of wanting someone who might model excellence as a policy adviser, or lift the performance of the organisation in a way that might deliver credible and compelling answers to the appalling productivity underperformance of the New Zealand economy.

And why not?  Presumably because neither Grant Robertson, nor his boss, nor his party, nor the parties they govern in league with, care.  Nothing –  in these documents, in speeches, interviews or anywhere –  suggests otherwise.

To revert to my commenter’s hope, I guess there is nothing to stop the person who is eventually appointed choosing to make productivity a priority and foster work developing compelling analysis and recommendations.  But it doesn’t seem very likely.  Even if Treasury isn’t as resource-constrained as some government agencies, there won’t be lots of capable staff resources readily able to be diverted to something that just isn’t a government priority.  But more importantly, what sort of person do we suppose is likely to get the job?   And why would such a person, who got through the selection process (acceptable to both SSC and the Minister) be likely to change their spots once in office.  What would be their incentive?  And how likely is it that they’d be the sort of person who would even care much, or understand the issues well enough to know where to start.

As was the situation eight years ago, there are few obvious strong contenders for the role –  at least among people with any serious economic or financial expertise.    Looking through the list of current Treasury senior management, there are some capable people (although part of a leadership team that appears more interested in, say, diversity than in productivity), but really only one of those people could conceivably offer that level of expertise at this stage.   Around the rest of the public sector, I wonder if Geoff Bascand (Deputy Governor at the Reserve Bank, who was open about the fact that he applied to be Governor and missed out) might be interested.  Perhaps there are ambitious people at MBIE – an agency better known for delivering on ministers’ priorities than for serious analysis.   One can’t help thinking that applicants who are female will, all else equal, have something of an edge. But none of the names that spring to mind seem any better than the likely underwhelming field of male applicants.

Then again, Grant Robertson isn’t serious about dealing with the country’s most important economic failing, so perhaps it doesn’t really matter much who oversees the playground where analysts divert themselves thinking about concepts of wellbeing, while New Zealand is likely to keep drifting further behind.

How are wage earners doing?

For the last few years –  probably almost since the economy began emerging from the long recession of 2008 to 2010 –  there has been talk about how low average wage increases have been.   Those lines have sometimes been run in discussions of the general rate of inflation –  all else equal, if inflation had been nearer target, average nominal wage increases probably would have been a bit higher –  but more often it seems to have been a real phenomenon people had in mind; some sense of wage earners being “left behind”.

I’ve been increasingly sceptical of that story, and did a few posts  12-18 months ago to illustrate the point.   Some of the data aren’t updated very often, and there are historical data revisions, so I thought it might be time to take another look.

The first series I’ve been interested in is the labour share of GDP –  as approximated by the share of all the value-added in the economy accruing as compensation of employees. To make this comparison, one needs to adjust out for taxes and subsidies on production (all else equal, a shift from income taxes to a higher GST won’t raise wages –  or leave people worse off on average – but will raise measured GDP).  The data are only available annually, and only up to the March 2018 year, but here is the resulting chart.

labour share 2018

There is a little bit of short-term variability in the series, but if (say) one compares the latest observation (year to March 2018) with the last observation before the recession (year to March 2008), the labour share of GDP is still a touch higher now than it was then.  In both cases, it was higher than it had been at any time in the previous fifteen years or so.   As I’ve noted previously, the trough was in the year to March 2002 (on my telling, this was not unrelated to the fact that the real exchange rate had then been around historic lows).

The other comparison I find interesting is to look at how wage rates have evolved relative to (nominal) GDP per hour worked.   Nominal GDP captures both any productivity gains the economy has managed and any terms of trade gains (as well as general inflation).  Over the longer-term one would expect those variables to be the biggest influence on developments in economywide wages.

In putting together this chart, I’ve used the SNZ analytical unadjusted series of the Labour Cost Index, which purports to be the right measure for these purposes (wage rates, rather than just average wages –  the latter distorted by composition changes, and wages before any adjustments for productivity –  the headline LCI series attempts to adjust for productivity gains).    The series doesn’t get wide coverage but –  absent any serious efforts to suggest the data are of unusually poor quality –  should.

Unfortunately, the analytical unadjusted LCI series is only available back to 1995 (the private sector sub-component only to 1998) but even that is now well over 20 years of data.

In the chart I have:

  • indexed nominal (seasonally adjusted) GDP per hour worked (using the HLFS and QES), and
  • indexed the analytical unadjusted LCI series,

both to 100 in the March quarter of 1995, and then taken the ratio of the wage series to the GDP per hour worked series (so that the resulting series is equal to 1 in the March quarter of 1995).

lci wages vs gdp

There is a fair bit of short-term noise, but the trend is pretty clear.  On this data, wages have been rising faster than the overall earnings capacity of the economy.   That was so in the 00s, and has been so –  albeit to a lesser extent – in recent years too.  For anyone inclined to want to debunk the analytical unadjusted series, note that this chart is not wildly inconsistent with the labour share chart I showed earlier: the labour share of total income has increased since the early 00s, with the biggest change occurring in the pre-recession 00s themselves.

So what is the problem?  There are two.  First, general economywide inflation has been unexpectedly low this decade, and below the target midpoint now for years.   Not surprisingly, against that backdrop nominal wage inflation has been lower than it might otherwise have been.

But the second –  and far bigger –  issue is that lack of productivity growth.   Here is my regular chart, last updated just before Christmas

real GDP phw dec 18

There has been no labour productivity growth for the last four years, and very little this decade.  Sure, the terms of trade have been reasonably good, but you cannot expect strong sustained growth in (real) wages if productivity growth is so moribund.   If anything, real wage growth has been surprisingly – and probably unsustainably –  strong given that feeble growth in the earnings capacity of the economy.    It is all consistent with a story of a high and overvalued real exchange rate  –  domestic demand pressures give rise to wage inflation, but in the process squeeze the outward-facing sectors of our economy.  You’ll recall that exports (and imports) peaked as a share of GDP at about the turn of the century, and are no higher now than they were 40 years ago –  even though successful small economies typically see a growing reliance on two-way international trade.

It would be good if our political “leaders” –  and their advisers in The Treasury –  actually focused on these sorts of imbalances and underperformances.  But nothing serious is heard any longer from the Prime Minister about the productivity underperformance.  Taking it seriously might confront them with hard choices, and I guess vapid rhetoric about “wellbeing Budgets” comes more readily.  New Zealanders –  including New Zealand wage earners –  deserve much better.

 

Material progress: how very recent

There was a news story a few years ago in which some academics were reported as suggesting that pretty much everyone of West European descent alive today was descended from Charlemagne, first Holy Roman Emperor.   That he had 18 children, legitimate and otherwise, only increased those probabilities.  35 generations back we each have about 34 billion notional ancestors and yet the total population of north-western Europe back then was only about 20 million.

I didn’t give the story much thought until last week.  For the last few months my 12 year old daughter has been hard at work tracing family trees, with a bit of help from Dad.   I was mostly interested in the last couple of hundred years, but she has been keen to trace every line possible as far back as we could go.  We’ve put in some intense effort over the holidays and last week she stumbled on the path that took us all the way back to Charlemagne (and a couple of centuries before him).   Just seeing that continuous path –  one of the billions that made her her – on a couple of sheets of A3 gives a fresh vividness to those earlier centuries.

Of course, the other thing that even a little economic and social history does is to serve as a reminder of just how recent our material prosperity is.  I downloaded a copy of the UK 1861 census form for one particular set of ancestors –  just before they got on the (slow) boat for New Zealand.   They were farm labourers in a small town in Yorkshire, living in a street where the other residents were also farm labourers and the like – and one is explicitly described as a pauper.  The UK in 1861 had (on the Maddison database numbers) the best material living standards anywhere, rivalled only by Australia.  But life was tough, hours were long, amenities were few, and (for example) infant mortality rates were shockingly high.   According to a book a distant relative wrote recently, 26 people were to die on their trip to New Zealand –  quite an “investment” in the prospect of better opportunities.

One of the children of that Yorkshire family, then just one year old, made the most of the opportunities 19th century New Zealand offered.  He built businesses and served as mayor of Christchurch from 1912 to 1919 (and later as an MP).  At the time, New Zealand is estimated to have offered among the very highest material standards of living anywhere in the world.  But I wrote last year about what those “best material living standards” amounted to only a hundred years ago.

Imagine a country in which the average age at death was only about 45, 6 per cent of children died before their first birthday, and another 1.5 per cent before they turned five.  Not many children are vaccinated.

Most kids get to primary school –  in fact it is compulsory –  but only a minority attend secondary school.  By age 15 not much more than 15 per cent of young people are still at school.   Only a handful do any post-secondary education (total university numbers are about 1 per cent of those in primary school).   Houses are typically small –  not much dedicated space for doing homework – even though families are bigger than we are used to.   Perhaps one in ten households has a telephone and despite the street lights in the central cities most people don’t have electricity at home.

Tuberculosis is a significant risk (accounting for seven per cent of all deaths).  Coal fires – the main means of heating and of fuel for cooking – mean that air quality in the cities is pretty dreadful, perhaps especially on still winter days.  Deaths from bronchitis far exceed what we now see in advanced countries. There isn’t much traffic-related pollution though – few cars, so people mostly walk or take the tram.  The biggest city is finally about to get a proper sewerage system, but most people outside the cities have nothing of the sort.      And washing clothes is done largely by hand – imagine coping with those larger families.

Maternal mortality rates have fallen a lot but are still ten times those in 2018 in advanced countries.  One in every 50 female deaths is from childbirth-related conditions –  which leaves some kids without mothers almost from the start.

Welfare assistance against the vagaries of life is patchy.  Most people don’t live long enough to be eligible for a mean-tested age pension.   Orphans aren’t in a great position either, and there is nothing systematic for those who are seriously disabled.  There is a semi-public hospital system, but most medical costs fall on individuals and families, and there just isn’t much that can be done about many conditions.

There are public holidays, and school holidays, but no annual leave entitlements.  No doubt the comfortably-off take the occasional holiday away from home, but most don’t, because most can’t (afford it). Only recently has a rail route between the two largest cities been opened –  but it takes 20 hours for cities only 400 miles apart.

I wouldn’t choose to live in that country.  Would you?

And yet my grandparents did live there –  they were all kids then.  This was New Zealand 100 years or so ago, just prior to World War One.  I took most of that data from the 1913 New Zealand Official Yearbook.

In constructing the family tree those infant mortality rates were brought home more vividly, when I found one great uncle and one great aunt both of whom died aged less than one in the years just prior to World War One, both in comfortable Christchurch families.

Over the holidays, I read an old masters thesis –  written at Otago in 1950, and still occasionally cited –  that somewhat updated the picture, at least as regards household management and facilities.   According to the Maddison collection of data, New Zealand in 1950 still offered perhaps the third or fourth best material living standards anywhere in the world.   This particular student had conducted what appeared to be a reasonably well-designed survey, and set of interviews, with women in a sample of households in central Dunedin, looking at what appliances each household had, which of a variety of services they used, and so on.  The survey and interviews were conducted in early 1950.   Here is one summary table.

appliances 1950

You can see the spread of technology.   100 per cent of these households had an electric iron, and 72 per cent had a vacuum cleaner (presumably none would have in 1913).  76 per cent even had an electric toaster.  But many were still cooking using a coal range, just under half had an electric jug or kettle, and only 7 per cent had a refrigerator –  in a major city in one of the richest countries on earth, less than 70 years ago.   There were, of course, few (probably no) domestic freezers, microwaves, dishwashers –  or the myriad of more specialised appliances that now line the shelves of Briscoes.  And, on the other hand, sewing machines were widespread.

The student recorded the occupational status of each household (typically, the employment of the husband) and analysed the incidence of these appliances across different occupational classes.    The incidence of domestic technologies (those in the table above) in professional occupation households was, for example, about about twice that among labourers and pensioners (the differences being statistically significant).

The second strand of the survey that underpinned the thesis was the use of various external services.    When only 7 per cent of (these) households had a refrigerator –  and presumably none a freezer – fresh food was a major issue.

Bread for example

bread

(If you didn’t bake your own) it had to be collected every day it was baked.  According to the survey most walked to the shop to buy it.

Around half of the respondents had their groceries delivered, and around 10 per cent shopped using their own car.  The rest walked and carried the groceries home (typically from choice, since delivery was generally available).   Meat couldn’t be stored with long without a fridge, and the survey found that few butchers offered to deliver, so a walk to the butcher was pretty much a daily requirement.   Many of the respondents didn’t have a telephone, so even if delivery had been available, they’d still have to have walked to the butcher to place the order.

What of fruit and vegetables?

fruit and veg

The thesis goes on to look at the use of commercial laundry services, house-cleaning and window-cleaning services (including a slightly arch comment about the one respondent who claimed never to clean their windows), and the employment of people to assist in household chores or child-minding.

Perhaps like all writing, that 1950 thesis is also something of a period piece. There are asides about the price controls and butter-rationing still in place in post-war New Zealand, and a near unwavering sense that household management is a woman’s work.  And if there is a recognition of the importance of price –  this was, after all, a thesis partly done under the Economics Department

tech

there were also some curious asides

tech 2

Best national accounts estimates suggest that average material living standards in New Zealand in 1950 were not much more than a third of those today (and over that period New Zealand has had among the slowest rates of productivity growth of any country).   The data captured in that thesis help illustrate some of the concrete differences.

That thesis was my mother’s.  She is the great-granddaughter of that 1861 Yorkshire farm labourer, and the great-niece of that former mayor and MP – she was told to blame him when she couldn’t start school at five (Depression-era economies by the government of which he was an MP).  She was the first person on either side of my daughter’s family tree to graduate from university (at least in modern times), at a time when only about 5 per cent of young people went to university (and only about 1 per cent of women).  In one of the richest countries in the world.

It is her 91st birthday today.    There have been staggering material changes over the span of her life, let alone that of her grandparents and their generation.     Echoing Robert Gordon perhaps, I’m less convinced that if I live to 91, there will have been anything like that scale of improvement over my life.  I’m just about to walk to the butcher and supermarket.  Then again, in 1962 one couldn’t trace back generations of ancestors from the comfort of one’s own computer screen.