What is the Reserve Bank’s monetary policy?

I’ve been banging on a bit about how the new(ish) Reserve Bank Governor has been enthusiastically talking about everything under the sun (mostly modish left-wing causes) in speeches and interviews, but six months into his term of office we still haven’t had a considered speech from him on any of the things he is, by law, exclusively responsible for, notably monetary policy and banking and insurance prudential regulation.  It is quite an extraordinary omission.  It is almost as if he isn’t overly interested in monetary policy and financial stability, which can be pretty dry but need to be done well and accounted for rigorously, preferring to use the pulpit his office provides to pursue personal political and policy agendas.   The appearance of that is bad enough, let alone the reality.  And then, of course, there are his meanders after the forest gods.

I stumbled yesterday on an example of what is lacking around monetary policy when a reader in the financial markets pointed out this line in a Bloomberg interview done by one of Orr’s senior managers, chief economist John McDermott, just after the last Monetary Policy Statement in August.

In current circumstances, the bank would need to see core inflation above 2 percent before it considered raising rates, he said.

I’d seen the interview when it was first published, but somehow overlooked this line.  As far as I’m aware, it didn’t get much –  or any –  attention anywhere else either, although who knows whether in the private briefings the Bank provides to select market economists they may have explained themselves.

As it stands, it looks like –  but perhaps isn’t – quite a change in the way the Bank thinks about monetary policy, but with no explanation and no elaboration.

Under the previous Governor –  on whose watch, and in agreement with the Minister, the 2 per cent target midpoint was explicitly made the focus of monetary policy –  the Bank’s approach would have been described as something like the following: adjust the OCR so that, allowing for the lags, a couple of years ahead (core) inflation would be around 2 per cent.

It was a forecast-based approach, and of course forecasts are often wrong.  Over the last decades, forecast errors were mostly one-sided, so that core inflation ended up consistently undershooting the target midpoint. The approach recognised that the midpoint could never be achieved with 100 per cent certainty, but envisaged departures from it arising only by (less or more) inevitable accident.

The approach the chief economist is reported as articulating in that interview seems quite different on two counts:

  • it isn’t forecast-based (they would need to actually see core inflation above 2 per cent before moving –  bearing in mind that the lags from policy to core inflation outcomes are probably 18-24 months), and
  • they would be relaxed about seeing inflation settle above the target midpoint, and not just by accident.

If that is the Bank’s new approach to policy, I would have considerable sympathy with it  (although many probably wouldn’t).   I’ve argued for some time that, given the limited scope to cut the OCR in the next recession, it would have been desirable to get inflation up, perhaps even a bit beyond 2 per cent, and with it inflation expectations.  That, in turn, would have supported higher nominal interest rates, and provided more room to move in the next serious downturn.   Given the evident difficulties of forecasting, I’ve also argued that for the time being the Bank should put relatively greater weight on what they can see now –  actual core inflation outcomes –  not on quite distant forecasts.  Doing so would seem a rational response to the evident uncertainty about the model (how the economy and inflation process are working).

(I’d have “considerable sympathy” if this were the new policy reaction function, but would have even more sympathy if such an approach had been reflected in the Policy Targets Agreement, ie with explicit ministerial support.)

But is this really the Bank’s policy approach?  We don’t know.  McDermott seems set to become a member of the new statutory Monetary Policy Committee next year, but for now he is just an adviser to the Governor, and only the Governor’s view finally matters.   There was no hint of such a policy approach in the last Monetary Policy Statement, or in the OCR announcement this week.  And, of course, the Governor talks about everything under the sun, but has provided no sustained analysis of how he thinks about the monetary policy process.

We don’t know, and that knowledge gap matters to anyone trying to make sense of how the Reserve Bank might respond to incoming information.    If core inflation now is at, say, 1.7 per cent rising gradually on current policy to 2 per cent over the next 18 to 24 months,  any upside economic surprise should be expected to take the Bank close to tightening, on the old forecast-based approach focused on the 2 per cent midpoint.   But if it takes actual core inflation to be above 2 per cent before they think about moving, near-term surprises would have to be very large –  with direct and immediate core inflation implications –  to make much difference at all to policy judgements.

If the new Governor has made such a change of approach, he’d have my full support – for the little that matters.   But whatever his actual approach, we are well overdue receiving a proper explanation from him as to how he –  in whom so much power is vested by law –  is thinking about monetary policy and the appropriate reaction function.

As part of that, we are overdue a good sustained explanation about how he is thinking about handling, and preparing for, the next serious downturn (beyond rather complacent, even glib, answers about there being lots of tools at his disposal).

It might all interest the Governor less than climate change, the (alleged) failures of capitalism, or idly lecturing people on the insufficiently long-term perspective they take to this, that or the other issues.   But it is the job he has taken on, and the Bank has liked to boast (not very credibly or convincingly) about how transparent it is.  A clear statement about how he thinks about monetary policy, not just as this or that particular OCR review, but in general, and in the context of the longer-term risks around the next downturn, would actually rather nicely fit with his emphasis on more long-term thinking.  Or is that lecture just for other people?

More on Orr

It is six months today since Adrian Orr took office as Governor of the Reserve Bank, the latest (and last, given forthcoming legislative reforms) in a line of people who over the last 30 years have held office as the single most powerful unelected person in New Zealand (more powerful individually than most elected people).

When it comes to monetary policy, I’ve had no particular problem with the Governor’s bottom-lines.  In fact, if he’d stuck to those, the contents of this blog in recent months would have been quite different.

Here was the bottom line in May (the Governor’s first OCR decision)

The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell.

in June

The Official Cash Rate (OCR) will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary.

in August

The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement. The direction of our next OCR move could be up or down.

and here is the Governor today

The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and into 2020. The direction of our next OCR move could be up or down.

As one of the only (perhaps the only) commentators who has been consistently on record in thinking a lower OCR would have been a good idea, and who has argued that if there is a move in the next 12 months it will be a cut, I’ve welcomed the fact that –  unlike most market economists –  the Bank’s focus doesn’t appear to have been on when the next OCR increase happens.  Too much focus in that direction misled both the Bank and the market economists for much of the last decade.

Thus far, well done Governor.

The bit in those “bottom line” statements that has left me a little uneasy is the apparently confident statements about the future: in March, the OCR would stay at 1.75 per cent “for some time to come”, and in the last two releases it has been even more specific about dates if less dogmatic in tone (“we expect to keep the OCR at this level through 2019 and into 2020”).       But none of us knows the future.  Macro forecasting is pretty futile more than perhaps a quarter or two ahead, and yet the Governor spends resources and puts his reputation somewhat on the line as if he were some sort of oracle, granted insight into the far –  by monetary policy standards –  far future.    It is bizarre and unnecessary.

But perhaps equally surprising is the way the market economists play the game.  Their commentaries are full of discussions around whether the next adjustment is more likely (say) 12 months out or 15 months out, as if they too are oracles, blessed with some particular insight.  I suppose they have clients who want this sort of stuff, but you might think that at least some of the better clients would appreciate being told the truth: there is almost no chance of the OCR changing in the next three months, and beyond it is really anyone’s guess, almost inherently unknowable.  Words like those in the Governor’s first statement: only time and events will tell.  Crisp and honest.

And yet I’m conscious that much of my experience was in periods when interest rates moved round a great deal.  And these days they seem not to.

The OCR system itself is almost 20 years old.   The first OCR was set in March 1999.  In this chart, I’ve shown the first 10 years of data (to February 2009) and the subsequent 9.5 years to now.

OCR 10 years

In the first 10 years, the range from low to high was almost 500 basis points.  In the rest of the 1990s, the amplitude of fluctuations in the 90 day bank bill rate was similarly large.

And the last 9.5 years?   The total range within which the OCR has fluctuated is only 175 basis points, and it was only even that wide because of the msisguided enthusiasm for tightening in 2014.

That is quite a difference.

But the difference is even more stark if we look at retail interest rates.   Here is the Reserve Bank’s floating first mortgage rate series for the same two periods.

floating 10 yr

Over the last 9.5 years, this mortgage interest rate has moved within a total range of only about 110 basis points.

And here is the same chart for the Bank’s six-month term deposit rate series.

TD rate 10 years

The range from high to low is about 170 basis points (similar to that for the OCR), but the peaks were a very long time ago now (back in 2010/11).  For years now, term deposit rates (on this indicator) have fluctuated little, between just over 4 per cent and just over 3 per cent.

I don’t have a good hypothesis for why we have seen such a dramatic change in the variability of interest rates.  It doesn’t surprise when one sees such patterns in countries that hit the effective lower bound on nominal interest rates –  unable to cut further, inflation lingers low and there is little reason then to raise rates. But that isn’t the New Zealand story at all  –  the lowest the OCR has got is the current 1.75 per cent and everyone recognises it could be cut further if necessary.

Has the economy really got so much more stable than it was in the previous couple of decades?  It seems unlikely, perhaps especially in New Zealand (with, for example, record swings in population, big earthquakes, and big terms of trade changes).  Perhaps, to some extent, the Reserve Bank has simulated the sort of behaviour seen in the lower bound countries: always reluctant to cut (even though they always could have), inflation has stayed too low, and the economic upswings have, partly as a result, been pretty muted by historical standards and not very inflationary.  I’m genuinely puzzled.  Who knows, perhaps the Governor could offer the benefits of Bank research and analysis on this point whenever he finally gets round to deigning to give a substantive speech on his primary (according to the Act) responsibility, monetary policy?

Changing tack, in yesterday’s post I had a bit of fun taking the Governor to task over his attempt to articulate the story of the Reserve Bank as if it were some obscure mythical tree god, Tane Mahuta.   Late in that post, I noted that they had adopted some imagery of an island, as what the Bank was working towards.  In their own words

“We have visualised ‘our island’ that we are moving towards on the horizon, one that all New Zealanders can be proud of and that Tane Mahuta –  our Bank – can stand tall on.”

And this was the page with the picture I showed.

our island.png

I noted yesterday

It appears to be the island where the imaginary tree god dwells.  But, here’s the thing, it doesn’t look a bit like anywhere in New Zealand.  And the Reserve Bank of New Zealand is supposed to be primarily about New Zealand and New Zealanders.   Has the tree god flown the coop (so to speak) and fled to some poor Pacific Island where –  perhaps –  well paid senior central bankers take their winter holidays and commune with the deity?   I’d prefer a central bank –  even one deluded that it is a tree god –  to think New Zealand, New Zealand people, New Zealand places.

A diligent reader took the photo and did a little digging with the help of Mr Google.  Turns out that the Governor’s island is Bora Bora, a very expensive resort location in French Polynesia.  I guess it is the sort of place the Governor and his chums flit off too –  although I’d been under the impression the Governor’s destination of preference was the Cook Islands –  but the weird thing is that it is in a quite different country.  Even more oddly, given his distaste for the colonial experience –  suffusing his official document –  it is a territory of an old European empire.   Don’t we have any islands in New Zealand?

But we do, of course.  The Governor can probably see Somes Island out his office window. I live in a suburb named for its island.  And all of us live on these islands, the myriad of them that make up New Zealand.

I guess it was just a silly slip –  though you wonder how no one picked it up –  but it does seem all too consistent with the Governor’s style: once over lightly, and  more focused on the issues he isn’t responsible for (recall not long ago he told us we were lucky as a country not to export fossil fuels) than on the narrow range of things he is responsible for.  Perhaps he could put aside the tree god stuff and get back to (what a commenter this morning urged me to) the “dry old world of money”.   There is more interesting and important stuff in the world, but “money” is the Governor’s job, and it needs to be done well, and in a way that commands respect.

And, finally, regular readers might recall a post from a month or so ago, in which a reader had passed on a report of the Governor’s address (off the record –  and thus only the favoured few had access) to an INFINZ financial markets function in Wellington in late August.    It was reported that the Governor has been typically loquacious, but offering up potentially quite highly market-sensitive information to his favoured audience.

Typically loquacious but, so the report suggests, perhaps going rather beyond the Bank’s public lines on monetary policy as articulated in the August Monetary Policy Statement, in a very dovish direction.     And weighing in on what sort of person he wanted (and did not want –  economists apparently not wanted) on the new Monetary Policy Committee –  the one where the Minister supposedly makes the appointment, the one where the legislation has not yet been dealt with by the relevant select committee.

It seemed rather undisciplined and inappropriate, and I reminded readers again of the contrast with the Reserve Bank of Australia where speeches by the Governor and senior staff are typically on-the-record, usually with a published record of the subsequent Q&A session as well.  The difference doesn’t matter much when off the record speeches are totally anodyne, and people answer questions in a similar unrevealing way, but that certainly isn’t Orr’s style.

On this occasion, so the report I received suggested, it wasn’t just monetary policy things the Governor was free and frank about.    There was, for example, reportedly stuff about how if banks didn’t change their ways he’d change them for them, by setting up a Royal Commission here  [something the government would surely not be keen on given their difficult relationship with the business community, and plethora of reviews/inquiries], and a totally dismissive approach to the recent failure –  on the Bank’s watch – of CBL Insurance.

I put in an Official Information Act request to the Bank about this speech.  I didn’t expect much –  it seemed unlikely the Governor was working from a text, but (given his style) it was at least possible (it would be prudent more generally) there might have been a recording.  There wasn’t apparently.

But I also asked for copies for briefing notes or emails related to the content of the speech.  And there was some material there in the response I got back this morning.   The full response will apparently be put on their website before long (now here).   What was interesting was a request sent out on behalf of the Governor to several Bank staff who had been at the function inviting any feedback  (the request was for anything, good or bad, but perhaps not surprisingly none of the staff offered anything sceptical or critical, to a Governor not known for welcoming challenge).   In those comments we learn from one

My impression from the crowd was that they also enjoyed the speech and are really starting appreciate that having a longer-term vision and focus is important. I like that you gave the audience practical examples such as the United Nations Sustainable Development Goals, Carbon Disclosure Project, and Principles of Responsible Investing that they can start using/working toward now – they have no excuses for inaction!

The SDGs have nothing whatever to do with the Reserve Bank or its responsibilities.

And from another

For example, Adrian discussed climate change and short-term vs. long-term thinking.

Nor, of course, has climate change.  Short-term vs long-term thinking is one of his hobbyhorses, but as I’ve noted previously the Bank has done nothing substantive on this claim.

It sounds as if the speech was all over the show, and mostly (as we’ve come to expect) not on the things he is paid to be responsible for. It is undisciplined and unfortunate, and won’t help wider confidence in him or the tree god (though those who like his leftist political analysis may, shortsightedly, welcome it).  And none of it is transparent and open, more like a locker-room chat to his buddies in the financial sector.  He tells us the economy sat in darkness before the advent of the Reserve Bank.  Maybe, maybe not, but assuredly we all too often sit in darkness when it comes to the activities of the Bank itself.  That simply shouldn’t be acceptable.  Openness, and equal information for all, should be the watchwords of a modern accountable central bank and its Governor.

Orr among the forest gods

Almost 1300 years ago, the English missionary priest and bishop Saint Boniface confronted the belief of some pagan German villagers in Thor, god of (among other things) oak trees. Tree gods (or beliefs in them) were vanquished, and Boniface became known as the apostle to the Germans..

Pre-evangelisation, Maori had their own tree god, Tane Mahuta.    As far as I can tell, not many believe any longer in this local tree god: when I looked up the 2013 Census data, there were lots of Maori recording no religion, and there were plenty of Catholics and Anglicans.  But there wasn’t a category shown for tree gods, or any of the other deities (Wikipedia has a list of at least 35 of them).

But the Governor of the Reserve Bank seems intent on bringing them back.

Tomorrow will mark six months since Adrian Orr became the most powerful unelected person in New Zealand, as Governor of the Reserve Bank.  Six months on we’ve had not a single serious and substantive speech on the policy areas he is responsible for, and where he exercises a huge amount of barely-trammelled power.  No speech on monetary policy, no speech on banking regulation, and nothing either on the less prominent things the Governor is responsible for –  such as, for example, insurance prudential supervision, a New Zealand insurer having failed, regulated by the Reserve Bank just before the Governor took office.  He hasn’t substantively and openly engaged with, or responded to, the damning survey results on the Bank’s performance as a financial system regulator.

Instead, we’ve heard the Governor on almost everything else.  There was infrastructure, climate change (repeatedly), the failings of capitalism, geopolitics, women in economics, and of course bank “conduct” (playing distraction from his institution’s own failings, by trying to butt into a field for which the Bank has no statutory responsibility).    There have been lots of words, but not much sign of in-depth reflection or distinctive insights, and even less sign of doing him well, and being open about, the jobs Parliament has actually given the Bank.   Throw in some considerable complacency about monetary policy and it should be a pretty disquieting picture.

Some of it is probably just the Governor’s well-known propensity to talk.  Some of it might even be an understandable (if misguided in application) desire to lift the esprit-de-corps at the Reserve Bank after the demoralising Wheeler years.  And a lot seems to be about winning the turf battles, ensuring that in the reviews of the Reserve Bank Act that the government has underway as much as possible of the Bank’s powers are kept, in effect, under the Governor’s control, and that the existing powers and functions of the Reserve Bank are all kept in the Reserve Bank.  Part of that seems to be about openly subscribing what should be a non-partisan agency to every trendy left-wing cause that is going (and which, presumably, the Governor believes in personally.) A power play in other words –  and, with a weak government that probably doesn’t care much, quite likely to succeed,  somewhat to the detriment of New Zealand.

The latest example was the release on Monday of a rather curious 36 page document called The Journey of Te Putea Matua: our Tane Mahuta.   Te Putea Matua is the Maori name the Reserve Bank of New Zealand has taken upon itself (such being the way these days with public sector agencies).  It isn’t clear who “our” is in this context, although it seems the Governor  – himself with no apparent Maori ancestry – wants us New Zealanders to identify with some Maori tree god that –  data suggest –  no one believes in, and to think of the Reserve Bank as akin to a localised tree god.  Frankly, it seems weird.  These days, most New Zealanders don’t claim allegiance to any deity, but of those of us who do most –  Christian, Muslim, or Jewish, of European, Maori or any other ancestry – choose to worship a God with rather more all-encompassing claims.

But the Governor seems dead keen on championing Maori belief systems from centuries past.    In an official document of our central bank we read

A core pillar of the evolving Māori belief system is a tale of the earth mother (Papatūānuku) and the sky father (Ranginui) who needed separating to allow the
sun to shine in. Tāne Mahuta – the god of the forest and birds – managed this task after some false starts and help from his family. The sunlight allowed life to flourish in Tāne Mahuta’s garden.

This quote appears twice in the document.

All very interesting perhaps in some cultural studies course, but what does it have to do with macroeconomic management or financial stability?  Well, according to the Governor (in a radio interview on this yesterday) before there was a Reserve Bank “darkness was on our economy”.  The Reserve Bank was the god of the forest, and let the sun shine in.  Perhaps it is just my own culture, but the imagery that sprang to mind was that of people who walked in darkness having seen a great light.   But imagine the uproar if a Governor had been using Judeo-Christian imagery in an official publication.

On the same page we read

Many of these birds feature on the NZ dollar money including the kereru, kaka, and kiwi – core to our belief system and survival.

I’m a bit lost again as to who “our” is here.  I’m pretty sure I’m like most New Zealanders; I never saw a bird as “core” to my “belief system”.  Perhaps the Governor does, although if so we might worry about the quality of his judgements in other areas.

As I say, it is an odd document.  There are pages and pages that have nothing whatever to do with monetary policy or the financial system.  Some of it is even quite interesting, but why are we spending scarce taxpayers’ money recounting stories of New Zealand general history?  There is a page about the Maori navigators and, somewhat out of order, an earlier one about what early Maori ate and what the tribes traded among themselves.   And there is a whole page about Kate Sheppard who, admirable as she was, has nothing whatever to do with New Zealand economic or financial history and policy.  There is questionable history:  simple matters of fact (eg Apirana Ngata wasn’t the first Maori Cabinet minister and didn’t first hold office in the 1920s – James Carroll, who held high office for a long period (twice as acting Prime Minister), preceded him), highly questionable and tendentious economic history, and overall a tone (perhaps comforting to today’s liberal political elite) that seems embarrassed by the European settlement of New Zealand.     There is lots on the difficulties and injustices that some Maori faced, and little or nothing on the advantages that western institutions and society brought.  Reasonable people might debate that balance, but it isn’t clear what the central bank –  paid to do monetary policy and financial stability –  is doing weighing in on the matter.

As I noted earlier, in a radio interview yesterday the Governor claimed that prior to the creation of the Reserve Bank ‘darkness was on our economy’, that the Reserve Bank had let the sunshine in, and that Australia and the UK had somehow turned their backs on us at the point the Bank was created.   In fact, here it is – Reserve Bank as tree god –  in the document itself.

The Reserve Bank became the Tāne Mahuta of New Zealand’s financial system, allowing the sun to shine in on the economy.

I think there was a plausible case for the creation of a central bank here, but to listen to or read the Governor you’d have no idea that New Zealand without a Reserve Bank had been among the handful of most prosperous countries in the world.  Here from the publication, writing about the period before the Reserve Bank was created

The infrastructure funding was further hindered by the banks being foreign-owned (British and Australian) and issuing private currency. Credit growth in New Zealand was driven by the economic performance of these foreign economies, unrelated
to the demands of New Zealand. Subsequent recessions in Britain and Australia slowed lending in New Zealand when it was most needed.

Very little of this stands much scrutiny.  You’d have no idea from reading that material that the New Zealand government had made heavy and persistent use of international capital markets, such that by 1929 it –  like its Australian peers –  had among the very highest public debt to GDP ratios (and NIIP ratios) ever recorded in an advanced country.  You’d have no idea that New Zealand was among the most prosperous countries around (like Australia and the United States, neither of which had had central banks in the decades prior to World War One).   You’d have no idea that the economic fortunes of New Zealand, trading heavily with the UK, might reasonably be expected to be affected by the economic fortunes of the UK –  terms of trade and all that.   Or that economic cycles in New Zealand and Australia were naturally quite highly correlated (common shocks and all that).  And of course –  with all the Governor’s talk about how we could “print our own money” – within five years of the creation of the Reserve Bank, itself after recovery from the Great Depression was well underway, that we’d not unrelatedly run into a foreign exchange crisis that led to the imposition of highly inefficient controls that plagued us (administered by the evil twin of the tree god?) for decades.  Or even that persistent inflation dates from the creation of the Reserve Bank

One can’t cover everything in a glossy pamphlet, even one that seems to purport to be aimed at adults (including Reserve Bank staff according to the Governor), but there isn’t much excuse for this sort of misleading and one-dimensional argumentation, aka propaganda.

The propaganda face of the document becomes clearer in the second half.   Among the issues the government’s review of the Reserve Bank Act is looking at is whether the prudential and regulatory functions of the Bank should be split out into a new standalone agency, a New Zealand Prudential Regulatory Authority.  I think that, on balance, that would be a preferable model.  It also happens to be the model adopted in much of the advanced world, including many/most small advanced economies.  There are arguments to be made on both sides of the issue, but you wouldn’t know it from reading about the Governor’s vision of the Bank as a Maori tree god, where one and indivisible seems to be the watchword.      Everything is about “synergies”, and nothing about weaknesses or risks, nothing about how other countries do things, nothing about the full range of criteria one might want to consider in devising, and holding to account,  regulatory institutions for New Zealand.

I don’t have any problem with officials, including from affected agencies, offering careful balanced and rigorous advice on the pros and cons of structural separation. But that is a choice ultimately for ministers and for Parliament.  And among the relevant considerations are issues of accountability and governance.  Neither word appears in Governor’s propaganda piece.   But then tree gods probably aren’t known for accountability.  New Zealand government regulatory institutions should be.   If ministers and Parliament decide to opt for structural separation, I wonder how the Governor will revise his document –  his tree god having been split in two.

Among the tree god’s claims about financial regulation and what the Bank brings to bear was this breathtaking assertion, prominently displayed at the head of a page (p27).

The Reserve Bank is highly incentivised to ‘get it right’ when it comes to prudential regulation. We have a lot at risk

It is an extraordinary claim, that could be made only be someone wilfully blind –  or choosing to ignore –  decades of serious analysis of government failure, and the institutional incentives that face regulators, regulatory agencies, and their masters.

There is nothing on the rest of that page to back the tree god’s claim.   On any reasonable and hardheaded analysis, the Reserve Bank has very weak incentives to “get it right”, or even to know –  and be able to tell us –  what “get it right” might mean.   When banks fail, neither the Reserve Bank Governor nor any of the tree god’s staff have any money at stake (at least in their professional capacity, and as I recall things, Reserve Bank staff – rightly –  aren’t allowed to own shares in banks).  It is all but impossible to get rid of a Reserve Bank Governor, and it is even harder to get rid of staff (for bad policy or bad supervision).  Most senior figures in central bank and regulatory agencies of countries that ran into financial crises 10 years ago, stayed on or in time moved on to comfortable, honoured (a peerage in Mervyn King’s case) retirements, or better-remunerated positions in the private sector.

And when the Reserve Bank uses its powers in ways that reduce the efficiency of the financial system, or stopping willing borrowers and willing lenders writing mortgage contracts, where are incentives on the Reserve Bank to “get things right”.  There are no personal consequences –  the Governor and his senior staff either won’t have, or would have no problem getting, mortgages.  The previous Governor got to exercise the bee in his bonnet about housing crises, and to play politics, with no supporting analysis and no effective accountability.    The current head of the tree god opines that lenders and borrowers can’t be trusted –  but tree gods apparently can –  but when challenged produced no analysis to support his claim.  That sort of system creates incentives for sure, but they aren’t to “get it right”.  Officials have incentives to keep things secret, and we saw that on full display with the Bank’s supervision of CBL Insurance last year –  they might argue it was in the public interest, but even if so, it was clearly in their private interests, and against the interests of many members of the public.

Another word that hardly appears at all in the document is “transparency”.  If you wanted to call yourself a tree god who sheds light upon the dark world that was pre-1933 New Zealand (or, presumably, a modern New Zealand without our current Reserve Bank) you might think there would be at least some self-awareness of the other side of letting the light in: letting in the light on the Bank’s own operation.   As I’ve documented here over the years, the Bank is quite open about what it wants to be open about.  But what credit to them is that, everyone releases what they want to release: the essence of transparency is readily and willingly releasing material that they might, in some senses, prefer to keep to themselves, to make for an easier life for the tree god.  Our Reserve Bank –  the Governor’s pagan tree god –  is notoriously secretive and obstructive, consistently pushing to and beyond the limits of the Official Information Act.  Only a few weeks ago the Ombudsman’s office had to intervene to remind them that simply invoking “Chatham House rules” doesn’t enable you to keep things secret.  And with even the Cabinet having promised pro-active release of Cabinet papers, and pro-active release of Budget background papers and advice, the Reserve Bank looks not like a tree god shedding light in dark places, but like some more malevolent self-interested dark deity.

The Governor also tells us he has adopted an ever more ambitious goal than the previous Governor’s one.  Graeme Wheeler articulated a vision of the Reserve Bank as “best small central bank” in the world.  It was pretty empty.    There was no sign that citizens or other stakeholders had asked him to be the “best small central bank”  –  richer countries than us will often choose to spend a lot more (and with less accountability) on their central bank.  In any case, when challenged a few years later, it turned out that there was nothing going on to benchmark themselves against that ostensible aspiration.   But Orr’s aspiration for his tree god is an unqualified “best central bank”.     The institution is a very long way from that at present –  and getting further away if Orr uses the Bank as a platform for pushing for his personal political agendas, well beyond the Bank’s statutory responsibility.  It isn’t open, it isn’t excellent, it is accountable.  It should do much better (although I’m still not convinced that a small poor advanced country should be expecting, ir aiming, ot have best central bank there is.)

And finally, among the oddities of Orr’s apparent aspirations is something about an island.  There is a full page under the heading “Our island and Tane Mahuta”, complete with lots of (mostly) worthy (if sometimes threatening, for staff ) aspirations, and this picture.

RB island

It appears to be the island where the imaginary tree god dwells.  But, here’s the thing, it doesn’t look a bit like anywhere in New Zealand.  And the Reserve Bank of New Zealand is supposed to be primarily about New Zealand and New Zealanders.   Has the tree god flown the coop (so to speak) and fled to some poor Pacific Island where –  perhaps –  well paid senior central bankers take their winter holidays and commune with the deity?   I’d prefer a central bank –  even one deluded that it is a tree god –  to think New Zealand, New Zealand people, New Zealand places.

Better still, ditch the pagan religion –  not (according to the Census) taken seriously by Maori, and never part of the heritage or beliefs of most New Zealand –  leave it to the cultural studies textbooks, and get on with doing your job, openly, accountably, excellently.

And, as part of that, abandon the complacency about monetary policy, expressed again  by the Governor is his Radio NZ interview yesterday.   The next serious recession  is, according to him, nothing to worry about.  Monetary policy faces no serious constraints.  Which, presumably, is why all those other countries who did find themselves at the effective lower bound last time round were able to rebound so quickly and effectively, and deliver inflation consistently near target.  Or perhaps that is only in a false tree god’s imaginary world?

UPDATE: I meant to include, but accidentally left out, reference to the fact that the Bank of New Zealand had been majority New Zealand government owned from 1894, forty years before the Reserve Bank was formed.   Surely the Governor was aware of that?

Orr on women, and himself

Six weeks or so ago, I wrote a couple of posts in quick succession on issues fitting under the loose heading “women in economics”.   I commented on a recent conference paper produced by a couple of senior Treasury officials (one of whom was male), and on the situation at the Reserve Bank prompted by some comments from the (male) Governor and the release of some statistics on the proportion of female applicants for various positions, including that of Governor.    My overall sense was something along the lines of “there seems to be a real and longstanding problem –  perhaps not easily fixed – at the Reserve Bank, but that it was less clear that there was a wider problem”.    Those posts were not universally well-received, and I received various comments, open and private, suggesting that as a mere male I had no right to comment on these issues, that any perspectives had –  by assumption –  no value, and (in the words of one particularly strident commenter) that I should withdraw quietly and “reflect on how your internal biases are harming women”.

And then a few weeks ago, there was a newsletter around from GEN (the Government Economics Network) advertising a launch event for a Women in Economics Network (for anyone interested, they have a LinkedIn group here), at which the speaker was to be Governor of the Reserve Bank, Adrian Orr.  It was advertised as open to anyone, and since I have an interest in the issues –  particularly as they affected the Reserve Bank (where I was manager for a long time), and the contrast between their experience and that of other entities – I signed up to go along.  I also attended because it must be a decade since I’d heard Adrian Orr speaking in the flesh, and as I’ve been quite critical of some aspects of his nascent governorship, including his speeches, I was interested to see how he now came across to a live audience.

It seemed like a fairly well-attended event, held at The Treasury.  The audience apparently included some high school students and teachers, as well as lots of public service types, and was (as one would probably expect) around 85 per cent female.

The event began a bit oddly, with some sort of introductory greeting or welcome from Gabs Makhlouf, the politically-correct British Secretary to the Treasury.  It was in Maori, and I’d be surprised if more than a handful of attendees had a clue what he was saying.

The Governor was introduced by Vicki Plater, chair of the new network and a senior manager at The Treasury.  She noted in her introduction how, particularly as a  macroeconomist (a sub-discipline of economics with a particularly preponderance of men), it was a common experience to be (or feel like) the only woman in the room.

That resonated.  And so it was strange, and rather tin-eared, for the Governor to stand up and say, in his best jesting style “you know Vicki, most male economists also think they are the only economist in the room”.   It was, no doubt, a self-deprecating dig at a tendency of smart opinionated people to think, or act as if, they have “the” right answer to whatever is being debated.  But it seemed oddly inappropriate, as if to –  no doubt unconsciously – minimise the perspective and experience of women in (macro)economics –  the subject he’d been invited to address.

(It was also a bit strange that in the course of his comments –  speech and later panel discussion – Orr’s only unscripted references to individuals in the audience were to men.)

It wasn’t a long speech, but it was also striking how little content there was.   It was a paean to diversity and inclusion, but only in the most general and unspecific form.  We were told about some project the Bank has underway to re-tell its own story in terms of some Maori metaphor or mythology (the connection to the issue at hand being less than clear).  He asserted that somewhere around the Industrial Revolution humans had lost “the talent of working together in teams”, and we heard a brief snippet of his own experience of perceived exclusion at the recent Jackson Hole seminar (for top central bankers and the like).  He owned up to not himself being a great listener.   It wasn’t necessarily off the subject, but it all seemed pretty tangentially relevant.  If I was looking for the consistent theme it would be something around having to make an effort and break out of the constraints of established, unquestioned, ways of doing things.   There wasn’t much to disagree with, but equally you wouldn’t know that he was head of (and formerly held other senior positions in) an institution that has never had a women in a senior management role in policy or core operational areas in its 84 year history.  Perhaps that wasn’t the point; perhaps the point just was that senior male leaders (Governor and Secretary) cared enough to turn up.

Following the Governor’s talk there was a panel discussion, involving the Governor and a senior academic economist and an MBIE principal advisor (both women).   The Governor was again on form.  The MBIE principal adviser (of a Pacific background) noted that Pacific people in economics had few role models, and that the Governor was the pre-eminent role model.  His response: “I don’t know about being a role model; perhaps a sausage roll.”

There was a great deal of (seemingly) unquestioning acceptance of the unconscious bias model, with quite a few (unexamined) claims of conscious bias thrown in.    There was no discussion at all of how some occupations, and academic disciplines, end up very heavily female and others very heavily male, no discussion of the apparent “gender equality paradox” , just an inchoate sense of something, generically, being wrong. Quite what, specifically, wasn’t clear.

The Governor was the most confident communicator of the three, and since he tends to wear his heart on his sleeve we heard a few interesting anecdotes.  One was, I think, designed to illustrate how those in power can be unaware of the impact they are having on others.  He noted that shortly after his appointment as Governor was announced he’d had an email from a former staff member, who lambasted Adrian for the severely adversely impact he had apparently had, in some past professional role, on this person’s life.  This had apparently come as total news to the Governor, and it sounded as if the searing email had shaken him at least momentarily.  But the effect of the anecdote was rather undermined when he rushed on noting “but I got over it”.   Perhaps the problem really was with the writer, but it seemed to be a strange way to end –  perhaps confirmation of Orr’s earlier acknowledgement that he isn’t a good listener.

There was some discussion on calling out actions or words that display –  or are perceived to display – bias (the senior academic noted that she how did so openly and straightaway –  although when a new graduate later asked about this, it was acknowledged that it was not necessarily an option prudently open to everyone).   Orr told us about coming back from an appearance at Parliament’s Finance and Expenditure Committee and noting that all the Reserve Bank team had been male, suggesting that needed to change.  Apparently –  as these things do –  word got out, and down the organisation, crystallising in an email from somone (a manager I gathered) that in future appearances only women were wanted.   The point of the anecdote was that apparently someone had called this to the attention of the Governor and he’d corrected the messaging.  But it actually sounded more like a warning about the risks of loose words, emoting without a proper framework, from a new CEO.

In fact, you wondered whether those people at the Reserve Bank had really got the wrong message.  There was a question from the floor about quotas and whether or not they were a good idea.  All three panellists seemed a bit ambivalent, but the Governor actually came back to elaborate his initial quick response and stated that “positive discrimination is needed sometimes”.   That such discrimination would almost certainly be against the law seemed not to concern this senior public servant, speaking in an open forum.

In some respects, the Governor was in fine form on Friday.   The phrase “consummate communicator” was running round in my head, but as I reflected further I realised that that isn’t an accurate description at all.  Orr has a great way with words, and can be very entertaining, but effective communication involves getting appropriate alignment between audience, subject matter, and occasion.  In a senior public servant, gravitas also matters (pompous and old-fashioned as it might sound to some).  And as some of the comments above suggest, he tends to be a bit tone-deaf.   At the time, Orr was appointed, I included this snippet (drawing on a Bernard Hickey story)

Only a few weeks ago – when he must already have known that he was likely to become Governor –  Orr gave a speech to the Institute of Directors, in which he reportedly dismissed the views of Deputy Prime Minister on the economy as “bollocks” and went on to suggest, in answer to a question about nuclear risks in North Korea, that perhaps two issues could be solved at once ‘because Winston is going to North Korea”.  Recall that at the time, Orr was not some independent market economist, but a senior public servant.     He might well have been right in his views on the economy, but is this how senior public servants should be operating?

In his talk on Friday –  mostly among public servants – he probably was more relaxed than he usually is in public; it was very similar to the way he used to be when we both worked at the Bank.  But listening to Orr again, I was reminded of David Lange, who also had a great way with words.  Lange’s way with words developed, as I think even he recognised, as a defence mechanism  –  the way an overweight child pushed back and held his own in the playground.  I’m not sure what it is with the Governor, but perhaps he hinted at it himself in his remarks on Friday, noting that having grown up far from the halls of, say, Christ’s College, Auckland Grammar (or the female equivalents) – although didn’t most people? –  he had felt that he was having to push to be accepted, and in turn had had to come to accept that people with other upbringings also have valid and useful perspectives, their own strengths and weaknesses.  It isn’t clear to me that he has yet fully got over that background and the associated insecurities.  Perhaps a lot of it is just shtick –  a comedy routine –  but it is striking how often one hears from the Governor, or sees in profiles, references to his friends and relatives in Taupo and Rotorua, particularly those who didn’t have much formal education or interest in book-learning.  Have I ever heard, I wonder, any senior figure –  not running for office –  reference his conversations with his mates at the TAB (or the Wellington Club, or the golf club, or the church, or….well anywhere)?

The Governor is a smart guy.  No one disputes that.  But there are questions about his depth, his seriousness, and his judgement (see, for example, my comments last week on his recent speech).  Add in a dominant personality and a self-acknowledged reluctance to listen –  although, of course, self-recognition is some small progress –  and it reinforces the doubts about vesting so much power in his hands, or of structuring a Monetary Policy Committee in a way that continues to ensure his total dominance.

Meanwhile, we are still waiting for a thoughtful on-the-record speech on monetary policy and/or the Bank’s financial stability responsibilities.  I’m still waiting for a response to my OIA request about his, apparently rather loose, speech to INFINZ a couple of weeks ago.

And the specific issues at the Reserve Bank, where women have rarely (well never) achieved really senior roles in the central areas of responsibility, await the Governor’s attention.   It is, in my view and my experience, a complex story, but if it isn’t addressed seriously and well over the next few years –  better management, better structures, better people –  it will be increasingly awkward for the Governor and the Board (around half female) paid to hold him to account.


Another campaign speech from the Governor

Five and a half months into his Governorship, we’ve not had a single on-the-record speech from Adrian Orr about stuff that he is actually directly responsible for.  There hasn’t been a single speech about monetary policy –  still, by law, the Bank’s “primary function“.   There hasn’t been one either about banking regulation and supervision, financial stability more generally, let alone about the regulation of insurers and non-bank deposit-takers.   That is the stuff New Zealanders’ hard-earned taxes are paying him for, the job in which he is handed a great deal of discretionary policy power.  It is almost as if –  despite all the talk, all the cartoons – he has set himself the goal of being less open, less transparent, about stuff he should be accountable for than his ill-starred predecessor Graeme Wheeler.

Because even though Orr avoids talking about what he is responsible for, he talks a great deal –  but rather loosely – about almost everything else (almost all from the liberal agenda) under the sun.    There has been infrastructure, agriculture, climate change, bank conduct –  which you might think was the Bank’s business, but isn’t (it is, by law, a prudential regulator, not a conduct one) –  and so on.    Off-the-record at a recent event he has reportedly threatened a Royal Commission on banking conduct.  It is almost as if he thinks of himself as a politician.  On the record, his only speech until recently was championing some big corporate buddies and their exercise in climate change virtue-signalling, assiduously keeping on side with the new government.

Perhaps there is a gap in the market on the left-wing side of politics, where effective and capable leadership seems to be sorely lacking (come to think of it, that is probably so on the right-wing (so-called) side of politics too).   But if Orr is pursuing the bigger prizes he simply shouldn’t be doing it from the office of Reserve Bank Governor.  It matters, or should do, that people across the political spectrum (and with no interest in politics at all) can be confident that the Governor is using his office solely for the statutory purposes, and not to advance and champion personal political agendas.  I was no great fan of Graeme Wheeler’s, but I did believe that about him –  for all his faults, he was a self-effacing public servant.   Orr gives us no reason to have that confidence in him.  That degrades the institution.

The fact that most of Orr’s publicly-championed political preferences probably chime quite well with those of the current left-wing government shouldn’t make it any more acceptable than if he were championing causes favoured by, say, ACT or the Conservative Party (although at least in that case we’d be sure he was acting independently, not shilling for his mates or his personal ideologies, or in pursuit perhaps of victories in the various turf battles around the structures and responsibilities of the Bank).  It simply shouldn’t be happening.  It is an abuse of office, and the Minister of Finance and the Bank’s (supine) Board should be calling him out and insisting on a change in behaviour.

Last Friday we had another (very long) on-the-record speech from the Governor.  This one was under the heading “Geopolitics, New Zealand and the winds of change”.   It was odd from the start.  When the advisory came round telling us the speech  –  to a Workplace Savings conference –  was forthcoming, I wondered if any incumbent central bank Governor had ever given a speech with “geopolitics” in the title.  It didn’t seem very likely.   Most largely try to stay moderately close to their knitting –  the core responsibilities of their office.  And then, on reading the speech, it was odd to find that (notwithstanding the title) there was no references to geopolitics at all – the word or the thing.   That was a relief.  But what happened I wonder?  Did his senior advisers, the Minister of Finance, or MFAT prevail on him at the last minute to remove some material?

The Governor started his speech counter-punching

I know many people will be thinking, ‘what has the Reserve Bank Governor got to say about anything long-term? Doesn’t the Bank just sit and watch for outbreaks of inflation – shifting the official interest rate on a needs-be basis? Some will even comment publicly, ‘How dare the Governor speak outside of their 1 to 3 percent inflation mandate!’

I guess that was people like me.  No one has suggested that the Governor talk only about monetary policy –  although it would be a nice change if he did talk about it (say, preparing for the next recession) –  and, after all,  the Bank has extensive financial regulatory responsibilities.  No one would think it amiss if the Governor gave us a thoughtful analysis of just what is going on in the New Zealand economy at present, and how that fits with inflation prospects or financial risks.    But we’ve heard nothing like that.   And the Governor isn’t the Minister of Finance, he isn’t head of a think-tank, he isn’t an academic: instead he is a public servant, supposed to be politically neutral, operating within a specific legislative mandate.   If the Chief Justice or the Commissioner of Police were giving speeches like Orr’s it would be at least as inappropriate.

The Governor goes on

I hope to convince you we have a strong vested interest in, and influence on, the long-term economic wellbeing of New Zealand.

“We” here being the Reserve Bank.   But this is just wrong-headed (and inconsistent with the lines run by all his modern predecessors).   A country can have low and stable inflation and be poor or just underperforming (the latter the New Zealand story for decades), and it could have quite high inflation and still do rather well (see, for example, Turkey where labour productivity had almost caught up with that in New Zealand).    Discretionary monetary policy is, almost of its nature, about shorter-term economic stabilisation –  which matters a lot, but is just a quite different set of issues than those about longer-term prosperity.  Much the same goes for banking (and related) regulation –  to the extent it has a useful place, it is mostly about avoiding or limiting the short-term (but multi year) disruption that can accompany financial crises.  But, as the US amply demonstrates, financial crises –  nasty and disruptive, and even expensive, as they can be (and often having their roots in policy choices by regulators and their masters) – aren’t inconsistent with long-term prosperity.  Oh, and relatively poor or underperforming economies can still have a high degree of financial stability –  see, for example, New Zealand.

But Orr doesn’t make a contrary case, or demonstrate his proposition. He just asserts the connection between what he wants to say and the job he is paid to do.  And then moves on to six pages of (single-spaced) text on

I summarise the key plague on economic society as ‘short-termism’. This is the overt focus on the next day, week, or reporting cycle. In contrast, by long-term, I mean anything that ranges from ‘outcomes’ over the next few years, through to an ‘idealised vision’ that could last inter-generationally.

Remarkably, he advances not a shred of evidence, or sustained analysis, in support of his proposition.   Not that that is new, of course,  A few months ago he told the Finance and Expenditure Committee that banks and their customers had too much of a short-term focus, and thus he –  presumably blessed with an “appropriate” long-term perspective –  needed to step in.  But when I asked about any work the Bank had done to support such propositions, it turned out that there was none.  It was just off the top of his head.

It probably sounds good –  especially to senior bureaucrats not much given to introspection or historical reflection – to claim that there is too much short-term thinking in the world.  If only, if only, (they probably think) people would defer to people like them, the world would be a much better place.

Someone pointed out to me yesterday that Orr’s speech was strongly reminiscent of (the great US economist) Thomas Sowell’s description of the “conceit of the anointed” in his 1995 book.   I haven’t read the book, but as I dug some reviews and extracts, I was struck by how apt the comparison seemed to be.  There was this quote for example

“In their haste to be wiser and nobler than others, the anointed have misconceived two basic issues. They seem to assume: 1) that they have more knowledge than the average member of the benighted, and 2) that this is the relevant comparison. The real comparison, however, is not between the knowledge possessed by the average member of the educated elite versus the average member of the general public, but rather the total direct knowledge brought to bear through social processes (the competition of the marketplace, social sorting, etc.), involving millions of people, versus the secondhand knowledge of generalities possessed by a smaller elite group.

It is the knowledge problem all over again.  But Orr, of course, never touches on it.  His implicit model assumes a great deal of knowledge –  known with a great deal of certainty – and it ignores the repeated failures of governments and bureaucrats even (or perhaps especially) when they were trying to take “the long view”).    The real world is one in which we know –  as individuals, even very able ones – remarkably little.  And where frequent monitoring –  what might in some abstract full-information world feel like “short-termism” –  helps ensure appropriate course corrections, incorporating what we are learning.    We have to build institutions around those realities –  human societies have done so, over millennia.  None of this features in the Governor’s world, even as he celebrates the vast lift in living standards over recent centuries, little of it down to wise and far-seeing bureaucrats.

After all, plenty of well-intentioned politicians and bureaucrats have thought they were looking to the long-term.  The insulationist economic strategies adopted in New Zealand for decades after 1938 were conceived exactly that way, and didn’t end well.   Think Big strategies in the early 1980s were certainly conceived with a long-term view in mind: they were an utter disaster all round.  The idealists who passed the Resource Management Act thought they were consciously taking a long view.  Globally, the Club of Rome people in the early 1970s were extremely well-intentioned and, for most practical purposes, totally wrong.  And that is before we get to the wildly more extreme cases of those who thought they were building the “new Jerusalem” (so to speak) in revolutions and Communist takeovers in Russia and China.  Hitler, arguably, had the long-term in mind and it would have better for everyone if he’d settled for fixing the short-term challenges Germany faced in 1933.

But Orr acknowledges none of this as he airily asserts that the biggest problem the world economy faces in “short-termism”.  Arguably, one of the problems the New Zealand economy faced in the last decade was a Reserve Bank that wasn’t short-term enough in its focus –  convinced it knew where interest rates “needed” to head back to one day, they quite unnecessarily left tens of thousands of people involuntarily in the ranks of the unemployed.  And yet the Governor has praised their stewardship through that period.

It is a long speech and I’m not going to try to unpick every paragraph, but I did think it was worth picking up a few excerpts to highlight the shallow and reactive leftish thinking on display from one of our top public servants.  Among his list of “challenges”

Environmental degradation, with climate change now well accepted as a significant impact on economies worldwide. The impacts are physical through nature, and financial through changes in consumer and investor preferences, and regulation.

Perhaps the Governor hasn’t noticed that in most advanced countries air pollution, and often water pollution is (a) far less than it was 100 years ago, and (b) is far less than it is in emerging economies (notably China and India)?   And if he thinks climate change is having a “significant impact on economies worldwide” it might have been nice to have suggested a source.  Recall that the OECD –  about as centre-left technocratic a group as they came –  suggest a modest impact over even the next 40 or 50 years.

Ageing populations are also dominating the outlook for the next 30-plus years, with Japan being the canary for us all to watch. Their population is on the decline due to their demographic profile weighted so much to the elderly. Savings and consumption patterns are changing simply due to this population swing. The older have the savings and are demanding less in goods, but more in services, especially human contact. Loneliness is a significant and growing disease. Yet the owners of capital are struggling to create careers out of caring for the elderly, at least at incomes that attract and retain the people needed. The same could be said for tourism in New Zealand.

Has “loneliness” ever featured in a central bank Governor’s speech before (it appears twice in this one)?  If not, it would be for a good reason –  central banks have nothing to say on the subject.  Is there any substance to a sentence suggesting that a fall in the population is “due to” their demographic profile.  And what on earth do the last two sentences mean?   When willing labour is scarce surely (a) prices tend to rise, and (b) there is a substitution in favour of more physical capital?

And then there is inequality — the great cause of the left.

What do I mean by inequality? Well, even if the economic ‘pie’ has grown in total, the rewards are always skewed one way or another. Over recent decades, the rewards to the owners of capital (profits) have outstripped the owners of labour (wages) more than throughout economic history.

What does the Governor mean here by “skewed”?  He doesn’t tell us.  But he claims, or so it seems, that the labour share of income is somehow doing worse (levels or changes) that at any time in history.   Even if it were true, we might expect a more careful analysis of why, and the implications of such a change.  But here is chart I ran last year using OECD data of the labour share of GDP.

lab share since 1970

It is a remarkably variegated experience.  And if one were take a more recent period, the labour share of income here has increased a bit since about 2001 (not entirely surprising given that (a) employment has been quite strong and investment weak, and (b) that wage increases have increasingly run ahead of near non-existent productivity growth.

Or one could add, in a New Zealand specific context, that to the extent that inequality has widened much at all in recent decades, much of it is down to housing costs, in turn the direct result of choices (ostensibly long-term in nature) of officials and politicians.  Consumption inequality seems to actually be less than it was (chart in this link).

You might expect a senior New Zealand public servant opining openly, from his taxpayer-funded pulpit, about what is wrong with the world to actually know, and address, some of this stuff.

After all, in what is clearly a theme of elite official opinion in New Zealand at present, we should, Orr thinks, lead the world.

But, we do have opportunities to lead the globe in positive change if we can become more long-term in our economic activity.


The great news is we are small, young of nation, lightly populated, green, kaitiaki (caretaking) of spirit, not dependent on the export of fossil fuels, and have a strong rule of law and sound moral compass. Significant and bold leadership is in our grasp.

This from the little country whose leaders have let it fall so far behind the rest of the advanced world in productivity –  what opens up so many other options and choices –  in recent decades?  (And, re those fossil fuels, personally I’d swap Norway’s economy for ours any day).

But that isn’t a problem for Orr.  He reckons the productivity failure is easy to overcome

The reasoning behind the low productivity is well understood but, apparently, difficult to combat in a coordinated, persistent, manner.

So with problem identification and solutions outlined, wouldn’t we just move on to resolution? Short-termism challenges us always and everywhere.

Appparently everyone agrees on (a) the analysis, and (b) the answers.  All we need is to abandon short-termism.  The superficiality of all this, the detachedness from reality –  hasn’t he noticed that there is no agreement at all on what the nature of the problem is, reflected in quite varying policy prescriptions –  almost beggars belief.

There is more glib stuff later (amid some odd Maori mythology) about how long-termisn will be our saviour

If company boards and managers have a long-enough horizon, then there are no externalities – all issues are endogenous to their actions (eg, pollution, employment, inclusion, and sustainable profit).

This is simply nonsense.  Externalities don’t arise because people – in this case the agents of company owners –  don’t have a long enough horizon, but (largely) because property rights and interests aren’t always clearly or properly assigned.  And you can have as a long a horizon as you like and still often, probably repeatedly, be wrong.  And if you want to worry about the long-term, I’m really glad that no one much 100 or 200 years ago worried very much about notions of global warming etc.  Had they done so our current global prosperity would simply not be.  Here is a nice line from a recent speech by the (greenish) chair of the Productivity Commission

British Economist Dimitri Zenghelis draws attention to the astonishing lift in global living standards since the onset of the industrial revolution (Zenghelis, 2016). The combustion of fossil fuels has been integral to that transformation and, in his words, “capitalism was founded on carbon”.

And we should be thankful for that, even as there may now be adjustment challenges.

I wanted to conclude with a couple of examples of Orr’s thinking on matters a bit closer to his core areas of responsibilities.   There was this, for example,

We can also be unpopular with wider New Zealand, as shifting interest rates and/or implementing and altering the loan-to-value ratio that banks are allowed to lend at, are often not immediate vote winners. These activities directly cut across our human instinct for instant gratification, despite in the long-run maintaining a stable financial system and reducing the scale of financial volatility and/or crises.

And yet neither Orr, nor Wheeler before him, has shown any evidence at all that New Zealand banks were lending inappropriately, or borrowers were borrowing unwisely when five years ago the Reserve Bank intervened in a functioning housing finance market – where the banks had just come through a nasty recession unscathed –  to stop willing borrowers and willing lenders getting together to assist people into a house.  It was well-intentioned I’m sure –  so many things are –  but mostly what it looks as though it achieved was to keep ordinary New Zealanders out of houses a bit longer than otherwise, in favour of cashed-up buyers who got slightly cheaper entry levels.  Ah, but Orr (and Wheeler) know better what is good for you and me.

And then this from the second to last paragraph

We still concentrate most of our investment in housing equity – rather than productive equity – relying on leverage from offshore borrowing. This is not a formula that will create ‘capital deepening’ in our economic efforts.

It is a popular line (echoed often by the Minister of Finance), but no less incoherent as a result.  A Governor of the Reserve Bank really should know better.     What is implicit in what he said there is that there is too much housing in New Zealand (“we concentrate most of our investment in housing equity”).  And yet most people think that, given our population growth, too few houses have been built, perhaps for decades.  Given our population growth, more real resources probably should have been devoted to building houses.  I imagine his defence will be something around the price of houses, but high prices of existing houses don’t divert any real resources anywhere (they mostly just shift wealth from younger people to older people –  each new loan creating a new deposit.  As the Governor will be well aware through the latest surge in property prices over the last five years, New Zealand net international investment position (loosely, borrowing from the rest of world) has been shrinking as a share of GDP.

We deserve much better from our central bank, and particularly from an individual entrusted with so much (specific) power as the Governor.    He should stick to his knitting –  and actually get on and talk about pressing issues he is actuallly responsible for –  he should stop championing personal political causes (even, or perhaps especially, if they happen to be music to the ears of the current government), and he should invest some time in thinking hard and rigorously about the claims and arguments he so readily tosses into the wind.  Failing to do so will risk diminishing him, but (considerably more importantly) it will diminish the standing of the Reserve Bank, and mark another step in the decline of effective policy leadership from New Zealand government agencies.

Not everyone will agree though.  I noticed a Letter to the Editor in this morning’s Dominion-Post from one Dave Smith of Tawa praising the Governor’s speeches (including this specific one) as a departure from the past pattern of “bland and uninspiring speeches”.    But central banks are supposed to be about as exciting as the crash fire brigade at the airport.  Leave the soaring rhetoric and the wider political vision to the politicians.  Apart from anything else, we have some choice over them.  We have none with Orr.

He is abusing, and degrading, his office.





Orr off the record on major policy matters

A reader mentions news that Reserve Bank Governor Adrian Orr was in typically loquacious form at a finance industry “networking event” held in Wellington last night.

Typically loquacious but, so the report suggests, perhaps going rather beyond the Bank’s public lines on monetary policy as articulated in the August Monetary Policy Statement, in a very dovish direction.     And weighing in on what sort of person he wanted (and did not want –  economists apparently not wanted) on the new Monetary Policy Committee –  the one where the Minister supposedly makes the appointment, the one where the legislation has not yet been dealt with by the relevant select committee.

Central bankers need to be very cautious in their communications around monetary policy.  The standard approach has been to communicate primarily via Monetary Policy Statements, where everyone has access to the same information (although I gather the Bank still holds confidential debriefs for bank economists as a group after each release, and if that isn’t potentially market sensitive it is hard to imagine what would be).  That approach is sometimes supplemented with speeches: on-the-record ones where there is anything at all interesting, important, or potentially sensitive being said, and off-the-record ones where it is just repeating the same lines previously made public.

The speeches themselves are not without their problems as the Reserve Bank of New Zealand handles things.  For instance, although the Governor has been in the role for five months now, there has been no on-the-record speech at all.  And even when Governors have spoken in the past, there is often considerable potential for nuance or shades of information in the Q&A sessions afterwards.  At the Reserve Bank of Australia, it is common practice for those Q&A sessions to be recorded and made available on the RBA website.  There is nothing comparable here, and the Bank has often refused to allow media access to events where the Governor –  a senior public official – is speaking.  If you are lucky enough to be there you get information that the market as a whole doesn’t have.  That simply shouldn’t be acceptable.

Perhaps some journalists might like to find out from participants, or from the Governor, what he actually said last night, complete with (potentially market-moving) nuances.  Any other readers who were there who want to flesh out the account I’ve heard feel free to get in touch or comment (anonymously if you like) below.

But as it was relayed to me, it doesn’t sound like the sort of approach we should expect from any serious person holding a major public role.

The Governor as a Green

No doubt the Green Party has its place.  Some people –  a small minority generally, although rather a large minority around where I live –  vote for it.    Under our parliamentary system, that earns them some MPs, and at present –  a first –  they even have a few ministers outside Cabinet.     The critical point here is that those people were elected, and can be tossed out again if the voters get disillusioned.   They and their supporters champion their causes, as people on the other sides of politics pursue their own causes and views.

But if the contest of ideas and worldviews is integral to our political system, our system of government has also historically relied on senior public servants and holders of appointed public offices doing the specific job they were appointed to, and not using (unelected) public office as a platform, openly or covertly, for advancing their personal political or policy agendas in areas for which they have no responsibility.     Of course, many such people will have personal views on all manner of political and policy issues.   But we expect them (a) to keep those views to themselves, and (b) not to allow those personal views to influence the conduct of their professional responsibilities.   Historically, some holders of really senior public service or judicial positions have quietly chosen not to vote at all.   Respecting these sorts of self-denying conventions is all the more important the more power the holder of a specific office wields (the Deputy Secretary, Corporate in the Department of Internal Affairs –  say –  is a different matter than the Chief Justice, the Commissioner of Police, or the Governor of the Reserve Bank).  Keeping the personal and the professional separate is part of that ethos.

Why do these rules and conventions matter?   Because the office is supposed to be more important than the officeholder.   And one of the strengths of our system of government has been avoiding, to a large extent, the politicisation of the public service, or of that top tier of state appointments.    A capable Chief Justice, a capable Commissioner of Police (is there such a thing?), a capable Secretary to the Treasury should command confidence across the political spectrum, across the community, for their technical expertise, good judgement, shrewd advice (or whatever mix of skills is relevant to the particular position).  And part of that  should involve being able to be confident that the holder of any particular position is not using his or her office as a platform to advance personal and political views on matters quite unrelated to the role to which they have been appointed.  Apart from anything else, these officeholders are being paid, from your taxes and mine, to do a specific job.

And the alternative approach is pretty unappetising, especially in a small country with (typically) a pretty thin pool of talent.   Perhaps the US is big enough that it can comfortably turn over thousands of positions each time the President changes, and still mostly staff senior ranks with capable people.   We almost certainly can’t.  Or consider the unsightly spectacle of the US Supreme Court: all the nominees, from whichever party, seem highly capable, but no one on either side now views the Court as some impartial body, disinterestedly applying the law and constitution.  It has become largely an extension of ideological politics, but beyond the usual accountability mechanisms.  Fortunately, even in the United States, the central bank has been relatively immune from partisanship –  perhaps partly because of the self-restraint exercised by most incumbents, limiting the extent to which they stray off reservation in their speeches etc.

Our new Governor seems to understand none of this. Or if he does understand it, he seems to care not a fig about our system of government: there are ideological causes to fight, and institutional turf battles to win.  In the first month or two in office we saw him talking openly about all manner of things that were simply nothing to do with his current job –  sustainable agriculture, climate change, infrastructure financing, capital gains taxes (and both sides of the bank conduct issues –  neither of them being a prudential issue).  A charitable person might have seen these as rookie errors –  a new appointee revelling in the spotlight and not quite sure where the limits were.  In Orr’s case, he has been around long enough that that never seemed very likely, and it is now clear that the way he started is the way he means to go on.  In the process he is destroying the institutional capital built up around the Reserve Bank –  as surely, and perhaps more damagingly, than his predecessor did by other means.

And for all his (stated) enthusiasm for openness, transparency, “demystifying” the Reserve Bank, and cartoons to aid communications, the Governor has not given a single speech on any of his core responsibilities during his now four months in office.  The Bank’s website tells us none is scheduled either. Nothing on monetary policy, nothing on the state of the economy, nothing on governance of the institution, nothing on financial regulation, nothing on financial stability.  Just nothing.

That doesn’t stop him sounding off on all manner of other topics.  There have been two more examples just recently.

I don’t usually follow Tagata Pasifika, but a reader yesterday sent me link to an interview that outlet had recently done with the new Governor.  I guess the Governor isn’t responsible for the headlines (“The Cook Islander keeping our economy afloat”) but, whatever his background, one had thought of the Governor as a New Zealander (unlike, say, the British Secretary to the Treasury), and perhaps more importantly, the Reserve Bank doesn’t “keep our economy afloat”.

Much of the interview was fairly heartwarming innocuous stuff about that one strand of Orr’s ancestry that is from the Cook Islands.  But as it went on, it became more troubling.  Interviewed as Governor, from the Reserve Bank premises, he was offering his thoughts on what “we” (Pacific people in New Zealand) could do to overcome poor outcomes (incomes, home ownership etc).  There was strange rhetoric about how people had sought to divide and conquer them, and that everyone needed to “work together”.  Predictably (perhaps even appropriately given his role), there was no suggestion that (for example) low home ownership rates might be improved if only the government freed up land markets, but weirdly there was talk about subsidised loans (I think from within the community) to get into housing –  which might seem a little at odds with the Governor’s day job (where he wields regulatory powers to stop willing borrowers and willing lenders getting together to take on a housing mortgage).

Even that mightn’t have been too bothersome.  But as we got towards the end of the interview, the left-wing rhetoric was really unleashed.  We were, listeners were told, facing challenges of “societal sustainability”: we can’t have, so the Governor told us, haves and have nots and all expect to get along together.  In such a world, said the Governor, one group will be locked in, and the other group locked out.

It would make great – if largely empty –  election rhetoric from, say, the Green Party (Metiria Turei’s proxy now governs the Reserve Bank?).  But it has nothing, repeat nothing, to do with the job the Governor is paid to do, and in which capacity he was conducting this interview.   It wasn’t even backed by any suggestion of serious analysis, but I guess it sounded good at the time.  It is hardly the sort of stuff that is going to command general respect for the Governor in his important day job.

“Doing stuff” about climate change seems to be one of the Governor’s personal causes, nay crusades.  It was there in some of those earlier interviews I wrote about previously, but it was on full, and prepared, display a couple of weeks ago, when the Governor was a panellist at the launch of something called the Climate Leaders Coalition.    They advertise themselves as 60 CEOs whose businesses, in some sense or other, allegedly account for nearly 50 per cent of New Zealand’s emissions –  a claim which seems like a bit of stretch, since (for example) although Fonterra is part of it, the farmer shareholders (who actually own the cows) aren’t.   Buried a bit further down the website, we find that these firms actually account for 8 per cent of employment in New Zealand.   I found it hard to take the grouping very seriously –  it seemed to involve a great deal of virtue-signalling and keeping on side with the new government –  even before I looked down the list and found that the Wellington City Council zoo was a member.

I guess virtue-signalling, lobbying, and generally kowtowing is what CEOs have to do in the regulatory state.  Here is what all the hullabaloo was about

We take climate change seriously in our business:
*We measure our greenhouse gas emissions and publicly report on them
*We set a public emissions reduction target consistent with keeping within 2° of warming
*We work with our suppliers to reduce their greenhouse gas emissions

We believe the transition to a low emissions economy is an opportunity to improve New Zealand’s prosperity:
*We support the Paris Agreement & New Zealand’s commitment to it
*We support introduction of a climate commission and carbon budgets enshrined in law

All of which is pretty devoid of content or, arguably, demonstrably untrue.  The cause of a least-cost adjustment towards a lower-emissions economy –  economic efficiency – isn’t helped by every individual firm proposing some emissions reductions target that is somehow “consistent with” keeping within 2 degrees of warming –  one wants price signals and individual firms reacting based on the specifics of their own businesses and markets.  Some firms and industries might actually increase gross emissions, others might close down completely.  Then, of course, there is the claim that the transition to a low emissions economy is an opportunity to improve New Zealand’s prosperity: the government’s own consultative document suggests that a net-zero target by 2050 could come at a cost to GDP of 10-22 per cent, and no credible argument has been advanced as to how prosperity and productivity will be boosted by this big adverse shock (in a country still heavily reliant on animal emissions –  let alone international aviation emissions, not included in the official numbers.

In other words it was mostly feel-good stuff, worth some headlines on the day, but amounting to almost nothing.   It was self-interest on display (perhaps defensive self-interest, but self-interest nonetheless) –  which is fine; it is what businesses do, especially in face of looming regulatory constraints.

But what was the Governor of the Reserve Bank doing participating in this function, celebrating the event, cheering them on, all without adding a shred of economic analysis to the discussion?

You can watch the Governor’s part in the panel discussion (about an hour in at this link).  There was no sign from the Governor suggesting that he was participating simply in some sort of personal capacity – if that is even possible for high officials.  In fact, apparently rather the contrary: his speaking notes are available on the Reserve Bank website as his first and (so far) only gubernatorial speech.

Even the published text is like something from a crusade rally:

To see so many companies agree to the following is a moment of rejoice.


The best time to start this process is 30 years ago, or today. So I am privileged and proud to be a Kiwi sitting on this stage with so many New Zealand companies involved.

We are told that consumers will want “intergenerational justice” –  although I suspect most of the businesses present know that consumers typically want a decent product at a low price.

We are told that

Climate change, if not addressed, will create unforeseen social disruption and displacement.

I’m not sure how a public servant can state with such confidence that ‘unforeseen” things will in fact happen.

New Zealand can’t change the world. But, the world expects New Zealand to lead.
What do we have at risk?

Apparently almost nothing

We have less embedded costs and risks associated with making change (e.g., very limited fossil fuel production and dependency). We have least to lose and most to gain.


We can be a brand leader on climate change in the world given our starting point.

Surprisingly –  or perhaps not –  there is no mention of those animal emissions, and the absence as yet of economic ways of reducing emissions without eliminating the animals.  No mention of us having among the very highest per capita emissions in the advanced world, no mention of the importance of international shipping and aviation to the New Zealand economy, no mention of the policy-induced rapid population growth which drives hard against any other policy efforts to reduce emissions.  And, of course, no mention at all of the NZIER modelling featuring in the government’s own consultative document suggesting a very large real economic cost of adjustment, or of the Infometrics modelling featuring in the same document suggesting that the costs of adjustment will fall disproportionately on lower decile New Zealanders, and not very much at all on the highly paid like Mr Orr and the Climate Leaders Coalition members.

Orr never cites any evidence for his bizarre claim that the world expects New Zealand to lead in this area (in fact, given our size and different economic structure, it would be a sign of profound cynicism and unseriousness if “the world” actually did have such expectations.   But he does provide what he considers as evidence for why “we” can lead.

I have been fortunate to have witnessed great transformation in thinking and behaviours – such as the business commitment today – related to responsible investing.   My own experiences include involvement in:

  • The UN’s Carbon Disclosure Project (which the New Zealand Super Fund (NZSF) led and had pushed back at us by so many New Zealand businesses – there is no ‘I’ in denial);
  • Our leadership of the International Forum of Sovereign Wealth Funds (IFSWF) on responsible investing, and the ‘One-Planet’ initiative that the NZ Super Fund only last week promoted and signed;
  • The NZSF’s own courage in reducing their carbon exposure and engaging companies and searching for new alternative energy uses; and

In other words, not a single private sector entity, and no real economic adjustment (no actual reductions in emissions) just various different gatherings of government agencies around the world.  As for the claim that the NZSF portfolio reallocation took “courage” –  and isn’t it bad form to boast of your own “courage” anyway? – whose money was on the line?  It certainly wasn’t the Governor’s –  and as I’ve pointed out before the change was done in such a non-transparent way that we can’t even keep track of how much money this reallocation will have made (Orr’s claim had in any case been that it was hard-headed business decision, justified by expected risk/return considerations).

There is, in the published speaking notes, some rather strained attempt to connect the Reserve Bank’s financial stability role to the climate change discussion, but almost all of that was missing from the version he actually delivered, and none of it is compelling in the New Zealand context.  Perhaps there is some story to be told about dairy debt exposures, if emissions prices are pushed up too quickly undermining farm profitability and driving down rural land prices –  but there was none of that even hinted at in the Governor’s notes. I guess it would have disturbed the feel-good mood of the day.  It might have suggested an economic cost, rather than the nonsensical claims the Governor associated himself with about the opportunity to improve prosperity.

It was the sort of stuff you might expect at a Green Party rally –  although probably at least some of them might be more honest about the likely cost of the hairshirt.

And all that was just the Governor’s published text.  In his actual comments (viewable at the link above) we saw the schoolboy clownish side of the Governor on display, flippantly suggesting that the Bank wouldn’t raise the OCR until carbon had been reduced to zero.  I don’t suppose anyone took him remotely seriously –  a problem in itself, since Governors (like Presidents of the United States) really should be able to be taken seriously –  but it displayed none of the gravitas and seriousness one might hope for in the holder of such a high office.   That isn’t just me getting old and pompous: here was the relevant line from the Board’s advertisement for the position of Governor

Personal style will be consistent with the national importance and gravitas of the role.

And then we had this nonsense

“Let’s have our moment of glory, but we are lagging behing the world. And today we’re leap-frogging at least back to the frontier on one part of it,”

“Moment of glory” or “leap-frogging at least back to the frontier” from that lot of not very specific commitments, Wellington Zoo leading the way to save the world?

It went on.  We were told that “social cohesion would be truly truly challenged if we don’t do something about climate change” –  really, in New Zealand, which might just get a bit warmer and more pleasant?  The audience was warned of nation-state failures, thus presumably the imperative for New Zealand to “take the lead” – “we can do it, we should do it.  Lets do it”.   It must have felt very good in that meeting that morning.

At least until the Governor began to denounce capitalism.    Modern-day capitalism, the audience was told, drives you to short-termism.  No sense that it might have contributed mightily – including sparking innovation to deal with costs, problems, and opportunities that arise – to the unrivalled material prosperity the world – in almost every corner –  enjoys today.  No, capitalism is the problem.  That must have been a bit awkward for the assembled CEOs –  or at least for their owners –  but no one seemed to challenge the Governor on that.   Which was probably just as well, as the Governor didn’t seem to have anything to back up his claims.   Rereading his published speaking notes, it was striking that not once did he identify any problems, costs, risks, or failures in government interventions.   Wise governments, wise central banks, wise regulators will save us………

It isn’t as if this sort of rhetoric is new.    A month or two back the Governor was sounding off nearer to his own territory, claiming that financial markets (lenders, borrowers, and all) were myopic and therefore regulation was needed.  But when I asked for any research or analysis done by or for the Bank in support of this proposition, it turned out there was none.  It was just off the top of his head.  But it must have sounded good at the time.

Reflecting on all this, I have a number of concerns.  Perhaps the least of them is the lightweight nature of the Governor’s contribution, which too often sound more like campaign speeches than the considered thoughts of a serious senior public official.   If this is how he comments when we do see or hear him, what must things be like in private?  If this is the standard we now get from top public servants, what must the rest of government be like (all those CEOs we –  rightly –  never hear from)?

A good test is always whether one would have the same reaction if someone you are criticising was saying things you agreed with.  In this case, I can unambiguously say yes.  I’d be embarrassed to have such lightweight crusading perspectives from someone so senior for any cause I supported.  And it is simply inappropriate for the central bank Governor to be weighing in on such issues at all –  whether climate change policy, infrastructure. taxation policy, immigration policy, welfare reform, land supply or whatever.  It isn’t his job, and we need to be able to have confidence that the Governor has just one agenda –  doing his job –  not using his pulpit to champion personal agendas.  If the Governor wants to pursue those causes, he should set up a think-tank or run for Parliament.

I don’t suppose that Adrian Orr is setting out to advance the cause of any particular political party.  And no doubt the views he expresses –  flippantly and more seriously –  are all his own.  But he only gets away with it because he is mostly advancing causes the current government and its support parties happen to agree with.  Imagine the outrage if he were attacking –  especially in a similarly lightweight way –  causes dear to the heart of the government?  I’m not, of course, suggesting he should do so –  whatever private views he might have on such things, neither we nor the government should know them.  The Governor is paid well, and given enormous power, to do a quite specific job, and he needs to learn to stick to his knitting.

Idly, one might suggest that the Reserve Bank Board should do its job.  Not only did they lay down that requirement for gravitas, but they added this criterion

The successful candidate will also demonstrate an appreciation of the significance of the Bank’s independence and the behaviours required for ensuring long-term sustainability of that independence.

Sounding off loudly (and lightly) in support of all manner of contentious causes represents a real threat to the sustainability of effective independence.  If this behaviour is tolerated, only politically-acceptable lackeys need apply for the Governor’s role in future, and incumbent Governors are likely to find it quite difficult to work with a different colour of government.  Both would be most unfortunate outcomes.

As I say, one might idly hope that the Reserve Bank Board would do its job, and pull the Governor back into line.  Then again, when has the Board ever done that?  They seem to see their role as being to have the back of the Governor –  whoever he is, whatever he does –  added to a sense that the law itself doesn’t really apply to them.

I’m no fan of the Green Party. But at least they put themselves to the people and got elected. They face the electorate again in two years.  The Governor has no such mandate, no such legitimacy, for running Green Party like rhetoric from his well-paid public bully pulpit.